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________________________________________________________________________________
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 JUNE 30, 1996 COMMISSION FILE NUMBER 1-10395
------------------------
FIRST BRANDS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 06-1171404
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
83 WOOSTER HEIGHTS ROAD 06813-1911
BUILDING 301, P.O. BOX 1911 (ZIP CODE)
DANBURY, CONNECTICUT
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 731-2300
------------------------
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
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
At September 6, 1996, the number of shares outstanding of the registrant's
common stock was 41,095,094 (par value $.01), and the aggregate market value of
the voting stock held by non-affiliates was $906,930,990.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrants Annual Report to Stockholders for the fiscal year ended June 30,
1996 is incorporated by reference for Parts II and IV
Registrants Proxy Statement for the Annual Stockholders Meeting to be held
November 1, 1996 is incorporated by reference for Part III
________________________________________________________________________________
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1: Business....................................................................................... 1
Item 2: Properties..................................................................................... 4
Item 3: Legal Proceedings.............................................................................. 6
Item 4: Submission of Matters to a Vote of Security Holders............................................ 6
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters.......................... 7
Item 6: Selected Financial Data........................................................................ 8
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9
Item 8: Financial Statements and Supplementary Data.................................................... 13
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 13
PART III
Item 10: Directors and Executive Officers of the Registrant............................................. 14
Item 11: Executive Compensation......................................................................... 16
Item 12: Security Ownership of Certain Beneficial Owners and Management................................. 16
Item 13: Certain Relationships and Related Transactions................................................. 16
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 17
Signatures................................................................................................ 39
</TABLE>
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ITEM 1 -- BUSINESS
First Brands Corporation ('First Brands' or 'the Company'), a Delaware
corporation, was organized in March, 1986 to acquire the worldwide home and
automotive products business (the 'Predecessor Business') of Union Carbide
Corporation ('Union Carbide') in a leveraged buy out which was effective as of
July 1, 1986. The Company is primarily engaged in the development, manufacture,
marketing and sale of branded and private label consumer products for the
household and automotive markets. The Company's products can be found in large
merchandise and chain supermarkets and other retail outlets. The Company
believes that the significant market positions occupied by its products are
attributable to brand name recognition, a comprehensive offering of quality
products, continued product innovation, strong emphasis on vendor support and
aggressive advertising and promotion.
Home products include the most complete line of branded plastic wrap, bags
and drinking straws in the United States and Canada, which are sold under the
GLAD and GLAD-LOCK brands. Plastic bags are also sold in Canada under the SURTEC
brand. Cat litter products are sold under the SCOOP AWAY, EVER CLEAN, JONNY CAT
and EVER FRESH brands. Automotive performance and appearance products are sold
under the STP brand, and various cleaners, polishes and waxes are sold under the
SIMONIZ brand. Consumers have been purchasing products under the SIMONIZ, STP,
GLAD, JONNY CAT and SCOOP AWAY brand names for over 85, 42, 33, 31 and 7 years,
respectively.
Through its subsidiary, Himolene Incorporated ('Himolene'), the Company is
the leading producer in the United States of high molecular weight, high density
polyethylene plastic trash can liners for the institutional and industrial
markets.
A&M Products, Inc. ('A&M'), a wholly owned subsidiary, manufactures and
markets SCOOP AWAY and EVER CLEAN cat litter, the leading brands of clumping cat
litter in the United States. During fiscal 1995, A&M acquired the cat litter and
absorbent mineral assets of Excel Mineral Inc. and Excel International Inc.
('Excel'). The assets acquired from Excel included the JONNY CAT brand of cat
care products.
On March 19, 1996, the Company purchased substantially all of the assets
and assumed the liabilities of Forest Technology Corporation ('Forest
Technology'). Forest Technology manufactures and markets STARTERLOGG, the
leading brand of wood starter fire products, and HEARTHSIDE firelogs.
First Brands operates in foreign countries through subsidiaries in Canada,
South Africa, England, Spain, Hong Kong, China, Mexico, Puerto Rico and the
Philippines. Through its Hong Kong subsidiary, First Brands holds a 51% interest
in a joint venture in China which is engaged in the manufacture and sale of
plastic wrap and bags and automotive products. During fiscal 1996, the Company
acquired an additional 3% of its South African subsidiary, bringing the total
investment to 82% of that company's outstanding capital stock. In addition to
its foreign operations, First Brands exports to over one hundred countries and
its products are sold in twelve languages.
On August 26, 1994, the Company sold its PRESTONE antifreeze/coolant and
car care business ('the Prestone Business') to Prestone Products Corporation, a
newly formed corporation organized and controlled by Vestar Capital Partners, a
private investment firm, for $142,000,000 in cash and a $13,000,000, 7 1/2%
subordinated debenture maturing in 2003.
The Company was engaged in the automotive service market through the
operation of its service centers which featured the STP, PRESTONE and SIMONIZ
brand products. After evaluating their performance, the Company decided to phase
out these service centers. During fiscal 1995, the Company sold off all
remaining assets of its automotive service centers.
In general First Brands does not produce against a backlog of firm orders.
Production is geared primarily to the level of incoming orders and to
projections of future demand. Sufficient inventories of finished products,
work-in-process and raw materials are maintained to meet delivery requirements
of customers and First Brands production schedules.
There is no significant seasonal fluctuation in sales of the Company's
home, cat litter, institutional and industrial products. Based on the operating
history of Forest Technology prior to acquisition, the
1
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Company expects that the majority of fire starter and fire log sales will occur
during the first half of the Company's fiscal year due to strong consumer demand
during the fall and winter. With the exception of certain SIMONIZ products, for
which sales tend to be higher in the second half of the Company's fiscal year,
sales of the Company's other automotive products are generally constant
throughout the year.
The Company's products are sold directly to retailers and to wholesalers
and can be found in large mass merchandise stores and chain supermarkets as well
as other retail outlets, including automotive supply stores, grocery stores and
price clubs. While the Company's sales are not dependent upon a single customer,
the top 25 customers account for approximately 46% of total net sales, and net
sales to its largest customer, the Wal-Mart Stores and Sams Wholesale Club
stores, are approximately 12% of net sales.
Sales to food outlets, which account for approximately 69% of domestic
sales of plastic wrap and bags as well as cat litter, are handled through a
network of brokers; sales to mass merchandisers are handled by First Brands'
direct sales force. Sales of automotive products are primarily handled through
First Brands' direct sales force and sold to mass merchandisers. Sales by
Himolene to the institutional and industrial markets are handled by that
subsidiary's direct sales force as well as through distributors. Sales of the
Company's products in Canada are generally handled in the same manner as
domestic sales. Other international sales are handled primarily through
distributors.
The Company believes its manufacturing facilities employ state-of-the-art
technology. The plastic wrap and bag manufacturing process employs advanced
extrusion and conversion technologies. The Company's strategy is to update and
expand its manufacturing facilities with internally developed technologies (some
of which are patented) and state-of-the-art technology acquired from third-party
sources. Through improvements in existing process technologies and the
acquisition of additional equipment the Company continually strives to enhance
its production capacity and efficiency.
The Company currently purchases a substantial portion of its plastic wrap
and bags raw materials pursuant to a long-term contract with Union Carbide. The
contract with Union Carbide satisfies a substantial portion of the Company's
polyethylene resin requirements through December 31, 1999. Union Carbide is the
Company's largest single supplier and the Company believes that it is also Union
Carbide's largest customer for polyethylene resin. The Company also has
contracts for the purchase of certain raw materials, including polyethylene
resin, from other suppliers, and makes purchases on the open market as well. The
pricing provisions in the Company's present supply contracts are designed to be
responsive to market conditions and the cost of relevant raw materials.
Although the Company believes that, based on industry estimates and
projections, raw material costs will, over the long-term, remain relatively
stable, it is unable to predict with any certainty its costs of raw materials
which may, because of market conditions, be materially higher or lower than
those experienced in past periods. To the extent raw material costs are higher,
the Company's margins on the relevant products could be adversely affected if it
is unable to increase prices or effect offsetting cost savings. As a
consequence, the Company may be adversely affected by changes in raw material
markets. However, the Company believes that, if there were an industry wide
shortage of raw materials, it might enjoy a competitive advantage over certain
of its competitors as a result of its assured source of supply for a substantial
portion of its raw materials.
Most of the raw materials used by First Brands' home and automotive
businesses are petrochemical derivatives primarily produced from ethylene and
refined oil which in turn is largely produced from natural gas in the United
States and Canada. Historically, petrochemical and refined oil derivatives have
been subject to price fluctuations due to various factors. There can be no
assurances that future events will not precipitate price increases. The factors
which will affect the cost of raw materials to the Company will generally affect
competitors' raw material costs as well. However, because several of the
Company's major competitors are units of vertically integrated enterprises, they
may be able to vary internal pricing arrangements in order to mitigate, in their
end-product markets, adverse movements in raw materials prices and thereby enjoy
a competitive advantage.
Most other raw materials are generally available in the marketplace and
First Brands believes that it has contracts and commitments, or a readily
available source of supply, to meet its anticipated needs in all major product
areas.
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First Brands currently employs approximately 4,250 persons worldwide, of
which about 3,300 are in the United States. The Company's employees are not
unionized with the exception of approximately 550 hourly workers at one plastic
wrap and bag plant who are represented by the United Paperworkers International
Union ('UPI Union'), and a small number of our international employees. The
contract with the UPI Union runs through November, 1999. The Company has not
experienced any significant interruptions or curtailments of operations due to
labor disputes, and considers its labor relations to be satisfactory.
First Brands operates in highly competitive markets where success is
dependent upon brand recognition, product innovation, performance and price. In
several instances, the competitors are larger, more integrated companies with
greater financial resources than First Brands.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Plastic wrap and bags and related
products................................ $ 693,406 65% $ 645,674 62% $ 619,675 57%
Automotive specialty and appearance
products................................ 230,430 21 231,997 23 204,903 19
Pet products.............................. 149,186 14 127,160 12 71,169 7
Antifreeze/coolant and other car care
products (sold August 26, 1994)......... -- -- 31,684 3 190,573 17
---------- ------- ---------- ------- ---------- -------
$1,073,022 100% $1,036,515 100% $1,086,320 100%
---------- ------- ---------- ------- ---------- -------
---------- ------- ---------- ------- ---------- -------
</TABLE>
Financial information relating to international and domestic operations and
export sales are included in Note 14 to the Company's Consolidated Financial
Statements.
Certain of the Company's operations are subject to federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. The Company believes that it
is in substantial compliance with all applicable environmental laws and
regulations.
During fiscal 1996, 1995 and 1994, First Brands made expenditures of
approximately $1,330,000, $2,950,000 and $3,259,000, respectively, for
environmental compliance at its facilities, and currently estimates that it will
make expenditures for environmental compliance of approximately $2,000,000 in
fiscal 1997.
The Company's Paulsboro, New Jersey facility is subject to an
administrative consent order with the New Jersey Department of Environmental
Protection and Energy which was entered into in connection with the purchase of
such facility from Union Carbide pursuant to the requirements of the New Jersey
Industrial Site Recovery Act. This order provides for soil and water testing, a
cleanup plan and certain site cleanup; and a financial guarantee of compliance.
The Company assumed these obligations from Union Carbide. Preliminary testing
has been completed and a site clean-up plan has been filed with the New Jersey
Department of Environmental Protection and Energy. This plan has been
conditionally accepted and although it is subject to continuing discussions, a
site remediation program is currently in progress, and it is projected that the
compliance costs will be within the Company's estimates. However, there can be
no assurance that the final costs will not exceed these estimated costs.
As a result of the assumption of liabilities described below, the Company
has a potential liability under Federal Superfund or similar state law for
investigation and cleanup costs at four sites. The United States Environmental
Protection Agency ('EPA') has notified over 100 companies at one site that the
EPA considers the companies to be potentially responsible parties under
Superfund. The second site is voluntarily being cleaned up by a group of
companies, including First Brands, with no direct Federal or State environmental
protection agency involvement. The Company, along with 10 other companies has
been made party to a suit by a landowner for contribution for ground water clean
up costs at a third site. A former subsidiary of the Company has been named,
along with many others, in lawsuits by certain potentially responsible parties
seeking contributions for clean-up costs incurred by
3
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them at a fourth site. Currently, the Company cannot determine accurately its
ultimate liability, if any, for investigation or cleanup costs at these four
sites, although the Company believes that, based on the number of potentially
responsible parties at each site and the relatively small volume of waste
contributed to these sites by the Predecessor Business, its liability, if any,
would be small and would not have a material adverse effect on the Company.
Environmental expenditure estimates discussed above do not include costs
resulting from such liability, if any.
Although the Company has assumed most environmental liabilities which
relate to conditions existing or actions taken in connection with the
Predecessor Business prior to April 21, 1986, the date of the acquisition
agreement with Union Carbide in connection with the acquisition of the
Predecessor Business, to the extent that the Company incurs such liabilities or
liabilities which relate to compliance with any requirement of an environmental
law or regulation which existed as of the date of the acquisition agreement, the
Company will be entitled to indemnification from Union Carbide for 85% of such
liabilities in excess of $10,000,000 (providing such liabilities are asserted
and written notice of such assertion has been given to Union Carbide within
three years of the effective closing date of July 1, 1986), up to aggregate
expenditures by Union Carbide for such liabilities (and certain other
liabilities specified in the acquisition agreement) of $75,000,000. Accordingly,
the Company will bear the first $10,000,000 of such liabilities, 15% of such
liabilities in excess of $10,000,000 until Union Carbide has expended
$75,000,000 for such environmental liabilities and 100% thereafter. The Company
has provided Union Carbide with written notice asserting certain potential
liabilities within the three-year period. The Company will bear any such
liabilities asserted following the three-year indemnification period. Management
of the Company is not aware of any such liabilities which are material.
Through research and development, management is committed to developing
process technologies and new products which are critical to the Company's
objective of providing high quality, innovative consumer products at costs which
the Company believes are equal to or less than those of its competitors. The
Company spent $4,789,000, $4,941,000 and $6,287,000 during fiscal 1996, 1995 and
1994, respectively, on research and development. Included in these figures were
expenditures relating to the divested Prestone business of $498,000 and
$2,142,000 for the fiscal years 1995 and 1994, respectively. In addition to
state-of-the-art equipment and facilities, each of the home, litter and
automotive businesses has its own Research and Development Director and research
staff to focus on its business opportunities.
Through the use of its high molecular weight high density polyethylene
technology, First Brands and Himolene produce stronger plastic bags with less
raw material, resulting in a conservation of resources and a reduction of
materials that eventually go into landfills.
To enhance market share and facilitate growth, the Company continually
strives for product innovations and improvements. In the home products business,
the Company emphasizes improved product value, convenience and performance.
During the last fiscal year, the Company introduced the new GLAD-LOCK Snack Bag
and increased the distribution and selection of GLAD Trash Bags with Quick-Tie
Flaps. The Company's selection of litter products was expanded during the year,
with the introduction of a new premium clay brand called EVER FRESH and the roll
out of innovative pet accessory products such as our Self-Scooping Litter Box.
In the automotive business, the Company introduced six new products, including
the well received STP Complete Fuel System Cleaner.
The Company presently uses recycled plastic trimmings, post consumer
recycled material and scrap in its GLAD and STP manufacturing facilities.
Packaging for all GLAD products is made with paperboard containing reclaimed
material.
ITEM 2 -- PROPERTIES
First Brands uses various owned or leased plants, technical facilities,
warehouses, distribution centers and offices in the United States, Puerto Rico,
Canada, South Africa, Hong Kong, China, Mexico, England, Spain and the
Philippines. The Company's world headquarters is located in Danbury,
Connecticut.
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First Brands believes current facilities, together with planned
expenditures for normal maintenance, capacity and technological improvements,
will provide adequate production capacity to meet expected demand for its
products.
Listed below are the principal manufacturing facilities operated by First
Brands and its consolidated subsidiaries worldwide during fiscal 1996:
<TABLE>
<CAPTION>
LOCATION CITY PRINCIPAL PRODUCTS
- ------------------------------ ---------------- ----------------------------------------
<S> <C> <C>
Domestic
Arkansas* Rogers Plastic wrap and bags
California Bell Plastic bags
California Taft Cat litter
Georgia* Cartersville Plastic wrap and bags
Georgia Wrens Cat litter
Illinois West Chicago Plastic bags
Kansas Spring Hill Cat litter
Mississippi Tupelo Plastic bags
New Jersey Paulsboro Auto specialty products
Ohio Akron Fire starters and firelogs
Ohio Painesville Auto specialty products
Vermont Rutland Plastic bags
Virginia* Amherst Plastic wrap and bags
International
Canada Orangeville Plastic wrap and bags
China Conghua Plastic wrap and bags
Philippines Manila Auto specialty products
South Africa Lansdowne Plastic film products
South Africa Babelegi Plastic film products
South Africa Cape Town Plastic film products
</TABLE>
- ------------
* The Company has entered into several agreements for the sale and leaseback of
certain production equipment at its domestic plastic wrap and bag facilities.
The Company retained the ownership of the real property and certain personal
property at each site but has leased such real property or granted easements
appurtenant thereto for 10-year terms to the respective facility lessor at the
Arkansas and Georgia plants who, in turn, has agreed to have the Company
operate and maintain such real property and equipment facilities and has
sublet such real property back to the Company during the term of each facility
lease. These transactions were undertaken to reduce the Company's financing
costs. Most Company-owned equipment at the Arkansas and Georgia facilities is
subject to liens pursuant to the Sale/Leaseback Agreements. See Notes 8 and 9
to the Company's Consolidated Financial Statements.
------------------------
The West Chicago, Illinois and the Bell, California plants are leased
facilities, with terms which expire between 1999 and 2003 and have a combined
annual rental of approximately $440,000. The South African and Philippines
facilities are leased from third parties. The Philippines lease expires in 1997
and has an average annual rental of approximately $103,000; the South African
leases expire in 1999 and have a combined average annual rental of approximately
$265,000. All other production plants are owned by the Company or its
subsidiaries.
First Brands maintains research and development facilities for its home
products and litter businesses in Willowbrook, Illinois, and for its automotive
products in Danbury, Connecticut; both facilities are under lease with terms
expiring in 1998 and 1997, respectively. The Company has contracted for the
construction of a new automotive research and development facility in Danbury,
Connecticut. Upon its completion, which is expected in March of 1997, the
Company has committed to a fifteen year lease. In addition to the properties
referenced above, First Brands maintains numerous domestic and international
administrative and sales offices and warehouses. The majority of these premises
are either leased under relatively short-term leases or owned.
5
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ITEM 3 -- LEGAL PROCEEDINGS
In May, 1994, the Company was sued by IQ Products ('IQ') and CSA Limited,
Inc. for alleged breach of IQ's contract to supply the Company with STP Flat
Tire Repair and other automotive aerosol products. The Company counter claimed
against IQ for breach of contract and warranty respecting STP Flat Tire Repair.
In June, 1996 the United States District Court in Houston, Texas overturned a
$3,555,000 jury verdict in favor of IQ and ordered a new trial, based on a
finding that the verdict was not supported by the weight of the credible
evidence. A new trial is expected later this year, and management believes that
the Company has meritorious defenses and counterclaims in this action.
On June 16, 1995, the Company commenced an action against several of its
primary and excess insurance carriers in the United States District Court for
the District of Connecticut entitled First Brands Corporation vs. American
International Specialty Lines Insurance Company, et al. By this action the
Company seeks to recover damages sustained by the Company in resolving a series
of lawsuits arising out of the discontinued AFT mobile recycling franchise
business (the 'AFT Litigation'). Although the Company believes that the
liability involved in the AFT Litigation is subject to insurance, its carriers
have not yet agreed to accept liability and the Company is proceeding with the
litigation, which is not expected to be reached for trial until 1998. On July 1,
1996 the Company resolved an action which the Company had commenced against
Butler Corporation in connection with the AFT Litigation in order to avoid
prolonged litigation, and accompanying expenses, costs and attorneys' fees.
The Company is subject to various other claims, and contingencies related
to lawsuits and other matters arising out of the normal course of business.
Management believes that the ultimate liability, if any, arising from these and
other claims and contingencies discussed in this section, is not likely to have
a material adverse effect on the Company's annual results of operations or
financial condition.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
6
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PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York, Philadelphia, Midwest
and Pacific Stock Exchanges under the symbol 'FBR'. On February 5, 1996, the
Company effected a two-for-one stock split, in the form of a 100 percent stock
dividend. The following table, which has been restated to reflect the
two-for-one stock split, sets forth the high and low sales price per share of
the Common Stock during the fiscal periods indicated as reported by the NYSE and
the dividend per share paid during such fiscal periods. The approximate number
of holders of Common Stock of record as of June 30, 1996 was 505.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
--------------- -------------- --------
<S> <C> <C> <C>
Fiscal 1995
First Quarter................................................................... 18 3/8 15 3/4 .04
Second Quarter.................................................................. 17 1/2 16 .05
Third Quarter................................................................... 19 1/16 16 3/8 .05
Fourth Quarter.................................................................. 21 5/16 18 3/8 .05
Fiscal 1996
First Quarter................................................................... 22 5/8 19 3/4 .05
Second Quarter.................................................................. 23 15/16 21 5/16 .0625
Third Quarter................................................................... 29 1/2 23 .0625
Fourth Quarter.................................................................. 28 1/4 24 .0625
</TABLE>
The amount of cash dividends on common stock which may be paid by the
Company is limited by the restrictions under its credit agreement. See Note 8 to
the Company's Consolidated Financial Statements.
7
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ITEM 6 -- SELECTED FINANCIAL DATA
The following table includes selected financial data for the five years
ended June 30, 1996, which are derived from and more fully described in the
Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,(1)
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................................. $1,073.0 $1,036.5 $1,086.3 $1,041.9 $988.5
Operating expenses(2)..................................... 928.8 901.2 935.5 904.1 859.2
Amortization and other depreciation....................... 15.6 16.5 20.3 19.1 22.4
Interest expense and amortization of debt discount and
expense................................................. 17.5 18.8 22.4 25.6 39.9
Discount on sale of receivables(3)........................ 4.0 4.0 4.3 4.1 .6
Other income (expense), net(4)............................ 1.8 (21.2) (0.1) 0.1 (0.1)
Income before extraordinary item(5)....................... 65.1 43.2 60.1 52.7 39.2
-------- -------- -------- -------- ------
Net income................................................ $ 65.1 $ 38.7 $ 60.1 $ 52.7 $ 23.5
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Per common and common equivalent share(6)
Income before extraordinary item..................... $ 1.53 $ 1.01 $ 1.36 $ 1.20 $ 0.90
Net income........................................... $ 1.53 $ 0.91 $ 1.36 $ 1.20 $ 0.54
Cash dividends per common share(6)........................ $ 0.24 $ 0.19 $ 0.15 $ 0.10 $ 0.02
-------- -------- -------- -------- ------
Total assets.............................................. $860.9 $839.9 $814.0 $830.2 $856.1
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Long-term debt (including current maturities)(7).......... $199.5 $167.2 $153.5 $231.3 $288.7
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
</TABLE>
- ------------
(1) Fiscal 1996 results include two months of operations for the recently
acquired Forest Technology business. On August 26, 1994, the Company sold
the Prestone antifreeze/coolant and car care business (the 'Prestone
business'), accordingly, results for fiscal 1995 include only eight weeks of
operations for the Prestone business. Fiscal 1995 results include the
operations of the acquired JONNY CAT and Multifoil businesses for twelve and
two months, respectively. Financial data includes the operations of A&M
Products for twelve months of the fiscal years ended June 30, 1996, 1995,
1994 and 1993, and for one month for the fiscal year ended June 30, 1992.
Financial data for the fiscal year ended June 30, 1992 have been restated to
reflect the effect of changing the method of accounting for domestic
inventories from the LIFO method to the FIFO method, and for the adoption of
SFAS No. 109 'Accounting for Income Taxes'.
(2) Operating expenses include that portion of depreciation expense associated
with the production of inventory.
(3) Relates to a program which began in May, 1992 for the sale of a fractional
interest in accounts receivable (See Note 2 to the Company's Consolidated
Financial Statements).
(4) Other income (expense), net, for the year ended June 30, 1995 includes a
$20.4 million charge relating to the write-off of assets and the costs
associated with litigation proceedings and settlements pertaining to the
Company's formerly operated mobile recycling business. Also included is the
gain associated with the sale of the Prestone business and the loss on the
disposal of the Company's automotive service centers (See Notes 1 and 13 to
the Company's Consolidated Financial Statements).
(5) Income before extraordinary item excludes the premium and the write-off of
unamortized issuance costs related to the repurchase of subordinated debt,
net of taxes, for the years ended June 30, 1995 and 1992 (See Note 8 to the
Company's Consolidated Financial Statements).
(6) All per share figures have been retroactively restated to reflect the
two-for-one stock split which was effective February 5, 1996 (See Notes 1
and 10 to the Company's Consolidated Financial Statements). Net income per
common share and common equivalent share has been computed using the
weighted average number of common shares and common share equivalents
outstanding for each period.
(7) Long-term debt excludes other long-term obligations and long-term operating
lease commitments (See Notes 8 and 9 to the Company's Consolidated Financial
Statements).
8
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ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated results of
operations for the fiscal years ended June 30, 1996 and 1995 and the financial
condition at June 30, 1996, should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of First Brands. All per share figures
have been retroactively restated to reflect the two-for-one stock split which
was effective February 5, 1996 (See Notes 1 and 10 to the Company's Consolidated
Financial Statements).
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
The following table sets forth the components of income and expense for the
two years ended June 30, 1996, on a dollar and percentage basis.
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
----------------------- -----------------------
IN THOUSANDS PERCENT IN THOUSANDS PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Net sales........................................................ $1,073,022 100.0% $1,036,515 100.0%
Cost of goods sold (including depreciation and rent expense)..... 687,103 64.0 645,886 62.3
------------ ------- ------------ -------
Gross profit..................................................... 385,919 36.0 390,629 37.7
Selling, general and administrative expenses..................... 241,711 22.5 255,283 24.6
Amortization and other depreciation.............................. 15,607 1.5 16,499 1.6
Interest expense and amortization of debt discount and
expenses....................................................... 17,546 1.6 18,819 1.8
Discount on sale of receivables.................................. 3,963 0.4 3,979 0.4
Other income (expense), net...................................... 1,827 0.2 (21,225) (2.1)
------------ ------- ------------ -------
Income before provision for income taxes and extraordinary
item........................................................... 108,919 10.2 74,824 7.2
Provision for income taxes....................................... 43,819 4.1 31,634 3.1
------------ ------- ------------ -------
Income before extraordinary item................................. 65,100 6.1 43,190 4.1
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes............................................. -- -- (4,493) (0.4)
------------ ------- ------------ -------
Net income....................................................... $ 65,100 6.1% $ 38,697 3.7%
------------ ------- ------------ -------
------------ ------- ------------ -------
</TABLE>
Sales for the fiscal year ended June 30, 1996 were $1,073,022,000, 4% above
the prior year's sales of $1,036,515,000. Excluding sales from the Prestone
business, which was sold on August 26, 1994, sales increased 7% over fiscal
1995.
Increased sales in the plastic wrap and bag business resulted from higher
unit volumes and a better product mix, as well as strong international sales.
Strong sales of premium products led the increase in domestic sales, while
increases in the international business primarily reflected higher sales in
Canada as well as a full year of operations from the Company's South African
subsidiary, which was acquired in late fiscal 1995. Sales of automotive and
specialty appearance products, excluding sales from the Company's discontinued
contract packaging business and automotive service centers, were slightly below
the prior year's level reflecting decreases in both the domestic and
international market (primarily Mexico), due to market softness. Pet product
sales dollars and quantities increased due to continued market and share growth
as well as distribution gains.
Cost of goods sold in fiscal 1996 was $687,103,000, 106% of last year's
$645,886,000. The increased costs for the year reflects higher volume sales and
increased polyethylene costs. Gross profit for the year was $385,919,000 (36% of
sales), 99% of last year's $390,629,000 (38% of sales). Excluding the fiscal
1995 profit associated with the Prestone business, gross profit for the year was
102% of the prior year's $380,113,000 (38% of sales). The higher gross profit
dollars resulted from higher sales volumes while the lower gross margin
primarily reflects the increased raw material costs and higher trade promotions
in certain product lines.
Selling, general and administrative expenses of $241,711,000 was 95% of
fiscal 1995's $255,283,000. Excluding the Prestone business, fiscal 1995
expenses were $247,443,000, 2% above the current year. The lower spending level
in fiscal 1996 reflects reductions in selected marketing programs for both the
9
<PAGE>
<PAGE>
plastic wrap and bag and automotive segments, which were partially offset by
higher spending in the pet products business. Reductions in marketing programs
were instituted to offset the higher raw material costs and higher trade
promotions incurred during fiscal 1996. Selling and marketing expenditures
increased in the pet products business as the Company continued to support the
sales growth and distribution gains with new marketing programs.
Amortization and other depreciation expense of $15,607,000 was 95% of last
year's $16,499,000. Excluding amortization and depreciation expenses associated
with the Prestone business, fiscal 1995 expense was $15,887,000. Amortization
expense largely relates to intangibles recorded in 1986 when the Company
acquired its businesses. The after-tax amounts for amortization expense on a per
share basis were $0.20 and $0.21 in fiscal 1996 and 1995, respectively, a
portion of which is not deductible for income tax purposes. Interest expense and
amortization of debt discount and expenses was $17,546,000, 93% of last year's
$18,819,000 due to lower interest rates. Discount on sale of receivables
reflects the costs associated with the sale of a fractional ownership interest,
without recourse, in a defined pool of the Company's eligible trade accounts
receivable.
Other income (expense), net in 1996 primarily reflects accrued interest
which was reversed as a result of a tax audit settlement and interest income
received on a long-term note receivable. In 1995, other income (expense), net
reflects a $20,350,000 charge relating to the write-off of assets and the
estimated costs associated with litigation proceedings and settlements
pertaining to the Company's formerly operated mobile antifreeze recycling
business. Also included in 1995 was the gain on the sale of the Prestone
business and a loss on the disposal of the Company's automotive service centers
(See Notes 1 and 13).
The Company's effective tax rate was 40% for fiscal 1996 compared to 42%
for 1995, reflecting higher favorable permanent tax differences in 1996. The
provision for income taxes of $43,819,000 was 139% of 1995's $31,634,000 due to
higher pre-tax earnings.
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1996.
In March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 121, 'Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of' which requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
pronouncement becomes effective for fiscal years beginning after December 15,
1995. The Company is currently evaluating the impact of the future adoption of
this pronouncement, but does not believe that it will have a significant impact
on results of operations or financial position.
In October 1995, the FASB issued SFAS No. 123 'Accounting for Stock-Based
Compensation', which must be adopted for fiscal years beginning after December
15, 1995. SFAS No. 123 allows companies to either continue using the intrinsic
value method permitted by Accounting Principles Board Opinion No. 25 ('APB 25')
'Accounting for Stock Issued to Employees' or it permits companies to measure
employee stock compensation plans under a fair value based method of accounting.
Companies electing to continue under the principles prescribed by APB 25 are
required to supply pro-forma disclosure of net income and net income per common
share as if the fair value method had been used. The Company will adopt SFAS No.
123 in fiscal 1997, and intends to continue using the measurement principles of
APB 25 and to adopt the expanded disclosure requirements of SFAS No. 123.
In June 1996, the FASB issued SFAS No. 125, 'Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities'. SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. The Company is currently
evaluating the impact of the future adoption of this pronouncement and has not
yet determined the impact, if any, to the Company.
10
<PAGE>
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
The following table sets forth the components of income and expense for the
two years ended June 30, 1995, on a dollar and percentage basis.
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
----------------------- -----------------------
IN THOUSANDS PERCENT IN THOUSANDS PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Net sales........................................................ $1,036,515 100.0% $1,086,320 100.0%
Cost of goods sold (including depreciation and rent expense)..... 645,886 62.3 666,336 61.3
------------ ------- ------------ -------
Gross profit..................................................... 390,629 37.7 419,984 38.7
Selling, general and administrative expenses..................... 255,283 24.6 269,181 24.8
Amortization and other depreciation.............................. 16,499 1.6 20,328 1.9
Interest expense and amortization of debt discount and
expenses....................................................... 18,819 1.8 22,390 2.1
Discount on sale of receivables.................................. 3,979 0.4 4,260 0.4
Other income (expense), net...................................... (21,225) (2.1) (90) --
------------ ------- ------------ -------
Income before provision for income taxes and extraordinary
item........................................................... 74,824 7.2 103,735 9.5
Provision for income taxes....................................... 31,634 3.1 43,569 4.0
------------ ------- ------------ -------
Income before extraordinary item................................. 43,190 4.1 60,166 5.5
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes............................................. (4,493) (0.4) -- --
------------ ------- ------------ -------
Net income....................................................... $ 38,697 3.7% $ 60,166 5.5%
------------ ------- ------------ -------
------------ ------- ------------ -------
</TABLE>
Sales for the fiscal year ended June 30, 1995 totaled $1,036,515,000, 95%
of fiscal 1994's sales of $1,086,320,000. Excluding sales of the Prestone
business for eight weeks of fiscal 1995 and all of fiscal 1994, 1995's sales
were $1,004,831,000, 12% above 1994's sales of $895,747,000.
Sales increased due to higher prices and unit volumes (primarily GLAD-LOCK)
in the Company's plastic wrap and bag business. Pet product sales dollars and
quantities were significantly ahead of 1994's, due to continued market and share
growth in the clumping litter market and the newly acquired JONNY CAT business.
Sales of automotive specialty and appearance products, primarily STP branded
products, exceeded 1994's level due primarily to higher unit volume and new
products. Excluding Canadian sales of PRESTONE products, each of the Company's
international subsidiaries reported sales revenue ahead of 1994's level
primarily due to increases in volume.
Cost of goods sold in fiscal 1995 was $645,886,000, 97% of fiscal 1994's
$666,336,000. Excluding the Prestone business, cost of goods sold for the year
was $624,718,000, 18% above 1994's $528,733,000. The increase in costs reflects
higher sales volume as well as the escalation of raw material costs, primarily
resin and packaging materials. Gross profit for the year was $390,629,000 (38%
of sales), 93% of 1994's $419,984,000 (39% of sales). Excluding the Prestone
business, gross profit for the year was $380,113,000 (38% of sales), 104% of
1994's $367,014,000 (41% of sales). Increased gross profit dollars resulted from
higher sales volumes while the lower gross margin primarily reflects the
increased raw material costs.
Selling, general and administrative expenses of $255,283,000 was 95% of
fiscal 1994's $269,181,000. Excluding the Prestone business, these expenses were
$247,443,000, slightly ahead of 1994's $245,001,000, reflecting higher
expenditures in the pet products business, which were partially offset by
reduced expenditures in the plastic wrap and bag business. Overhead expenditures
increased in the pet products business as the Company continued to expand its
product line and support the nationwide distribution roll out of the JONNY CAT
brand. Plastic wrap and bag expenditures were reduced to offset the lower gross
margin caused by the higher raw material costs. Expenditures for automotive
specialty products remained stable year to year.
Amortization and other depreciation expense of $16,499,000 was 81% of
1994's $20,328,000. This reduction reflects lower amortization expense for
fiscal 1995, as certain intangible assets were either included in the sale of
the Prestone business or were fully amortized during fiscal 1994. Amortization
expense largely relates to intangibles recorded in 1986 when the Company
acquired its businesses. The
11
<PAGE>
<PAGE>
after-tax amounts for amortization expense on a per share basis were $0.21 and
$0.28 in fiscal 1995 and 1994, respectively, a portion of which is not
deductible for income tax purposes. Other depreciation expense for fiscal 1995
is also below the prior year, reflecting the sale of certain fixed assets of the
Prestone business and higher fiscal 1994 expense to record the write-down of
certain assets. Interest expense and amortization of debt discount and expense
was $18,819,000, 84% of 1994's $22,390,000 due to lower debt levels, partially
offset by slightly higher interest rates. Discount on sale of receivables
reflects the costs associated with the sale of a fractional ownership interest,
without recourse, in a defined pool of the Company's eligible trade accounts
receivable.
Other income (expense), net in 1995 primarily reflects costs associated
with the formerly operated mobile antifreeze recycling business as well as the
gain on the sale of the Prestone business and a loss on the disposal of the
Company's automotive service centers (See Notes 1 and 13).
The Company's effective tax rate was 42% for both fiscal 1995 and 1994. The
provision for income taxes of $31,634,000 was 73% of 1994's $43,569,000
reflecting lower pre-tax earnings in fiscal 1995.
The extraordinary loss of $4,493,000 or $0.10 per share resulted from the
premium paid and the write-off of unamortized issuance costs related to the
repurchase of $45,000,000 of the Company's 13 1/4% Subordinated Notes (See Note
8).
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1995.
FINANCIAL CONDITION
At June 30, 1996 worldwide credit facilities in place aggregated
$339,954,000 of which $239,560,000 was available but unused. Excluding any
leased asset or stock repurchases, the Company expects to repay up to
$60,000,000 on these credit facilities over the next twelve months by utilizing
the positive cash flow generated by its operations. During fiscal 1996, the
Company increased its unsecured domestic line of credit by $5,000,000, bringing
the amount available to borrow under this facility to $15,000,000 (See Note 5).
The Company also has the option to sell up to $100,000,000 of fractional
ownership interest, without recourse, in a defined pool of eligible accounts
receivable. As of June 30, 1996, $70,000,000 had been sold (See Note 2). As of
June 30, 1996, the Company had long-term debt outstanding of $199,355,000.
Principal payments due on long-term debt (including current maturities) total
$195,628,000 for the five-year period beginning July 1, 1996, and $753,000 for
the five-year period thereafter.
To balance its interest rate exposure and to limit the impact of foreign
exchange during the year, the Company periodically enters into interest rate
swap and foreign exchange contracts. At June 30, 1996 the Company was party to
an interest swap agreement, with a notional amount of $50,000,000, which will
mature in August, 1997. One of the Company's international subsidiaries entered
into foreign exchange contracts for its U.S. dollar purchase commitments. The
total value of these foreign exchange contracts is $4,500,000, all of which will
mature during the first quarter of fiscal 1997 (See Note 7).
Capital expenditures, including capitalized interest, were $42,293,000
during fiscal 1996, and $47,029,000 in fiscal 1995. Expenditures primarily
related to increased capacity for GLAD-LOCK zipper plastic storage bag and GLAD
Garbage Bags with Quick-Tie Flaps, as well as cost reductions and technology
improvements. During fiscal 1996, the Company also acquired previously leased
equipment totaling $9,797,000.
The Company's fiscal 1997 plan reflects capital expenditures and associated
capitalized interest of approximately $42,000,000 and fixed payments (interest,
principal, receivable financing costs and lease payments, excluding potential
lease buybacks) of approximately $40,800,000. Beginning April 1997, the Company
has the option to repurchase, at par, all or part of the outstanding
$100,000,000 9 1/8% Senior Subordinated Notes.
Certain forward-looking statements are contained within this report,
reflecting management's current estimate of future events. These forward-looking
statements are based on many assumptions, primarily related to the Company's
expected operating performance, any variance from these assumptions may result
in significantly different results.
12
<PAGE>
<PAGE>
The Company's debt agreements have restrictions on the Company's ability to
incur certain indebtedness; however, based on its working capital requirements,
the current availability under its credit facilities, and its ability to
generate positive cash flows from operations, the Company does not believe that
such limitations will have a material effect on the Company's long-term
liquidity. The Company believes that it will have the funds necessary to meet
all of its above described financing requirements and all other fixed
obligations. Should the Company undertake in the future, strategic acquisitions
requiring funds in excess of its internally generated cash flow, it might be
required to incur additional debt.
Certain of the Company's operations are subject to federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. The Company believes that it
is in substantial compliance with all applicable environmental laws and
regulations. The Company assumed certain liabilities of Union Carbide including
most environmental liabilities connected with the home and automotive businesses
of Union Carbide at the inception of the Company. See Note 13 to the
Consolidated Financial Statements for a discussion of indemnifications. The
Company's Paulsboro, New Jersey facility is subject to an administrative consent
order with the New Jersey Department of Environmental Protection and Energy. The
Company also has a potential liability under Superfund or similar state law for
investigation and cleanup costs at four sites. The Company believes that it has
made adequate provision for such compliance costs, but there can be no assurance
that the final costs will not exceed the Company's estimated costs of
compliance.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related documents of the Company and the
financial statement schedule of the Company and related documents are included
in Part IV, Item 14, of this Report.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
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<PAGE>
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The principal executive officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE CORPORATION
- ------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Alfred E. Dudley(4*,5*).................... 68 Chairman and Director
William V. Stephenson(4,5)................. 55 President, Chief Executive Officer and Director
Thomas H. Rowland.......................... 51 Executive Vice President, President
Home Products
Donald A. DeSantis......................... 46 Senior Vice President, Chief Financial Officer
and Treasurer
Mark E. Haglund............................ 45 Vice President, President of STP
Products Inc.
Patrick J. O'Brien......................... 40 Vice President, President of A&M
Products Inc.
Ronald F. Dainton.......................... 57 Vice President, Human Resources
Joseph B. Furey............................ 50 Vice President, Controller and Secretary
Einar M. Rod............................... 44 General Counsel
A. R. (Bud) McClellan...................... 42 Assistant Controller and Assistant Secretary
Richard J. Mosback......................... 43 Assistant Treasurer
Alan C. Egler(3,4)......................... 68 Director
James R. Maher(1*)......................... 46 Director
James R. McManus(1,5)...................... 62 Director
Dwight C. Minton(2,3)...................... 61 Director
Denis Newman(3*,4)......................... 66 Director
Ervin R. Shames(1,5)....................... 56 Director
Robert G. Tobin(2*)........................ 58 Director
</TABLE>
- ------------
* Denotes Chairman of Committee
(1) Member, Compensation Committee
(2) Member, Pension Committee
(3) Member, Audit Committee
(4) Member, Executive Committee
(5) Member, Nominating Committee
------------------------
The Certificate of Incorporation provides for the classification of the
Board of Directors into three classes of membership with terms expiring on
different Annual Meeting dates. Approximately one-third of the members of the
Board of Directors are nominated each year to serve as directors for a term of
three years. Directors are elected at the Annual Meeting of Stockholders for the
terms specified and continue in office until their respective successors have
been elected and have qualified. The terms of office of Messrs. Dudley, Egler
and McManus expire at the Annual Meeting of Stockholders in November, 1996. Mr.
Egler has been a Director of the Company since 1986, and was Vice Chairman and a
consultant to the Company from 1986 through 1991. He has decided not to seek
another term as a Director of the Company. The terms of office of Messrs. Maher,
Minton, Stephenson and Tobin expire at the Annual Meeting of Stockholders in
October, 1997 and the terms of office of Messrs. Newman and Shames expire at
Annual Meeting of Stockholders in October, 1998. On January, 26 1996, Mr. Gary
E. Gardner resigned from the Board of Directors. Executive officers and key
employees are elected annually by, and serve at the pleasure of, the First
Brands' Board of Directors. There are no family relationships between any
directors, executive officers or key employees of First Brands.
14
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<PAGE>
Mr. Dudley was elected Chairman on June 19, 1986. He relinquished the title
of Chief Executive Officer effective September 1, 1994.
Mr. Stephenson was Senior Vice President and General Manager, Home Products
Division from January, 1990 to September, 1991. He was elected Executive Vice
President of the Company in October, 1991 and simultaneously was appointed
President of the Home Products Division. He was elected President and Chief
Operating Officer and a Director of the Company in August, 1992, and was elected
Chief Executive Officer effective September 1, 1994.
Mr. Rowland was elected President of Himolene Incorporated, a wholly owned
subsidiary of the Company in June, 1989, and served in that position to 1992;
prior to that he was elected Vice President and Chief Financial Officer of
Himolene Incorporated in September, 1988. He was elected Executive Vice
President of the Company on August 11, 1992, and simultaneously was appointed
President of the Home Products Division.
Mr. DeSantis was elected Chief Financial Officer and Treasurer of the
Company in June, 1986. He relinquished the title of Treasurer in November, 1987
and was elected Vice President in May, 1988 and Senior Vice President in
November, 1993. He re-assumed the title of Treasurer on August 9, 1994.
Mr. Haglund served as a Director of Marketing for the Automotive Products
Division from 1990 to 1992. In March, 1992 he was appointed Vice President of
Marketing for the Automotive Products Division. Mr. Haglund was appointed
President of STP Products, Incorporated in September, 1995, after serving as
Senior Vice President and General Manager since August, 1994. He was elected
Vice President of the Company on October 27, 1995.
Mr. O'Brien served as Corporate Director of Environmental Affairs from
July, 1991 to May, 1992. He was appointed President of A&M Products,
Incorporated in September, 1995, after serving as Vice President and General
Manager since May, 1992. He was elected Vice President of the Company on October
27, 1995.
Mr. Dainton was Director of Employee Relations at First Brands from 1986 to
1989; he was elected Vice President, Human Resources of the Company on May 24,
1989.
Mr. Furey was elected Controller and Assistant Secretary of the Company in
June, 1986, and Vice President in November, 1993. He resigned as Assistant
Secretary and was elected Secretary on January 20, 1995.
Mr. Rod became General Counsel to the Company on May 20, 1996, and was
previously an attorney with PepsiCo, Inc. a manufacturer and distributor of
consumer products and provided legal counsel to PepsiCo's divisions, Pepsi-Cola
North America and Pepsi-Cola International since before 1991.
Mr. McClellan served as Director of Accounting from 1992 to 1995, prior to
1992 he served in various positions as a financial manager. He was elected
Assistant Controller in January, 1995 and was elected Assistant Secretary on
January 26, 1996.
Mr. Mosback served as Manager of Internal Audit from 1986 to 1992. He
became Director of Finance and Internal Audit in 1993 and served in that
capacity until 1995. He was elected Assistant Treasurer on January 20, 1995.
Mr. Egler was Vice Chairman and consultant to the Company from 1986 through
1991. He was elected a director of the Company on June 19, 1986.
Mr. Maher has been President and Chief Executive Officer of MAFCO
Consolidated Group, Inc., a diversified manufacturer, since July, 1995. He was
Chairman of Laboratory Corporation of America, a health services company, from
April, 1995 to April 1996. He was President and Chief Executive Officer of
Laboratory Corporation of America from December, 1992 to April, 1995. Mr. Maher
continues to serve on the board of Laboratory Corporation of America. Mr. Maher
was Vice Chairman of The First Boston Corporation, a financial services company,
from September, 1990 until June, 1992. He was elected a director of the Company
on May 26, 1988.
Mr. McManus has been Chairman, Chief Executive Officer and founder of the
Marketing Corporation of America, a marketing services firm, since prior to
1986. He also serves on the Board of
15
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<PAGE>
Au Bon Pain, Inc. Mr. McManus resigned as President and Chief Executive Officer
of Business Express, Inc. a regional airline operating in the Northeastern
United States on February 1, 1994. On January 22, 1996, a petition for Chapter
XI Bankruptcy Protection was filed against Business Express in Federal Court in
Manchester, New Hampshire by Saab Aircraft of America and two of its operating
subsidiaries. He was elected a director of the Company on November 18, 1986.
Mr. Minton has been Chairman of Church & Dwight Co., Inc., which
manufactures ARM & HAMMER brand consumer and specialty products since prior to
1986. On October 1, 1995 he relinquished the title of President and Chief
Executive Officer of Church & Dwight Co. Inc. He is also a director of Crane Co.
and Medusa Corporation. He was elected a director of the Company on November 7,
1991.
Mr. Newman has been a Managing Director of MidMark Management, Inc., a
private investment firm since December, 1989. From April, 1988 until December,
1989, Mr. Newman was President and a director of The Dunmore Group, Inc., a
merchant banking firm. He also serves as a director of GMIS, Inc. He was elected
a director of the Company on May 30, 1986.
Mr. Shames has been Chairman of Select Comfort Corporation, a mattress
manufacturer and retailer, since April, 1996 and was appointed Visiting Lecturer
at the University of Virginia's Darden Graduate School of Business in September,
1996. He was a private investor and consultant from January, 1995 to April,
1996. He was President and Chief Executive Officer of Borden, Inc., a consumer
and specialty products manufacturer, from December, 1993 to January, 1995. He
was President and Chief Operating Officer of Borden, Inc. from July, 1993 until
December, 1993. Mr Shames was Chairman and Chief Executive Officer of the Stride
Rite Corporation, a footwear manufacturer, from June, 1992 to July, 1993 and
President and Chief Executive Officer of the Stride Rite Corporation from June,
1990 to June, 1993. He was elected a director of the Company on May 28, 1987.
Mr. Tobin has been Chairman and Chief Executive Officer of The Stop & Shop
Supermarket Companies, Inc. and The Stop & Shop Supermarket Company, a retail
food company, since January, 1995. He was President and Chief Executive Officer
of The Stop & Shop Supermarket Company from May, 1994 to January, 1995. He was
President and Chief Operating Officer of The Stop & Shop Companies Inc. and The
Stop & Shop Supermarket Company, a wholly owned subsidiary, since March 1993 and
November 1989, respectively. He was elected a director of the Company on
September 6, 1991.
ITEM 11 -- EXECUTIVE COMPENSATION
Incorporated by reference to the section entitled 'Compensation Committee
Report On Executive Compensation' in the Company's Proxy Statement, dated
September 30, 1996, for its 1996 Annual Meeting of Stockholders.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section entitled 'Beneficial Ownership of
Voting Securities' in the Company's Proxy Statement, dated September 30, 1996,
for its 1996 Annual Meeting of Stockholders.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
<PAGE>
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements and related notes of the Company
are incorporated by reference to the Company's 1996 Annual Report to
Stockholders:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management................................................................... 18
Independent Auditors' Report........................................................... 19
Consolidated Statements of Income -- For the Years Ended June 30, 1996, 1995 and
1994................................................................................. 20
Consolidated Balance Sheets -- June 30, 1996 and 1995.................................. 21
Consolidated Statements of Stockholders' Equity -- For the Years Ended June 30, 1996,
1995 and 1994........................................................................ 22
Consolidated Statements of Cash Flows -- For the Years Ended June 30, 1996, 1995 and
1994................................................................................. 23
Notes to Consolidated Financial Statements............................................. 24
</TABLE>
(a) (2) Financial Statement Schedule
<TABLE>
<S> <C>
Independent Auditors' Report on Schedule............................................... 37
</TABLE>
The following financial statement schedule of the Company as set forth
below is filed with this Report on Form 10-K:
<TABLE>
<S> <C>
Valuation and Qualifying Accounts (Schedule II) For the Years Ended June 30, 1996, 1995
and 1994............................................................................. 38
</TABLE>
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or related Notes.
(a) (3) Exhibits -- See Exhibit Index on Pages 40-42 for exhibits filed with
the Annual Report on Form 10-K, as submitted with the Securities and
Exchange Commission.
(b) Reports on Form 8-K
A Form 8-K items 5 and 7 dated March 22, 1996 was filed reporting the
Company's adoption of a Preferred Stock Rights Plan
17
<PAGE>
<PAGE>
REPORT OF MANAGEMENT
Management of First Brands Corporation is responsible for the financial and
operating information contained in the Annual Report including the financial
statements covered by the independent auditors' report. These statements were
prepared in conformity with United States generally accepted accounting
principles and include, where necessary, informed estimates and judgments.
The Company maintains systems of accounting and internal control designed
to provide reasonable assurance that assets are safeguarded against loss, and
that transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication
of accounting and administrative policies and procedures, the selection and
training of qualified personnel, and continuous programs of internal audits.
The Company's financial statements are reviewed by its Audit Committee,
which is composed entirely of non-employee Directors. This Committee meets
periodically with the independent auditors, management, and the corporate
internal auditor to review the scope and results of the annual audit, interim
reviews, internal controls, internal auditing, and financial reporting matters.
The independent auditors and the corporate internal auditor have direct access
to the Audit Committee.
<TABLE>
<S> <C>
W. V. STEPHENSON D.A. DESANTIS
President and Chief Executive Officer Senior Vice President and Chief Financial Officer
</TABLE>
August 8, 1996
18
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FIRST BRANDS CORPORATION:
We have audited the accompanying consolidated balance sheets of First
Brands Corporation and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended June 30, 1996. 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 First Brands
Corporation and subsidiaries at June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
...............................
KPMG PEAT MARWICK LLP
New York, New York
August 8, 1996
19
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................................................... $1,073,022 $1,036,515 $1,086,320
Cost of goods sold (including depreciation and rent expense of $36,837,
$38,447 and $39,331).................................................. 687,103 645,886 666,336
Selling, general and administrative expenses............................ 241,711 255,283 269,181
Amortization and other depreciation..................................... 15,607 16,499 20,328
Interest expense and amortization of debt discount and expense.......... 17,546 18,819 22,390
Discount on sale of receivables (Note 2)................................ 3,963 3,979 4,260
Other income (expense), net............................................. 1,827 (21,225) (90)
---------- ---------- ----------
Income before provision for income taxes and extraordinary item......... 108,919 74,824 103,735
Provision for income taxes (Note 11).................................... 43,819 31,634 43,569
---------- ---------- ----------
Income before extraordinary item........................................ 65,100 43,190 60,166
Extraordinary loss relating to the repurchase of subordinated debt, net
of taxes (Note 8)..................................................... -- (4,493) --
---------- ---------- ----------
Net income.............................................................. $ 65,100 $ 38,697 $ 60,166
---------- ---------- ----------
---------- ---------- ----------
Per common and common equivalent share (Note 1):
Income before extraordinary item................................... $1.53 $1.01 $1.36
Extraordinary item................................................. -- (.10) --
---------- ---------- ----------
Net income.............................................................. $1.53 $0.91 $1.36
---------- ---------- ----------
---------- ---------- ----------
Weighted average common and common equivalent shares outstanding (Note
1).................................................................... 42,600,021 42,915,198 44,337,910
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
20
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 8,326 $ 5,225
Accounts and notes receivable (net of allowances for doubtful accounts and discounts
of $6,036 and $6,154) (Note 2)...................................................... 125,126 121,763
Inventories (Note 1)................................................................. 146,002 156,245
Deferred tax assets (Note 11)........................................................ 20,155 34,038
Prepaid expenses..................................................................... 4,662 3,561
-------- --------
Total current assets............................................................ 304,271 320,832
Property, plant and equipment (net of accumulated depreciation of $111,401 and $88,447)
(Notes 1, 3 and 9)...................................................................... 319,677 290,960
Patents, trademarks, proprietary technology and other intangibles (net of accumulated
amortization of $181,929 and $170,584) (Notes 1 and 4).................................. 204,422 202,323
Deferred charges and other assets (net of accumulated amortization of $50,965 and
$50,214)................................................................................ 32,510 25,831
-------- --------
Total assets.................................................................... $860,880 $839,946
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 5)............................................................... $ 4,013 $ 5,128
Current maturities of long-term debt (Note 8)........................................ 116 912
Accrued income and other taxes (Note 11)............................................. 3,474 27,279
Accounts payable..................................................................... 61,168 70,106
Accrued liabilities (Note 6)......................................................... 110,522 144,863
-------- --------
Total current liabilities....................................................... 179,293 248,288
Long-term debt (Note 8)................................................................... 199,355 166,279
Deferred tax liabilities (Note 11)........................................................ 66,300 54,524
Other long-term obligations (Note 12)..................................................... 16,050 16,040
Deferred gain on sale of assets (Note 9).................................................. 1,057 2,637
Commitments and contingencies (Notes 9 and 13)
Stockholders' equity (Notes 1 and 10):
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued............. -- --
Common stock, $0.01 par value, 50,000,000 shares authorized; issued 43,140,586 shares
at June 30, 1996 and 22,146,014 shares (pre two-for-one stock split) at June 30,
1995................................................................................ 431 221
Capital in excess of par value....................................................... 126,432 120,914
Cumulative foreign currency translation adjustment................................... (9,321) (7,173)
Common stock in treasury, at cost; 1,490,000 shares at June 30, 1996 and 1,210,700
shares at June 30, 1995............................................................. (52,563) (40,433)
Retained earnings.................................................................... 333,846 278,649
-------- --------
Total stockholders' equity...................................................... 398,825 352,178
-------- --------
Total liabilities and stockholders' equity................................. $860,880 $839,946
-------- --------
-------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK CAPITAL FOREIGN
-------------------- IN EXCESS CURRENCY
SHARES PAR OF PAR TRANSLATION RETAINED TREASURY
OUTSTANDING VALUE VALUE ADJUSTMENT EARNINGS STOCK TOTAL
----------- ----- --------- ----------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1993........ 21,827,878 $218 $ 112,535 $(1,690) $194,390 $ -- $305,453
Cash dividends (Note 1)............ -- -- -- -- (6,589) -- (6,589)
Exercise of stock options.......... 177,778 2 3,778 -- -- -- 3,780
Tax benefit related to the exercise
of employee stock options........ -- -- 772 -- -- -- 772
Net income......................... -- -- -- -- 60,166 -- 60,166
Foreign currency translation
adjustment....................... -- -- -- (2,852) -- -- (2,852)
----------- ----- --------- ----------- -------- -------- --------
Balance as of June 30, 1994........ 22,005,656 $220 $ 117,085 $(4,542) $247,967 $ -- $360,730
Cash dividends (Note 1)............ -- -- -- -- (8,015) -- (8,015)
Exercise of stock options.......... 140,358 1 3,400 -- -- -- 3,401
Tax benefit related to the exercise
of employee stock options........ -- -- 429 -- -- -- 429
Net income......................... -- -- -- -- 38,697 -- 38,697
Purchase of treasury stock......... (1,210,700) -- -- -- -- (40,433) (40,433)
Foreign currency translation
adjustment....................... -- -- -- (2,631) -- -- (2,631)
----------- ----- --------- ----------- -------- -------- --------
Balance as of June 30, 1995........ 20,935,314 $221 $ 120,914 $(7,173) $278,649 $(40,433) $352,178
Cash dividends (Note 1)............ -- -- -- -- (9,903) -- (9,903)
Exercise of stock options.......... 199,196 2 4,470 -- -- -- 4,472
Tax benefit related to the exercise
of employee stock options........ -- -- 1,256 -- -- -- 1,256
Net income......................... -- -- -- -- 65,100 -- 65,100
Purchase of treasury stock......... (279,300) -- -- -- -- (12,130) (12,130)
Foreign currency translation
adjustment....................... -- -- -- (2,148) -- -- (2,148)
Two-for-one stock split (Notes 1
and 10).......................... 20,795,376 208 (208) -- -- -- --
----------- ----- --------- ----------- -------- -------- --------
Balance as of June 30, 1996........ 41,650,586 $431 $ 126,432 $(9,321) $333,846 $(52,563) $398,825
----------- ----- --------- ----------- -------- -------- --------
----------- ----- --------- ----------- -------- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 65,100 $ 38,697 $ 60,166
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 38,282 36,467 41,687
Deferred income taxes............................................... 25,808 1,585 8,573
Amortization of gain on sale/leaseback.............................. (1,580) (1,551) (1,714)
Loss on disposal of automotive service centers, net of gain on sale
of the Prestone business.......................................... -- 792 --
Loss on repurchase of subordinated notes............................ -- 7,463 --
Change in non-cash current assets and liabilities, net of effect of
businesses sold and acquired:
(Increase) in accounts receivable................................... (12,052) (27,831) (3,488)
Decrease (increase) in inventories.................................. 11,836 (23,009) 21,653
(Increase) decrease in prepaid expenses............................. (1,048) 2,252 336
(Decrease) increase in accrued income and other taxes............... (7,263) (8,451) 9,213
(Decrease) increase in accounts payable............................. (10,937) 17,160 (22,101)
(Decrease) increase in accrued liabilities.......................... (36,171) 19,292 10,585
Net change in current assets and current liabilities of businesses
sold.............................................................. -- (20,718) --
Other changes....................................................... (3,687) (6,176) (6,731)
-------- -------- --------
Total adjustments.............................................. 3,188 (2,725) 58,013
-------- -------- --------
Net cash provided by operating activities..................................... 68,288 35,972 118,179
-------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................................... (42,293) (47,029) (39,753)
Acquisition of leased assets............................................. (9,797) (13,240) --
Acquisition of businesses, net of cash acquired.......................... (32,255) (52,568) --
Proceeds from sale of the Prestone business, net of note received........ -- 142,000 --
Proceeds from sale of automotive service centers......................... -- 5,326 --
Retirements of plant and equipment....................................... 1,072 1,494 4,091
Purchase and installation of software.................................... (5,518) -- --
-------- -------- --------
Net cash (used) provided for investing activities............................. (88,791) 35,983 (35,662)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in revolving credit facilities, net.................. 35,000 56,300 (41,800)
(Decrease) increase in other borrowings, net............................. (3,835) 748 (504)
Increase (decrease) in securitization of accounts receivable, net........ 10,000 (40,000) --
Repurchase of subordinated notes......................................... -- (52,115) --
Proceeds from exercise of stock options.................................. 4,472 3,401 3,780
Purchase of common stock for treasury.................................... (12,130) (40,433) --
Repayment of term loan................................................... -- -- (35,692)
Dividends paid........................................................... (9,903) (8,015) (6,589)
-------- -------- --------
Net cash provided (used) by financing activities.............................. 23,604 (80,114) (80,805)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......................... 3,101 (8,159) 1,712
Cash and cash equivalents at beginning of year................................ 5,225 13,384 11,672
-------- -------- --------
Cash and cash equivalents at end of year...................................... $ 8,326 $ 5,225 $ 13,384
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
23
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Brands Corporation and subsidiaries ('First Brands' or the 'Company')
engages in the development, manufacture, marketing and sale of consumer products
sold under branded and private labels. Principal branded products include: GLAD
and GLAD-LOCK (plastic wrap and bags); STP (oil and fuel additives and other
specialty automotive appearance products); SIMONIZ (waxes and polishes); SCOOP
AWAY, EVER CLEAN and JONNY CAT (pet products) and STARTERLOGG and HEARTHSIDE
(wood fire starters and fire logs).
BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated accounts of
the Company for all periods presented. All material intercompany transactions
and balances have been eliminated. To prepare financial statements in conformity
with generally accepted accounting principles, management must make a number of
assumptions and estimates which affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. All
information presented is for a fiscal year, unless otherwise noted.
On August 26, 1994, First Brands sold the Prestone antifreeze/coolant and
car care business (the 'Prestone business') to Prestone Products Corporation, a
company organized and controlled by a private investment firm, for $142,000,000
in cash and a $13,000,000, 7 1/2% subordinated debenture maturing in 2003, which
for financial statement purposes was valued at $9,000,000. The gain associated
with the sale of the Prestone business is reflected in Other income (expense),
net, in the fiscal 1995 Consolidated Statement of Income.
During fiscal 1995, the Company established a reserve of $20,350,000 for
the write-off of assets and the costs associated with litigation proceedings and
settlements associated with its formerly operated mobile antifreeze recycling
business. The related charge is included in Other income (expense), net, in the
fiscal 1995 Consolidated Statement of Income. As more fully explained in Note
13, during fiscal 1996, the Company settled a series of lawsuits associated with
this discontinued business.
In addition to the sale of the Prestone business, the Company sold all
remaining assets associated with its automotive service centers. The loss
associated with the disposal of this business is reflected in Other income
(expense), net, in the fiscal 1995 Consolidated Statement of Income.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for substantially all inventories in
the United States. In general, the average cost or FIFO method is used by the
international operations.
Inventories were comprised of the following as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials......................................................... $ 28,549 $ 28,766
Work in process....................................................... 4,809 5,531
Finished goods........................................................ 112,644 121,948
-------- --------
Total............................................................ $146,002 $156,245
-------- --------
-------- --------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Expenditures for
replacements are capitalized and the replaced assets are retired. Depreciation
is calculated on a straight-line basis over the estimated
24
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
useful lives of the respective assets for accounting purposes. The Company
capitalizes interest on major fixed asset additions during construction.
Interest capitalized totaled $2,017,000, $849,000 and $1,120,000 in 1996, 1995
and 1994, respectively.
PATENTS, TRADEMARKS, PROPRIETARY TECHNOLOGY AND OTHER INTANGIBLES
Patents, trademarks, proprietary technology and other intangibles are
carried at cost less accumulated amortization which is calculated on a
straight-line basis over the estimated useful lives of the assets, not to exceed
40 years.
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets include financing costs that are
amortized over the terms of the respective financing agreements, as well as
long-term note receivables, purchased software, investments and assets relating
to the securitization of accounts receivable.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred.
Expenditures were $4,789,000, $4,941,000 and $6,287,000 in 1996, 1995 and 1994,
respectively. Included in these figures were expenditures relating to the
Prestone business of $498,000 and $2,142,000 for the fiscal years 1995 and 1994,
respectively.
INCOME AND DIVIDENDS PER SHARE
Net income per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding. On February 5, 1996, a
two-for-one stock split of the Company's common stock was effected in the form
of a 100 percent stock dividend. Accordingly, all historical weighted average
share and per share amounts have been restated to reflect the stock split. Cash
dividends for the years ended June 30, 1995 and 1994 were $0.38 and $0.30 per
share, respectively, on a pre-split basis and $0.19 and $0.15 per share on a
post-split basis. Cash dividends for fiscal 1996 were $0.24 per share on a
post-split basis.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest.......................................................... $23,674 $18,947 $19,810
Income taxes...................................................... $34,380 $35,363 $25,527
</TABLE>
Interest payments during fiscal 1996 include $6,325,000 paid in settlement
of an IRS audit.
25
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the international subsidiaries are translated
to U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations are translated at the average monthly exchange rate.
Resulting adjustments are recorded in a separate component of stockholders
equity as Cumulative foreign currency translation adjustment.
RECLASSIFICATION
Certain amounts for fiscal 1995 and 1994 have been reclassified to conform
to the fiscal year 1996 classifications.
2. ACCOUNTS RECEIVABLE
The Company entered into an agreement to sell, without recourse, up to
$100,000,000 in fractional ownership interest in a defined pool of eligible
trade accounts receivable. This agreement was signed during 1992, and had an
initial term of three years. During fiscal 1996 the Company renegotiated the
agreement, thereby reducing service fees, increasing the pool of receivables
which may be considered eligible and allowing for an automatic yearly renewal of
the facility. As of June 30, 1996, $70,000,000 had been sold, reflecting an
additional sale of $10,000,000 during fiscal 1996. The amounts sold are
presented as reductions in accounts receivable on the accompanying Consolidated
Balance Sheets. The costs associated with this program are reported as 'Discount
on sale of receivables'. The purchasers' level of investment is subject to
change based on the level of eligible accounts receivable.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of June 30, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
USEFUL
1996 1995 LIVES
--------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements.......................................... $ 14,286 $ 13,481 --
Buildings...................................................... 72,274 69,881 30-40 years
Machinery and equipment........................................ 329,185 282,857 13-15 years
Other.......................................................... 15,333 13,188 3-5 years
--------- -------- -----------
431,078 379,407
Less: Accumulated depreciation................................. (111,401) (88,447)
--------- --------
$ 319,677 $290,960
--------- --------
--------- --------
</TABLE>
4. PATENTS, TRADEMARKS, PROPRIETARY TECHNOLOGY AND OTHER INTANGIBLES
The Company reviews the carrying value of intangible assets whenever
circumstances dictate that the carrying amount of an asset may not be
recoverable. The primary indicators of recoverability are current or forecasted
profitability of the related acquired business, measured as profit before
interest and amortization of the related intangible assets compared to their
carrying values. For the three-year period ended June 30, 1996, 1995 and 1994
there were no material adjustments to the carrying values of intangible assets
resulting from these evaluations.
26
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Patents, trademarks, proprietary technology and other intangibles as of
June 30, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
USEFUL
1996 1995 LIVES
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Trademarks.................................................... $ 66,271 $ 66,252 40 years
Patents, proprietary technology and other intangibles......... 162,705 162,033 13-17 years
Excess of cost over net assets acquired....................... 157,375 144,622 40 years
--------- ---------
386,351 372,907
Less: Accumulated amortization................................ (181,929) (170,584)
--------- ---------
$ 204,422 $ 202,323
--------- ---------
--------- ---------
</TABLE>
5. NOTES PAYABLE
Notes payable consisted of international subsidiaries' working capital
borrowings (revolving credit loans) with local banks totaling $4,013,000 at June
30, 1996 and $5,128,000 at June 30, 1995. The international credit facilities,
which aggregate $24,006,000, are generally secured by the assets of the
respective international subsidiary, with approximately $1,473,000 at one
international subsidiary guaranteed by First Brands Corporation (U.S.). The
Company also maintains an unsecured domestic line of credit. During 1996, the
Company amended its domestic facility thereby increasing the amount available by
$5,000,000. At June 30, 1996, the entire $15,000,000 available under this
facility was unused. The average interest rates charged in 1996 and 1995 were
8.9% and 7.0%, respectively. The average borrowings outstanding during fiscal
1996 and 1995 were $8,981,000 and $6,635,000, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities as of June 30, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest.............................................................. $ 4,280 $ 10,211
Equipment rent........................................................ 3,853 6,715
Employee benefits and wages........................................... 8,220 8,627
Marketing and sales programs.......................................... 58,247 70,522
Raw material purchases................................................ 17,882 11,956
Other................................................................. 18,040 36,832
-------- --------
$110,522 $144,863
-------- --------
-------- --------
</TABLE>
7. FINANCIAL INSTRUMENTS
During fiscal 1996, one of the Company's international subsidiaries entered
into foreign exchange contracts to limit the impact of exchange rate
fluctuations on its U.S. dollar purchase commitments. All gains and losses
associated with these transactions are included in the basis of the related
hedged transaction. At June 30, 1996, the Company had $4,500,000 in foreign
exchange contracts outstanding, all of which will mature during the first
quarter of fiscal 1997.
In February 1994, the Company entered into an interest rate swap to
transform a portion of long-term fixed rate debt into current variable
obligations. According to the provisions of this agreement, the Company pays the
variable six month LIBOR interest rate, which has averaged approximately 5.30%
over the term of this agreement, and has received fixed interest payments at a
rate of 5.03%. The difference between interest paid and received is included as
an adjustment to interest expense. The
27
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notional amount of the contract is $50,000,000 and will mature in 1997. This
transaction allows the Company to balance its interest rate exposure. The
Company considers the risk associated with this swap agreement to be relatively
low because of the Company's policy to only enter into agreements with strong
creditworthy counterparts for a relatively short duration. The fair value of the
swap agreement may generate a gain or loss depending on the estimated amounts
that the Company would pay to terminate the agreement based on the prevailing
and anticipated interest rates at the reporting dates. The unrealized loss
relating to the swap agreement was not material as of June 30, 1996 and 1995.
The Company has no present plan to terminate the agreement.
Other financial instruments include cash and cash equivalents, accounts and
notes receivable, notes payable, accounts payable and long-term debt. Because of
the short-term nature of cash and cash equivalents, accounts and notes
receivable, notes payable and accounts payable, their carrying values
approximate fair value. The note receivable resulting from the sale of the
Prestone business has a fair value which approximates its book value. A portion
of the Company's long-term debt consists of variable rate instruments, hence the
carrying value approximates fair value. The fair value of the Company's
long-term fixed rate debt exceeds the carrying value by approximately $1,500,000
and $3,450,000 as of June 30, 1996 and 1995, respectively. The Company has no
present plans to repurchase its fixed rate debt, although it may redeem all or
part, at par, on April 1, 1997.
8. LONG-TERM DEBT
First Brands had the following long-term debt as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Debt(a):
$300,000,000 Revolving Credit Facility, 5 year term expiring December,
1999, interest at prime rate, LIBOR plus .30% or CD rate plus .425%;
facility fee of .20%..................................................... $ 95,000 $ 60,000
Other........................................................................... 4,471 7,191
-------- --------
99,471 67,191
Less current maturities......................................................... (116) (912)
-------- --------
Senior Debt..................................................................... 99,355 66,279
Subordinated Debt(b):
9 1/8% Senior Subordinated Notes due 1999.................................. 100,000 100,000
-------- --------
Total Long-term Debt............................................................ $199,355 $166,279
-------- --------
-------- --------
</TABLE>
(a) The Company's credit facility has no compensating balance requirements,
however, it does have certain restrictive covenants, the most significant of
which pertain to the ratio of debt to equity, dividend payments and capital
stock repurchases.
(b) During fiscal 1995, the Company repurchased, at a 15.8% premium,
$45,000,000 of its previously outstanding 13 1/4% Subordinated Notes. The
premium and unamortized issuance costs, net of taxes, relating to the
repurchased debt are reflected as an extraordinary loss on the Company's
Consolidated Statement of Income.
The 9 1/8% Senior Subordinated Notes (the '9 1/8% Notes') are redeemable at
the option of the Company on or after April 1, 1997 at par and become due in
1999. The 9 1/8% Notes contain limitations of the Company's right to incur debt.
Additionally, the 9 1/8% Notes Indenture has restrictive covenants or
limitations on the payment of dividends, the distribution or redemption of
capital stock, as well as limitations on Company and subsidiary debt and
limitations on the sale of assets. The amount of unrestricted Retained Earnings
available to pay dividends was $141,761,000 at June 30, 1996.
28
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
First Brands was in compliance with all the covenants of the senior and
subordinated debt agreements at June 30, 1996.
Principal payments due on long-term debt (including current maturities)
will require the following future payments: $116,000 in fiscal 1997, $112,000 in
fiscal 1998, $100,114,000 in fiscal 1999, $95,204,000 in fiscal 2000, $82,000 in
fiscal 2001 and $3,843,000 thereafter.
9. LEASES
The Company has entered into several agreements for the sale and leaseback
of certain production equipment at its domestic plastic wrap and bag plants. The
Company has purchase and lease renewal options at projected future fair market
values under the agreements. The leases are classified as operating leases in
accordance with SFAS No. 13 'Accounting for Leases'.
As of June 30, 1996, equipment with book values totaling $105,383,000 have
been removed from the balance sheet, and the gains realized on the sale
transactions totaling $4,672,000 have been deferred and are being credited to
income as rent expense adjustments over the lease terms. The average annual
lease payments, over the lives of the leases, are $17,457,000 for the above
mentioned equipment.
There are covenants under the lease agreements which the Company is in
compliance with at June 30, 1996.
The Company and its subsidiaries also maintain operating leases for various
warehouses, office facilities and equipment generally over periods ranging from
one to five years with options to renew.
Lease commitments under noncancelable operating leases extending for one
year or more require the following future payments: $17,876,000 in 1997,
$8,870,000 in 1998, $3,394,000 in 1999, $2,592,000 in 2000, $2,031,000 in 2001
and $7,046,000 thereafter. The total rental expense under operating leases was
$20,856,000, $24,345,000 and $25,895,000, respectively, for the years ended June
30, 1996, 1995 and 1994.
10. CAPITAL STOCK
As more fully discussed in Note 1, on February 5, 1996, the Company
effected a two-for-one split of common stock. Share amounts presented in the
Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity
reflect the actual share amounts outstanding for each period presented.
The following share and per share amounts relating to options granted,
exercised, canceled and outstanding have been restated for the two-for-one stock
split. During 1989, the Company established the 1989 Long-Term Incentive Plan
(the '1989 Plan') under which awards of incentive stock options, non-qualified
stock options, restricted and limited stock appreciation rights may be granted
to certain key employees of the Company. The maximum number of shares of Common
Stock which could be granted under the 1989 Plan is 2,810,000. All options
associated with the 1989 Plan have been granted and are fully vested. During
1994, the Company established the 1994 Performance Stock Option and Incentive
Plan (the '1994 Plan'), which also awards key employees incentive and
non-qualified stock options, as well as restricted and limited stock
appreciation rights. The maximum number of shares of Common Stock which could be
granted under the 1994 Plan is 2,180,000. During 1995, the Company established
the Non-Employee Director Stock Option Plan (the '1995 Plan'), which awards each
non-employee director options to purchase shares of the Company's Common Stock.
The maximum number of shares of Common Stock which could be granted under the
1995 Plan is 60,000. Stock options granted under the 1989, 1994 or 1995 Plans
have terms not in excess of ten years. The exercise price for stock options may
not be less than the fair market value of the Common Stock on the date of grant
and such options will vest over a period determined by the Compensation
Committee.
29
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the option transactions for the years ended June 30, 1996,
1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of fiscal year.......... 2,600,298 2,010,514 2,386,804
Options granted (per share $22.5313)................... 637,000 -- --
Options granted (per share $22.6875)................... 32,000 -- --
Options granted (per share $16.375).................... -- 882,000 --
Options exercised (per share $9.50 to $16.375)......... (328,558) (280,716) (355,556)
Options canceled (per share $9.50 to $16.375).......... -- (11,500) (20,734)
Options outstanding, end of fiscal year................ 2,940,740 2,600,298 2,010,514
Exercise price range per share......................... $9.50 to $9.50 to $9.50 to
$22.6875 $16.375 $14.7188
Exercisable at June 30................................. 1,971,322 1,739,880 1,290,596
Available for grant at June 30......................... 721,152 1,330,152 20,652
</TABLE>
Limited stock appreciation rights may be granted in tandem with a stock
option grant or at any time following the stock option grant and are only
exercisable upon a change of control of the Company. A limited stock
appreciation right will exercise automatically following certain changes in
control of the Company, and upon such exercise the grantee, in cancellation of
the underlying stock options, will receive cash equal to the excess of the fair
market value of each share of Common Stock subject to the limited stock
appreciation right over the exercise price of the underlying stock option.
Limited stock appreciation rights have been granted with respect to 1,111,000
shares.
11. INCOME TAXES
The components of earnings before income taxes and extraordinary item are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.............................................. $100,236 $68,222 $ 96,171
International.............................................. 8,683 6,602 7,564
-------- ------- --------
Income before taxes and extraordinary item................. $108,919 $74,824 $103,735
-------- ------- --------
-------- ------- --------
</TABLE>
Total income taxes for the years ended June 30, 1996, 1995 and 1994 were
allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes before extraordinary loss....................... $43,819 $31,634 $43,569
Extraordinary loss........................................... -- (2,970) --
Stockholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes......................................... (1,256) (429) (772)
------- ------- -------
Total income taxes...................................... $42,563 $28,235 $42,797
------- ------- -------
------- ------- -------
</TABLE>
30
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense attributable to income before taxes and extraordinary
loss for the years ended June 30, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................................... $11,640 $22,718 $26,026
State............................................................. 2,566 4,995 5,760
Foreign........................................................... 3,805 2,336 3,210
------- ------- -------
Total current................................................ 18,011 30,049 34,996
------- ------- -------
Deferred:
Federal........................................................... 20,916 1,442 7,504
State............................................................. 5,275 320 1,197
Foreign........................................................... (383) (177) (128)
------- ------- -------
Total deferred............................................... 25,808 1,585 8,573
------- ------- -------
Total provision.............................................. $43,819 $31,634 $43,569
------- ------- -------
------- ------- -------
</TABLE>
Income tax expense attributable to income before taxes and extraordinary
loss differs from the amounts computed by applying the U.S. federal tax rate of
35 percent to pre-tax income before extraordinary loss as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed 'expected' tax expense........................................ $38,122 $26,188 $36,307
Increase in income taxes resulting from:
Amortization of goodwill.......................................... 440 1,701 1,057
State income taxes, net of Federal income tax benefit............. 5,097 3,455 4,522
Foreign income tax in excess of statutory rate.................... 478 42 582
Retroactive effect of tax rate change............................. -- -- 851
Other, net........................................................ (318) 248 250
------- ------- -------
Actual tax expense........................................... $43,819 $31,634 $43,569
------- ------- -------
------- ------- -------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Intangible asset, not amortized for tax purposes........................... $ 6,587 $ 5,931
Accounts receivable reserves............................................... 3,743 2,291
Pension liability.......................................................... 3,344 4,455
Difference between book and tax basis of inventories....................... 3,749 4,412
Deferred gain on sale of assets............................................ 420 1,047
Accrued liabilities, not deductible until paid............................. 12,663 27,335
-------- --------
Total deferred tax assets............................................. 30,506 45,471
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation........ (68,916) (57,060)
Purchase accounting and other, net......................................... (4,052) (4,682)
Foreign subsidiaries....................................................... (3,683) (4,215)
-------- --------
Total deferred tax liabilities........................................ (76,651) (65,957)
-------- --------
Net deferred tax (liabilities)........................................ $(46,145) $(20,486)
-------- --------
-------- --------
</TABLE>
31
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management of the Company has determined, based on the Company's history of
operating earnings and its expected income, that operating income will more
likely than not be sufficient to fully utilize these deferred tax assets as they
mature.
The Company has not provided for Federal income taxes on the undistributed
income of its international subsidiaries because it is the Company's intention
to reinvest such undistributed income. Cumulative undistributed earnings for
which no U.S. tax has been provided were $44,921,000, $40,002,000 and
$34,834,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
12. EMPLOYEE BENEFITS
RETIREMENT PLANS
First Brands maintains non-contributory defined benefit retirement plans
('pension plan') and defined contribution pre and post-tax savings plans
('savings plan'). During fiscal 1995, the Board of Directors approved amendments
to the Company's U.S. pension and savings plans. These amendments did not result
in any significant change to overall costs.
The Company contributes to the savings plan account of each eligible
employee. Effective January 1, 1995, the Company increased its match so that its
maximum contribution is now up to 3% of employee base pay versus up to 2.25%
previously. Any regular employee of First Brands or its domestic subsidiaries is
eligible to participate in the amended savings plan. Savings plan expense for
the years ended June 30, 1996, 1995 and 1994 totaled $2,028,000, $1,375,000 and
$1,042,000, respectively. Beginning in fiscal 1996, the Company maintains a
non-contributory profit sharing plan, to which it provides a profit sharing
contribution to each eligible employee's account in the savings plan. The
contribution is discretionary and is based on the Company's operating
performance. The Company's profit sharing contributions are in the form of
existing issued and outstanding shares of First Brands Common Stock. For the
year ended June 30, 1996, costs associated with the profit sharing plan were
$730,000.
The pension plan for First Brands and several of its subsidiaries provides
defined benefits that are based on years of credited service, highest average
compensation (as defined) and the primary social security benefit. The U.S.
pension plan amendment changes this formula, effective January 2000, to a
defined benefit based on years of credited service and career average
compensation. Pension plan assets primarily consist of corporate equities, as
well as corporate and government fixed income obligations. Contributions to the
plan are based upon the projected unit credit actuarial cost funding method and
are limited to amounts that are currently deductible for tax purposes. Prior
service benefits are amortized on a straight-line basis over the average
remaining service period for active plan participants.
The sale of the Prestone business resulted in a settlement loss of $54,000
during fiscal 1995. The following table sets forth the combined U.S. and
Canadian plans' net pension cost, funded status and amounts recognized in the
Company's Consolidated Financial Statements at June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net pension cost included the following components:
Service cost -- benefits earned during the period.................. $ 3,455 $ 3,734 $ 4,274
Interest cost on projected benefit obligations..................... 4,984 4,910 5,346
Actual return on plan assets....................................... (6,838) (7,435) (2,205)
Net amortization and deferral...................................... (81) 1,469 (3,050)
Settlement loss.................................................... -- 54 --
------- ------- -------
Total......................................................... $ 1,520 $ 2,732 $ 4,365
------- ------- -------
------- ------- -------
</TABLE>
32
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Reconciliation of funded status:
Vested accumulated benefit obligation........................................ $52,374 $44,626
Non-vested accumulated benefit obligation.................................... 6,268 7,906
------- -------
Accumulated benefit obligation............................................... 58,642 52,532
Additional liability based on projected compensation......................... 10,092 10,562
------- -------
Projected benefit obligation................................................. 68,734 63,094
Fair value of plan assets.................................................... 73,006 63,614
------- -------
Plan assets in excess of projected benefit obligation........................ 4,272 520
Unrecognized prior service (benefits)........................................ (8,496) (8,849)
Unrecognized net (gain)...................................................... (3,699) (2,880)
Projected benefit obligation in excess of plan assets (recorded at
acquisition date)........................................................... 9,595 12,485
Prepaid cost................................................................. (1,672) (1,658)
------- -------
Accrued pension cost included in accrued liabilities.............................. $ -- $ (382)
------- -------
------- -------
</TABLE>
To calculate the expense and liability associated with its pension plans,
the Company utilizes certain assumptions. For the U.S. pension plan, the
weighted average discount rate, the rate of increase in compensation and the
expected long-term rate of return on plan assets was 8.0%, 4.5% and 9.5%,
respectively, for 1996, 1995 and 1994. For the Canadian pension plan, the
weighted average discount rate, the compensation increase rate and the rate of
return on plan assets was 8.5%, 5.0% and 8.5%, respectively, for 1996, 1995 and
1994.
Federal law restricts the amount of benefits that can be paid from a
qualified plan. First Brands maintains an unfunded non-qualified plan, the
effect of which is to award retirement benefits to all employees on a uniform
basis. Expenses associated with this plan were $297,000, $189,000 and $225,000
during 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits for retirees and their dependents in the
United States. Employees who have reached the age of 55, and have met the
Company's minimum service requirements, become eligible for these benefits. The
medical and life insurance benefits available are partially contributory in
nature, and it is the Company's practice to fund these benefits as incurred.
Retirees outside the United States are generally covered by locally sponsored
government programs.
Following is an analysis of postretirement benefit costs for fiscal 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................................... $ 297 $ 386 $ 381
Interest cost.............................................................. 1,112 1,378 1,307
Amortization of transition obligation...................................... 583 770 840
------ ------ ------
Net postretirement benefit cost............................................ 1,992 2,534 2,528
Curtailment loss........................................................... -- 1,050 --
------ ------ ------
Total postretirement benefit cost..................................... $1,992 $3,584 $2,528
------ ------ ------
------ ------ ------
</TABLE>
As a result of the Prestone business sale, during fiscal 1995 the Company
recognized a one-time postretirement curtailment loss of $1,050,000.
33
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's accumulated postretirement benefit obligation (the transition
obligation) at June 30, 1996 and 1995 is comprised of the following components:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................................... $ (8,771) $ (9,635)
Fully eligible active plan participants.......................... (2,005) (1,818)
Active plan participants not fully eligible...................... (4,058) (3,697)
-------- --------
Total....................................................... (14,834) (15,150)
Unrecognized transition obligation.................................... 9,964 10,547
Unrecognized (gain) loss.............................................. (631) 82
-------- --------
Accrued unfunded postretirement benefit cost.......................... $ (5,501) $ (4,521)
-------- --------
-------- --------
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 8% for fiscal 1996 and 1995. The assumed health care cost
trend rate used to measure the accumulated postretirement benefit obligation was
12% in 1996 and is expected to gradually decline 1% per year to an ultimate rate
of 7% in fiscal year 2001. A 1% increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of June 30, 1996 by $630,000 and increase the service and interest
cost for 1996 by $60,000.
13. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In May, 1994, the Company was sued by IQ Products ('IQ') and CSA Limited,
Inc. for alleged breach of IQ's contract to supply the Company with STP Flat
Tire Repair and other automotive aerosol products. The Company counter claimed
against IQ for breach of contract and warranty respecting STP Flat Tire Repair.
In June, 1996 the United States District Court in Houston, Texas overturned a
$3,555,000 jury verdict in favor of IQ and ordered a new trial, based on a
finding that the verdict was not supported by the weight of the credible
evidence. A new trial is expected later this year, and management believes that
the Company has meritorious defenses and counterclaims in this action.
On June 16, 1995, the Company commenced an action against several of its
primary and excess insurance carriers in the United States District Court for
the District of Connecticut entitled First Brands Corporation vs. American
International Specialty Lines Insurance Company, et al. By this action the
Company seeks to recover damages sustained by the Company in resolving a series
of lawsuits arising out of the discontinued AFT mobile recycling franchise
business (the 'AFT Litigation'). Although the Company believes that the
liability involved in the AFT Litigation is subject to insurance, its carriers
have not yet agreed to accept liability and the Company is proceeding with the
litigation, which is not expected to be reached for trial until 1998. On July 1,
1996 the Company resolved an action which the Company had commenced against
Butler Corporation in connection with the AFT Litigation in order to avoid
prolonged litigation, and accompanying expenses, costs and attorneys' fees.
The Company is subject to various other claims, and contingencies related
to lawsuits and other matters arising out of the normal course of business.
Management believes that the ultimate liability, if any, arising from the above
described claims and other claims and contingencies discussed in this section,
is not likely to have a material adverse effect on the Company's annual results
of operations or financial condition.
34
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
The Company assumed certain liabilities of Union Carbide, including most
environmental liabilities connected with the acquisition of the worldwide home
and automotive businesses of Union Carbide at the inception of the Company. To
the extent that the Company incurs environmental liabilities which relate to
conditions existing or actions taken prior to the closing date or which relate
to compliance with any requirement of an environmental law or regulation which
existed as of the date of the acquisition agreement, the Company will be
entitled to indemnification from Union Carbide for 85% of such liabilities in
excess of $10,000,000 up to aggregate expenditures by Union Carbide for such
liabilities (and certain other liabilities specified in the acquisition
agreement) of $75,000,000. Based upon the facts available to date, while the
Company does not believe that its liability will exceed the liability
established at the acquisition date, it has notified Union Carbide that the
amount may exceed the $10,000,000 liability, thereby triggering Union Carbide's
indemnification.
The Company is a party to a contract with Union Carbide that provides for
the purchase of a substantial portion of the Company's primary raw material
requirements for plastic wrap and bags through December 31, 1999. The pricing
provisions in the Company's present supply contracts are designed to be
responsive to market conditions of the relevant raw materials.
14. GEOGRAPHIC SEGMENT DATA
The following is a summary of net sales, operating profit, and identifiable
assets in the United States and internationally in 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
United States............................................ $ 932,183 $ 926,166 $ 986,367
International............................................ 140,839 110,349 99,953
---------- ---------- ----------
Total............................................... $1,073,022 $1,036,515 $1,086,320
---------- ---------- ----------
---------- ---------- ----------
Operating profit:
United States............................................ $ 135,500 $ 129,069 $ 141,361
International............................................ 12,513 9,181 9,389
Less Corporate Expense................................... (19,412) (19,403) (20,275)
---------- ---------- ----------
Total............................................... $ 128,601 $ 118,847 $ 130,475
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States............................................ $ 775,447 $ 754,220 $ 744,769
International............................................ 85,433 85,726 69,216
---------- ---------- ----------
Total............................................... $ 860,880 $ 839,946 $ 813,985
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Operating profit reflects net sales less cost of goods sold, selling,
general and administrative expenses and amortization and other depreciation.
Included in U.S. net sales are export sales totaling $37,055,000,
$37,201,000 and $31,096,000 during the years ended June 30, 1996, 1995 and 1994,
respectively. The Company does not believe that it is dependent on any single
customer, however, net sales to its largest customer were approximately 12% in
1996 and 1995, and approximately 14% in 1994.
15. ACQUISITIONS
On March 19, 1996, the Company purchased, for approximately $32,000,000,
the net assets of Forest Technology Incorporated ('Forest Technology'), the
manufacturer and marketer of the STARTERLOGG and HEARTHSIDE brand of wood fire
starters and fire logs.
35
<PAGE>
<PAGE>
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective May 1, 1995, the Company purchased, for approximately $8,700,000,
79% of the capital stock of Multifoil Holding (PTY) LTD ('Multifoil'). During
fiscal 1996, the Company acquired an additional 3% of Multifoil's outstanding
capital stock. Multifoil is a South African manufacturer and marketer of plastic
film products for consumers and the packaging industry.
On July 13, 1994, the Company purchased the cat litter and absorbent
mineral assets of Excel Mineral Incorporated and Excel International
Incorporated, ('Excel') for approximately $45,000,000. The assets include the
JONNY CAT brand of premium cat care products.
All of the above acquisitions have been accounted for by the purchase
method, and accordingly, the results of operations of Forest Technology,
Multifoil and Excel are included in the Company's Consolidated Statements of
Income from the respective dates of acquisition. The excess of cost over net
assets acquired is being amortized over a forty year period on a straight line
basis.
16. INTERIM REPORTING (UNAUDITED)
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales....................................... $ 250,789 $263,084 $ 262,207 $296,942
Gross profit.................................... 84,562 90,128 97,115 114,114
Net income...................................... 15,533 14,637 16,689 18,241
Net income per common share..................... $0.37 $0.34 $0.39 $0.43
</TABLE>
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales....................................... $ 264,167 $233,008 $ 247,932 $291,408
Gross profit.................................... 103,341 89,227 92,379 105,682
Income before extraordinary item................ 15,074 11,842 14,254 2,020
Net income...................................... 15,074 7,349 14,254 2,020
Per common share:
Income before extraordinary item........... $0.34 $0.28 $0.34 $0.05
Net income................................. $0.34 $0.18 $0.34 $0.05
</TABLE>
36
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
FIRST BRANDS CORPORATION:
Under date of August 8, 1996, we reported on the consolidated balance
sheets of First Brands Corporation and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1996, as contained in the annual report on Form 10-K for the year ended June 30,
1996. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the index to Item 14 of Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
...............................
KPMG PEAT MARWICK LLP
New York, New York
August 8, 1996
37
<PAGE>
<PAGE>
SCHEDULE II
FIRST BRANDS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
OF PERIOD EXPENSES DEDUCTIONS(a) OF PERIOD
---------- ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1996
---------------------------------------------------------
Allowance for doubtful accounts and discounts............. $6,154 $ 36,590 $ (36,708) $ 6,036
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and discounts............. $5,269 $ 35,648 $ (34,763) $ 6,154
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1994
---------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and discounts............. $5,529 $ 32,900 $ (33,160) $ 5,269
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
</TABLE>
- ------------
(a) Deductions represent write-offs and discounts net of recoveries of amounts
previously written off.
38
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
FIRST BRANDS CORPORATION
By /s/ JOSEPH B. FUREY
..................................
JOSEPH B. FUREY
VICE PRESIDENT AND CONTROLLER
August 7, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has also been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ ALFRED E. DUDLEY Chairman and Director August 7, 1996
.........................................
(ALFRED E. DUDLEY)
/s/ WILLIAM V. STEPHENSON President, Chief Executive Officer and August 7, 1996
......................................... Director
(WILLIAM V. STEPHENSON)
/s/ DONALD A. DESANTIS Senior Vice President and Chief Financial August 7, 1996
......................................... Officer
(DONALD A. DESANTIS)
/s/ ALAN C. EGLER Director August 7, 1996
.........................................
(ALAN C. EGLER)
/s/ JAMES R. MAHER Director August 7, 1996
.........................................
(JAMES R. MAHER)
/s/ JAMES R. MCMANUS Director August 7, 1996
.........................................
(JAMES R. MCMANUS)
/s/ DWIGHT C. MINTON Director August 7, 1996
.........................................
(DWIGHT C. MINTON)
/s/ DENIS NEWMAN Director August 7, 1996
.........................................
(DENIS NEWMAN)
/s/ ERVIN R. SHAMES Director August 7, 1996
.........................................
(ERVIN R. SHAMES)
/s/ ROBERT G. TOBIN Director August 7, 1996
.........................................
(ROBERT G. TOBIN)
</TABLE>
39
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company, as amended by consent of the stockholders of the
Company as of April 11, 1991. Incorporated by reference to Exhibit 3.1 to Form 10-K filed by the
registrant on September 25, 1992.
3.2 -- By-Laws of the Company, as amended by consent of the stockholders of the Company as of April 11, 1991,
and as further amended by the Board of Directors on January 20, 1995, pursuant to Article Fifth,
Section G of the Restated Certificate of Incorporation. Incorporated by reference to Form 10-K filed by
the Registrant on September 26, 1995.
4.1 -- Indenture between the Company and United States Trust Company of New York, dated as of March 1, 1992,
relating to the 9 1/8% Senior Subordinated Notes due 1999. Incorporated by reference to Exhibit 4.1 to
Form 10-K filed by the Registrant on September 25, 1992.
4.2 -- Specimen 9 1/8% Senior Subordinated Note. Incorporated by reference to Exhibit 4.2 to Form 10-K filed
by the Registrant on September 25, 1992.
10.1 -- Credit Agreement, dated as of February 3, 1995, among the Company, Chemical Bank, as Agent, and The
Several Lenders Parties thereto. Incorporated by reference to Exhibit 10.1 to Form 10-Q for Quarter
ended March 31, 1995, filed by the Registrant on May 11, 1995.
10.2 (a) -- Leasing Agreement, dated as of November 16, 1993, between the Company and Citicorp North America,
Inc., relating to its Glad Plastic Bag and Wrap facility in Cartersville, Georgia. Incorporated by
reference to Exhibit 10.2 to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on
February 14, 1994.
(b) -- Rider No. 1 thereto, dated as of December 1, 1993. Incorporated by reference to Exhibit 10.2(b) to
Form 10-K filed by the Registrant on September 12, 1994.
(c) -- Rider No. 2 thereto, dated as of May 11, 1994. Incorporated by reference to Exhibit 10.2(c) to Form
10-K filed by the Registrant on September 12, 1994.
10.3 (a) -- Equipment Lease Agreement, dated as of October 15, 1993, between the Company and PNC Leasing Corp,
relating to its Glad Plastic Bag and Wrap facility in Rogers, Arkansas. Incorporated by reference to
Exhibit 10.6 to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on February 14,
1994.
(b) -- First Amendment thereto, dated as of October 15, 1995. Incorporated by reference to Exhibit 10.3(b) to
Form 10-Q for Quarter ended December 31, 1995, filed by Registrant on February 12, 1996.
10.4 (a) -- Agreement dated December 23, 1994 between the Company and Pitney Bowes Credit Corporation ('Pitney
Bowes') to the exercise by the Company of an Early Purchase Option with regard to certain equipment at
the Company's GLAD Plastic Wrap and Bag facility at Rogers, Arkansas. (This equipment was subject to
the Equipment Lease Agreement dated as of December 23, 1991 between Pitney Bowes and the Company; the
Equipment Lease Agreement was previously filed as and incorporated by reference to Exhibit 10.9 to Form
S-1 filed by the Registrant on February 7, 1992.) Incorporated by reference to Exhibit 10.5(a) to Form
10-Q for Quarter ended December 31, 1994, filed by the Registrant on February 14, 1995.
(b) -- Bill of Sale by Pitney Bowes, dated December 23, 1994, for certain equipment repurchased by the
Company pursuant to the Company's exercise of the Early Purchase Option provided for in the Equipment
Lease Agreement. Incorporated by reference to Exhibit 10.5(b) to Form 10-Q for Quarter ended December
31, 1994, filed by the Registrant on February 14, 1995.
10.5 -- Letters dated May 4, 1995 and June 23, 1995 of the Company and NationaBanc Leasing Corporation
('NationsBanc' -- successor in interest to NationsBanc Leasing Corporation of Georgia), respectively,
relating to the exercise by the Company of an Early Purchase Option with regard to certain equipment at
the Company's GLAD plastic wrap and bag facility in Amherst, Virginia. (This equipment was subject to
the Equipment Lease Agreement dated as of June 25, 1992, between NationsBanc and the Company; the
Equipment Lease Agreement was previously filed as and incorporated by reference to Exhibit 10.14 to
Form 10-K filed by the Registrant on September 25, 1992.) Incorporated by reference to Form 10-K filed
by the Registrant on September 26, 1995.
10.6 -- Purchase Agreement, dated as of June 25, 1993, between the Company and Nationsbanc Leasing
Corporation, relating to the sale and leaseback of certain equipment at the Company's GLAD plastic wrap
and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.16 to Form 10-K filed by
the Registrant on September 28, 1993.
</TABLE>
40
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.7 -- Equipment Lease Agreement, dated as of June 25, 1993, between the Company and Nationsbanc Leasing
Corporation, relating to the sale and leaseback of certain equipment at the Company's GLAD plastic wrap
and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.17 to Form 10-K filed by
the Registrant on September 29, 1993.
10.8 (a) -- Sales Agreement, dated as of January 1, 1989 between Union Carbide Chemicals & Plastics Company, Inc.
(formerly Union Carbide Corporation) and the Company, (confidential treatment has been granted with
respect to certain portions of the Sales Agreement; such portions were omitted and filed separately
with the Securities and Exchange Commission). Incorporated by reference to Exhibit 10.22(b) to Form
10-K filed by the Registrant on September 19, 1989.
(b) -- Sales Agreement, dated March 1, 1991, between Union Carbide Chemicals and Plastics Company Inc. and
the Company, (confidential treatment has been granted with respect to certain portions of the Sales
Agreement, such portions were omitted and filed separately with the Securities and Exchange
Commission). Incorporated by reference to Post-Effective Amendment No. 1 to Form S-1 filed by the
Registrant on June 12, 1991.
10.9 -- Agreement, dated December 29, 1994, between the Company and Metropolitan Life Insurance Company, for
the purchase of the 13.25% Subordinated Note due 2001 (the 'Note'), outstanding in the principle amount
of $45,000,000, by the Company on January 4, 1995. (The Note was issued pursuant to the Note Purchase
Agreement ('Purchase Agreement') dated as of July 1, 1986, between the Company and Metropolitan and the
Subordinated Notes Registration Rights Agreement ('Rights Agreement') dated as of July 1, 1986; the
Purchase Agreement was previously filed as and incorporated by reference to Exhibit 4(ii) to Form S-1
filed by the Registrant on July 15, 1986; the Rights Agreement was previously filed as and incorporated
by reference to Exhibit 10(xii) to Form S-1 filed by the Registrant on July 15, 1986.) Incorporated by
reference to Exhibit 10.11(b) to Form 10-Q for Quarter ended December 31, 1994, filed by the Registrant
on February 14, 1995.
10.10 -- Underwriting Agreement among the Company, certain stockholders and The First Boston Corporation and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated as representatives of the
Several Underwriters, relating to 8,400,000 shares of Common Stock of the Company. Incorporated by
reference to Exhibit 1.1 to Form S-1 filed by the Registrant on March 5, 1991.
10.11 -- Subscription Agreement among the Company, certain stockholders and Credit Suisse First Boston Limited
and Merrill Lynch International Limited as Managers, relating to 2,110,000 shares of Common Stock of
the Company. Incorporated by reference to Exhibit 1.2 to Form S-1 filed by the Registrant on March 5,
1991.
10.12 -- Underwriting Agreement, dated as of February 26, 1992, between the Company and The First Boston
Corporation, relating to $100,000,000 in 9 1/8% Senior Subordinated Notes due 1999. Incorporated by
reference to Exhibit 10.19 to form 10-K filed by the Registrant on September 25, 1992.
10.13 (a) -- Pooling and Servicing Agreement, dated as of May 21, 1992, between the Company, First Brands Funding
Inc and Chemical Bank, as Trustee, relating to First Brands Funding Master Trust trade
receivables-backed financing. Incorporated by reference to Exhibit 10.20(a) to form 10-K filed by the
Registrant on September 25, 1992.
(b) -- Variable Funding Supplement thereto, dated as of May 21, 1992. Incorporated by reference to Exhibit
10.20(b) to form 10-K filed by the Registrant on September 25, 1992.
(c) -- Amendment No. 1 thereto, dated as of December 22, 1993. Incorporated by reference to Exhibit 10.18(c)
to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on February 14, 1994.
10.14 -- Asset Purchase and Sale Agreement, dated as of May 21, 1992, between the Company and First Brands
Funding Inc, relating to First Brands Funding Master Trust trade receivables-backed financing.
Incorporated by reference to Exhibit 10.21 to form 10-K filed by the Registrant on September 25, 1992.
10.15 -- Asset Purchase and Sale Agreement, dated as of May 21, 1992, between the Company and Himolene
Incorporated, relating to First Brands Funding Master Trust trade receivables-backed financing.
Incorporated by reference to Exhibit 10.22 to form 10-K filed by the Registrant on September 25, 1992.
10.16 * -- Asset Purchase and Sale Agreement, dated as of June 27, 1996, between the Company and A & M Products
Inc., relating to First Brands Funding Master Trust trade receivables-backed financing.
</TABLE>
41
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.17 * -- Second Amended and Restated Letter of Credit Reimbursement Agreement, dated as of April 22, 1996,
between the Company, Credit Suisse, First Brands Funding Inc and First Brands Funding Master Trust,
amending and restating the Amended and Restated Letter of Credit Reimbursement Agreement, dated as of
December 2, 1993, relating to First Brands Funding Master Trust trade receivables-backed financing.
10.18 -- Amended Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.34 to Form 10-K filed by the
Registrant on September 12, 1990.
10.19 -- First Brands Corporation 1994 Performance Stock Option and Incentive Plan. Incorporated by reference
to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the
Registrant on September 28, 1993.
10.20 -- First Brands Corporation Non-Employee Directors Stock Option Plan. Incorporated by reference to
Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Registrant
on September 26, 1995.
10.21 -- First Brands Corporation Annual Incentive Plan. Incorporated by reference to Exhibit A to the
Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Registrant on September 26,
1995.
10.22 -- Rights Agreement, dated as of March 22, 1996, between the Company and Continental Stock Transfer &
Trust Company, as Rights Agent, including the form of Certificate of Designation, Preferences and
Rights of Junior Participating Preferred Stock, Series A, attached thereto as Exhibit A, the form of
Rights Certificate attached thereto as Exhibit B and the Summary of Rights attached thereto as Exhibit
C. Incorporated by reference to Exhibit 1.1 to Form 8-A filed by the Registrant on March 25, 1996.
10.23 (a) -- Purchase and Sale Agreement, dated as of June 30, 1994, between the Registrant and Vestar/Freeze
Holdings Corporation and Vestar Equity Partners, L.P., relating to the sale by the Registrant of its
businesses of developing, manufacturing, marketing, selling and/or distributing automotive antifreeze,
cooling system tools, cooling system chemicals for cleaning and sealing leaks in automotive cooling
systems, ice fighting products, PRESTONE brake fluid products, PRESTONE power steering fluid products,
and PRESTONE transmission stop-leak fluid products, and antifreeze recycling business. Incorporated by
reference to Exhibit 2.1 to Form 8-K filed by the Registrant on September 12, 1994.
(b) -- Amendment No. 1 thereto, dated as of August 25, 1994. Incorporated by reference to Exhibit 2.2 to Form
8-K filed by the Registrant on September 12, 1994.
11* -- Computation of Net Income Per Common Share.
21* -- Subsidiaries of Registrant.
23* -- Consent of KPMG Peat Marwick LLP.
27* -- EDGAR Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
42
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A & M PRODUCTS INC.,
AS SELLER
AND
FIRST BRANDS CORPORATION,
AS PURCHASER
------------------------
ASSET PURCHASE AND SALE AGREEMENT
DATED AS OF JUNE 27, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
ASSET PURCHASE AND SALE AGREEMENT (this 'Agreement' or the 'Purchase
Agreement'), dated as of June 27, 1996, by and between FIRST BRANDS CORPORATION,
a Delaware corporation (the 'Purchaser' or 'First Brands'), and A & M PRODUCTS
INC., a Texas corporation ('A&M').
WITNESSETH:
WHEREAS, the Purchaser desires to purchase from time to time certain trade
accounts receivable of certain obligors generated on or before the Cut-Off Date
(as defined) or to be generated after the Cut-Off Date by A&M in the normal
course of their respective businesses pursuant to written agreements or with
invoices on open accounts;
WHEREAS, A&M desires to sell from time to time and assign certain trade
accounts receivable to the Purchaser upon the terms and conditions hereinafter
set forth;
WHEREAS, A&M and the Purchaser are entering into this Agreement with the
intention that the transactions contemplated hereby will be executed; and
WHEREAS, A&M is a Subsidiary of the Purchaser;
NOW, THEREFORE, it is hereby agreed by and between the Purchaser and A&M as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions by reference herein, attached hereto as Annex
Y. All other capitalized terms used herein shall have the meanings specified
herein.
SECTION 1.2 Other Definitional Provisions. The words 'hereof,' 'herein' and
'hereunder' and words of similar import when used in this Agreement or any
Conveyance Paper shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and Section, Subsection, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Subsections, Schedules and Exhibits in or to this Agreement unless otherwise
specified.
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES;
DESIGNATED SUBSIDIARIES
SECTION 2.1 Sale. (a) Upon the terms and subject to the conditions set
forth herein, A&M hereby sells, assigns, transfers and conveys to the Purchaser,
and the Purchaser hereby purchases from A&M, on the terms and subject to the
conditions specifically set forth herein, all of its respective right, title and
interest in, to and under (i) all Receivables outstanding on the Cut-Off Date
and created by A&M thereafter together with all Related Security and all other
instruments and all rights under the Receivables Documents relating to such
Receivables and all rights (but not the obligations) relating to such
Receivables, (ii) all monies due or to become due with respect thereto and (iii)
all proceeds of the foregoing. The foregoing sale, assignment, transfer and
conveyance does not constitute an assumption by the Purchaser of any obligations
of A&M or any other Person to Obligors or to any other Person in connection with
the Receivables or under any Related Security or other agreement and instrument
relating to the Receivables.
(b) In connection with the foregoing sale, A&M agrees to record and file,
at its own expense, a financing statement or statements with respect to the
Receivables and the other property described in clauses (i), (ii) and (iii) of
Section 2.1(a) sold or to be sold by A&M hereunder meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
to perfect and protect the interests of the Purchaser created hereby under the
applicable UCC against all creditors of and purchasers from A&M, and to deliver
a file-stamped copy of such financing statements or other evidence of such
filings to the Purchaser on or prior to the Initial Closing Date.
1
<PAGE>
<PAGE>
(c) The Purchaser shall not purchase Receivables hereunder if A&M shall
become an involuntary party to (or be made the subject of) any proceeding
provided for by any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to A&M or relating to all or
substantially all of its property (an 'Involuntary Case') upon receipt by A&M at
its head corporate office of notice of such Involuntary Case.
(d) The Purchaser shall not purchase Receivables hereunder if A&M shall
admit in writing its inability to pay its debts as they are due, or A&M shall
commence a voluntary case under the federal bankruptcy laws, as now or hereafter
in effect, or any present or future federal or state bankruptcy, insolvency or
similar law, or A&M shall consent to the appointment of or taking possession by
a receiver, liquidator, assignee, signee, trustee, custodian, sequestrator or
other similar official of A&M or of any substantial part of its property or A&M
shall make an assignment for the benefit of creditors or A&M shall fail
generally to pay its debts as such debts become due or A&M shall take corporate
action in furtherance of any of the foregoing.
(e) In connection with the sale and conveyances hereunder, A&M agrees, at
its own expense, on or prior to the Initial Closing Date, to indicate clearly
and unambiguously in the computer and microfiche files in which such Receivables
are maintained by it or on its behalf that an interest in all Receivables and
the other property described in clauses (i), (ii) and (iii) of Section 2.1(a)
has been conveyed to the Purchaser pursuant to this Agreement as of the Cut-Off
Date.
(f) In connection with the sale and conveyances hereunder A&M further
agrees, at its own expense, on or prior to the Initial Closing Date to deliver
to the Purchaser a computer file, hard copy list or microfiche list containing a
true and complete list of all such Receivables specifying for each such
Receivable, as of the Cut-Off Date, the name of the Obligor thereunder and the
aggregate Unpaid Balance of such Receivable. Such file or list shall be marked
as Schedule 1 hereto and shall be incorporated into and made a part hereof.
ARTICLE III
CONSIDERATION AND PAYMENT
SECTION 3.1 Purchase Price. The purchase price (the 'Purchase Price') for
the Receivables and related property conveyed to the Purchaser under this
Agreement shall be a dollar amount equal to (a) for Receivables transferred on
the Initial Closing Date, the aggregate Unpaid Balance of all Receivables as of
the Cut-Off Date, multiplied by the excess of one over A&M's Discount, and (b)
for Receivables transferred on any date thereafter, the aggregate Unpaid Balance
of all receivables so transferred multiplied by the excess of one over A&M's
Discount.
SECTION 3.2 Payment of Purchase Price. The Purchase Price for the
Receivables and related property shall be paid on the Initial Closing Date with
respect to the Receivables existing on the Cut-Off Date and each Business Day
thereafter on which Receivables are transferred hereunder, by payment in cash in
immediately available funds.
SECTION 3.3 Settlement. On each Business Day, A&M shall deliver to the
Purchaser a report in substantially the form of Exhibit A, showing the aggregate
Purchase Price of Receivables generated on the preceding Business Day and to be
created on such Day and the aggregate repurchase price of Receivables to be
repurchased on such Business Day pursuant to Section 6.1.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 A&M's Representations and Warranties. A&M represents and
warrants to the Purchaser as of the date hereof and as of the Initial Closing
Date, and shall be deemed to represent and warrant as of the date of the
creation of any Receivable sold to the Purchaser hereunder, that:
(a) Organization, Good Standing and Due Qualification. A&M is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this
Agreement, to own or lease all of its properties and assets, to carry on
its business as it is now
2
<PAGE>
<PAGE>
being conducted and to execute, deliver and perform this Agreement and each
other document or instrument to be delivered by it hereunder. A&M is duly
qualified as a foreign corporation in good standing under the laws (or is
exempt from such requirements), and has obtained all necessary licenses and
approvals of each other jurisdiction where the failure to so qualify or to
obtain such licenses and approvals would, if not remedied, render any
Contract or any Receivable unenforceable by A&M or the Purchaser or would,
if not remedied, have a material adverse effect on such contract or
Receivable or on the Purchaser.
(b) Authorization; Valid Agreement. The execution, delivery and
performance of this Agreement and each other document or instrument to be
delivered by A&M hereunder (collectively, the 'Conveyance Papers'), have
been duly authorized by all required corporate action on the part of A&M,
and this Agreement constitutes the legal, valid and binding obligation of
A&M, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors rights in
general and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding-at-law or in
equity).
(c) No Conflicts. The execution, delivery and performance by A&M of
this Agreement and the other Conveyance Papers do not and will not (i)
contravene its charter or by-laws, (ii) violate any provision of, or
require any filing (except for the filings under the UCC required by this
Agreement, each of which has been duly made and is in full force and
effect), registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to A&M, except for such
filings, registrations, consents or approvals as have already been obtained
and are in full force and effect, (iii) result in a breach of or constitute
a default or require any consent under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which A&M is a
party or by which it or its properties may be bound or affected, except
those as to which a consent or waiver has been obtained and is in full
force and effect and an execution copy of which has been delivered to the
Purchaser, or (iv) result in, or require, the creation or imposition of any
lien upon or with respect to any of the properties now owned or hereafter
acquired by A&M other than as specifically contemplated by this Agreement.
(d) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of A&M, threatened against A&M, before any court,
regulatory body, administrative agency, or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement or the other
Conveyance Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or the Conveyance Papers, (iii)
seeking any determination or ruling that, in the reasonable judgment of
A&M, would materially and adversely affect the performance by A&M of its
obligations under this Agreement or any other Conveyance Papers, or (iv)
seeking any determination or ruling that would materially and adversely
affect the validity or enforceability of this Agreement or any other
Conveyance Papers or the rights of the Purchaser hereunder or thereunder.
(e) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority
required in connection with the execution and delivery by A&M of this
Agreement or any other Conveyance Papers, the performance by A&M of the
transactions contemplated by this Agreement or any other Conveyance Papers
and the fulfillment by A&M of the terms hereof and thereof, have been
obtained and are in full force and effect.
(f) Bona Fide Receivables. Each Receivable is or will be an account
receivable arising out of A&M's performance in accordance with the terms of
the Contract giving rise to such Receivable. A&M has no knowledge of any
fact which should have led it to expect at the time of the initial creation
of an interest in any Receivable hereunder that such Receivable would not
be paid in full when due except with respect to any Sales and Marketing
Discount. Each Receivable classified as an 'Eligible Receivable' by A&M in
any document or report delivered hereunder will satisfy the requirements of
eligibility contained in the definition of Eligible Receivable.
3
<PAGE>
<PAGE>
(g) Taxes. A&M has filed all tax returns (federal, state and local)
required to be filed and has paid or made adequate provision for the
payment of all taxes, assessments and other governmental charges due from
A&M or is contesting any such tax, assessment or other governmental charge
in good faith through appropriate proceedings. A&M knows of no basis for
any material additional tax assessment for any fiscal year for which
adequate reserves have not been established.
(h) Place of Business. The principal place of business of A&M if it
has only one place of business or its chief executive office (as that term
is used in the UCC) if it has more than one place of business is as set
forth on Schedule 2 hereto and the offices where A&M keeps its records
concerning the Receivables and related Contracts are as set forth on
Schedule 2 hereto.
(i) Financial Condition. Since September 30, 1995 there has been no
material adverse change in the ability of A&M to service and collect the
Receivables and the Related Security. As of the Initial Closing Date, there
has been no material adverse change in the financial condition of A&M since
September 30, 1995.
(j) Use of Proceeds. No proceeds of the sale of any Receivable
hereunder received by A&M will be used by A&M to acquire any security in a
transaction that is subject to Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended, or to purchase or carry any margin
security.
(k) Lock-Box Banks and Accounts. The Lock-Box Banks are the only
institutions holding any lock-box accounts for the receipt of payments from
Obligors in respect of Receivables, and all Obligors under all Receivables
have been instructed to make payments only to banks which are Lock-Box
Banks and such instructions are in full force and effect and all Obligors,
and only such Obligors, have been instructed to make payments only to
Lock-Box Accounts and such instructions are in full force and effect.
(l) Not an Investment Company. A&M is not an 'investment company'
within the meaning of the Investment Company Act of 1940, as amended, or is
exempt from all provisions of such Act.
The representations and warranties set forth in this Section 4.1 shall
survive the sale of the Receivables to the Purchaser. Upon discovery by A&M or
the Purchaser of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
thereof to the others.
SECTION 4.2 A&M's Representations and Warranties Regarding Receivables.
(a) Valid Sale, etc. A&M represents and warrants to the Purchaser as of the
Initial Closing Date with respect to the Receivables outstanding on the Cut-Off
Date and shall be deemed to represent and warrant on each day thereafter with
respect to the Receivables created on such date that:
(i) A&M is not insolvent;
(ii) A&M is the legal and beneficial owner of all right, title and
interest in and to each such Receivable, and each such Receivable has been
or will be transferred to the Purchaser free and clear of any Lien other
than Liens for municipal or other local taxes if such taxes shall not at
the time be due and payable or if A&M shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have
set aside on its books adequate reserves in accordance with GAAP with
respect thereto;
(iii) all consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required to
be obtained, effected or given by A&M in connection with the transfer of
such Receivables and other related property with respect thereto
transferred hereunder to the Purchaser have been duly obtained, effected or
given and are in full force and effect;
(iv) A&M has clearly and unambiguously marked all its computer records
and all microfiche storage files regarding such Receivables and other
related property with respect thereto transferred hereunder as the property
of the Purchaser. This Agreement constitutes a valid transfer and
assignment to the Purchaser of all right, title and interest of A&M in the
Receivables now existing and hereafter created and in the Related Security
and Collections with respect thereto, all proceeds (as defined in the UCC)
of each Receivable free and clear of any Adverse Claim or interest of any
Person. Upon the filing of any financing statements described in Section
7.1(d) and, in the case of
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the Receivables hereafter created or transferred to the Purchaser and the
proceeds thereof, upon the creation or transfer thereof, the Purchaser
shall have a first priority perfected ownership interest in such property
except for Liens for municipal or other local taxes if such taxes shall not
at the time be due and payable or if A&M shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have
set aside on its books adequate reserves in accordance with GAAP with
respect thereto; provided, however, that A&M makes no representation or
warranty with respect to the effect of Section 9-306(4) of the UCC on the
rights of the Purchaser to proceeds held by A&M at the time insolvency
proceedings are instituted by or against A&M of the Receivables to which
the proceeds relate;
(v) as of the Initial Closing Date, Schedule 1 to this Agreement is
and will be an accurate and complete listing of all the Receivables in all
material respects as of each day such report covers and the information
contained therein with respect to the identity of each Receivable and the
Unpaid Balance existing thereunder is and will be true and correct in all
material respects as of such day; as of the close of business on June 26,
1996, the aggregate Unpaid Balance for all Receivables conveyed by A&M to
the Purchaser was $8,069,742; as of the close of business on June 26, 1996
the aggregate Unpaid Balance for all Eligible Receivables conveyed by A&M
to the Purchaser was $7,854,654;
(vi) each such Receivable and Related Security and Collections with
respect thereto has been or will be transferred to the Purchaser free and
clear of any Adverse Claim of any Person; and
(vii) each account receivable conveyed pursuant to Section 2.01(a)
hereof is on the date of creation of such account receivable and each
Receivable classified as an 'Eligible Receivable' by A&M in any document or
report delivered hereunder will satisfy the requirement of eligibility
contained in the definition of Eligible Receivable.
(b) Notice of Breach. The representations and warranties set forth in this
Section 4.2 shall survive the transfer and assignment of the Receivables and the
Related Security and Collections with respect thereto to the Purchaser. Upon
discovery by any of A&M or the Purchaser of a breach of any of the
representations and warranties set forth in this Section 4.2, the party
discovering such breach shall give prompt written notice thereof to the other.
SECTION 4.3 Representations and Warranties of the Purchaser. As of the date
hereof and as of the Initial Closing Date, the Purchaser hereby represents and
warrants to, and agrees with, A&M and shall be deemed to represent and warrant
as of the date of the creation of any Receivable sold to the Purchaser hereunder
that:
(a) Organization and Good Standing. The Purchaser is a corporation
duly organized and validly existing in good standing under the laws of the
State of Delaware and has full corporate power, authority, and right to own
its properties and to conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver,
and perform its obligations under the Conveyance Papers.
(b) Due Qualification. The Purchaser is neither required to qualify,
nor to register, as a foreign corporation in any state in order to conduct
its business, and has obtained all necessary licenses and approvals with
respect to the Purchaser required under federal, Delaware and Connecticut
law.
(c) Due Authorization. The execution and delivery of the Conveyance
Papers and the consummation of the transactions provided for in the
Conveyance Papers have been duly authorized by the Purchaser by all
necessary corporate action on the part of the Purchaser.
(d) No Conflict. The execution and delivery of the Conveyance Papers,
the performance of the transactions contemplated by the Conveyance Papers
and the fulfillment of the terms of the Conveyance Papers will not conflict
with, result in any breach of any of the material terms and provisions of,
or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of trust,
or other instrument to which the Purchaser is a party or by which it or any
of its properties are bound.
(e) No Violation. The execution and delivery of the Conveyance Papers,
the performance of the transactions contemplated by the Conveyance Papers,
and the fulfillment of the terms of the
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Conveyance Papers will not conflict with or violate any Requirements of Law
applicable to the Purchaser.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Purchaser, threatened against the
Purchaser, before any Governmental Authority (i) asserting the invalidity
of the Conveyance Papers, (ii) seeking to prevent the consummation of any
of the transactions contemplated by the Conveyance Papers, (iii) seeking
any determination or ruling that, in the reasonable judgment of the
Purchaser, would materially and adversely affect the performance by the
Purchaser of its obligations under the Conveyance Papers, or (iv) seeking
any determination or ruling that would materially and adversely affect the
validity or enforceability of the Conveyance Papers to which the Purchaser
is a party.
(g) All Consents Required. All approvals, authorizations, licenses,
consents, orders, or other actions of any Person or of any Governmental
Authority required in connection with the execution and delivery of the
Conveyance Papers, the performance of the transactions contemplated by the
Conveyance Papers, and the fulfillment of the terms of the Conveyance
Papers have been obtained.
The representations and warranties set forth in this Article IV shall
survive the conveyance of the Receivables to the Purchaser, and termination of
the rights and obligations of the Purchaser and A&M under this Agreement. Upon
discovery by the Purchaser or A&M of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other.
ARTICLE V
COVENANTS OF A&M AND PURCHASER
SECTION 5.1 A&M Covenants. A&M hereby covenants and agrees with the
Purchaser as follows:
During the term of this Agreement, and until all Receivables sold to the
Purchaser shall have been paid in full or written-off, and all amounts owed by
A&M pursuant to this Agreement have been paid unless the Purchaser otherwise
consents, in writing, A&M covenants and agrees as follows:
(a) Compliance with Laws, etc. A&M shall duly satisfy all obligations
on their part to be fulfilled under or in connection with the Receivables,
will maintain in effect all qualifications required under Requirements of
Law in order to properly convey the Receivables and the related property to
be conveyed hereunder and will comply in all material respects with all
Requirements of Law in connection with creating the Receivables the failure
to comply with which would have a material adverse effect on the Purchaser
or its interest in the Receivables.
(b) Preservation of Corporate Existence. A&M (i) shall preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and (ii) shall qualify and remain
qualified in good standing as a foreign corporation in each jurisdiction
where the failure to preserve and maintain such existence, rights,
franchises, privileges and qualification would, if not remedied, materially
adversely affect the interests of the Purchaser or its interests in the
Receivables, or the ability of A&M to perform its obligations hereunder in
the case of (ii) and where such failure shall remain unremedied for a
period of 30 days or such failure has a material adverse effect on the
interests of the Purchaser or its interests in the Receivables or on the
ability of A&M to perform its obligations hereunder.
(c) Audits. At any time and from time to time during A&M's regular
business hours, on reasonable prior notice and for a purpose reasonably
related to this Agreement, A&M shall, in response to any reasonable request
of the Purchaser, permit the Purchaser, or its agents or representatives
(which may include its Permitted Assignees (defined in Section 9.5)), at
the cost and expense of A&M (a) to examine and make copies of and abstracts
from all books, records and documents (including, without limitation,
computer tapes and disks) in the possession or under the control of A&M
relating to the Receivables, the Related Security and the related Contracts
and (b) to visit the offices and properties of A&M for the purpose of
examining such materials and to discuss matters relating to the Receivables
or A&M's performance hereunder with any of the officers or employees of A&M
having knowledge thereof or A&M's independent accountants.
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(d) Keeping of Records and Books of Account. A&M shall maintain and
implement administrative and operating procedures (including, without
limitation, the ability to recreate records evidencing the Receivables and
the related property with respect thereto conveyed hereunder in the event
of the destruction of the originals thereof), and keep and maintain all
documents, books, microfiche, computer records and other information
reasonably necessary or advisable for the collection of all the Receivables
and such related property. Such books, microfiche and computer records
shall reflect all facts giving rise to the Receivables, all payments and
credits with respect thereto, and the computer records shall be clearly
marked to show the interests of the Purchaser in the Receivables.
(e) Performance and Compliance with Receivables and Contracts. At its
expense A&M shall timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by them
under the Contracts related to the Receivables.
(f) Continuous Perfection. A&M shall not change its name, identity or
structure in any manner which might make any financing or continuation
statement filed hereunder misleading within the meaning of Section 9-402(7)
of the UCC (or any other then applicable provision of the UCC) unless A&M
shall have given the Purchaser at least 90 days' prior written notice
thereof and shall have taken all action 60 days prior to making such change
(or made arrangements to take such action substantially simultaneously with
such change if it is impossible to take such action in advance) necessary
or advisable in the opinion of the Purchaser or its Permitted Assignees to
amend such financing statement or continuation statement so that it is not
misleading. A&M shall not change its chief executive office or change the
location of its principal records concerning the Receivables, the Related
Security and the Collections from the locations specified in Section 4.1(h)
unless it has given the Purchaser at least 60 days' prior written notice of
its intention to do so and has taken such action as is necessary or
advisable to cause the interest of the Purchaser in the Receivables, the
Related Security and the Collections to continue to be perfected with the
priority required by this Agreement. A&M will at all times maintain its
principal executive office and any other office at which it maintains
records relating to the Receivables and the Related Security within the
United States of America.
(g) Certain Documentation. A&M shall hold in trust for the account of
the Purchaser (to the extent of its interest therein) any document
evidencing or securing any Receivable and the related Contract, other than
instruments (as such term is used in the UCC), if any, that shall have been
delivered to the Purchaser hereunder. A&M hereby delegates its obligations
and duties under this Section 5.1(g) to the Servicer; provided, however,
that such delegation shall not release A&M's obligations and duties under
this Section 5.1(g). Such holding in trust by A&M or Servicer shall be
deemed to be the holding thereof by the Purchaser for purposes of
perfecting the Purchaser's rights therein as provided in the UCC. A&M
shall, upon the Purchaser's request, deliver to the Purchaser any document
held by A&M in trust hereunder.
(h) Assessments. A&M will promptly pay and discharge all taxes,
assessments, levies and other governmental charges imposed on it which may
materially and adversely affect any of the Receivables or rights with
respect thereto.
(i) Further Action. A&M shall make, execute or endorse, acknowledge,
and file or deliver to the Purchaser from time to time such schedules,
confirmatory assignments, conveyances, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and
take such further steps relating to the Receivables, the Related Security
and the Collections and other rights covered by this Agreement, as the
Purchaser may request and reasonably require including executing and
delivering to the Purchaser any instruments, financing or continuation
statements or other writings reasonably necessary or desirable to maintain
the perfection or priority of its ownership interest in the Receivables,
the Related Security and the Collections under the UCC or other applicable
law. At any time at the request of the Purchaser, A&M shall from time to
time, deliver to, and sign any bills, statements and letters directed to
the Obligors on the Receivables or other writings necessary to carry out
the terms and provisions of this Agreement and to facilitate the collection
of the Receivables.
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(j) No Transfer. A&M shall not sell, assign, pledge, convey or
otherwise transfer any Receivable or any interest therein except for the
transfer of such Receivable to the Purchaser as provided herein.
(k) Indemnification. A&M agrees to indemnify, defend and hold the
Purchaser harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency, or expense (including interest, penalties,
reasonable attorneys' fees and amounts paid in settlement) to which the
Purchaser may become subject insofar as such loss, liability, damage,
judgment, claim, deficiency, or expense arises out of or is based upon a
breach by A&M of its representations, warranties and covenants contained
herein, or any information certified in any Schedule delivered by A&M
hereunder, being untrue in any respect at any time. The obligations of A&M
under this Section 5.1(k) shall be considered to have been relied upon by
the Purchaser and shall survive the execution, delivery, performance and
termination of this Agreement regardless of any investigation made by the
Purchaser or on its behalf.
(l) Sale. A&M agrees to treat this conveyance for all purposes
(including without limitation tax and financial accounting purposes) as a
sale on all relevant books, records, tax returns, financial statements and
other applicable documents.
SECTION 5.2 Purchaser Covenant Regarding Sale Treatment. The Purchaser
agrees to treat this conveyance for all purposes (including without limitation
tax and financial accounting purposes) as a sale on all relevant books, records,
tax returns, financial statements and other applicable documents.
ARTICLE VI
[RESERVED]
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to the Purchaser's Obligations Regarding
Receivables. The obligations of the Purchaser to purchase the Receivables on any
Business Day and on the Initial Closing Date shall be subject to the
satisfaction of the following conditions:
(a) All representations and warranties of A&M contained in this
Agreement shall be true and correct on the Initial Closing Date and the
date hereof, and, with respect to the representations and warranties of A&M
contained in this Agreement relating to the Receivables, shall also be true
and correct on the day of creation of any Receivable with the same effect
as though such representations and warranties had been made on such date;
(b) All information concerning the Receivables provided to the
Purchaser shall be true and correct in all material respects as of the
Cut-Off Date, in the case of Receivables transferred on the Initial Closing
Date, or the Date of Processing, in the case of Receivables created after
the Initial Closing Date;
(c) At the Initial Closing Date, A&M shall have delivered to the
Purchaser a computer file or microfiche list containing a true and complete
list of all Receivables identified by name of Obligor and by Unpaid Balance
and shall have substantially performed all other obligations required to be
performed by the provisions of this Agreement;
(d) A&M shall have recorded and filed, at its expense, any financing
statement with respect to the Receivables now existing and hereafter
created for the transfer of accounts generated by A&M (as defined in
Section 9-106 of the UCC) meeting the requirements of applicable state law
in such manner and in such jurisdictions as are necessary under the
applicable UCC to perfect the sale of the Receivables from A&M to the
Purchaser, and shall deliver (or have previously delivered) a file-
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stamped copy of such financing statements or other evidence of such filings
(which may, for purposes of this paragraph, consist of telephone
confirmations of such filings) to the Purchaser; and
(e) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Purchaser, and the Purchaser
shall have received from A&M copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Purchaser may reasonably have requested.
SECTION 7.2 Conditions Precedent to A&M's Obligations. The obligations of
A&M to sell Receivables on the Initial Closing Date and on any Business Day
shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Purchaser contained in
this Agreement shall be true and correct with the same effect as though
such representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.3 hereof shall have been made.
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to A&M, and A&M shall have received from
the Purchaser copies of all documents (including, without limitation,
records of corporate proceedings) relevant to the transactions herein
contemplated as A&M may reasonably have requested.
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.1 Term. This Agreement shall commence as of the date of execution
and delivery hereof and shall continue in full force and effect until the
earlier of: (a) a date which shall be three years from the Initial Closing Date
subject to automatic extensions of one year periods unless otherwise agreed to
in writing by A&M and the Purchaser; or (b) upon the occurrence of any of the
following events: the Purchaser or A&M shall (i) become insolvent, (ii) fail to
pay its debts generally as they become due, (iii) voluntarily seek, consent to,
or acquiesce in the benefit or benefits of any Debtor Relief Law, (iv) become a
party to (or be made the subject of) any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, and, in the event such
proceeding is involuntary, the petition instituting same is not dismissed within
60 days after its filing; provided, however, that the Purchaser shall have no
duty to continue to purchase Receivables from and after the filing of an
involuntary petition but prior to dismissal, or (v) become unable for any reason
to convey or reconvey Receivables in accordance with the provisions of this
Agreement (any such date set forth in clause (a) or (b) hereof being a
'Termination Date'); provided, however, that the termination of this Agreement
pursuant to this subsection 8.1(b) hereof shall not discharge any Person from
any obligations incurred prior to such termination, including, without
limitation, any obligations to repurchase Receivables sold prior to such
termination pursuant to Section 6.1 hereof.
SECTION 8.2 Effect of Termination. No termination or rejection or failure
to assume the executory obligations of this Agreement in the bankruptcy of A&M
or the Purchaser shall be deemed to impair or affect the obligations pertaining
to any executed sale or executed obligations, including, without limitation,
pretermination breaches of representations and warranties by A&M or the
Purchaser. Without limiting the foregoing, prior to termination, the failure of
A&M to deliver computer records of Receivables or Daily Reports shall not render
such transfer or obligation executory, nor shall the continued duties of the
parties pursuant to Article V or Section 9.1 of this Agreement render an
executed sale executory.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment. This Agreement and any other Conveyance Papers and
the rights and obligations of the parties hereunder may not be changed orally,
but only by an instrument in writing signed by the Purchaser and A&M. This
Agreement and any other Conveyance Papers may be amended from time to time by
the Purchaser and A&M to correct or supplement any provisions herein which may
be inconsistent with any other provisions herein or in any other Conveyance
Papers or to add any other provisions with respect to matters or questions
arising under this Agreement or any other Conveyance Papers which shall not be
inconsistent with the provisions of this Agreement or any other Conveyance
Papers.
SECTION 9.2 Governing Law. THIS AGREEMENT AND THE OTHER CONVEYANCE PAPERS
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF THE NEW YORK,
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
SECTION 9.3 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to:
(a) in the case of A&M, to:
A & M Products Inc.
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
Attention: Treasurer
telephone: (203) 731-2487
telecopy: (203) 731-2395
(b) in the case of the Purchaser to:
First Brands Corporation
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
Attention: Treasurer
telephone: (203) 731-2487
telecopy: (203) 731-2395
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
SECTION 9.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement or any other
Conveyance Paper shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement or any
other Conveyance Paper and shall in no way affect the validity or enforceability
of the other provisions of this Agreement or of any other Conveyance Paper.
SECTION 9.5 Assignment. This Agreement and all other Conveyance Papers may
not be assigned by the parties hereto except by the Purchaser in connection with
a transfer of substantially all of the Receivables to a permitted assignee (the
'Permitted Assignee').
SECTION 9.6 Further Assurances. The Purchaser and A&M agree to do and
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the other party more fully to
effect the purposes of this Agreement and the other Conveyance Papers,
including, without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
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SECTION 9.7 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Purchaser or A&M, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privileged hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exhaustive of any rights, remedies,
powers and privilege provided by law.
SECTION 9.8 Counterparts. This Agreement and all other Conveyance Papers
may be executed in two or more counterparts (and by different parties on
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.9 Binding Effect; Third-Party Beneficiaries. This Agreement and
the other Conveyance Papers will inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Any
Permitted Assignee shall be considered a third-party beneficiary of this
Agreement.
SECTION 9.10 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement and the other Conveyance Papers set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement and
the other Conveyance Papers. This Agreement and the other Conveyance Papers may
not be modified, amended, waived or supplemented except as provided herein.
SECTION 9.11 Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning of interpretation of any
provision hereof.
SECTION 9.12 Schedules and Exhibits. The schedules and exhibits attached
hereto and referred to herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
IN WITNESS WHEREOF, the Purchaser and A&M each have caused this Agreement
to be duly executed by their respective officers as of the day and year first
above written.
FIRST BRANDS CORPORATION
as Purchaser
By: .................................
Title:
A & M PRODUCTS INC.
as Seller
By: .................................
Title:
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SCHEDULE 1
INITIAL RECEIVABLES
(SEE ATTACHED)
S-1
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SCHEDULE 2
A & M Products Inc.
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
S-2
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ANNEX Y
ASSET PURCHASE AND SALE AGREEMENT
DEFINITIONS
As used herein the following terms shall include in the singular number the
plural and in the plural number the singular:
'A&M Discount' shall mean 4%.
'Adverse Claim' shall mean any lien, claim, security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease, encumbrance or similar right of any
other Person or any agreement to give any of the foregoing.
'Affiliate' of any Person shall mean any other Person controlling,
controlled by or under common control with such Person or, in any event, a
Person which has the power to vote 25% or more of the securities having
ordinary voting power for the election of directors of the specified
Person. As used herein, 'control' of a specified Person shall mean the
ability to direct or cause the direction of the management and policies of
the specified Person, whether through the direct or indirect ownership of
the voting securities of such specified Person, by contract or otherwise.
'Business Day' shall mean any day other than (a) a Saturday or a
Sunday, (b) another day on which First Brands is closed, as set forth on
the list furnished by (or on behalf of) A&M to the Purchaser on the Initial
Closing Date or prior to December 1 of each year or (c) another day on
which banking institutions or trust companies in the State of New York
generally or The City of New York, New York, are authorized or obligated by
law, executive order or governmental decree to be closed.
'Collections' shall mean, with respect to the Receivables on any
Business Day, all amounts received since the prior Business Day in
collected funds in payment of or in respect of the Receivables, including,
without limitation, all cash proceeds (as such term is defined in the UCC)
of any Related Security therefor.
'Contract' shall mean either a written agreement between A&M and
another Person, or an invoice pursuant to an open account or a written
agreement of a Person, pursuant to which such Person is obligated to pay
for goods, merchandise and/or services, that is in compliance in all
material respects with the requirements of the Credit and Collection
Policy.
'Conveyance Papers' shall have the meaning specified in Section 4.1(b)
of the Purchase Agreement.
'Credit and Collection Policy' shall mean A&M's credit extension
policies and procedures and collection practices relating to Receivables
and Contracts as in effect on the Initial Closing Date, as attached to the
Purchase Agreement and as the same may be modified from time to time.
'Cut-Off Date' shall mean June 26, 1996.
'Daily Report' shall mean a report showing the date and making the
computations required by the terms of the Purchase Agreement to be supplied
in such report. A form of the Daily Report is attached to the Purchase
Agreement.
'Date of Processing' shall mean, with respect to any transaction by
A&M which generates a Receivable, the date that such transaction has been
or should have been first recorded on the computer master file of
Receivables maintained by A&M (without regard to the effective date of such
recordation).
'Debtor Relief Laws' shall mean the Bankruptcy Code of the United
States of America and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization, suspension of payments, readjustment of debt, marshaling of
assets or similar debtor relief laws of the United States, any state or any
foreign country from time to time in effect affecting the rights of
creditors generally.
'Defaulted Receivable' shall mean a Receivable which is recorded as
written off on A&M's computer master file of Receivables as uncollectible,
which shall be deemed to have occurred, no later than earlier of (a) the
121st day after the invoice due date for such Receivable or (b) the date
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on which the Obligor on such Receivable becomes subject to or seeks the
benefit of any Debtor Relief Law.
'Delinquent Receivable' shall mean any Eligible Receivable that is not
a Defaulted Receivable as to which all or any part of the outstanding
balance remains unpaid more than 30 days past the Contract due date.
'Determination Date' shall mean, with respect to any Settlement
Period, the seventh day of the next calendar month or if such day is not a
Business Day, the next succeeding Business Day.
'Dollars' and '$' shall mean dollars in lawful currency of the United
States of America.
'Eligible Receivable' shall mean a Receivable:
(a) that has arisen in the ordinary course of business from the
sale of First Brand's or a Designated Subsidiary's goods, merchandise or
services;
(b) with respect to which the Obligor's obligation to pay is
evidenced by a Contract and such Contract provides for full payment of
the amount thereof (subject to any applicable Sales and marketing
Discount), the delivery of the goods or merchandise or the rendering of
the services giving rise to such Receivable has been completed and such
goods or merchandise or such services have been accepted by the obligor;
(c) that is not a Delinquent Receivable or a Defaulted Receivable;
(d) which does not constitute an obligation of the United States,
any state or other political subdivision thereof, or any agency,
instrumentality or subdivision of any of the foregoing;
(e) which arises out of a 'current transaction' as defined in
Section 3(a)(3) of the Securities Act of 1933, as amended;
(f) that was created in compliance, in all material respects, with
the Credit and Collection Policy and all Requirements of Law applicable
to A&M and pursuant to a Contract that complies, in all material
respects, with the Credit and Collection Policy and all Requirements of
Law applicable to A&M, and, as of the date of conveyance under the
Purchase Agreement, the terms of which have not been extended or
modified except in accordance with the Credit and Collection Policy;
(g) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
Governmental Authority required to be obtained, effected or given by A&M
in connection with the creation of such Receivable or the execution,
delivery and performance by A&M of the related Contract, have been duly
obtained, effected or given and are in full force and effect as of such
date of creation;
(h) as to which, at the time of and at all times after the creation
of such Receivable, A&M had good and marketable title thereto free and
clear of all Liens;
(i) that arises under a Contract which has been duly authorized and
which, together with such Receivable, is in full force and effect and
such Contract, together with such Receivable, constitutes the legal,
valid and binding payment obligation of the Obligor with respect
thereto, enforceable against such Obligor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting the enforcement of creditors' rights in
general and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity);
(j) neither such Receivable nor the related Contract is subject to
any dispute, offset, defense or counterclaim (other than a Sales and
Marketing Discount) with respect to the underlying obligation which has
been communicated to A&M or about which A&M has knowledge;
(k) that is an account receivable representing all or part of the
sales price of merchandise, insurance or services (within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended);
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(l) that is denominated and payable only in United States dollars
and payable to a Lock-Box Account in the United States of America;
(m) the Obligor of which (i) is not bankrupt, insolvent, undergoing
composition or adjustment of debts or is unable to make payment of its
obligations when due, (ii) is located (within the meaning of Section
9-103 of the applicable UCC) within the United States of America and
(iii) is not an Affiliate of A&M;
(n) that constitutes an 'account' under and as defined in Section
9-106 of the UCC as then in effect in the States of Connecticut and
Delaware; and
(o) that arises out of any Existing Business or any New Business of
A&M.
'Existing Businesses' shall mean those businesses in which A&M is
engaged in on the Initial Closing Date.
'GAAP' shall mean generally accepted accounting principles in the
United States.
'Governmental Authority' shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
'Initial Closing Date' shall mean June 27, 1996.
'Lien' shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the foregoing.
'Lock-Box Account' shall mean an account in the name of the Chemical
Bank, as Trustee under the Pooling and Servicing Agreement, maintained
pursuant to a Lock-Box Agreement.
'Lock-Box Agreements' shall mean the collective reference to each
agreement substantially in the form delivered on the Initial Closing Date,
between A&M and a Lock-Box Bank, pursuant to which such Lock-Box Bank
receives or will receive Collections from time to time as provided therein,
and any other future agreement substantially in the form attached to the
Purchase Agreement with any other Lock-Box Bank.
'Lock-Box Banks' shall mean any of the banks listed in Exhibit C to
the Purchase Agreement (including their successors) and any other bank
which becomes a Lock-Box Bank pursuant to and which is a party to a
Lock-Box Agreement and pursuant thereto holds or may in the future hold one
or more lock-box accounts for receiving Collections.
'New Business' shall mean any business (a) the products of which are
distributed in distribution chains substantially the same as those used
with respect to products of the Existing Businesses and (b) are sold with
terms that are substantially the same as those relating to products of the
Existing Businesses.
'Obligor' shall mean, with respect to any Receivable, the Person or
Persons obligated to make payments with respect to such Receivable under a
Contract.
'Person' shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
'Pooling and Servicing Agreement' shall mean the Pooling and Servicing
Agreement, dated as of May 21, 1992, by and among First Brands Funding Inc,
as Transferor, First Brands, as Servicer, and Chemical Bank, as Trustee,
and all amendments thereof and supplements thereto.
'Purchase Date' shall mean the date on which a Receivable is conveyed
to the Buyer and the Purchase Price therefore is due and payable.
'Receivable' shall mean each account receivable that is owing upon
creation to A&M by an Obligor located in the United States of America under
a Contract arising from a sale of goods, merchandise and/or services by
A&M, including all obligations of such Obligor with respect thereto
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and all rights of a secured party (as such term is defined in the UCC) with
respect to such Unpaid Balance, including, without limitation, all proceeds
of the foregoing but not including a Defaulted Receivable or a Reconveyed
Receivable. A Receivable shall be deemed to have been created at the end of
the day on the Date of Processing of such Receivable.
'Receivables Documents' shall mean all Contracts giving rise to the
Receivables and other evidences of Receivables including, without
limitation, tapes, discs, punch cards and related property and rights.
'Related Security' shall mean, with respect to any Receivable, (a) all
of the right, title and interest of A&M in the merchandise (including
returned merchandise), if any, relating to the sale which gave rise to such
Receivable, (b) all other Liens and property subject thereto from time to
time purporting to secure payment of such Receivable, whether pursuant to
the Contract related to such Receivable or otherwise, (c) the assignment
for the benefit of First Brands of all UCC financing statements or similar
instruments covering any collateral securing payment of such Receivable,
(d) all guarantees, insurance and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Receivable whether pursuant to the Contract related to such Receivable or
otherwise, and (e) all other instruments and all rights under the
Receivables Documents relating to such Receivables and all rights (but not
obligations) relating to such Receivables.
'Requirements of Law' for any Person shall mean the certificate of
incorporation or articles of association and by-laws or other
organizational or governing documents of such Person, and any law, treaty,
rule or regulation, or determination of an arbitrator or Governmental
Authority, in each case applicable to or binding upon such Person or to
which such Person is subject, whether Federal, state or local (including,
without limitation, usury laws, the Federal Truth in Lending Act and
Regulation Z and Regulation B of the Board).
'Sales and Marketing Discount' shall mean with respect to any
Receivable, all offsets, discounts and other charges to such Receivable
resulting from sales and marketing activities of A&M and the Obligor,
including, without limitation, offsets or discounts for rapid payment,
coupon collection, display allowances or co-operative advertising.
'Servicer' shall mean the 'Servicer' under the Pooling and Servicing
Agreement.
'Settlement Date' shall mean, with respect to any Determination Date,
the Business Day immediately succeeding such Determination Date.
'Settlement Period' shall mean a calendar month.
'Standard & Poor's' or 'S&P' shall mean Standard & Poor's, a division
of the McGraw Hill Companies.
'Subsidiary' of any Person shall mean any corporation 50% or more of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries
of such Person, or any similar business organization which is so owned or
controlled.
'UCC' shall mean the Uniform Commercial Code, as amended from time to
time, as in effect in any specified or applicable jurisdiction.
'Unpaid Balance' shall mean at any time, with respect to a Receivable,
the outstanding amount of the indebtedness of the related Obligor incurred
in connection with a particular purchase under or evidenced by the related
Contract, exclusive of any sales or other tax, if any, included or payable
with respect to such purchase.
'Written' or 'in writing' shall mean any form of written
communication, including, without limitation, by means of telex, telecopier
device, telegraph or cable.
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[EXECUTION COPY]
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FIRST BRANDS FUNDING MASTER TRUST
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SECOND AMENDED AND RESTATED
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
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DATED AS OF APRIL 22, 1996
AMENDING AND RESTATING THE
AMENDED AND RESTATED
LETTER OF CREDIT REIMBURSEMENT AGREEMENT,
DATED AS OF DECEMBER 2, 1993
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SECOND AMENDED AND RESTATED
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
Second Amended and Restated Letter of Credit REIMBURSEMENT AGREEMENT, dated
as of April 22, 1996, among Credit Suisse, a Swiss banking corporation acting
through its New York Branch (the 'LOC Issuer'), FIRST BRANDS FUNDING INC (the
'Transferor') , FIRST BRANDS CORPORATION (the 'Servicer') and FIRST BRANDS
FUNDING MASTER TRUST (the 'Trust'), a trust formed under the Pooling and
Servicing Agreement and the Variable Funding Supplement thereto (the
'Supplement'), each dated May 21, 1992 (together, the 'Pooling and Servicing
Agreement') among the Transferor, the Servicer and Chemical Bank, as Trustee
(the 'Trustee'), which amends and restates the Amended and Restated Letter of
Credit Reimbursement Agreement originally dated as of December 2, 1993 (the
'Original Reimbursement Agreement').
WITNESSETH:
WHEREAS, the Servicer, the Transferor and the Trustee have entered into the
Pooling and Servicing Agreement in order to issue the Variable Funding
Certificate;
WHEREAS, the Servicer, the Transferor and the Trustee have requested the
LOC Issuer to issue the LOC substantially in the form of Exhibit A hereto to
replace the letter of credit (the 'Original LOC') originally issued by
Westdeutsche Landesbank Girozentrale ('WLB') in support of the Variable Funding
Certificate;
WHEREAS, WLB, as issuer of the Original LOC, has assigned to the LOC Issuer
all of its rights and benefits under the Original Reimbursement Agreement and
the other Loan Documents occurring on and after the date hereof.
WHEREAS, the LOC Issuer, the Transferor, the Servicer and the Trust, acting
through the Trustee, desire to amend and restate the Original Reimbursement
Agreement as set forth below, and the LOC Issuer is willing to issue the LOC on
the terms and conditions herein contained;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. As used in this Letter of Credit Reimbursement
Agreement and unless the context requires a different meaning, capitalized terms
used herein and not otherwise defined have the meanings assigned to such terms
in Annex X hereto which is incorporated by reference herein and shall include in
the singular number the plural and in the plural number the singular.
'Agreement' shall mean this Second Amended and Restated Letter of Credit
Reimbursement Agreement as it may from time to time be amended, supplemented or
otherwise modified in accordance with the terms hereof.
'Replacement Date' shall mean the date on which the LOC is issued by the
LOC Issuer pursuant to this Agreement in replacement of the original LOC.
ARTICLE II
ISSUANCE OF LOC; REIMBURSEMENT OBLIGATION
SECTION 2.01 Issuance of LOC: Substitute LOCs; Extensions of the LOC. (a)
The LOC Issuer hereby agrees, on the terms and subject to the conditions
hereinafter set forth, to issue to the Trustee for the benefit of the Holder of
the Variable Funding Certificate, on the Replacement Date its irrevocable letter
of credit (including any letter of credit issued by the LOC Issuer in
replacement thereof and as such letter of credit may be supplemented, amended,
or modified from time to time, the 'LOC') in the form of Exhibit A hereto,
completed in accordance with such form and the terms of this Section 2.01. The
LOC shall be dated its date of issuance and shall be issued by the LOC Issuer in
an initial stated amount equal to $10,000,000 (the 'LOC Commitment') on the date
of issuance for a term expiring on May 30, 1997, subject to extension as set
forth in Section 2.01(c) (the 'LOC Expiration
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Date') and early termination as set forth in the LOC and shall be applicable to
draws required under Section 4.05 of the Pooling and Servicing Agreement with
respect to the Variable Funding Certificate and Section 4.10 of the Pooling and
Servicing Agreement with respect to the Variable Funding Certificate.
(b) Promptly following the appointment and qualification of any successor
to the Trustee in accordance with the terms of the Pooling and Servicing
Agreement, the LOC Issuer shall deliver to such successor trustee, in exchange
for the outstanding LOC held by the predecessor Trustee, a substitute letter of
credit substantially in the form of Exhibit A hereto, having terms identical to
the then outstanding LOC but in favor of such successor trustee.
(c) The Transferor may request the LOC Issuer to extend the LOC Expiration
Date for a period of one additional year. Within 90 days after receipt of any
notice from the Servicer under this Section 2.01(c), the LOC Issuer shall notify
the Transferor and the Trustee whether or not it agrees to extend the LOC
Expiration Date. If the LOC Issuer elects, in its sole discretion to extend the
LOC Expiration Date, the LOC Expiration Date shall be extended for one
additional year and the LOC Issuer shall either (i) issue to the Trustee in
exchange for the then outstanding LOC a substitute letter of credit having terms
identical to those of the then outstanding LOC but expiring on the LOC
Expiration Date, as so extended, or (ii) deliver to the Trustee an amendment to
the then outstanding LOC to reflect such extension of the LOC Expiration Date.
If the LOC Issuer decides not to extend the Expiration Date, the Transferor may
obtain and deliver to the Trustee a replacement letter of credit or written
notification that other arrangements acceptable to the Rating Agencies have been
obtained to replace the expiring LOC. In the event that the Trustee has not
received an amendment to extend the LOC Expiration Date as provided in this
Section or a replacement letter of credit or other arrangement in lieu of a
replacement letter of credit which each Rating Agency confirms would not cause a
reduction or withdrawal of the then current rating of the Commercial Paper and
which is acceptable to the Required Banks on or prior to the 90th day preceding
the LOC Expiration Date, the LOC Issuer or the Trustee shall give notice to such
effect to the Transferor and the Servicer that an Event of Termination under
Section 9.02 of the Pooling and Servicing Agreement has occurred, and in such
event the LOC Expiration Date shall be extended by the LOC Issuer until thirteen
months after such LOC Expiration Date and in such event, the LOC Issuer shall
deliver either a substitute letter of credit in exchange for the then
outstanding LOC which expires on the LOC Expiration Date or an amendment to the
then outstanding LOC to reflect such extension of the LOC Expiration Date;
provided, however, that in any event the LOC Expiration Date shall occur no
later than the date on which the Variable Funding Certificate has been paid in
full or the Trust has been terminated.
SECTION 2.02 LOC Draws. (a) Pursuant to Section 4.05(a), (c), (d), (g),
(k), (m) or (n) of the Pooling and Servicing Agreement, at or before 4:00 p.m.
(New York City time) on the Business Day immediately preceding the applicable
Payment Date on which a draw is to be made, the Trustee has agreed in the
Pooling and Servicing Agreement to make a drawing under the LOC in the amount
identified in such Servicer's instructions with respect to the Variable Funding
Certificate by delivering to the LOC Issuer a duly completed drawing certificate
(a 'Drawing Certificate') in the form attached as Annex I to the LOC. Upon
receipt of a duly completed Drawing Certificate from the Trustee by 4:00 p.m.
New York City time, the LOC Issuer shall make a payment to the Trustee by 9:30
a.m. (New York City time) on the Business Day succeeding the day of such
drawing, and the Trustee has agreed in the Pooling and Servicing Agreement to
pay to the Holder of the Variable Funding Certificate pursuant to Section
4.05(a), (c), (d), (g), (k), (m) or (n) of the Pooling and Servicing Agreement
the amount received from the LOC Issuer in respect of such drawing.
(b) The LOC Issuer shall, promptly following its receipt thereof, examine
all documents purporting to represent a demand by the Trustee for an LOC
Disbursement to ascertain that the same appear on their face to be in conformity
with the terms and conditions of the LOC. If, after examination, the LOC Issuer
shall have determined that a demand for an LOC Disbursement does not conform to
the terms and conditions of the LOC, then the LOC Issuer shall give prompt
notice to the Transferor and the Trustee to the effect that the demand was not
in accordance with the terms and conditions of the LOC, stating the reasons
therefor and that the relevant documents are being held at the disposal of the
Trustee or are being returned to the Trustee, as the LOC Issuer may elect. The
Trustee may attempt to
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correct any such non-conforming demand for payment under the LOC on or before
the LOC Expiration Date.
(c) It is understood and agreed that in making any payment under the LOC,
the LOC Issuer's exclusive reliance on the documents presented or otherwise
delivered to it under the LOC as to any and all matters set forth therein,
including, without limitation, reliance on the amount of any draft presented
under the LOC, whether or not the amount due to the beneficiary equals the
amount of such draft and whether or not any document presented pursuant to the
LOC proves to be insufficient in any respect, if such document on its face
appears to be in order, and whether or not any other statement or any other
document presented pursuant to the LOC proves to be forged or invalid or any
statement therein proves to be inaccurate or untrue in any respect whatsoever,
shall not be deemed wilful misconduct or gross negligence of the LOC Issuer.
(d) If a Responsible Officer of the Trustee obtains knowledge that the
short-term debt rating of the LOC Issuer will be reduced, suspended or
withdrawn, the Trustee shall promptly make a draw of the Available LOC Amount (a
'Special Drawing') under the LOC and deposit the funds of such Special Drawing
into the LOC Escrow Account (as defined in Section 4.11 of the Pooling and
Servicing Agreement) unless the Rating Agencies confirm that the then current
rating of the Commercial Paper will not be reduced, suspended or withdrawn by
such Rating Agencies because of such reduction, suspension or withdrawal of the
short-term debt rating of the LOC Issuer. In the event a replacement letter of
credit or other arrangement in lieu of a replacement letter of credit which each
Rating Agency confirms would not cause a reduction or withdrawal of the then
current rating of the Commercial Paper is delivered subsequent to such Special
Drawing, this Agreement and the LOC shall terminate and the Trustee shall
surrender the LOC to the LOC Issuer for cancellation; provided, however, that
any reimbursement obligation pursuant to Section 2.03 hereof and Section 4.11 of
the Pooling and Servicing Agreement shall survive such termination.
Notwithstanding the foregoing, prior to or simultaneously with replacing the
LOC, the Servicer shall cause all obligations under the LOC or this Agreement to
the LOC Issuer to be paid in full.
SECTION 2.03 Reimbursement. (a) In order to provide for reimbursement to
the LOC Issuer for any disbursement made under the LOC or any funds otherwise
made available by the LOC Issuer pursuant to the LOC (including a Special
Drawing pursuant to Section 4.10 of the Pooling and Servicing Agreement),
including interest thereon (an 'LOC Disbursement'), and the payment of certain
other amounts due hereunder, the Servicer agrees to perform on a timely basis
each of its obligations set forth in the Pooling and Servicing Agreement in
accordance with its terms. The Servicer and the Transferor acknowledge and agree
that the LOC Issuer shall be reimbursed for LOC Disbursements, the LOC Fee and
all other amounts due to the LOC Issuer hereunder in accordance with Section
4.05(f), (h), (p) and (q) and Section 4.11 of the Pooling and Servicing
Agreement. Each LOC Disbursement made by the LOC Issuer not repaid in full prior
to 3:00 P.M. (New York City time), on the date when made, any LOC Fee not paid
within two Business Days of the due date thereof, and any other amount payable
to the LOC Issuer under this Agreement not paid by the 30th day after the date
notice thereof is given by the LOC Issuer to the Trustee, shall bear interest
from and including the date of the making thereof or due date thereof, as the
case may be, until paid in full (but excluding the date of repayment), after, as
well as before judgment, on the unpaid amount thereof from time to time
outstanding at a rate per annum (computed on the basis of the actual days
elapsed and a year of 360 days) equal to the Base Rate of the LOC Issuer from
time to time in effect plus 2% per annum (such rate being referred to herein as
the 'Unreimbursed Disbursement Rate').
(b) Interest on each LOC Disbursement not repaid in full on the date made
and interest on any other amounts owing hereunder which are not paid when due
shall be payable on demand and in the case of interest on a LOC Disbursement in
any event together with the principal amount of such LOC Disbursement pursuant
to the Variable Funding Supplement.
(c) All payments to be made hereunder (except as provided elsewhere in this
Agreement) shall be made to the LOC Issuer at the account specified on the
signature page hereof (or at such other account as the LOC Issuer may have
specified for such purpose in a written notice to the Trustee and the
Transferor) in immediately available funds. All payments hereunder shall be made
not later than 3:00
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P.M. (New York City time) on the date due, and funds received after that hour
shall be deemed to have been received by the LOC Issuer on the next succeeding
Business Day.
(d) Upon reimbursement of the LOC Issuer for any LOC Disbursement to the
extent of such reimbursement (to the extent such reimbursement is applied to
reimburse the LOC Issuer for the principal amount of an LOC Disbursement)
pursuant to the provisions of this Agreement and the Pooling and Servicing
Agreement, such amount shall be reinstated immediately in the Available LOC
Amount. All payments made to the LOC Issuer pursuant to this Agreement other
than the LOC Fee shall be allocated and paid to the LOC Issuer in accordance
with Sections 4.05(f) and (p) of the Pooling and Servicing Agreement.
SECTION 2.04 No Recourse; Obligations Absolute. Each of the LOC Issuer
agrees that it shall have no right of set-off or banker's lien with respect to
any LOC Disbursement against the Transferor, the Trustee or any Affiliate,
officer or director of any of them. Subject to and without limiting the
foregoing provisions of this Section 2.04, the obligations of the Transferor,
the Servicer and the Trust under Section 2.03 hereof and the right of the LOC
Issuer to be repaid any LOC Disbursement and all other amounts payable to the
LOC Issuer under this Agreement in full shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, irrespective of any of the following circumstances (except as
expressly provided to the contrary below):
(a) any lack of validity or enforceability of this Agreement, the LOC
or the Pooling and Servicing Agreement;
(b) any amendment or waiver of, or consent to or departure from, the
LOC, this Agreement or the Pooling and Servicing Agreement;
(c) the existence of any claim, set-off, defense or other rights which
the Servicer or the Transferor may have at any time against the Trustee,
any beneficiary or any transferee of the LOC (or any persons or entities
for whom the Trustee, any such beneficiary or any such transferee may be
acting), the LOC Issuer or any other person or entity, whether in
connection with the LOC, this Agreement, the Pooling and Servicing
Agreement or any unrelated transactions;
(d) any statement or any document presented under the LOC proving to
be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever,
provided the LOC Issuer's reliance on such statement or documents shall not
have constituted gross negligence or wilful misconduct of the LOC Issuer;
(e) payment by the LOC Issuer under the LOC against presentation of a
Drawing Certificate or other draft or document which does not comply with
the terms of the LOC or this Agreement; provided such payment shall not
have constituted gross negligence or willful misconduct of the LOC Issuer;
(f) the bankruptcy or insolvency of the Trust, the Transferor or the
Servicer; and
(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing; provided that the same shall not have
constituted gross negligence or wilful misconduct of the LOC Issuer.
SECTION 2.05 Facility Fees. (a) The LOC Issuer hereby acknowledges and
agrees that it shall not be entitled to receive from the Transferor or the
Servicer any arrangement fee with respect to the issuance of the LOC.
(b) The Servicer hereby agrees to pay to the LOC Issuer, a letter of credit
commission (the 'LOC Fee') for the period from and including the Replacement
Date to and including the LOC Expiration Date, computed at a rate equal to .6%
per annum, calculated on the LOC Commitment. The LOC Fee shall be payable
quarterly in arrears on the third, sixth, ninth and twelfth Settlement Dates of
each year and on the LOC Expiration Date, and shall be payable to the LOC Issuer
at its account specified on the signature page hereof.
(c) The LOC Fee shall be calculated on the basis of actual days elapsed and
a year of 360 days.
SECTION 2.06 Liability of LOC Issuer. Neither the LOC Issuer nor any of its
officers, directors, employees or agents shall be liable or responsible for: (a)
the use which may be made of the LOC or
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any acts or omissions of the Transferor, the Servicer or the Trustee or any
transferee in connection therewith; (b) the validity, sufficiency or genuineness
of documents (other than the LOC), or of any endorsement thereon, even if such
documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by the LOC Issuer against presentation of
documents which do not comply with the terms of the LOC, including failure of
any documents to bear any reference or adequate reference to the LOC; or (d) any
other circumstances whatsoever in making or failing to make payment under the
LOC; provided, that the Transferor and the Trustee shall have a claim against
the LOC Issuer, and the LOC Issuer shall be liable to the Transferor and the
Trustee, to the extent of any direct, as opposed to consequential, damages
suffered by the Transferor or the Trustee that were caused by (i) the LOC
Issuer's wilful misconduct or gross negligence in determining whether documents
presented under the LOC comply with the terms of the LOC or (ii) the LOC
Issuer's gross negligence in failing to make or wilful failure to make lawful
payment under the LOC after the timely presentation to the LOC Issuer by the
Trustee of a Drawing Certificate strictly complying with the terms and
conditions of the LOC. In furtherance and not in limitation of the foregoing,
the LOC Issuer may accept documents that appear on their face to be in order,
without responsibility for further investigation; provided, that the LOC Issuer
shall not be excused from its wilful misconduct or gross negligence in
determining whether documents presented under the LOC comply with the terms of
the LOC.
SECTION 2.07 Surrender of LOC. Provided that the LOC Issuer is not then in
default under the LOC by reason of its having wrongfully failed to honor a
demand for payment previously made by the Trustee under the LOC, the Trustee
shall surrender the LOC to the LOC Issuer promptly following the earlier of (i)
the LOC Expiration Date and (ii) the termination of the Trust.
SECTION 2.08 Conditions Precedent. The following constitute conditions
precedent to the obligation of the LOC Issuer to issue the LOC on the
Replacement Date:
(a) The LOC Issuer shall have received fully executed copies of the
Pooling and Servicing Agreement, the Supplement, the Purchase Agreement,
the Liquidity Agreement and all related documents, and such agreements
shall be in form and substance satisfactory to the LOC Issuer.
(b) On the date of issuance of the LOC, all representations and
warranties of the Servicer and the Transferor contained in this Agreement
and the Pooling and Servicing Agreement shall be true and correct, and the
LOC Issuer shall have received a certificate from each of the Servicer and
the Transferor to such effect.
(c) on the date of issuance of the LOC, the Transferor and the
Servicer shall not be in default of any obligation under the Pooling and
Servicing Agreement, this Agreement or the Purchase Agreement and no Event
of Termination shall be in existence.
(d) The LOC Issuer shall have received the favorable written opinion
of counsel to First Brands Corporation (who may be an employee of the
Servicer) and the Transferor, dated the Replacement Date, with respect to
the matters reasonably requested by the LOC Issuer.
(e) The LOC Issuer shall have received (i) a copy of the resolutions
of the Board of Directors of the Servicer, certified as of the Replacement
Date by the Secretary or Assistant Secretary thereof, authorizing the
execution, delivery and performance of the Pooling and Servicing Agreement
and this Agreement and the procurement of the LOC, (ii) copies of the
Charter and By-laws of the Servicer (iii) an incumbency certificate of the
Servicer with respect to its officers authorized to execute the Pooling and
Servicing Agreement, this Agreement and the documents required hereby, (iv)
a copy of the resolutions of the Board of Directors of the Transferor,
certified as of the Replacement Date by the Secretary or Assistant
Secretary thereof, authorizing the execution, delivery and performance of
the Pooling and Servicing Agreement and this Agreement, (v) copies of the
Charter and By-laws of the Transferor and (vi) an incumbency certificate of
the Transferor with respect to its officers authorized to execute the
Pooling and Servicing Agreement, this Agreement and the documents required
hereby.
(f) The Pooling and Servicing Agreement shall be in full force and
effect and the Variable Funding Certificate shall have been validly issued.
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(g) The LOC Issuer shall have received such other documents,
certificates, instruments, approvals and opinions as the LOC Issuer may
reasonably request.
SECTION 2.09 Increased Costs and Taxes. (a) Increased Costs. Subject to
Section 2.13, if after the date hereof, the adoption of any law or guideline or
any amendment or change in the administration, interpretation or application of
any existing or future law or guideline by any official Body charged with the
administration, interpretation or application thereof, or the compliance with
any request or directive of any Official Body (whether or not having the force
of law):
(i) shall subject the LOC Issuer to any tax, duty or other charge with
respect to this Agreement or any payments made hereunder, or shall change
the basis of taxation of payments to the LOC Issuer of any amounts due
under this Agreement (except for changes in the rate of tax on the overall
net income of the LOC Issuer imposed by the jurisdiction in which such LOC
Issuer's principal executive office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit, capital charge or similar requirement (including, without
limitation, any such requirement imposed by the Board) against the LOC or
the obligations of the LOC Issuer thereunder or against assets of, deposits
with or for the account of, or credit extended by, the LOC Issuer or shall
impose on the LOC Issuer or the LOC or on the United States market for
certificates of deposit or the London interbank market any other condition
affecting this Agreement or the LOC; or
(iii) imposes upon the LOC Issuer any other condition or expense
(including, without limitation, (i) loss of margin and (ii) reasonable
attorneys' fees and expenses, and expenses of litigation or preparation
therefor in contesting any of the foregoing) with respect to this Agreement
or the LOC or any payments made hereunder,
and the result of any of the foregoing is to increase the cost to the
LOC Issuer of maintaining the LOC, or to reduce the amount of any sum
received or receivable by the LOC Issuer under this Agreement, by an amount
deemed by the LOC Issuer to be material, then the Servicer shall pay to the
LOC Issuer such additional amount or amounts as will compensate the LOC
Issuer for such increased cost or reduction. If the LOC Issuer becomes
entitled to claim any additional amounts pursuant to this Section 2.09, it
shall promptly notify the Servicer of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable
pursuant to this Section submitted by an officer of the LOC Issuer to the
Servicer shall be conclusive, in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of
all amounts payable hereunder.
(b) If the LOC Issuer shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Official Body, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
Official Body, has or would have the effect of reducing the rate of return on
capital of the LOC Issuer (or its parent) as a consequence of the LOC or the LOC
Issuer's obligations thereunder or hereunder to a level below that which the LOC
(or its parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by the LOC Issuer to be material, then from time
to time, the Servicer shall pay to the LOC Issuer such additional amount or
amounts as will compensate the LOC Issuer (or its parent) for such reduction.
(c) The LOC Issuer shall promptly notify the Servicer and the Transferor of
any event of which it has knowledge, occurring after the date hereof, which will
entitle the LOC Issuer to compensation pursuant to clause (a) or (b) of this
Section. The Servicer shall, promptly after receipt, provide a copy of such
notice from the LOC Issuer to the Rating Agencies. A certificate of the LOC
Issuer claiming compensation under clause (a) or (b) of this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount, the LOC
Issuer may use any reasonable averaging and attributing methods.
(d) (A) All payments made under this Agreement shall be made free and clear
of, and without reduction for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings now or hereafter imposed, levied, collected, withheld
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or assessed by any Governmental Authority excluding, in the case of the LOC
Issuer, net income and franchise taxes based upon net income imposed on the LOC
Issuer by the jurisdiction under the laws of which it is organized or in which
is located any office from or at which the LOC Issuer is honoring any Drawing
Certificate or any political subdivision or taxing authority thereof or therein
(all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
and withholdings being hereinafter called 'Taxes'). If any Taxes are required to
be withheld from any amounts payable to the LOC Issuer hereunder, the amounts so
payable to the LOC Issuer hereunder shall be increased (and the Servicer shall
pay such increase) to the extent necessary to yield to the LOC Issuer (after
payment of all Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement. The Servicer shall
advise the Trustee when and if any Taxes are payable by the Trustee in
connection with this Agreement or the LOC and, as promptly as possible after
payment of such Taxes, the Trustee shall send to the LOC Issuer a certified copy
of the original official receipt, if any, received by the Trustee showing
payment thereof.
(B) If the Trustee fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the LOC Issuer the required receipts or
other required documentary evidence, the Servicer shall indemnify the LOC Issuer
for any incremental taxes, interest or penalties that may become payable by the
LOC Issuer as a result of any such failure.
(e) The agreements in this Section 2.09 shall survive the termination of
this Agreement and the payment of all amounts payable hereunder.
SECTION 2.10 Reserved
SECTION 2.11 Events of Default. Upon the occurrence of any of the following
events (each an 'Event of Default') , and so long as such Event of Default shall
continue unremedied:
(a) (i) failure of any LOC Disbursement, including interest thereon,
to be paid when due, (ii) failure of any LOC Fee to be paid within 2
Business Days following the due date thereof and (iii) failure of any other
payment under this Agreement to be paid within 2 Business Days following
the due date thereof; provided that amounts specified in item (iii) shall
not be deemed due until the 30th day after notice thereof has been given to
the Trustee; or
(b) Representations. Any representation or warranty or statement made
by the Servicer or the Transferor in this Agreement or in the Pooling and
servicing Agreement shall prove to have been incorrect in any material
respect when made, which continues to be incorrect in any material respect
for a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer or the Transferor by the Trustee or the LOC Issuer; or
(c) Covenants. Failure by the Servicer or the Transferor to observe or
perform in any material respect any covenant or agreement contained herein
or in the Pooling and Servicing Agreement and not constituting an Event of
Default under any other clause of this Section 2.11 which continues
unremedied for a period of 60 days after the earlier of actual knowledge or
the date on which written notice of such failure shall have been given; or
(d) Voluntary Bankruptcy Proceedings of the Servicer or the
Transferor. Either (i) an order for relief under Title 11 of the United
States Code shall be entered in a case in which the Servicer or the
Transferor is a debtor, or the Servicer or the Transferor shall become
insolvent or generally fail to pay, or admit in writing its inability to
pay, its debts as they become due, or shall voluntarily commence any
proceeding or file any petition under any bankruptcy, insolvency or similar
law or seeking dissolution or reorganization or the appointment of a
receiver, trustee, custodian or liquidator for itself or a substantial
portion of its property, assets or business or to effect a plan or other
arrangement with its creditors, or shall file any answer admitting the
jurisdiction of the court and the material allegations of an involuntary
petition filed against it in any bankruptcy, insolvency or similar
proceeding, or shall be adjudicated bankrupt, or shall make a general
assignment for the benefit of creditors, or shall consent to, or acquiesce
in the appointment of, a receiver, trustee, c, 'custodian or liquidator for
itself or a substantial portion of its property, assets or business or (ii)
corporate action shall be taken by the Servicer or the Transferor for the
purpose of effectuating any of the foregoing; or
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(e) Involuntary Bankruptcy Proceedings against the Servicer or the
Transferor. Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Servicer or the Transferor under any
bankruptcy, insolvency or similar law or seeking the dissolution or
reorganization of the Servicer or the Transferor or the appointment of a
receiver, trustee, custodian or liquidator for the Servicer or the
Transferor or of a substantial part of the property, assets or business of
the Servicer, or any writ, order, judgment, warrant of attachment,
execution or similar process shall be issued or levied against a
substantial part of the property, assets or business of the Servicer or the
Transferor, and such proceeding or petition shall not be dismissed, or such
writ, order, judgment, warrant of attachment, execution or similar process
shall not be released, vacated or fully bonded, within 60 days after
commencement, filing or levy, as the case may be; or
(f) No Valid Agreement. This Agreement or the Pooling and Servicing
Agreement shall, at any time after its execution and delivery, for any
reason cease to be in full force and effect (unless such occurrence is in
accordance with its terms) or shall be declared to be null and void, or the
validity or enforceability thereof shall be contested by the Servicer or
the Servicer shall deny that it has any or further liability or obligation
thereunder;
(g) Matured Default. A Matured Default under the Liquidity Agreement
shall have occurred, if any;
(h) Other Agreements. The Liquidity Agreement (or any provision
thereof material to the Holders of the Variable Funding Certificate) shall
fail to be in full force and effect, enforceable in accordance with its
terms, or the security interest purported to be created by the Security
Agreement shall fail to be a valid and enforceable perfected first priority
security interest in favor of the Collateral Agent in any of the
Collateral; or
(i) Servicer Default. A Servicer Default shall have occurred and be
continuing or the Servicer shall be changed from First Brands (or any
successor Servicer to which the LOC Issuer has consented) without the
consent of the LOC Issuer;
then and in any such event, the LOC Issuer may (i) give notice to the Servicer
of the occurrence of the Event of Default which becomes an Event of Termination
under Section 9.02 of the Pooling and Servicing Agreement, and (ii) pursue, to
the extent permitted by applicable law, any other remedy available at law or in
equity, including, without limitation, the remedy of specific performance of any
covenant or agreement herein contained (any such Event of Default followed by
the notice specified in item (i) above, a 'Matured Default').
SECTION 2.12 Conflicting Instructions from the Trustee. Notwithstanding any
other provision of this Agreement, in the event the LOC Issuer (i) receives a
demand for a drawing to be made under the LOC and (ii) receives any
communication purportedly from the Trustee or any of its officers, employees or
agents which communication indicates that such demand is not in order, the LOC
may defer honoring such demand until it receives further written instructions
from the Trustee as to the disposition of such demand.
SECTION 2.13 Limited Recourse to Servicer and Trust. The LOC Issuer agrees
that the obligations of the Trust hereunder shall be payable solely from
available Issuer Imputed Yield Collections in the Collection Account pursuant to
Sections 4.05(f) and (p) of the Pooling and Servicing Agreement (subject to all
prior claims thereon specified in the Pooling and Servicing Agreement) and that
the LOC Issuer shall not look to any other property or assets of the Trust in
respect of such obligations and that such obligations shall not constitute a
claim against the Trust in the event that the assets of the Trust which are
available pursuant to Sections 4.05(f) and (p) are insufficient to pay in full
such obligations. The obligations of the Servicer under Sections 2.05(b), 2.09,
3.03(i), 4.02 and 4.03 are full recourse obligations of the Servicer,
collectible out of its assets. To the extent the Servicer makes any payments to
the LOC Issuer under 2.05(b), 2.09, 4.02 and 4.03, the Servicer shall be
entitled to reimbursement for such amounts on a basis subordinate to the LOC
Issuer under Sections 4.05(f) and (p) of the Pooling and Servicing Agreement;
provided that the Servicer agrees that it shall only be entitled to look to
amounts available in the Collection Account pursuant to Sections 4.05(f) and (p)
of the Pooling and Servicing Agreement if at the time of such payment no amounts
are owing to the LOC Issuer hereunder, and not to other assets of the Trust and
that such reimbursement amounts shall not
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constitute an obligation of the Trust in the event that the assets of the Trust
which are available pursuant to Sections 4.05(f) and (p) are insufficient to
make such reimbursement. The Servicer shall not be entitled to receive
reimbursement from the Trust at anytime when amounts are owing to the LOC Issuer
hereunder and the payment of such reimbursement is subject and subordinate to
the prior payment in full in cash of all LOC Disbursements (including interest
thereon) and all other amounts owing to the LOC Issuer (including all amounts
payable by the Servicer under Sections 2.05(b), 2.09, 3.03(i), 4.02 and 4.03).
The Trustee is not acting in an individual capacity under this Agreement, but
solely as trustee of the Trust.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.01 Representations. Each of the Servicer and the Transferor
hereby represents, warrants and covenants that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, and has full
corporate power, authority and legal right to execute, deliver and perform
its obligations under this Agreement and the Pooling and Servicing
Agreement and, in all material respects, to own its property and conduct
its business as such properties are presently owned and as such business is
presently conducted.
(b) It is duly qualified to do business and is in good standing as a
foreign corporation (or is exempt from such requirements), and has obtained
all necessary licenses and approvals in each jurisdiction in which the
failure to obtain such license or approval would have a material adverse
effect upon the Certificateholders or upon its ability to perform its
obligations under this Agreement or the Pooling and Servicing Agreement.
(c) The execution, delivery and performance of this Agreement and the
Pooling and Servicing Agreement, and the consummation of the transactions
provided in this Agreement and the Pooling and Servicing Agreement, have
been duly authorized by all necessary corporate action on its part.
(d) This Agreement and the Pooling and Servicing Agreement constitute
its legal, valid and binding obligations, enforceable against it in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereinafter in effect, relating to the enforcement of
creditors' rights in general and, with respect to any Successor Servicer
which is a national banking association, the rights of creditors of
national banks under United States law and except as such enforceability
may be limited by general principles of equity (whether considered in a
proceeding at law or in equity).
(e) Its execution and delivery of this Agreement and the Pooling and
Servicing Agreement, and the performance of the transactions contemplated
by this Agreement and the Pooling and Servicing Agreement and the
fulfillment of the terms hereof applicable to it, will not conflict with,
violate, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a
default under, or require any consent, approval or registration under, any
Requirement of Law applicable to it or any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which it is a party or by
which it is bound.
(f) There are no proceedings or investigations, pending or, to the
best of its knowledge, threatened against it before any court, regulatory
body, administrative agency or other tribunal or governmental
instrumentality (i) seeking to prevent the issuance of the Certificates or
the consummation of any of the transactions contemplated by this Agreement
or the Pooling and Servicing Agreement, (ii) seeking any determination or
ruling that, in its reasonable judgment, would materially and adversely
affect its performance of its obligations under this Agreement or the
Pooling and Servicing Agreement, or (iii) seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability of this Agreement or the Pooling and Servicing Agreement.
(g) All approvals, authorizations, consents, orders or other actions
of any Person or of any governmental body or official required in
connection with the execution and delivery of this
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Agreement, the performance by it of this Agreement and the Pooling and
Servicing Agreement, the transactions contemplated by this Agreement and
the Pooling and Servicing Agreement and the fulfillment by it of the terms
hereof and thereof, have been obtained.
(h) No Event of Default under this Agreement, no Event of Termination,
no Servicer Default, no Event of Default under the Liquidity Agreement, and
no event, which with lapse of time or notice or both would become any of
such events has occurred and is continuing.
(i) Neither the Servicer nor the Transferor nor any of their
respective subsidiaries nor the Trust is an 'investment company' as that
term is defined in, or is otherwise subject to regulation under, the
Investment Company Act of 1940, as amended.
(j) Neither the Servicer nor the Transferor nor any of their
respective subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock, and no part of the proceeds of the
credits extended hereby or under the Pooling and Servicing Agreement will
be used to purchase or carry any such Margin Stock or to extend credit to
others for the purpose of purchasing or carrying such margin Stock if such
action would violate, or be inconsistent with, any rules or regulations of
the Federal Reserve Board, including without limitation, any provisions of
Regulation G, T, U or X.
SECTION 3.02 Additional Representations. The Transferor and the Servicer
represent and warrant that the representations and warranties made by them in
Sections 2.03, 2.04 and 3.03 of the Pooling and Servicing Agreement are true and
correct as of the dates there so made.
SECTION 3.03 Covenants. Each of the Servicer and the Transferor covenants
and agrees that, so long as the LOC shall remain in effect or any monetary
obligation arising hereunder or under the Pooling and Servicing Agreement shall
remain unpaid, unless the LOC Issuer shall otherwise consent in writing, it
shall:
(a) for the benefit of the LOC Issuer and for so long as this
Agreement shall be in effect, perform and comply with each of its
respective agreements, warranties and indemnities contained in this
Agreement and the Pooling and Servicing Agreement; provided that the remedy
for the breach of this clause (a) as to warranties of the Servicer and the
Transferor in the Pooling and Servicing Agreement, shall, to the extent
that the remedy for such breach is limited in the Pooling and Servicing
Agreement, be so limited herein;
(b) Neither the Servicer nor the Transferor shall, without the consent
of the LOC Issuer, amend or waive or consent to any amendment to or waiver
of (i) Article IV of the Pooling and Servicing Agreement as it relates to
the Variable Funding Supplement (including such portions of Article IV
which may be restated in the Variable Funding Supplement) or any definition
to the extent used therein, (ii) the definition of Discount Factor in a
manner which cause a reduction thereof, (iii) Section 9.02 of the Pooling
and Servicing Agreement or (iv) any other provision of the Pooling and
Servicing Agreement or any other Facilities Document to the extent the LOC
Issuer would be materially adversely affected thereby; provided that the
addition of a Supplement for a Series will not in and of itself cause a
material adverse effect on the LOC Issuer;
(c) deliver to the LOC Issuer a copy of each amendment or supplement
to the Pooling and Servicing Agreement or of the Liquidity Agreement, any
Supplement, the Purchase Agreement or any of the other agreements
contemplated hereby;
(d) execute and deliver to the LOC Issuer all such documents and
instruments and do all such other acts and things as may be necessary or
reasonably required by the LOC Issuer or the Trustee to enable the Trustee,
on behalf of the Trust, or the LOC Issuer to exercise and enforce their
respective rights under this Agreement and the Pooling and Servicing
Agreement and to realize thereon, and record and file and rerecord and
refile all such documents and instruments, at such time or times in such
manner and at such place or places, all as may be necessary or reasonably
required by the Trustee or the LOC Issuer to validate, preserve and protect
the position of the Trust and the LOC Issuer under this Agreement and the
Pooling and Servicing Agreement;
(e) not sell all or substantially all of its property and assets to,
or consolidate with or merge into, any other corporation, without the
consent of the LOC Issuer;
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(f) furnish to the LOC Issuer a copy of each certificate, report,
statement, notice or other communication (other than investment
instructions) furnished by or on behalf of First Brands Funding Inc, as
Transferor, or the Servicer, to Certificateholders, the Trustee or the
Rating Agencies concurrently therewith and furnish to the LOC Issuer
promptly after receipt thereof, a copy of each notice, demand or other
communication received by First Brands Funding Inc, as Transferor, or the
Servicer from the Trustee, the Certificateholders or the Rating Agencies
with respect to the Variable Funding Certificate, the LOC, this Agreement
or the Pooling and Servicing Agreement; and furnish such other information
as the LOC Issuer may reasonably request;
(g) promptly advise the LOC Issuer of the occurrence of any Event of
Termination or Servicer Default under the Pooling and Servicing Agreement;
(h) with respect to the Receivables, promptly notify the LOC Issuer of
any material changes in the Credit and Collection Policy, and in any event
will not, except as required by law, make any material change to the Credit
and Collection Policy which could reasonably be expected to have a material
adverse effect on the collectibility of the Receivables, taken as a whole
or on the rights of the LOC Issuer;
(i) upon reasonable written notice from the LOC Issuer, allow
employees and agents of the LOC Issuer, during the Servicer's normal
business hours, to audit the Servicer's books and records concerning the
Receivables, and the servicing thereof; provided, however, that such audit
is performed without unreasonable disruption of the Servicer's operations;
and provided, further, that such audit may be conducted at the Servicer's
expense only once each calendar year, and all costs and expenses of any
audit after the first in any calendar year shall be paid by the LOC Issuer;
(j) perform on a timely basis all of its obligations under the Pooling
and Servicing Agreement;
(k) not, and cause the Trust not to, purchase the Variable Funding
Certificate if at the time thereof or after giving effect thereto any
amount is or will be owing to the LOC Issuer hereunder; and
(l) use its reasonable best efforts to replace the LOC if any Special
Drawing is outstanding or the LOC Issuer denies an extension request made
hereunder.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01 Method and Place of Payments and Net Payments. (a) Unless
otherwise specified herein, all payments to the LOC Issuer hereunder shall be
made in lawful currency of the United States and in immediately available funds
prior to 3:00 P.M. (New York City time) on the date such payment is due by wire
transfer to the account of the LOC Issuer specified with its signature below or
to such other office or account maintained by the LOC Issuer as the LOC Issuer
may direct.
(b) Whenever any payment under this Agreement shall be stated to be due on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in computing interest, commissions or fees, if any, in connection with
such payment.
SECTION 4.02 Expenses. Subject to Section 2.13 the Servicer agrees to pay
all reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) and all stamp, transfer and similar
taxes, if any, incurred by the LOC Issuer in connection with the execution,
delivery, amendment, modification, waiver and enforcement of this Agreement, the
LOC, the Pooling and Servicing Agreement and any other document delivered in
connection herewith or therewith.
SECTION 4.03 Indemnity. (a) The Servicer agrees to indemnify and hold
harmless the LOC Issuer and its officers, directors, employees and agents (the
LOC Issuer, its officers, directors, employees and agents shall be individually
referred to herein as an 'Indemnitee') from and against any and all claims,
damages, losses, liabilities, costs or expenses whatsoever which any such
Indemnitee may incur (or which may be claimed against any such Indemnitee) by
reason of or in connection with the execution and delivery or assignment of, or
payment under, the LOC or this Agreement or any transactions
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contemplated hereby or by the Pooling and Servicing Agreement, or by reason of
any default in the reimbursement of any LOC Disbursement except to the extent
that any such claim, damage, loss, liability, cost or expense is caused by the
willful misconduct or gross negligence of any such Indemnitee. In the event of a
LOC Disbursement pursuant to Sections 4.05(d) or (n) of the Pooling and
Servicing Agreement as a result of the failure of the Transferor to reimburse
the Trust for credits, the Transferor shall indemnify, and pay, to the LOC
Issuer the amount of such credits to the extent of the unreimbursed LOC
Disbursement. The foregoing indemnity shall include any claims, damages, losses,
liabilities, costs and expenses to which the LOC Issuer may become subject under
the Securities Act of 1933, as amended (the 'Act'), the Securities Exchange Act
of 1934, as amended, or other federal or state law or regulation. This covenant
shall survive the termination of this Agreement and the expiration of the LOC.
(b) The Servicer shall not assign (whether voluntarily or as a result of a
Servicer Default) any of its rights or obligations hereunder or under the
Pooling and Servicing Agreement (except as permitted by Section 8.07 of the
Pooling and Servicing Agreement; provided that any such assignment made without
the prior written consent of the LOC Issuer shall not relieve the Servicer of
its obligations hereunder) to any Person unless (i) the prior written consent of
the LOC Issuer shall have been obtained, and (ii) prior to the effective date of
such assignment, such Person shall have executed and delivered to the LOC Issuer
a written agreement in form and substance reasonably satisfactory to the LOC
Issuer in which such Person agrees to be bound by the terms, covenants and
conditions contained herein and in the Pooling and Servicing Agreement
applicable to the Servicer as Servicer, and subject to the duties and
obligations of the Servicer hereunder after the effective date of its
appointment and shall agree to indemnify and hold harmless the LOC Issuer from
and against any and all claims, damages, losses, liabilities, costs or expenses
whatsoever which the LOC Issuer may incur (or which may be claimed against the
LOC Issuer) by reason of the gross negligence or wilful misconduct of the
successor Servicer in exercising its powers and carrying out its obligations
herein and under the Pooling and Servicing Agreement. Any Successor Servicer
appointed pursuant to the Pooling and Servicing Agreement shall likewise agree
to the terms set forth in clause (ii). As of the date of its acceptance, such
Successor Servicer shall be deemed to have made with respect to itself the
representations and warranties made by the Servicer in Sections 3.01 and 3.02.
Following the effective date of appointment, the Servicer shall be released from
all duties and liabilities as Servicer hereunder, but such release shall not
affect any obligations of the Servicer that arose prior to such date or the
obligations of the Servicer under Section 2.05, 2.09, 4.02, 4.03 or 3.03(f) (in
the case of Section 3.03(f), excluding any documents received by the Successor
Servicer from anyone other than the Servicer and also excluding any documents
received by the Servicer from the Successor Servicer) or 3.03(i) (to the extent
the Servicer retains the records referred to therein) of this Agreement, whether
arising before or after such date.
SECTION 4.04 Notices. Except where telephonic instructions or notices are
authorized herein to be given, all notices, demands, instructions and other
communication required or permitted to be given to or made upon any party hereto
shall be in writing and shall be personally delivered or sent by registered,
certified or express mail, postage prepaid, return receipt requested, or by
prepaid Telex, TWX, facsimile or telegram (with messenger delivery specified in
the case of a telegram) (any notice sent by telex, TWX, facsimile or telegram
will be confirmed by mail as provided herein) and shall be deemed to be given
for purposes of this Agreement on the day that such writing is delivered or sent
to the intended recipient thereof in accordance with the provisions of this
Section 4.04. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provision of this Section 4.04, notices, demands,
instructions and other communications shall be given to or made upon the
respective parties hereto at their respective addresses (or to their respective
Telex, facsimile or TWX numbers) indicated below:
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<TABLE>
<S> <C>
If to the LOC Issuer: Credit Suisse
12 East 49th Street
New York, NY 10017
Attn: Asset Finance Dept.
Telephone: (212) 238-5378
Telecopier: (212) 238-5332
with a copy to:
Credit Suisse
One Liberty Plaza -- 5th Floor
165 Broadway
New York, NY 10006
Attn: Trade Services
Telephone: (212) 238-2109
Telecopier: (212) 238-2121
If to the Trust: First Brands Funding Master Trust
c/o Chemical Bank, as Trustee
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trustee
Administration Department
Telephone: (212) 971-3347
Telecopy: (212) 613-7800
If to the Servicer: First Brands Corporation
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
Attention: Treasurer
Telephone: (203) 731-2487
If to the Transferor: First Brands Funding Inc.
1013 Centre Road
Suite 350
Wilmington, Delaware 19605
with a copy to:
First Brands Funding Inc
83 Wooster Heights Road
Danbury, Connecticut 06813-1911
Attention: Treasurer
Telephone: 203-731-2487
Telecopy: 203-731-2395
</TABLE>
SECTION 4.05 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
SECTION 4.06 Waivers, etc. Neither any failure nor any delay on the part of
the LOC Issuer in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other of further exercise or the exercise of any other right, power
or privilege. No provision of this Agreement shall be waived, amended or
supplemented except by a written instrument executed by the parties hereto.
Notwithstanding the foregoing, no amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Servicer or Transferor therefrom
to this Agreement shall be effective unless a written statement is obtained from
each of the Rating Agencies that the rating of the Commercial Paper will not be
downgraded or withdrawn solely as result of such amendment. The Servicer or
Transferor shall provide each Rating Agency with at least ten days' prior notice
of each amendment, waiver or consent to this Agreement and the Servicer or
Transferor shall furnish each Rating Agency with a copy of each amendment,
waiver or consent to this Agreement no later than the effective date thereof.
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SECTION 4.07 Severability. Any provisions of this Agreement which are
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceable without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 4.08 Term. This Agreement shall remain in full force and effect
until the later to occur of (a) the payment of the LOC Disbursements and any and
all other amounts payable hereunder, notwithstanding the earlier termination of
the LOC or (b) the termination of the LOC. The provisions of Sections 2.03,
2.09, 4.02 and 4.03 hereof shall survive termination of this Agreement.
SECTION 4.09 Successors and Assigns. This Agreement shall be binding upon
the LOC Issuer, the Trust, the Transferor and the Servicer and their respective
successors and assigns; provided that neither the Transferor nor the Servicer
may assign any of their obligations under this Agreement without the prior
written consent of the LOC Issuer (provided that this clause shall in no way
prevent the appointment of a replacement Servicer in accordance with the Pooling
and Servicing Agreement) and notice of such assignment to the Rating Agencies,
and the LOC Issuer may not assign any of its obligations under this Agreement or
the LOC. Notwithstanding the foregoing, the LOC Issuer and any Participant (as
defined below), may, at any time grant participations to any other person, firm
or corporation (a 'Participant') in all or part of its rights or obligations
under this Agreement and the LOC except that the Servicer shall not be obligated
to any Participant for amounts under Section 2.09 hereof in excess of such
amounts which would have been owing to the LOC Issuer thereunder had such
participation not been effected unless the Servicer has given its prior written
consent to the transfer to such Participant; provided, however, that the amount
of any participation of the LOC Issuer shall not be less than $5,000,000 (unless
the Servicer shall otherwise agree in writing). The LOC Issuer hereby
acknowledges and agrees that any such disposition will not alter or affect the
LOC Issuer's direct obligations to the Trustee under the LOC, and that neither
the Servicer nor the Trustee shall have any obligation to communicate with or
maintain a relationship with any Participant in order to enforce such
obligations of the LOC Issuer hereunder and under the LOC. No Participant shall
have any direct rights against the Servicer, Transferor or Trust, but shall only
have rights exercisable through the LOC Issuer.
SECTION 4.10 Counterparts. This Agreement may be executed in any number of
copies, and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original instrument.
SECTION 4.11 Further Assurances. The Servicer agrees to do such further
acts and things and to execute and deliver to the LOC Issuer or the Trustee such
additional assignments, agreements, powers and instruments as are required by
the LOC Issuer or the Trustee to carry into effect the purposes of this
Agreement or to better assure and confirm unto the LOC Issuer or the Trustee its
rights, powers and remedies hereunder.
SECTION 4.12 Captions. The various captions (including, without limitation,
the table of contents) in this Agreement are included for convenience only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
SECTION 4.13 Representations, Warranties and Covenants of the LOC Issuer.
The LOC Issuer hereby represents, warrants and covenants to the Servicer, the
Trustee and the Transferor that:
(a) (i) it is duly authorized to enter into and perform this Agreement
and the LOC, and has duly executed and delivered this Agreement, and upon
the issuance and delivery thereof in accordance with Section 2.01, the LOC
will be duly executed and delivered;
(ii) this Agreement constitutes and, upon the issuance thereof, the
LOC will constitute, the legal, valid and binding obligations of the LOC
Issuer, enforceable in accordance with their respective terms (subject to
applicable bankruptcy and insolvency laws and other similar laws affecting
the enforcement of creditors' rights generally); and
(iii) no registration with or consent or approval of or other action
by any state or local government authority or regulatory body having
jurisdiction over the LOC Issuer is required in connection with the
execution, delivery or performance by it of this Agreement or the LOC other
than as may be required under the blue sky laws of any state.
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(b) The LOC Issuer covenants and agrees that:
(i) on the Replacement Date, it will provide to the Trustee, the
Liquidity Agents, the Liquidity Banks and the Servicer the favorable
written opinion of Sullivan & Worcester LLP (as to federal law and New
York law) and of its Swiss legal counsel or in-house counsel (as to
Swiss law), to the effect that the LOC has been duly authorized,
executed and delivered and will constitute, the valid and binding
obligation of the LOC Issuer, enforceable against it in accordance with
its respective terms (subject, in case of the insolvency of the LOC
Issuer, to applicable bankruptcy, reorganization, insolvency and similar
laws and to moratorium laws and other similar laws affecting creditors'
rights generally from time to time in effect and to general equitable
principles); and
(ii) all knowledge of information, practices, books, correspondence
and records provided to it or any Participant contemplated in Section
4.09 of this Agreement by or with respect to the Servicer or the Trust
Assets is to be regarded as confidential information, and accordingly
(x) the LOC Issuer shall retain in strict confidence and shall use its
best efforts to ensure that its representatives retain in strict
confidence and will not disclose without the prior written consent of
the Servicer any or all of such information, practices, books,
correspondence and records furnished to them except to the extent
necessary in connection with any proposed participation and then only
after the proposed participant has executed a writing in favor of the
Transferor agreeing to be bound by this Section 4.13; and except in
connection with an examination by its auditors or regulators, pursuant
to government regulations or by order of court, and (y) it will not, and
will use its best efforts to ensure that its representatives will not,
make any use whatsoever (other than for the purposes contemplated by
this Agreement and the Pooling and Servicing Agreement) of any of such
information, practices, books, correspondence and records without the
prior written consent of the Servicer, except (A) to the extent that
such information is generally available to the public or is required by
law to be disclosed to a governmental agency, (B) pursuant to orders of
courts of competent jurisdiction, (C) in pursuance of enforcement of
this Agreement or procedure for discovery of documents in any proceeding
before any such court after seeking such protective orders or other
relief as it would ordinarily use for the protection of its own
confidential information, and (D) pursuant to any law or regulation or
compliance with a request or requirement of any Governmental Authority
whose requests and requirements are customarily complied with after
seeking such protective orders or other relief as it would ordinarily
use for the protection of its own confidential information.
SECTION 4.14 Survival of Representations, Indemnities, Warranties and
Agreements. All agreements, representations, indemnities and warranties made
herein shall survive the execution and delivery of this Agreement.
SECTION 4.15 Tax Forms. The LOC Issuer agrees to provide the Transferor
(with a copy to the Servicer) with (i) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224 or successor applicable form,
as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or
successor applicable forms or other manner of certification, as the case may be,
on or before the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Servicer, and such extensions or renewals
thereof as may reasonably be requested by the Servicer or the Transferor. The
LOC Issuer shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, unless in any such case
an event (including, without limitation, any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent the LOC Issuer from duly completing and delivering any such form with
respect to it and the LOC Issuer advises the Servicer that it is not capable of
so receiving payments without any deduction or withholding, and (ii) in the case
of a Form W-8 or W-9, that it is entitled to an exemption from United States
backup withholding tax. If the LOC Issuer grants a participation pursuant to
Section 4.09 hereof, the LOC Issuer shall obtain from its Participant and shall
furnish to the Servicer (with a copy to Transferor and the Trustee) the form
described in this Section 4.15.
15
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SECTION 4.16 Jurisdiction. EACH OF THE SERVICER AND THE TRANSFEROR HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF
NEW YORK, COUNTY OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK (COLLECTIVELY, THE 'SUBJECT COURTS') IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT, THE POOLING AND
SERVICING AGREEMENT AND THE OTHER AGREEMENTS CONTEMPLATED HEREBY AND THEREBY.
EACH OF THE SERVICER AND THE TRANSFEROR HEREBY WAIVES ANY OBJECTION IT MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE
SUBJECT COURTS, AND TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE SERVICER AND THE
TRANSFEROR AGREES THAT SERVICE OF ALL WRITS, PROCESS AND SUMMONSES IN ANY SUIT,
ACTION OR PROCEEDING MAY BE DELIVERED BY THE MAILING THEREOF BY FIRST-CLASS
MAIL, POSTAGE PREPAID, TO THE SERVICER OR THE TRANSFEROR, RESPECTIVELY, AT ITS
ADDRESS SET FORTH IN SECTION 4.04 HEREOF.
SECTION 4.17 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court
with respect to, in connection with, or arising out of this Agreement or the LOC
or the validity, protection, interpretation, collection or enforcement hereof or
thereof. THE PARTIES HERETO AGREE THAT THIS SECTION 4.17 IS A SPECIFIC AND
MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGE THAT THE LOC ISSUER WOULD NOT
ISSUE THE LOC HEREUNDER IF THIS SECTION 4.17 WERE NOT PART OF THIS AGREEMENT.
SECTION 4.18 Limited Recourse to Transferor. Each of the LOC Issuer, the
Trust and the Transferor agrees that any obligations of the Transferor to the
LOC Issuer, the Trust or the Servicer hereunder shall not constitute a claim
against the Transferor in the event that the Trust Assets or the assets of the
Transferor are insufficient to pay in full such obligations.
SECTION 4.19 Limitation of Liability and Trustee's Obligations. It is
expressly understood and agreed by the parties hereto that this Agreement is
executed by Chemical Bank not in its corporate and individual capacity but
solely on behalf of the Trust as Trustee under the Pooling and Servicing
Agreement in the exercise of the power and authority conferred and vested in it
as such Trustee. It is further understood and agreed that Chemical Bank shall
not be personally liable for any breach of any representation, warranty or
covenant of the Trust, or the Trustee on behalf of the Trust, contained herein
or in any of the certificates, notices or agreements delivered hereunder and
nothing herein contained shall be construed as creating any liability on
Chemical Bank in its corporate and individual capacity to make any payment or to
perform any covenant, agreement or undertaking contained herein, all such
liability being expressly waived by each of the parties hereto, and that the
parties hereto shall look solely to the properties and assets of the Trust and
the Trust Assets for the payment of any amounts due and payable on account of
the LOC and for the payment, performance or other satisfaction of this Agreement
and any claim against the Trust or the Trustee by reason of the transactions
contemplated hereby.
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Please signify your agreement and acceptance of the foregoing by executing
this Agreement in the space provided below.
FIRST BRANDS CORPORATION, as Servicer
By: ..................................
FIRST BRANDS FUNDING INC, as
Transferor
By: ..................................
<TABLE>
<S> <C>
Payment Account: CREDIT SUISSE, NEW YORK BRANCH
ABA No.: 026009179
Acct. No.: 90312401 By: .....................................................
Authorized Signatory
By: .....................................................
Authorized Signatory
FIRST BRANDS FUNDING MASTER TRUST
By: .....................................................
CHEMICAL BANK, as Trustee
By: .....................................................
Authorized Signatory
</TABLE>
17
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS.............................................................................................. 1
SECTION 1.01 Definitions............................................................................... 1
ARTICLE II
ISSUANCE OF LOC; REIMBURSEMENT OBLIGATION................................................................ 1
SECTION 2.01 Issuance of LOC: Substitute LOCs; Extensions of the LOC................................... 1
SECTION 2.02 LOC Draws................................................................................. 2
SECTION 2.03 Reimbursement............................................................................. 3
SECTION 2.04 No Recourse; Obligations Absolute......................................................... 4
SECTION 2.05 Facility Fees............................................................................. 4
SECTION 2.06 Liability of LOC Issuer................................................................... 4
SECTION 2.07 Surrender of LOC.......................................................................... 5
SECTION 2.08 Conditions Precedent...................................................................... 5
SECTION 2.09 Increased Costs and Taxes................................................................. 6
SECTION 2.10 Reserved.................................................................................. 7
SECTION 2.11 Events of Default......................................................................... 7
SECTION 2.12 Conflicting Instructions from the Trustee................................................. 8
SECTION 2.13 Limited Recourse to Servicer and Trust.................................................... 8
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS................................................................ 9
SECTION 3.01 Representations........................................................................... 9
SECTION 3.02 Additional Representations................................................................ 10
SECTION 3.03 Covenants................................................................................. 10
ARTICLE IV
MISCELLANEOUS............................................................................................ 11
SECTION 4.01 Method and Place of Payments and Net Payments............................................. 11
SECTION 4.02 Expenses.................................................................................. 11
SECTION 4.03 Indemnity................................................................................. 11
SECTION 4.04 Notices................................................................................... 12
SECTION 4.05 Governing Law............................................................................. 13
SECTION 4.06 Waivers, etc. ............................................................................ 13
SECTION 4.07 Severability.............................................................................. 14
SECTION 4.08 Term...................................................................................... 14
SECTION 4.09 Successors and Assigns.................................................................... 14
SECTION 4.10 Counterparts.............................................................................. 14
SECTION 4.11 Further Assurances........................................................................ 14
SECTION 4.12 Captions.................................................................................. 14
SECTION 4.13 Representations, Warranties and Covenants of the LOC Issuer............................... 14
SECTION 4.14 Survival of Representations, Indemnities, Warranties and Agreements....................... 15
SECTION 4.15 Tax Forms................................................................................. 15
SECTION 4.16 Jurisdiction.............................................................................. 16
SECTION 4.17 .......................................................................................... 16
SECTION 4.18 Limited Recourse to Transferor............................................................ 16
SECTION 4.19 Limitation of Liability and Trustee's Obligations......................................... 16
EXHIBIT A -- FORM OF IRREVOCABLE LETTER OF CREDIT
ANNEX 1 FORM OF CERTIFICATE FOR DRAWING
ANNEX 2 FORM OF CERTIFICATE FOR SPECIAL DRAWING
ANNEX 3 FORM OF CERTIFICATE FOR TERMINATION
ANNEX 4 FORM OF TRANSFER CERTIFICATE
ANNEX X Definitions
</TABLE>
i
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EXHIBIT A
TO THE LETTER OF CREDIT
REIMBURSEMENT AGREEMENT
FORM OF IRREVOCABLE LETTER OF CREDIT
April 22, 1996
Standby Letter of Credit No.
To: CHEMICAL BANK
in its capacity as Trustee
450 W. 33rd Street
15th Floor
New York, New York 10001
Attention: Corporate Trustee Administration Department
At the request and on the instructions of our customer, First Brands
Funding Inc (the 'Transferor'), the undersigned issuing bank (hereinafter the
'LOC Issuer') hereby establishes in your favor, as Trustee under the Pooling and
Servicing Agreement (this term and all other capitalized terms used without
definition in this Standby Letter of Credit shall have the meanings set forth in
Annex 5 attached hereto) pursuant to that certain Second Amended and Restated
Letter of Credit Reimbursement Agreement, dated as of April 22, 1996 (as amended
from time to time, the 'LOC Reimbursement Agreement'), among us, you, the
Servicer and the Transferor, this irrevocable Standby Letter of Credit
(hereinafter the 'LOC') in the amount of $10,000,000 (as reduced and reinstated
from time to time as herein provided, the 'LOC Commitment').
The amount available to be demanded under this LOC, at any time, shall
initially equal the amount of the LOC Commitment, shall be reduced by an amount
equal to each demand for payment honored by the LOC Issuer, and shall be
reinstated upon the reimbursement to the LOC Issuer of the amount of any such
demand for payment by the amount of such reimbursement. Demands for payment
honored by the LOC Issuer under this LOC shall not, in the aggregate, exceed the
LOC Commitment. Demands for payment hereunder may be made from and after the
date of issuance hereof to and including May 30, 1997 (as such date may be
extended pursuant to Section 2.01(c) of the LOC Reimbursement Agreement, the
'LOC Expiration Date').
Subject to the further provisions of this LOC, demands for payment may be
made by you from time to time hereunder by presentation to the LOC Issuer of a
drawing certificate (a 'Drawing Certificate') in the form of Annex 1 or Annex 2
hereto (completed) either (i) in the form of a letter on your letterhead (which
may be sent by facsimile and promptly confirmed by telephone), or (ii) in the
form of a writing transmitted by any authenticated telecommunication facility
(in each case a signed copy shall thereafter be promptly sent to the LOC Issuer,
provided that if such signed copy is not sent to the LOC Issuer, the LOC Issuer
is under no obligation to take any action to obtain one and the LOC Issuer is
conclusively presumed to be authorized to rely on such writing) . Such
certificate shall be dated the date of presentation and shall be presented at
the LOC Issuer office located at One Liberty Plaza, 5th Floor, 165 Broadway, New
York, New York 10006, Attention: Trade Services, Telephone: (212) 238-2109,
Telecopier: (212) 238-2121, and if sent by telecopier, shall be promptly
confirmed by telephone and with original copy thereof to be delivered as soon
thereafter as practicable.
The LOC Issuer hereby agrees that all demands for payment hereunder made in
compliance with the terms of this LOC will be duly honored upon delivery of the
certificate as specified above and if presented at the LOC Issuer's aforesaid
office on or before the LOC Expiration Date. Demands for payment may be made by
you under this LOC at any time during the LOC Issuer's business hours of 9:00
A.M. to 4:00 P.M. at its aforesaid address, on a Business Day. If demand for
payment is presented by you hereunder at or prior to 4:00 P.M. (New York City
time) on any Business Day and provided that such demand for payment and the
documents presented in connection therewith conform to the terms
1
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and conditions hereof, payment shall be initiated to you of the amount demanded,
in immediately available funds no later than 9:30 a.m. New York City time on the
next Business Day. If a demand for payment presented by you hereunder does not,
in any instance, conform to the terms and conditions of this LOC, the LOC Issuer
shall give you prompt notice that the demand for payment did not comply with the
terms and conditions of this LOC, stating the reasons therefor and that the LOC
Issuer is holding any documents at your disposal or is returning the same to
you, as the LOC Issuer may elect.
Only you may make demands for payment under this LOC. Upon payment of the
amount specified in a demand hereunder, the LOC Issuer shall be fully discharged
of its obligation under this LOC to the extent of such demand and the LOC Issuer
shall not thereafter be obligated to make any further payments under this LOC
with respect to such demand. By paying to you or for your account any amount
drawn in accordance with this LOC, the LOC Issuer makes no representation as to
the correctness of the amount drawn.
Reductions of the amount available for demand under this LOC shall reduce
the amounts which you may demand hereunder notwithstanding:
(a) the fact that such reduction is the result of a payment under this
LOC against presentation of a certificate which does not comply with the
terms of this LOC (including without limitation (i) the fact that any
certificate presented under this LOC proves to be forged, fraudulent,
invalid, unenforceable or insufficient in any respect or any statement
therein being inaccurate in any respect whatever or (ii) the failure of any
document to bear reference or to bear adequate reference to this LOC);
(b) the use to which this LOC may be put by the beneficiary hereof or
any transferee hereof or any acts or omissions of the beneficiary or any
such transferee in connection therewith; or
(c) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing, in making payment under this LOC.
In furtherance and not in limitation of the foregoing, the LOC Issuer may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary
from any person other than you. In the event the LOC Issuer (i) receives a
demand for payment hereunder and (ii) receives any communication purportedly
from you or any of your officers, employees or agents, which communication
indicates that such demand for payment is not in order, the LOC Issuer may defer
honoring such demand until it receives further written instructions from you as
to the disposition of such demand for payment.
This LOC shall terminate at 4:30 P.M. (New York City time) on the LOC
Expiration Date or upon receipt from the Trustee of a duly completed and
executed certificate in the form of Annex 3 attached hereto. No demand for
payment may be made by you after the LOC Expiration Date. Unless the LOC Issuer
is in default with respect to its obligations under this LOC, you shall
surrender this LOC to the LOC Issuer promptly following the LOC Issuer's request
therefor after the LOC Expiration Date.
Each payment to be made by the LOC Issuer under this LOC shall be made from
its own funds.
This LOC is transferable to a successor Trustee (identified by you in a
certificate in the form of Annex 4 hereto); provided, however, that no such
transfer will be effected by the LOC Issuer until a transfer form (in the form
of Annex 4 attached hereto) is completed and returned to the LOC Issuer together
with this LOC. This LOC is not assignable or otherwise transferable. To the
extent not inconsistent with the express terms hereof, this LOC shall be
governed by, and construed in accordance with, the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce (the
'ICE'), Publication No. 500 (as subsequently revised or replaced by the ICE, the
'Uniform Customs'). As to matters not governed by the Uniform Customs, this
Letter of Credit shall be governed by and construed in accordance with the laws
of the State of New York, including, without limitation, the Uniform Commercial
Code as in effect in the State of New York. Communications with respect to this
LOC shall be in writing and shall be addressed to the LOC Issuer at its address
set forth above, specifically referring therein to this Irrevocable Letter of
Credit No. , with a copy of each such communication also to be sent to
the LOC Issuer's office at 12 East 49th Street, New York, New York 10017,
Attention: Asset Finance (telephone no.: 212/238-5378 and telecopier no.:
212/238-5332).
2
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This LOC sets forth in full the LOC Issuer's undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein; and any
such reference shall not be deemed to incorporate herein by reference any
document, instrument or agreement or provision thereof.
Very truly yours,
CREDIT SUISSE, New York Branch
By ..................................
Title:
By ..................................
Title:
3
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<PAGE>
ANNEX 1 TO
LETTER OF CREDIT NO.
CERTIFICATE FOR 'DRAWING'
, 19
CREDIT SUISSE, New York Branch
One Liberty Plaza -- 5th Floor
165 Broadway
New York, New York 10006
Attn: Trade Services
Re: Letter of Credit No._____
Gentlemen:
The undersigned, a duly authorized officer of Chemical Bank, as trustee
(the 'Trustee'), hereby certifies to Credit Suisse, New York Branch with
reference to Irrevocable Letter of Credit No. (the 'LOC') (any
capitalized term used herein and not defined shall have the meaning set forth in
the LOC) issued by the LOC Issuer, in favor of the Trustee, that:
1. The Trustee is the Trustee under the Pooling and Servicing
Agreement.
2. First Brands Corporation, as Servicer under the Pooling and
Servicing Agreement or a successor thereto, has instructed us (a copy of
which instructions is attached hereto) pursuant to Section 4.05 [(a)],
[(c)], [(d)], [(g)], [(k)], [(m)] or [(n)] of the Pooling and Servicing
Agreement with respect to the [Payment Date] [Determination Date] occurring
on [insert applicable Determination Date or Payment Date] that $
is the amount calculated by the Servicer pursuant to such Section of the
Pooling and Servicing Agreement as the amount which should be drawn under
the LOC in accordance with Section 2.02(a) of the LOC Reimbursement
Agreement with respect to the Variable Funding Certificate. The Servicer
has advised us that no portion of the amount demanded hereby has been paid
out of Imputed Yield Collections or the Trust Carrying Cost Account.
The Servicer has advised us that the amount demanded is calculated as
follows:
<TABLE>
<CAPTION>
AMOUNT COLLECTED AMOUNT COLLECTED AMOUNT TO
TOTAL FROM FROM BE DRAWN
AMOUNT IMPUTED YIELD TRUST CARRYING UNDER THE
SECTION NEEDED COLLECTIONS COST ACCOUNT LOC
- -------------------------------- ------ ---------------- ---------------- ---------
<S> <C> <C> <C> <C>
4.05(a)......................... $ $ $ $
4.05(c)......................... $ $ $ $
4.05(d)......................... $ $ $ $
4.05(g)......................... $ $ $ $
4.05(k)......................... $ $ $ $
4.05(m)......................... $ $ $ $
4.05(n)......................... $ $ $ $
</TABLE>
3. The Trustee hereby demands payment under the LOC in the amount of
$ and directs that such payments be made to its account no.
at .
4. All amounts received by the Trustee from the LOC Issuer in respect
of this certificate shall be deposited in the Collection Account for
disposition in accordance with Section 4.05 [(a)], [(c)], [(d)], [(g)],
[(k)], [(m)] or [(n)] of the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate
as of this day of .
CHEMICAL BANK, as Trustee
By ..................................
Authorized Signatory
<PAGE>
<PAGE>
ANNEX 2 TO
LETTER OF CREDIT NO.
CERTIFICATE FOR 'SPECIAL DRAWING'
, 19
CREDIT SUISSE, New York Branch
One Liberty Plaza -- 5th Floor
165 Broadway
New York, New York 10006
Attn: Trade Services
Re: Irrevocable Letter of Credit No._____
Gentlemen:
The undersigned, a duly authorized officer of Chemical Bank (the
'Trustee'), hereby certifies to Credit Suisse, New York Branch with reference to
irrevocable Letter of Credit No. (the 'LOC') (any capitalized term
used herein and riot defined shall have the meaning set forth in the LOC) issued
by Credit Suisse, New York Branch, in favor of the Trustee, that:
1. The Trustee is the Trustee under the Pooling and Servicing
Agreement.
2. A Responsible Officer of the Trustee has obtained knowledge that
the short-term debt rating of the LOC Issuer will be reduced, suspended or
withdrawn and the Rating Agencies have not confirmed that the then current
rating of the Commercial Paper will not be reduced, suspended or withdrawn
by such Rating Agencies because of such reduction, suspension or withdrawal
of the short-term debt rating of the LOC Issuer.
3. The Trustee hereby demands payment under the LOC in the amount of
$ , which amount equals the Available LOC Amount on the Business Day
preceding the date hereof, as specified in the Daily Report or Settlement
Statement delivered by the Servicer pursuant to Section 3.04 of the Pooling
and Servicing Agreement (and after giving effect to any contemporaneous
demand for payment under the LOC being made with respect to the related
Settlement Date or Payment Date).
4. All amounts received by the Trustee from the LOC Issuer in respect
of this certificate shall be applied in accordance with Section 4.10(c) of
the Pooling and Servicing Agreement.
5. The Trustee directs that such amounts be deposited pursuant to
Section 4.11 of the Pooling and Servicing Agreement in Account No. at
.
IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate
as of this day of , 199 .
CHEMICAL BANK, as Trustee
By ..................................
Authorized Signatory
<PAGE>
<PAGE>
ANNEX 3 TO
LETTER OF CREDIT NO.
CERTIFICATE FOR THE TERMINATION
OF LETTER OF CREDIT NO.
CREDIT SUISSE, New York Branch
One Liberty Plaza -- 5th Floor
165 Broadway
New York, New York 10006
Attn: Trade Services
Gentlemen:
The undersigned, a duly authorized officer of Chemical Bank (the
'Trustee'), hereby certifies to Credit Suisse, New York Branch, with reference
to Irrevocable Letter of Credit No. (the 'LOC') any capitalized
terms used herein and not defined shall have the meaning set forth in the LOC)
issued by Credit Suisse, New York Branch, in favor of the Trustee, that the LOC
shall terminate on . Accordingly, we herewith return to you for
cancellation on the LOC, which is terminated, as of the date hereof, pursuant to
its terms.
CHEMICAL BANK, as Trustee
By ..................................
Authorized Signatory
Date:
<PAGE>
<PAGE>
ANNEX 4 TO
LETTER OF CREDIT NO.
, 19
CREDIT SUISSE, New York Branch
One Liberty Plaza -- 5th Floor
165 Broadway
New York, New York 10006
Attn: Trade Services
Re: Irrevocable Letter of Credit No._____
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably
transfers to:
................................................................
(Name of Transferee)
................................................................
(Address)
all rights of the undersigned beneficiary to draw under the above-captioned
Letter of Credit (the 'LOC'). The transferee has succeeded the undersigned as
Trustee under the Pooling and Servicing Agreement (as defined in the LOC).
By this transfer, all rights of the undersigned beneficiary in the LOC are
transferred to the transferee and the transferee shall hereafter have the sole
rights as beneficiary thereof; provided, however, that no rights shall be deemed
to have been transferred to the transferee until such transfer complies with the
requirements of the LOC pertaining to transfers.
The LOC is returned herewith and in accordance therewith we ask that this
transfer be effective and that you cause the transfer of the LOC to our
transferee or that, if so requested by the transferee, you cause the issuance of
a new irrevocable LOC in favor of the transferee with provisions consistent with
the LOC.
Very truly yours,
CHEMICAL BANK, as predecessor Trustee
By ..................................
Authorized Signatory
<PAGE>
<PAGE>
ANNEX 5 TO
LETTER OF CREDIT NO.
'Business Day' shall mean any day other than (a) a Saturday or a Sunday,
(b) another day on which First Brands is closed, as set forth on the list
furnished by the Servicer pursuant to Section 3.03(n) of the Pooling and
Servicing Agreement or (c) another day on which banking institutions or trust
companies in the State of New York generally or The City of New York, New York,
are authorized or obligated by law, executive order or governmental decree to be
closed.
'CP Issuer' shall mean First Brands Commercial Inc, a Delaware corporation,
or any other holder of the Variable Funding Certificate.
'Determination Date' shall mean, with respect to any Settlement Period, the
seventh day of the next calendar month or if such day is not a Business Day, the
next succeeding Business Day.
'Payment Date' shall mean with respect to any Series or the Variable
Funding Certificate the date specified as such in the Supplement.
'Pooling and Servicing Agreement' shall mean the Pooling and Servicing
Agreement, dated as of May 21, 1992, by and among First Brands Funding Inc, as
Transferor, First Brands Corporation, as Servicer, and Chemical Bank, as
Trustee, and all amendments thereof and supplements thereto, including the
Supplement.
'Servicer' shall initially mean First Brands Corporation and thereafter any
Person appointed as successor as provided in the Pooling and Servicing Agreement
to service the Receivables.
'Settlement Period' shall mean a calendar month; provided, however, that in
the case of the initial Settlement Period, 'Settlement Period' shall mean the
period from and including the date of issuance of this LOC to and including the
last day of the calendar month in which Commercial Paper is initially issued
under the Pooling and Servicing Agreement.
'Supplement' shall mean the Variable Funding Supplement, dated as of May
21, 1992, as amended from time to time in accordance with the terms of the
Pooling and Service Agreement.
'Transferor' shall mean First Brands Funding Inc, a Delaware corporation.
'Variable Funding Certificate' shall mean the certificate issued pursuant
to Section 6.09 of the Pooling and Servicing Agreement, held by the CP Issuer
and substantially in the form of Exhibit B to the Pooling and Servicing
Agreement.
<PAGE>
<PAGE>
EXHIBIT 11
FIRST BRANDS CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE*
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
YEAR ENDED JUNE YEAR ENDED JUNE
30, 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Components of Net Income Per Common Share:
Income before extraordinary loss................................. $65,100 $43,190 $65,100 $43,190
Extraordinary loss............................................... -- (4,493) -- (4,493)
------- ------- ------- -------
Net income....................................................... $65,100 $38,697 $65,100 $38,697
------- ------- ------- -------
------- ------- ------- -------
Average common shares issued.......................................... 22,240 22,040 22,240 22,040
Average treasury shares held.......................................... (1,401) (826) (1,401) (826)
Common shares issuable with respect to common equivalents for stock
options............................................................. 453 244 528 348
Effect of two-for-one stock split on average common and common
equivalents shares outstanding...................................... 21,308 21,457 21,388 21,562
------- ------- ------- -------
Average common and common equivalent shares outstanding............... 42,600 42,915 42,755 43,124
------- ------- ------- -------
------- ------- ------- -------
Earnings Per Share:
Income before extraordinary loss................................. $ 1.53 $ 1.01 $ 1.52 $ 1.00
Extraordinary loss............................................... -- (0.10) -- (0.10)
------- ------- ------- -------
Net income....................................................... $ 1.53 $ 0.91 $ 1.52 $ 0.90
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- ------------
* Share and per share amounts have been restated to reflect a two-for-one stock
split effective February 5, 1996.
<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF FIRST BRANDS CORPORATION
(Unless otherwise noted, the following are wholly-owned subsidiaries of
First Brands Corporation, a Delaware Corporation. The state or other
jurisdiction of incorporation is provided in parentheses.)
Paulsboro Packaging, Inc. (New Jersey)
First Brands Properties Inc. (Delaware)
First Brands Acquisitions Inc. (Delaware) [wholly owned by First Brands
Properties Inc.]
A & M Products Inc. (Texas) [wholly owned by First Brands Acquisitions
Inc.]
Himolene Incorporated (Delaware)
STP Consumer Services Inc. (Delaware)
STP Products, Inc. (Delaware)
Forest Technology Corporation (Delaware)
Antifreeze Technology Systems, Inc. (Delaware)
Antifreeze Properties, Inc. (Delaware)
First Brands Funding Inc. (Delaware)
Polysak, Inc. (Connecticut)
First Brands International, Inc. (Delaware)
STP Corporation (Delaware)
First Brands Holdings Corporation (Canada)
First Brands (Canada) Corporation (Canada) [wholly-owned by First Brands
Holdings Corporation]
STP Scientifically Tested Products of Canada Ltd. (Canada) [wholly-owned by
First Brands Holdings Corporation]
Renaissance: A Resource Recovery Corporation (Canada) [wholly-owned by
First Brands Holdings Corporation]
First Brands Africa Holdings (Pty) Ltd (South Africa) [82% owned by First
Brands Holdings Corporation]
First Brands Africa (Pty) Ltd (South Africa) (wholly-owned by First
Brands Africa Holdings (Pty) Ltd.)
First Brands Zimbabwe (Private) Ltd (Zimbabwe) (wholly-owned by First
Brands Africa (Pty) Ltd.)
Multifoil Trading (Pty) Ltd (South Africa) (wholly-owned by First Brands
Africa Holdings (Pty) Ltd.)
First Brands Asia Limited (Hong Kong)
First Brands (Guangzhou) Ltd. (China) [51% owned by First Brands Asia
Limited]
First Brands Mexicana, S.A. de C.V. (Mexico)
Fabricante de Productos Plasticos, S.A. de C.V. (Mexico) [wholly-owned by
First Brands Mexicana, S.A. de C.V.]
PCM International, Inc. (Delaware) [wholly-owned by Fabricante de
Productos Plasticos, S.A. de D.V.]
<PAGE>
<PAGE>
Comercial First Brands, S.A. de C.V. (Mexico) [wholly-owned by First Brands
Mexicana, S.A. de C.V.]
Distribuidora First Brands, S.A. de C.V. (Mexico) [wholly-owned by First
Brands Mexicana, S.A. de C.V.]
First Brands Philippines, Inc. (Philippines)
First Brands Puerto Rico, Inc. (Puerto Rico)
STP International (Australia) Pty. Ltd. (Australia)
First Brands Europe Limited (United Kingdom)
STP First Brands Espana, S. L. (Spain) [wholly-owned by First Brands Europe
Limited]
Comercial STP Ltda. (Brazil)
STP Corporation (Deutschland) GmbH (Germany) [in liquidation]
STP Products (New Zealand) Limited (New Zealand) [in liquidation]
<PAGE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FIRST BRANDS CORPORATION:
We consent to incorporation by reference in the Registration Statements
(No. 33-35770, No. 33-56992 and No. 33-56503) on Form S-8 of First Brands
Corporation of our reports dated August 8, 1996, relating to the consolidated
balance sheets of First Brands Corporation and Subsidiaries as of June 30, 1996,
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows and related schedule for each of the years in the
three-year period ended June 30, 1996, which reports appear in the June 30, 1996
annual report on Form 10-K of First Brands Corporation.
/s/ KPMG PEAT MARWICK LLP
...............................
KPMG PEAT MARWICK LLP
New York, New York
September 27, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,326
<SECURITIES> 0
<RECEIVABLES> 126,694
<ALLOWANCES> 1,568
<INVENTORY> 146,002
<CURRENT-ASSETS> 304,271
<PP&E> 431,078
<DEPRECIATION> 111,401
<TOTAL-ASSETS> 860,880
<CURRENT-LIABILITIES> 179,293
<BONDS> 199,355
<COMMON> 431
0
0
<OTHER-SE> 398,825
<TOTAL-LIABILITY-AND-EQUITY> 860,880
<SALES> 1,073,022
<TOTAL-REVENUES> 1,073,022
<CGS> 687,103
<TOTAL-COSTS> 687,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,509
<INCOME-PRETAX> 108,919
<INCOME-TAX> 43,819
<INCOME-CONTINUING> 65,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,100
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
