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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, 1998 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.)
</TABLE>
83 WOOSTER HEIGHTS ROAD
BUILDING 301, P.O. BOX 1911
DANBURY, CONNECTICUT 06813-1911
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 731-2300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
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 1, 1998, the number of shares outstanding of the registrant's
common stock was 39,045,100 (par value $.01), and the aggregate market value of
the voting stock held by non-affiliates was $779,490,470.
DOCUMENTS INCORPORATED BY REFERENCE
Registrants Proxy Statement for the Annual Stockholders Meeting to be held
October 23, 1998 is incorporated by reference for Part III
________________________________________________________________________________
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1: Business....................................................................................... 1
Item 2: Properties..................................................................................... 4
Item 3: Legal Proceedings.............................................................................. 5
Item 4: Submission of Matters to a Vote of Security Holders............................................ 5
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters.......................... 5
Item 6: Selected Financial Data........................................................................ 6
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 7
Item 8: Financial Statements and Supplementary Data.................................................... 11
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 11
PART III
Item 10: Directors and Executive Officers of the Registrant............................................. 12
Item 11: Executive Compensation......................................................................... 14
Item 12: Security Ownership of Certain Beneficial Owners and Management................................. 14
Item 13: Certain Relationships and Related Transactions................................................. 14
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 15
Signatures................................................................................................ 35
</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 of Union Carbide Corporation ('Union Carbide') in a
leveraged buy out which was effective as of July 1, 1986. Subsequent to an
initial and secondary stock offering, the Company became an publicly traded
corporation on March 27, 1991. 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.
PRODUCTS
Household products include the most complete line of branded plastic wrap,
bags and drinking straws which are sold under the GLAD and GLAD-LOCK brands
along with the GLADWARE brand of plastic storage containers. In the Canadian
market, plastic bags are also sold under the SURTEC brand, and in Australia and
New Zealand, plastic wrap and bags as well as aluminum foils are also sold under
the OSO brand. In the Australian and New Zealand market, the Company sells
wiping cloths and scouring pads under the CHUX brand. On July 2, 1998, the
Company entered into an agreement to purchase the HANDI-WIPES and WASH'N DRI
brand cloths from the Colgate-Palmolive Company. This acquisition is expected to
be completed during the first quarter of fiscal 1999. In the North American
market, household products also include the STARTERLOGG and HEARTHLOGG brands of
wood fire starters and fire logs. Cat litter products are sold in the U.S. and
various countries under the SCOOP AWAY, EVER CLEAN, JONNY CAT and EVERFRESH
brands. Automotive performance and appearance products are sold worldwide under
the STP brand.
A&M Products, Inc. ('A&M'), a wholly owned subsidiary, manufactures and
markets SCOOP AWAY, EVER CLEAN and EVERFRESH cat litter, the leading brands of
clumping cat litter in the United States. A&M also produces and markets the
JONNY CAT brand of traditional cat litter along with other premium cat care
products.
In March, 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 HEARTHLOGG fire logs.
Through its subsidiary, Himolene Incorporated ('Himolene'), the Company is
a leading producer in the United States of high molecular weight, high density
polyethylene plastic trash can liners for the institutional and industrial
markets.
In March 1997, the Company purchased, for approximately $160,000,000, the
NationalPak business in Australia and New Zealand from National Foods Limited.
NationalPak manufactures and markets consumer products such as plastic wrap and
bags, cleaning cloths and aluminum foil under the GLAD, CHUX, OSO, MONO and ROTA
brand names. The acquisition was funded by long-term borrowings in the United
States, Canada, Australia and New Zealand. During the third quarter of fiscal
1998, the Company's New Zealand subsidiary acquired the XLO sponge brand in the
New Zealand market. During fiscal 1998, the Company sold to local management a
4.4% interest in the Australian subsidiary and, during fiscal 1999, expects to
finalize the sale to local management of a 1.6% interest in the New Zealand
subsidiary.
First Brands operates in foreign countries through subsidiaries in
Australia, New Zealand, Canada, South Africa, Zimbabwe, the United Kingdom,
Spain, Hong Kong, China, Mexico, Puerto Rico and the Philippines. In addition to
its foreign operations, First Brands exports to over one hundred countries and
its products are sold in twelve languages. 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 both plastic wrap and bags and automotive
products. The Company's South African business owns 76% of the outstanding stock
of Sealapac (PVT) Ltd., a Zimbabwe manufacturer and marketer of plastic film
products for consumers and the packaging industry.
1
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On December 26, 1996 the Company sold its SIMONIZ wax and polish business
to Syndet Products Incorporated. The impact of the divestiture did not have a
material effect on the Company.
The following represents the Company's sales by class of products:
First Brands Corporation and Subsidiaries
SALES BY CLASS OF PRODUCTS
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
(Dollars in thousands) Dollars Percent Dollars Percent Dollars Percent
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Household Products $ 824,798 69% $ 747,939 67% $ 693,406 65%
Automotive Products 206,392 17 212,467 19 213,900 19
Pet Products 172,480 14 156,858 14 149,186 14
Divested/Discontinued
Products(1) -- -- 2,634 -- 16,530 2
- ---------------------------------------------------------------------------------------------------
$1,203,670 100% $1,119,898 100% $1,073,022 100%
===================================================================================================
</TABLE>
(1)Represents sales from the divested Simoniz business (December, 1996) and
sales from the phased-out Contract Packaging business and associated operations
which related to the divested Prestone business.
MANUFACTURING AND DISTRIBUTION
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, automotive, cat litter, institutional and industrial products. However,
the majority of fire starter and fire log sales occur during the first half of
the Company's fiscal year due to strong consumer demand during the fall and
winter months.
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 45% of total sales, and sales to
its largest customer, the Wal-Mart Stores and Sams Wholesale Club stores, are
approximately 12% of total sales.
In the United States, sales to food outlets, which account for
approximately 64% 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 auto
supply outlets and mass merchandisers. Himolene's sales 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 U.S. sales, while sales in the Australian and New
Zealand markets are primarily handled by a direct sales force. 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. To maintain its leadership as a flexible, low cost producer, certain
products sold by the Company, both domestically and internationally, are
produced by outside packagers. Each of these 'contract packagers' adhere to
strict quality control parameters and produce in accordance with production
schedules established by the Company. Through improvements in existing process
technologies and the acquisition of additional equipment the Company continually
strives to enhance its production capacity and efficiency.
RAW MATERIALS AND OTHER SUPPLIES
The Company currently purchases a substantial portion of its plastic wrap
and bags raw materials pursuant to a long-term polyethylene resin requirements
contract with Union Carbide which runs 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 also makes purchases on the open market. 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 on average, remain
relatively stable, it is unable to predict with any certainty its costs of raw
materials on a month by month basis 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, effect
offsetting cost savings, or reduce prices to meet competition. As a consequence,
the Company may be adversely affected by changes in raw material markets. The
Company from time
2
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to time has the ability to fix its prices on raw materials either through
agreements with suppliers, or through financial commodity-based contracts. The
Company has entered into to various contracts which fix the price of
approximately 37% of its domestic polyethylene resin requirements and has
another contract covering approximately 20% of its domestic requirements is a
financial collar. 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 or
part of the much larger and financially stronger entities, with the ability to
vary internal pricing arrangements in order to mitigate, adverse movements in
raw material prices, they may enjoy a competitive advantage in their end product
markets.
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.
EMPLOYEES
First Brands currently employs approximately 4,800 persons worldwide, of
which about 3,200 are in the United States. The Company's employees are not
unionized with the exception of approximately 450 hourly workers at one domestic
plastic wrap and bag plant who are represented by the United Paperworkers
International Union ('UPI Union'), and approximately 625 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.
COMPETITION
First Brands operates in highly competitive markets where success is
dependent upon brand recognition, product innovation and performance, and price.
In several instances, the competitors are larger, more integrated companies with
greater financial resources than First Brands.
ENVIRONMENTAL MATTERS
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. During fiscal 1998, 1997 and
1996, First Brands made expenditures of approximately $1,646,000, $1,818,000,
and $1,330,000, respectively, for environmental compliance at its facilities,
and currently estimates that it will make expenditures for environmental
compliance of approximately $1,800,000 in fiscal 1999. The Company believes that
it is in substantial compliance with all applicable environmental laws and
regulations.
RESEARCH AND DEVELOPMENT
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. To
achieve these objectives, the Company operates two research and development
facilities, each outfitted with state-of-the-art machinery and equipment. The
Company spent $4,778,000, $5,043,000, and $4,789,000 during fiscal 1998, 1997
and 1996, respectively, on research and development.
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
3
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resources and a reduction of materials that eventually go into landfills. 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,
Australia, New Zealand, Canada, South Africa, Zimbabwe, Hong Kong, China,
Mexico, the United Kingdom, Spain and the Philippines. The Company's world
headquarters is located in Danbury, Connecticut.
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. Management believes that First Brands' properties and those of its
subsidiaries are in good operating condition and are suitable for the purposes
for which they are being used.
Listed below are the principal manufacturing facilities operated by First
Brands and its consolidated subsidiaries worldwide during fiscal 1998:
<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 fire logs
Ohio Painesville Auto specialty products
Vermont Rutland Plastic bags
Virginia Amherst Plastic wrap and bags
International
Australia Padstow, NSW Plastic wrap and bags
Canada Orangeville Plastic wrap and bags
China Conghua Plastic wrap and bags and auto
specialty products
New Zealand Auckland Plastic wrap and bags
Philippines Manila Auto specialty products
South Africa Babelegi Plastic wrap and bags
South Africa Cape Town Plastic film products
Wales Rassau Auto specialty products
Zimbabwe Harare Plastic film products
</TABLE>
Domestically, the West Chicago, Illinois, Bell, California and Akron, Ohio
plants are leased facilities, with terms which expire between 1999 and 2008.
Internationally, the New Zealand, Philippine, South African, Welsh and
Zimbabwian production facilities are leased from third parties, with lease terms
expiring between 1999 and 2016. All other production plants are owned by the
Company or its wholly-owned subsidiaries.
First Brands maintains research and development facilities for its home
products and litter businesses in Willowbrook, Illinois, and for its automotive
products in Brookfield, Connecticut; both facilities are under lease with terms
expiring in 2008 and 2012, respectively. 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.
4
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ITEM 3 -- LEGAL PROCEEDINGS
The Company is subject to various claims, and contingencies related to
lawsuits, taxes, environmental 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 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 SECURITIES HOLDERS
None
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'. The following table 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, 1998 was 622.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- ---- --------
<S> <C> <C> <C>
Fiscal 1998
First Quarter................................................................. 28 1/2 20 1/4 .0800
Second Quarter................................................................ 28 1/2 23 3/8 .1000
Third Quarter................................................................. 28 3/8 23 .1000
Fourth Quarter................................................................ 28 22 7/8 .1000
Fiscal 1997
First Quarter................................................................. 27 1/2 21 .0625
Second Quarter................................................................ 29 3/8 26 .0800
Third Quarter................................................................. 28 3/8 23 1/2 .0800
Fourth Quarter................................................................ 26 5/8 20 1/8 .0800
</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 11
to the Company's Consolidated Financial Statements.
5
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ITEM 6 -- SELECTED FINANCIAL DATA
First Brands Corporation and Subsidiaries
SELECTED FINANCIAL DATA
The following table includes selected financial data for the five years ended
June 30, 1998, that are derived from and more fully described in the
Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
Years Ended(1)
--------------------------------------------------------
June 30, June 30, June 30, June 30, June 30,
(Dollars in millions, except per share amounts) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales ..................................................... $1,203.7 $1,119.9 $1,073.0 $1,036.5 $1,086.3
Operating expenses(2) ......................................... 1,067.0 981.3 928.8 901.2 935.5
Amortization and other depreciation ........................... 14.6 13.4 15.6 16.5 20.3
Restructuring expense(3) ...................................... 2.7 19.0 -- -- --
Interest expense and amortization of debt discount and expense. 29.6 20.4 17.5 18.8 22.4
Discount on sale of receivables(4) ............................ 4.6 4.0 4.0 4.0 4.3
Other income (expense), net(5) ................................ (0.5) 1.6 1.8 (21.2) (0.1)
Income before extraordinary loss and cumulative effect of
change in accounting principle(6) ......................... 52.3 50.8 65.1 43.2 60.1
Net income .................................................... $ 45.4 $ 50.2 $ 65.1 $ 38.7 $ 60.1
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share(7)
Income before extraordinary loss and cumulative change. $ 1.29 $ 1.22 $ 1.53 $ 1.01 $ 1.36
Net income ............................................ $ 1.12 $ 1.20 $ 1.53 $ 0.91 $ 1.36
Cash dividends per common share(7) ............................ $ 0.38 $ 0.30 $ 0.24 $ 0.19 $ 0.15
- --------------------------------------------------------------------------------------------------------------------------
Total assets .................................................. $1,060.2 $1,046.8 $ 860.9 $ 839.9 $ 814.0
Long-term debt (including current maturities) ................. $ 391.4 $ 383.3 $ 199.5 $ 167.2 $ 153.5
==========================================================================================================================
</TABLE>
(1) Fiscal 1997 results include the operations for the NationalPak (Australia
and New Zealand) business since its acquisition in March, 1997. Results for
fiscal 1996 reflect three months of operations for the Forest Technology
business, which was acquired in March, 1996. Fiscal 1995 results include the
operations of the acquired JONNY CAT and Multifoil (South Africa) businesses for
twelve and two months, respectively. 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.
(2) Operating expenses include that portion of depreciation expense associated
with the production of inventory.
(3) During fiscal 1997, the Company provided $19.0 million for a restructuring
plan that was primarily comprised of the closing of a distribution and office
facility and an early retirement program. During fiscal 1998, due to greater
than anticipated participation in the early retirement program and revision of
earlier estimates, the Company made an additional provision of $2.7 million to
the restructuring plan (See Note 3 to the Company's Consolidated Financial
Statements).
(4) Reflects costs associated with the sale of a fractional ownership interest
in the Company's accounts receivable (See Note 5 to the Company's Consolidated
Financial Statements).
(5) 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 Note 4 to the Company's
Consolidated Financial Statements).
(6) Income before extraordinary loss and cumulative effect of change in
accounting principle excludes the charge associated with the immediate expensing
of previously capitalized costs related to certain business process
re-engineering activities, for the year ended June 30, 1998; and the premium and
the write-off of unamortized issuance costs related to the repurchase of
subordinated debt, for the years ended June 30, 1997 and 1995 (See Notes 2 and
11 to the Company's Consolidated Financial Statements).
(7) All per share figures have been retroactively restated to reflect the
two-for-one stock split that was effective February 5, 1996.
6
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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, 1998 and 1997 and the financial condition at
June 30, 1998 should be read in conjunction with the Consolidated Financial
Statements and Notes thereto of First Brands.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
The following table sets forth the components of income and expense for the two
years ended June 30, 1998, on a dollar and percentage basis.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
--------------------- ---------------------
In Thousands Percent In Thousands Percent
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................................................ $1,203,670 100.0% $1,119,898 100.0%
Cost of goods sold ................................................... 775,870 64.5 713,203 63.7
- ------------------------------------------------------------------------------------------------------------------------
Gross profit ......................................................... 427,800 35.5 406,695 36.3
Selling, general and administrative expenses ......................... 291,156 24.2 268,086 23.9
Amortization and other depreciation .................................. 14,585 1.2 13,411 1.2
Restructuring expense ................................................ 2,700 0.2 19,000 1.7
Interest expense and amortization of debt discount and expenses ...... 29,604 2.5 20,383 1.8
Discount on sale of receivables ...................................... 4,561 0.4 3,992 0.4
Other income (expense), net .......................................... (500) (0.0) 1,575 0.1
- ------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes, extraordinary loss
and cumulative effect of change in accounting principle ...... 84,694 7.0 83,398 7.4
Provision for income taxes ........................................... 32,364 2.7 32,533 2.9
- ------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and cumulative effect of change in
accounting principle ......................................... 52,330 4.3 50,865 4.5
Extraordinary loss relating to the repurchase of
subordinated debt, net of taxes............................... -- -- (633) (0.0)
Cumulative effect of change in accounting princile, net of taxes ..... (6,922) (0.6) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net income ............................................................ $ 45,408 3.7% $ 50,232 4.5%
========================================================================================================================
</TABLE>
Net sales for the fiscal year ended June 30, 1998 were $1,203,670,000, 7.5%
above the prior year's sales of $1,119,898,000. Excluding the effect of
acquisitions, divestitures and currency fluctuation, sales in fiscal 1998 were
$1,110,673,000 compared to $1,086,253,000 last year, an increase of 2.2%.
In the household products division, domestic sales increased 2%. Within the
domestic group sales of plastic products, the largest category, grew 1%,
primarily due to new products. Sales of fireplace products grew 21% to
$27,000,000 due to increased distribution and market growth. Excluding the
effect of the NationalPak acquisition, ("the Australian business") international
sales of household products declined 2%, due to weak sales in Asia and South
Africa and the effect of weak local currencies. Sales of automotive products in
the domestic market remained essentially even with the prior year, reflecting
the residual effects of inventory downsizing by a major customer and an
unseasonably warm winter season, offset by share gains in most categories.
Export sales of automotive products declined 13% due to weakening demand in
Asian markets. The international subsidiaries reported a 3% rise in automotive
sales, however, this gain was more than offset by the negative impact of fiscal
1998 exchange rates. Increased sales in the pet products group resulted from the
new EVERFRESH brand product line and market growth.
Cost of goods sold in fiscal 1998 was $775,870,000, a 9% increase compared
to fiscal 1997's $713,203,000. The increased costs reflect higher sales volumes,
primarily associated with a full year of the Company's Australian business and
domestic GLADWARE and cat litter businesses as well as sales mix. Gross profit
for the year was $427,800,000 (35.5% of sales), 105% of last year's $406,695,000
(36.3% of sales). The increase in gross profit dollars reflects the
aforementioned increase in sales volumes, while the decrease in the gross margin
percentage resulted from a less favorable product mix and lower margins
7
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associated with the introduction costs of the new GLADWARE and EVERFRESH
products.
Selling, general, and administrative expense increased 9%, to $291,156,000
from last year's $268,086,000. Domestically, the Company increased its
advertising and promotion spending to support the introduction of a wide range
of new products. The higher advertising and promotion expense was partially
offset by savings associated with the Company's restructuring program.
Internationally, excluding increases associated with a full year of the
Australian business, spending in the current year was ahead of the prior year
to support product and market development initiatives.
Amortization and other depreciation expense of $14,585,000 was 109% of last
year's $13,411,000, with the higher expense due to the amortization of goodwill
resulting from the acquisition of the Australian business. Interest expense for
the year increased 45% to $29,604,000 from the prior year's $20,383,000,
primarily because of borrowing costs associated with the acquisition of the
Australian business and higher spending on capital assets resulting from the
acquisition of previously leased assets. Interest expense also includes the
amortization of various financing and legal costs that were incurred in the
issuance of Company debt. The 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.
Restructuring expense in fiscal 1997, relates to the Company's $19,000,000
charge ($11,590,000 after taxes or $0.28 per diluted share) for initiatives
aimed at streamlining certain operating and administrative functions, reducing
costs and improving operating efficiencies. During fiscal 1998, an additional
charge of $2,700,000 ($1,668,000 after taxes or $0.04 per diluted share) was
recorded to reflect the greater-than-expected participation in the early
retirement program along with revisions to earlier estimates, principally costs
associated with employee. Substantially all restructuring liabilities have been
paid or settled during fiscal 1998.
Other expense, net for fiscal 1998 reflects the loss associated with the
sale and/or disposal of equipment, various net foreign exchange losses and other
miscellaneous costs, none of which are individually significant. These losses
were partially offset by the gain associated with the sale of a portion of the
Company's foreign exchange contracts. Other income, net in fiscal 1997,
primarily reflects the gain associated with the early repayment of a long-term
note receivable along with interest income from that note which was partially
offset by foreign exchange losses and other non-recurring expenses.
The Company's effective tax rate for fiscal 1998 was 38.2% compared to
39.0% in fiscal 1997, primarily reflecting higher research tax credits.
The fiscal 1998 cumulative effect of change in accounting principle
($6,922,000 or $0.17 per diluted share) reflects the cost associated with the
immediate expensing (in accordance with the Financial Accounting Standards Board
Emerging Issues Task Force Issue No. 97-13) of previously capitalized costs
related to certain business process re-engineering activities. The fiscal 1997
extraordinary loss ($633,000 or $0.02 per diluted share) resulted from the costs
associated with the repurchase of the previously outstanding Senior Subordinated
Notes.
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in a full set of financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which expands annual financial statement
disclosures about operating segments and establishes disclosure requirements
concerning a company's products, customers and geographic areas. Selected
information about operating segments is also required for interim financial
reports issued to shareholders. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements previously established by SFAS No. 87, 88 and 106. The new
disclosure requirements are intended to standardize the reporting of pensions
and other postretirment benefits. While SFAS No. 132 does not change the
measurement or recognition requirements of those plans, it does require some new
information from plan sponsors and allows for the elimination of other
information which is no longer considered useful. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997.
The Company plans to adopt each of the above pronouncements in its fiscal
year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132
will have no impact on First Brands results of operations, cash flows or
financial position, the Company is currently evaluating the appropriate format
of disclosure for each pronouncement.
8
<PAGE>
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
The following table sets forth the components of income and expense for the two
years ended June 30, 1997, on a dollar and percentage basis.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
--------------------- ---------------------
In Thousands Percent In Thousands Percent
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................................................ $1,119,898 100.0% $1,073,022 100.0%
Cost of goods sold ................................................... 713,203 64.5 687,103 64.0
- ------------------------------------------------------------------------------------------------------------------------
Gross profit ......................................................... 406,695 36.3 385,919 36.0
Selling, general and administrative expenses ......................... 268,086 23.9 241,711 22.5
Amortization and other depreciation .................................. 13,411 1.2 15,607 1.5
Restructuring expense ................................................ 19,000 1.7
Interest expense and amortization of debt discount and expenses ...... 20,383 1.8 17,546 1.6
Discount on sale of receivables ...................................... 3,992 0.4 3,963 0.4
Other income (expense), net .......................................... 1,575 0.1 1,827 0.2
- ------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and extraordinary loss ...... 83,398 7.4 108,919 10.2
Provision for income taxes ........................................... 32,533 2.9 43,819 4.1
- ------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss ..................................... 50,865 4.5 65,100 6.1
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes ............................................... (633) (0.0) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net income ........................................................... $ 50,232 4.5% $ 65,100 6.1%
========================================================================================================================
</TABLE>
Net Sales for the fiscal year ended June 30, 1997 were $1,119,898,000, 4%
above fiscal 1996's sales of $1,073,022,000. Excluding the effect of
acquisitions and divestitures, sales for fiscal 1997 were slightly ahead of
1996.
Sales in the household products business increased due to the first full
year of sales from the firelog and fire starter business, strong export sales
(primarily to Japan), higher international sales (resulting from the acquired
Australian business) and a slight increase in domestic unit volumes and sales.
Internationally, increased sales resulting from the aforementioned Australian
acquisition were partially offset by lower Canadian sales as well as unfavorable
exchange rates, primarily in South Africa. Sales of automotive products
(excluding sales from the Company's discontinued contract packaging and other
divested businesses) declined during fiscal 1997 due to a soft domestic retail
market and an inventory reduction program instituted by the Company's largest
customer. Pet product sales increased in both a dollar and quantity basis as a
result of continued market share growth and product introductions.
Cost of goods sold in fiscal 1997 was $713,203,000 compared to $687,103,000
in fiscal 1996. The 4% increase in costs primarily reflects higher volume sales
and increased polyethylene costs. Gross profit for fiscal 1997 was $406,695,000
(36% of sales), 105% of 1996's $385,919,000 (36% of sales). Gross profit dollars
increased during the year due to higher sales volumes, while the gross margin
percentage was maintained between years as manufacturing efficiencies and
product mix offset increased raw material costs.
Selling, general, and administrative expense of $268,086,000 was 11% above
fiscal 1996's $241,711,000. Increased spending in the domestic businesses
reflected marketing initiatives aimed at supporting new product introductions
and expanding distribution and line extensions. Internationally, excluding the
acquisition of the Australian business, spending during fiscal 1997 was down
slightly as marketing programs were cut back to offset lower sales. Overhead
increases also reflected the Company's Australia and New Zealand businesses, as
well as the first full year of operations of the fire starter and firelog
business.
Amortization and other depreciation expense of $13,478,000 in 1997 was 86%
of 1996's $15,607,000. The lower expense for 1997 reflects the impact of assets
that were fully amortized during fiscal 1996. Interest expense for fiscal 1997
was $20,383,000, 116% of 1996's $17,546,000, primarily due to borrowing costs
associated with the acquisition of the Australian business and higher average
borrowings during the year, which were partially offset by lower rates. Interest
expense also includes the amortization of various financing and legal costs that
were incurred in the issuance of
9
<PAGE>
<PAGE>
Company debt. The 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.
Restructuring expense in 1997 relates to the Company's $19,000,000 charge
($11,590,000 after taxes, or $0.28 per share) for initiatives aimed at
streamlining certain operating and administrative functions, reducing costs and
improving operating efficiencies. The charge is composed primarily of employee
related costs, primarily an early retirement package, as well asset write-downs
and disposals, mainly of a distribution facility and adjacent office center.
Other income in 1997 primarily reflects the gain associated with the
repayment of a long-term note receivable along with interest income from the
note that was partially offset by foreign exchange losses and other one time
non-operating expenses. In 1996, other income primarily reflected accrued
interest that was reversed as a result of a tax audit settlement and interest
income received on a long-term note receivable.
The Company's effective tax rate for fiscal 1997 was 39.5% compared to
40.2% in fiscal 1996, reflecting higher favorable permanent tax differences and
a lower blended state tax rate.
The extraordinary loss of $633,000 or $0.02 per share resulted from the
costs associated with the repurchase of the Company's previously outstanding
$100,000,000 9 1/8% Senior Subordinated Notes.
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1997.
Financial Condition
At June 30, 1998 worldwide credit facilities in place aggregated $403,702,000 of
which $110,652,000 was available but unused. Excluding acquisitions or stock
repurchases, the Company expects to repay up to $40,000,000 on these credit
facilities over the next twelve months by utilizing positive cash flow generated
by its operations. 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, 1998, the entire $100,000,000 had been sold
(See Note 5). As of June 30, 1998, the Company had long-term debt outstanding of
$388,054,000. Principal payments due on long-term debt (including current
maturities) total $217,752,000 for the five-year period beginning July 1, 1998.
To balance its exposure to fluctuations in interest rates, foreign
currencies and polyethylene resin pricing, the Company periodically enters
into interest rate and foreign currency swaps and raw material contracts. At
June 30, 1998 the Company was party to various interest swap agreements with a
notional amount of approximately $127,000,000, which will mature over the next
5 years. The Company has entered into fixed price contracts (with various
maturities through 2006), which covers about 37% of the Company's domestic
resin requirements. There is also a "collar" contract which assures prices do
not exceed a cap, as well as setting a floor, covering an additional 20% of
the Company's domestic resin requirements. To reduce its foreign exchange risk,
the Company periodically enters into foreign currency contracts that can limit
the impact of exchange rate fluctuations resulting from anticipated inventory
purchases and intercompany transactions. (See Note 10).
Capital expenditures, including capitalized interest, were $44,480,000
during fiscal 1998 and $41,960,000 in fiscal 1997. The additions to property,
plant and equipment relate to the Company's emphasis on continued enhancements
in product quality, reductions in manufacturing costs, product development and
technology improvements. During fiscal 1998 and 1997, the Company also acquired
previously leased equipment totaling $44,208,000 and $22,320,000, respectively.
The Company's fiscal 1999 plan reflects capital expenditures and associated
capitalized interest of approximately $45,900,000 and fixed payments (interest,
principal, receivable financing costs and lease payments) of approximately
$44,000,000.
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 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.
Year 2000 Issue
Over the past several years the Company has been dedicating significant
resources, from both a financial and personnel basis, towards an upgrade of its
U.S. and Canadian computer applications. These enhancements are intended to
improve many business areas, such as customer service, inventory control, data
interfacing between forecasting, production and sales and other logistic
efficiencies. In addition to the aforementioned improvements, the implementation
of these new systems is intended to address the Year 2000 issue. The
10
<PAGE>
<PAGE>
Year 2000 issue refers to the potential impact to various date-sensitive
software and hardware which utilize two digits rather than four when defining
the current year.
In addressing the Year 2000 issue the Company has reviewed the potential
impact to both its information systems and to any ancillary system which may be
impacted. This review included, but was not limited to, an analysis of all
significant systems or assets which may use microcontrollers. The Company is now
in the final testing phase of its sales, costing and production modules and
currently intends to implement these systems in the first and second quarters of
calendar 1999. In addition to upgrading its own systems, the Company has
contacted certain significant suppliers to determine their Year 2000 compliance
profile. To date, the Company has not received any information which would
indicate that the Year 2000 will result in any significant disruption from its
suppliers. If any supplier should develop a Year 2000 problem, the Company
believes that it is likely that there will be comparable items available from
other vendors. The Company does not currently believe that the inability to
adequately deal with the Year 2000 issue will impact any of its material third
party relationships.
All potential risks and uncertainties associated with the Year 2000 issue
can not be fully and accurately quantified. Based on an analysis of First Brands
systems implementation plan, the Company currently believes that any potential
loss in revenue associated with the Year 2000 issue will not have a material
impact to the ongoing operations of the Company. The Company's implementation
plan has involved an expenditure of approximately $29,000,000 from a total
budget of $33,000,000. It is unclear whether the Company can practicably develop
a contingency plan should the system implementation plan fail to adequately deal
with the Year 2000 issue. However, the Company currently believes that it will
have the resources available to adequately test and modify, if necessary, its
new information systems and other assets impacted by the Year 2000 issue between
the first quarter of calendar 1999 and January 1, 2000.
The Company's international subsidiaries, other than Canada which is
covered in the U.S. program, have established their own plans for dealing with
the Year 2000 issue, and have computer systems which are either fully compliant
as of June 30, 1998 or are expected to be compliant by December 31, 1998. Such
analysis was conducted in a manner similar to the methodology used by First
Brands in the U.S. and Canada.
Cautionary Statement for Purposes of the Private
Securities Litigation Reform Act of 1995
Certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 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, and contain a number of risks and uncertainties including
changes in consumer demand, changes in prices of raw materials, changes in
distribution channels, competitive activities, fluctuations in foreign currency
exchange rates, consumer acceptance of new product lines, the Company's ability
to control internal costs, the successful development of new technologies, the
successful integration of acquisitions into existing operations, increases in
the cost of compliance with regulations, including environmental regulations,
certain risks associated with operating in foreign countries, the implementation
of strategic initiatives and general economic conditions. Accordingly, investors
are cautioned that such forward-looking statements should not be relied upon as
a prediction of actual results.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related documents of the Company are
included in Part IV, Item 14 of this Report.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
11
<PAGE>
<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>
William V. Stephenson(4, 5)................. 57 Chairman, Chief Executive Officer and Director
Thomas H. Rowland(4)........................ 53 President, Chief Operating Officer and Director
Donald A. DeSantis.......................... 48 Senior Vice President, Chief Financial Officer
James S. Gracie............................. 39 Vice President, President of First Brands
International, Inc.
Mark E. Haglund............................. 47 Vice President, President of STP Products Inc.
Patrick J. O'Brien.......................... 42 Vice President, President of Household Products
Division
Ronald F. Dainton........................... 59 Vice President, Human Resources
Joseph B. Furey............................. 52 Vice President, Controller and Secretary
Einar M. Rod................................ 46 Vice President and General Counsel
Richard J. Mosback.......................... 45 Treasurer
A. R. (Bud) McClellan....................... 44 Assistant Controller and Assistant Secretary
Alfred E. Dudley(4*, 5)..................... 70 Director
Robert F. Bernstock(a)(2, 3)................ 47 Director
John C. Ferries(2, 3)....................... 60 Director
James R. Maher(2, 3)........................ 48 Director
James R. McManus(1, 5)...................... 64 Director
Denis Newman(3*, 4)......................... 68 Director
Ervin R. Shames(1*, 5)...................... 58 Director
Robert G. Tobin(1, 2*)...................... 60 Director
</TABLE>
- ------------
(a) Mr. Bernstock was elected to the Board of Directors during 1997, increasing
the board membership to ten. Mr. Bernstock will stand for reelection at the
Annual Meeting of Stockholders on October 23, 1998.
* 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. Bernstock,
Newman and Shames expire at the Annual Meeting of Stockholders on October 23,
1998, the terms office of Messrs Dudley, McManus and Rowland expire at the
Annual Meeting of Stockholders in October 1999, and the terms of office of
Messrs, Ferries, Maher, Stephenson and Tobin expire at the Annual Meeting of
Stockholders in October 2000. Executive officers and key employees are elected
annually by, and serve at the pleasure of, the Board of Directors. There are no
family relationships between any directors, executive officers or key employees
of First Brands.
12
<PAGE>
<PAGE>
Mr. Stephenson was elected Chairman of the Board on January 1, 1997. On
September 1, 1994, he was appointed Chief Executive Officer of the Company. He
served as President from August 11, 1992 until he relinquished that title on
August 7, 1998. From August, 1992 to September, 1994 he served as Chief
Operating Officer. He was elected a Director of the Company on August 11, 1992.
Mr. Rowland was elected President and Chief Operating Officer on August 7,
1998. He was elected Executive Vice President of the Company and served as
President of the Home Products Division from August 11, 1992 to August 7, 1998.
On November 1, 1996 he was elected a Director of the Company.
Mr. DeSantis was elected Senior Vice President of the Company on November
5, 1993 and has been the Chief Financial Officer of the Company since June 19,
1986. He was re-elected as Treasurer on August 9, 1994 and held that position
until he relinquished the title on October 24, 1997.
Mr. Gracie was elected Vice President of the Company on August 6, 1997 and
simultaneously appointed President of First Brands International, Inc. He is
also Chief Executive Officer of First Brands (Canada) Corporation. He was Senior
Vice President, First Brands International from May, 1996 until August, 1997.
Prior to that he was CEO and President of First Brands (Canada) Corporation from
November, 1994 to May, 1996. From March 1993 to October 1994, he was Vice
President, Home Products in Canada.
Mr. Haglund was elected Vice President of the Company on October 27, 1995.
He was appointed President of STP Products, Incorporated on September 1, 1995,
after serving as Senior Vice President and General Manager since August 1, 1994
and Vice President of Marketing since March, 1992.
Mr. O'Brien was appointed President of the Household Products Division on
August 7, 1998. He was elected Vice President of the Company on October 27,
1995. He was appointed President of A&M Products, Incorporated on September 1,
1995, after serving as Vice President and General Manager since May, 1992.
Mr. Dainton was elected Vice President, Human Resources of the Company on
May 24, 1989.
Mr. Furey was elected Corporate Secretary on January 20, 1995 and Vice
President of the Company on November 5, 1993. He has also served as Controller
of the Company since June 19, 1986. From 1986 until 1995, Mr. Furey served as
Assistant Secretary.
Mr. Rod was elected Vice President of the Company effective June 1, 1997.
He became General Counsel to the Company on May 20, 1996. Previously, he was 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 prior to 1992.
Mr. Mosback was elected Treasurer on October 24, 1997 after serving as
Assistant Treasurer since January 20, 1995. He became Director of Finance and
Internal Audits in 1993 and served in that capacity until January, 1995.
Mr. McClellan was elected Assistant Secretary on January 26, 1996 and was
elected Assistant Controller on January 20, 1995. He served as Director of
Accounting from 1992 to 1995.
Mr. Bernstock has been President and Chief Executive Officer of Vlasic
Foods International (a food manufacturer and marketer) since March, 1998. Since
July 1997, he served as Executive Vice President of the Campbell Soup Company, a
food manufacturer and marketer, and President of its Specialty Food Division
which was spun off in March 1998. He was appointed President -- U.S. Grocery
Division and Senior Vice President of Campbell Soup Company in March, 1996. Mr.
Bernstock served as President -- International Grocery Division from August 1994
to February 1996. He served as President -- International Soup Division from
June, 1993 to July, 1994. He was elected a Director of the Company on October
16, 1997.
Mr. Dudley was elected Chairman and Chief Executive Officer on June 19,
1986. He relinquished the title of Chief Executive Officer effective September
1, 1994 and the title of Chairman on January 1, 1997. He has been a Director of
the Company since June 19, 1986.
Mr. Ferries has been a consultant for the MacManus Group (a communications
group consisting of nine companies) running their Mergers and Acquisitions
program since January, 1998. In December,
13
<PAGE>
<PAGE>
1997, he retired from DMB&B, a MacManus advertising company, where he served as
President -- Americas since September, 1993. He was elected a Director of the
Company on June 5, 1997.
Mr. Maher has been President of Mafco Holdings Inc., a diversified holding
company, since July, 1998. Mr. Maher had been President and Chief Executive
Officer of Mafco Consolidated Group, Inc., diversified manufacturer, now a
wholly owned subsidiary of Mafco Holdings since July, 1995. He was Chairman of
the Board from April, 1995 to April 1996 and was President and Chief Executive
Officer from December, 1992 to April, 1995 of Laboratory Corporation of America,
a health services company. He was elected a Director of the Company on May 26,
1988.
Mr. McManus has been Chairman, Chief Executive Officer of Marketing
Corporation of America, a marketing services firm, since prior to 1986. He also
serves on the Board of Au Bon Pain, Inc. On February 1, 1994, Mr. McManus
resigned as President and Chief Executive Officer of Business Express, Inc. a
regional airline operating in the Northeastern United States. On January 22,
1996, a petition for Chapter IX 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. Newman has been a Managing Director of MidMark Associates, Inc., a
private investment firm since December, 1989. He also serves as a director of
Clearview Cinema Group, 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
and was President and Chief Executive Officer of Borden, Inc., a consumer
products manufacturer, from December, 1993 to January, 1995. He was President
and Chief Operating Officer of Borden, Inc. from July, 1993 until December,
1993. He was elected a Director of the Company on May 28, 1987.
Mr. Tobin retired as Chairman of The Stop & Shop Supermarket Companies,
Inc. and The Stop & Shop Supermarket Company, retail food, on July 31, 1998 when
he became President and Chief Executive Officer of Ahold, Inc. Mr. Tobin served
as Chairman, President and Chief Executive Officer of the aforementioned
companies from January 1995 through December, 1997, relinquishing the title of
President and Chief Executive Officer in December 1997. He was President and
Chief Executive Officer of The Stop & Shop Supermarket Company from May, 1994 to
January, 1995, and prior to this was President and Chief Operating Officer of
The Stop & Shop Supermarket Companies, Inc. and The Stop & Shop Supermarket,
since 1993. He was elected a Director of the Company on September 6, 1991.
ITEM 11 -- EXECUTIVE COMPENSATION
Incorporated by reference to the section entitled 'Executive Compensation'
in the Company's Proxy Statement, dated September 22, 1998, for its 1998 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 22, 1998,
for its 1998 Annual Meeting of Stockholders.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
14
<PAGE>
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management....................................................................16
Independent Auditors' Report............................................................16
Consolidated Statements of Income -- For the Years Ended June 30, 1998, 1997 and
1996.................................................................................17
Consolidated Balance Sheets -- June 30, 1998 and 1997...................................18
Consolidated Statements of Stockholders' Equity -- For the Years Ended June 30, 1998,
1997 and 1996........................................................................20
Consolidated Statements of Cash Flows -- For the Years Ended June 30, 1998, 1997 and
1996.................................................................................21
Notes to Consolidated Financial Statements..............................................22
(a) (2) Financial Statement Schedules
Independent Auditors' Report On Schedules...............................................33
The following financial statement schedule of the Company as set forth
below is filed with this Report on Form 10-K:
Valuation and Qualifying Accounts (Schedule VIII) For the Years Ended June 30, 1998,
1997 and 1996........................................................................34
</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 36-37 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
None.
15
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
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.
/s/ W. V. Stephenson /s/ D. A. DeSantis
W. V. Stephenson D. A. DeSantis
Chairman and Chief Senior Vice President and
Executive Officer Chief Financial Officer
August 6, 1998
Independent Auditors' Report
The Board of Directors and Stockholders
of First Brands Corporation:
We have audited the accompanying consolidated balance sheets of First Brands
Corporation and subsidiaries as of June 30, 1998 and 1997, 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, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Brands
Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for business process re-engineering
costs effective October 1, 1997.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
August 6, 1998
16
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
June 30, June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,203,670 $1,119,898 $1,073,022
Cost of goods sold 775,870 713,203 687,103
Selling, general and administrative expenses 291,156 268,086 241,711
Amortization and other depreciation 14,585 13,411 15,607
Restructuring expense (Note 3) 2,700 19,000 --
Interest expense and amortization of debt discount and expenses 29,604 20,383 17,546
Discount on sale of receivables (Note 5) 4,561 3,992 3,963
Other income (expense), net (500) 1,575 1,827
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes, extraordinary loss and
cumulative effect of change in accounting principle 84,694 83,398 108,919
Provision for income taxes (Note 14) 32,364 32,533 43,819
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and cumulative effect of change in
accounting principle 52,330 50,865 65,100
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes (Note 11) -- (633) --
Cumulative effect of change in accounting principle, net of taxes (Note 2) (6,922) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 45,408 $ 50,232 $ 65,100
====================================================================================================================================
Per common share (Note 1):
Basic:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.32 $ 1.25 $ 1.56
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.15 $ 1.23 $ 1.56
====================================================================================================================================
Diluted:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.29 $ 1.22 $ 1.53
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.12 $ 1.20 $ 1.53
====================================================================================================================================
Weighted average outstanding common shares (Note 1):
Basic 39,615,855 40,771,610 41,661,624
Diluted 40,501,876 41,756,802 42,600,021
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
17
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Years Ended
---------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,029 $ 7,465
Accounts and notes receivable
(net of allowances for doubtful accounts and
discounts of $8,297 and $6,842) (Note 5) 118,326 134,554
Inventories (Note 1) 155,480 151,976
Deferred tax assets (Note 14) 11,827 15,992
Prepaid expenses 10,170 9,434
- ----------------------------------------------------------------------------------------
Total current assets 307,832 319,421
Property, plant and equipment
(net of accumulated depreciation of $160,529 and
$141,691) (Notes 1 and 6) 419,755 377,128
Patents, trademarks, proprietary technology and
other intangibles (net of accumulated amortization
of $204,916 and $192,631) (Notes 1 and 7) 284,849 310,095
Deferred charges and other assets
(net of accumulated amortization of $52,687 and $52,029) 47,765 40,137
- ----------------------------------------------------------------------------------------
Total assets $1,060,201 $1,046,781
========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
18
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
Years Ended
---------------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 4,562 $ 8,432
Current maturities of long-term debt (Note 11) 3,384 2,811
Accrued income and other taxes (Note 14) 8,253 7,373
Accounts payable 71,692 61,877
Accrued liabilities (Note 9) 92,919 106,084
- -------------------------------------------------------------------------------------------------
Total current liabilities 180,810 186,577
Long-term debt (Note 11) 388,054 380,467
Deferred tax liability (Note 14) 78,788 65,348
Other long-term obligations (Note 15) 26,401 20,473
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued -- --
Common stock, $0.01 par value, 120,000,000 shares
authorized; 43,553,846 shares issued at June 30, 1998
and 43,394,044 shares issued at June 30, 1997 435 434
Capital in excess of par value 134,166 130,994
Cumulative foreign currency translation adjustment (27,556) (12,455)
Common stock in treasury, at cost; 4,407,000 shares at
June 30, 1998 and 3,355,000 shares at June 30, 1997 (123,039) (96,837)
Retained earnings 402,142 371,780
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 386,148 393,916
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,060,201 $1,046,781
=================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
19
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended June 30, 1998, 1997 and 1996
--------------------------------------------------------------------------------------
Cumulative
Common Stock Capital Foreign
---------------------- In Excess Currency
Shares Par of Par Translation Retained Treasury
(Dollars in thousands) Outstanding Value Value Adjustment Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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
Cash dividends (Note 1) -- -- -- -- (12,298) -- (12,298)
Exercise of stock options 253,458 3 3,350 -- -- -- 3,353
Tax benefit related to the exercise
of employee stock options -- -- 1,212 -- -- -- 1,212
Net income -- -- -- -- 50,232 -- 50,232
Purchase of treasury stock (1,865,000) -- -- -- -- (44,274) (44,274)
Foreign currency translation
adjustment -- -- (3,134) -- -- (3,134)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1997 40,039,044 $434 $130,994 $(12,455) $371,780 $(96,837) $393,916
Cash dividends (Note 1) -- -- -- -- (15,046) -- (15,046)
Exercise of stock options 159,802 1 2,101 -- -- -- 2,102
Tax benefit related to the exercise
of employee stock options -- -- 1,071 -- -- -- 1,071
Net income -- -- -- -- 45,408 -- 45,408
Purchase of treasury stock (1,052,000) -- -- -- -- (26,202) (26,202)
Foreign currency translation
adjustment -- -- -- (15,101) -- -- (15,101)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 39,146,846 $435 $134,166 $(27,556) $402,142 $(123,039) $386,148
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
20
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
June 30, June 30, June 30,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $45,408 $50,232 $65,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 44,427 41,448 38,282
Restructuring expense 2,700 19,000 --
Deferred income taxes 19,722 5,808 25,808
Amortization of gain on sale/leaseback -- (909) (1,580)
Cumulative effect of change in accounting principle 6,922 -- --
Loss on repurchase of subordinated notes -- 633 --
Change in non-cash current assets and liabilities, net of effect of
businesses acquired:
(Increase) in accounts receivable (5,712) (25,674) (12,052)
(Increase) decrease in inventories (8,239) 4,405 11,836
(Increase) in prepaid expenses (1,072) (3,942) (1,048)
Increase (decrease) in accrued income and other taxes 5,712 4,306 (7,263)
Increase (decrease) in accounts payable 12,207 (9,808) (10,937)
(Decrease) in accrued liabilities (14,184) (14,700) (36,171)
Other changes (4,053) (1,440) (3,687)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 58,430 19,127 3,188
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 103,838 69,359 68,288
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (44,480) (41,960) (42,293)
Acquisition of leased assets (44,208) (22,320) (9,797)
Acquisition of businesses, net of cash acquired -- (160,210) (32,255)
Retirements of plant and equipment 8,218 1,109 1,072
Purchase and installation of software (13,514) (10,564) (5,518)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (93,984) (233,945) (88,791)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving credit facilities, net 18,899 135,143 35,000
(Decrease) increase in other borrowings, net (728) 4,149 (3,835)
Increase in securitization of accounts receivable, net 15,000 15,000 10,000
Issuance of 7 1/4% senior subordinated notes, net of underwriting discount -- 149,025 --
Repurchase of 9 1/8% senior subordinated notes -- (100,000) --
Proceeds from settlement of Prestone note receivable -- 13,000 --
Proceeds from exercise of stock options 2,102 3,353 4,472
Purchase of common stock for treasury (26,202) (44,274) (12,130)
Dividends paid (14,361) (11,671) (9,903)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (5,290) 163,725 23,604
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,564 (861) 3,101
Cash and cash equivalents at beginning of year 7,465 8,326 5,225
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,029 $ 7,465 $ 8,326
==================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<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); GLADWARE (plastic containers); STP (oil
and fuel additives and other specialty automotive appearance products); SCOOP
AWAY, EVER CLEAN, EVERFRESH and JOHNNY CAT (cat litters); and STARTERLOGG and
HEARTHLOGG (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 statement, 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.
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 composed of the following as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------
<S> <C> <C>
Raw materials $ 34,160 $ 34,518
Work in process 5,485 5,795
Finished goods 115,835 111,663
- -------------------------------------------------
$155,480 $151,976
=================================================
</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 useful lives of the respective
assets for accounting purposes. The Company capitalizes interest on major fixed
asset additions during construction. Interest capitalized totaled $2,297,000,
$1,864,000 and $2,017,000 in 1998, 1997 and 1996, 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
notes receivable, 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 $4,778,000, $5,043,000 and $4,789,000 in 1998, 1997 and 1996,
respectively.
Income and Dividends per Share
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaces primary
and fully diluted earnings per share ("EPS") with basic and diluted EPS, and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all companies with complex capital structures. Basic EPS
represents the earnings available for each common share outstanding during the
period. Diluted EPS reflects earnings available for each common share after the
affect of all potentially dilutive common shares, such as options, warrants and
convertible securities. The number of weighted average shares used to calculate
diluted EPS differs slightly from those shares used to calculate basic EPS due
to the effect of employee stock options.
Cash dividends declared for fiscal 1998, 1997 and 1996 were $0.38, $0.30 and
$0.24 per share, respectively.
Statement 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.
22
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $32,705 $18,821 $23,674
Income Taxes $16,378 $27,385 $34,380
====================================================================
</TABLE>
Interest payments during fiscal 1996 include $6,325,000 paid in settlement of
an IRS audit.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
Risk Management
The Company periodically enters into various hedging transactions to minimize
the effect of fluctuations in currency exchange rates, raw material pricing and
interest rates. The foreign currency forward contracts limit the Company's
exposure to currency fluctuations associated with certain transactions, while
raw material contracts stabilize a portion of the costs associated with the
Company's resin purchases. Interest rate swaps allow the Company to better
balance its interest rate exposure between fixed and floating interest rates.
The Company does not hold or issue these financial instruments for trading
purposes.
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 1997 and 1996 have been reclassified to conform to
the fiscal year 1998 classifications.
2. Accounting Change
During the second quarter of fiscal 1998, the Company changed its accounting
policy for costs associated with the business process re-engineering activities
which relate to the Company's information system upgrade. In accordance with the
Financial Accounting Standards Board ("FASB") Emerging Issues Task Force Issue
No. 97-13, the Company is now expensing these process re-engineering costs.
Prior to fiscal 1998, the Company capitalized these costs, intending to amortize
them over a five to seven year period commencing with the implementation of the
new information system. The cumulative effect of the accounting change principle
resulted in a charge to earnings of $11,434,000 ($6,922,000 after taxes or $0.17
per diluted share). On a pro forma basis, the Company's reported net income for
fiscal 1997 and 1996 would have been reduced by $5,069,000 ($0.12 per diluted
share) and $1,022,000 ($0.02 per diluted share), respectively.
3. Restructuring
In fiscal 1997, the Company recorded a $19,000,000 restructuring charge
($11,590,000 after taxes or $0.28 per diluted share), for initiatives aimed at
streamlining certain operating and administrative functions, reducing costs and
improving operating efficiencies. During fiscal 1998, an additional charge of
$2,700,000 ($1,668,000 after taxes or $0.04 per diluted share), was recorded to
reflect greater than anticipated participation in the early retirement program
along with revisions to earlier estimates, principally costs associated with
employees. The total charge of $21,700,000 was composed of a $10,000,000 charge
for employee related costs, primarily an early retirement window package and
related costs to obtain personnel reductions and $11,700,000 related to asset
write-downs and disposals, mainly of a distribution facility and adjacent office
center in East Hartford, Connecticut. Substantially all restructuring
liabilities have been paid or settled during fiscal 1998.
4. Acquisitions and Divestitures
Acquisitions
During fiscal 1998, the Company's New Zealand subsidiary acquired, for
approximately $750,000, the XLO sponge brand in the New Zealand market. In
fiscal 1997, the Company's South African subsidiary acquired 76% of the
outstanding stock of Sealapac (PVT) LTD., a Zimbabwe manufacturer and marketer
for the consumer products and commercial markets.
On March 14, 1997, the Company purchased, for approximately $160,000,000,
the NationalPak business in Australia and New Zealand from National Foods
Limited. NationalPak manufacturers and markets consumer products such as plastic
wrap and bags, aluminum foil and wiping cloths under the GLAD, CHUX, OSO, MONO
and ROTA brand names. The acquisition was funded by long-term borrowings in the
United States, Canada, Australia and New Zealand (see Note 11). During fiscal
1998, the Company sold to local management a 4.4% interest in the Australian
subsidiary.
On March 19, 1996, the Company purchased, for approximately $32,000,000,
the net assets of Forest Technology Incorporated, the manufacturer and marketer
of the STARTERLOGG and HEARTHLOGG brand of wood fire starters and fire logs.
All of the above business and brand acquisitions have been accounted for by
the purchase method, and accord-
23
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
ingly, the results of operations of NationalPak, Forest Technology, Sealapac and
XLO are included in the Company's Consolidated Statements of Income from the
respective dates of acquisition. The excess of costs over net assets acquired
for the NationalPak and Forest Technology acquisitions were $63,100,000 and
$30,100,000, respectively, and are being amortized over a forty year period on a
straight line basis.
Divestitures
During fiscal 1997, the Company sold its SIMONIZ wax and polish business. The
gain associated with the sale of the SIMONIZ business is reflected in Other
income (expense), net in the fiscal 1997 Consolidated Statement of Income.
Early in fiscal 1995, First Brands sold the Prestone antifreeze/coolant and
car care business to Prestone Products Corporation ("Prestone"). During fiscal
1997, Prestone repaid a $13,000,000 loan (which for financial reporting purposes
was valued at $9,000,000 at the time of the divestiture), resulting in a gain of
approximately $2,700,000 that is reflected in Other income (expense), net, in
the Consolidated Statement of Income.
5. Accounts Receivable
During fiscal 1998, the Company exercised its option to terminate a previous
agreement to sell up to $100,000,000 in eligible trade accounts receivable.
After terminating its previous agreement, the Company entered into a new three
year agreement, with an automatic yearly renewal provision thereafter, for the
sale of $100,000,000 in fractional ownership interest in a defined pool of
eligible receivables. The new program increases the receivable pool which may be
considered eligible, reduces the yearly service fees and provides for a lower
discount rate. As of June 30, 1998 the entire $100,000,000 had been sold,
reflecting a $15,000,000 increase over the prior year-end balance. 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."
6. Property, Plant and Equipment
Property, plant and equipment as of June 30, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Land and
Improvements $ 14,052 $ 18,713 --
Buildings 70,552 77,847 30-40 years
Machinery and
Equipment 479,060 404,019 13-15 years
Other 16,620 18,240 3-5 years
- -------------------------------------------------------------------------
580,284 518,819
Less: Accumulated
depreciation (160,529) (141,691)
- -------------------------------------------------------------------------
$ 419,755 $ 377,128
=========================================================================
</TABLE>
Depreciation expense was $31,009,000, $29,042,000 and $25,149,000 in fiscal
1998, 1997 and 1996, respectively.
7. Patents, Trademarks, Proprietary Technology and Other Intangibles
The Company periodically reviews the carrying value of intangible assets to
determine whether the carrying amount of an asset is 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 periods ended June 30, 1998, 1997 and 1996 there were no material
adjustments to the carrying values of intangible assets resulting from these
evaluations.
Patents, trademarks, proprietary technology and other intangibles as of June 30,
1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Trademarks $ 117,201 $ 116,866 40 years
Patents, proprietary
technology and
other intangibles 163,371 162,658 10-17 years
Excess of cost over
net assets
acquired 209,193 223,202 40 years
- -------------------------------------------------------------------------
489,765 502,726
Less: Accumulated
amortization (204,916) (192,631)
- -------------------------------------------------------------------------
$ 284,849 $ 310,095
=========================================================================
</TABLE>
24
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Notes Payable
The Notes payable consisted of international subsidiaries' working capital
borrowings with local banks totaling $4,562,000 and $8,432,000 at June 30, 1998
and 1997, respectively. The international credit facilities, which aggregate
$17,456,000, are generally secured by the assets of the respective international
subsidiary, with approximately $2,024,000 at one international subsidiary
guaranteed by First Brands Corporation (U.S.). The Company also borrows against
an unsecured domestic line of credit and at June 30, 1998 and 1997, the entire
$15,000,000 available under this facility was unused. The average borrowings
outstanding and average interest rates charged during fiscal 1998 and 1997 were
$14,600,000 at 11.3% and $10,750,000 at 10.2%, respectively.
9. Accrued Liabilities
Accrued liabilities as of June 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 5,764 $ 6,494
Employee benefits and wages 9,410 9,295
Marketing and sales programs 44,997 54,384
Raw material purchases 16,220 14,314
Other 16,528 21,597
- --------------------------------------------------------------------------------
$92,919 $106,084
================================================================================
</TABLE>
10. Financial Instruments
The Company has entered into various interest rate swap agreements to transform
a portion of its variable rate debt into fixed rate obligations. According to
the provisions of these agreements, the Company will pay between 5.45% and 7.07%
fixed interest for up to five years and will receive floating rate counter
payments (5.64% at June 30, 1998). A majority of the swap agreements provide for
a five year renewal at the counterparties discretion. The difference between
interest paid and received is included as an adjustment to interest expense. The
notional amount of the contracts is approximately $127,000,000. The fair value
of each 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.
To limit the impact of exchange rate fluctuations resulting from
anticipated inventory purchases and intercompany transactions, the Company
periodically enters into foreign currency contracts. Outstanding contracts
totaled approximately $24,775,000 and $40,875,000 as of June 30, 1998 and 1997,
respectively. Contracts outstanding as of June 30, 1998 will mature over the
next ten years.
The Company has entered into various contracts to partially stabilize the
cost, at or below the market average over the last four years, of its
polyethylene resin requirements. Fixed price contracts cover about 37% of the
Company's domestic resin requirements and have various maturities through 2006.
There is also a "collar" contract protecting a range of prices covering an
additional 20% of the Company's domestic resin requirements.
The Company considers the risks associated with its interest, currency and
resin contracts to be relatively low because of the Company's policy to only
enter into agreements with strong credit worthy counterparties. Gains and losses
on the currency impact of cross border transactions and the effect of foreign
currency contracts are recorded in Other income (expense), net in the
Consolidated Statement of Income. During fiscal 1998 a net credit of $1,900,000
was recorded from these transactions and during fiscal 1997 the net loss was
immaterial. Gains and losses on resin and interest contracts are recognized into
earnings when the related transactions being hedged are completed. There were no
significant gains or losses associated with these contracts in fiscal 1998 and
1997.
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 value
approximates fair value. A portion of the Company's long-term debt consists of
variable rate instruments, therefore the carrying value approximates fair value.
The fair value of the Company's long-term fixed rate debt approximates the
carrying value as of June 30, 1998 and 1997.
25
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Long-term Debt
First Brands had the following long-term debt as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Debt(a):
$300,000,000 Revolving Credit
Facility, 5 year term expiring
February 2002, interest at prime
rate, LIBOR plus .275% or CD rate
plus .4%; facility fee of .15% $190,000 $162,000
$59,354,000 Australian and New Zealand
Credit Facility, 7 year term
expiring March 2004, interest at
local Bill Rate plus .7% 42,745 58,727
$9,575,000 Canadian Credit Facility,
5 year term expiring March 2002,
interest at Canadian prime rate,
LIBOR plus .425% or Canadian
Bankers Acceptance plus .425% 3,424 8,619
Other 5,269 3,932
- --------------------------------------------------------------------------------
241,438 233,278
Less current maturities (3,384) (2,811)
- --------------------------------------------------------------------------------
Senior Debt 238,054 230,467
Subordinated Debt(b):
7 1/4% Senior Notes Due 2007 150,000 150,000
- --------------------------------------------------------------------------------
$388,054 $380,467
================================================================================
</TABLE>
(a) The Company's revolving credit facility is unsecured and requires no
compensating balance, however it does have certain restrictive covenants,
the most significant of which relates to the ratio of debt to equity,
dividend payments and stock repurchases.
The seven-year $59,354,000 Australian and New Zealand credit facility is
composed of two parts; one of which was used to acquire the NationalPak
business (see Note 4) and a second part that can be used for working capital
needs. There are fixed periodic payments associated with the acquisition
borrowing and the working capital borrowing can be drawn on and repaid at
NationalPak's discretion. The facility is secured by the accounts
receivable, inventory and fixed assets of NationalPak.
The five-year $9,575,000 Canadian credit facility requires fixed periodic
payments. The facility is secured by the accounts receivable, inventory and
fixed assets of the Canadian business.
(b) The $150,000,000, 7 1/4% Senior Notes (the "7 1/4% Notes") which were issued
during fiscal 1997 will become due on March 1, 2007. Proceeds from the sale
of the 7 1/4% Notes were used to redeem all of the Company's previously
issued 9 1/8% Senior Subordinated Notes (the "9 1/8% Notes") and to reduce
bank debt. The write-off of unamortized issuance costs and other expenses
associated with the repurchase of the 9 1/8% Notes was recorded as an
extraordinary charge on the Company's Consolidated Statement of Income.
The 7 1/4% Note Indenture contains certain restrictive covenants and
limitations the most significant of which relates to the Company's right to
incur debt and to engage in certain sale and leaseback transactions.
First Brands was in compliance with all the covenants of the senior and
subordinated debt agreements at June 30, 1998.
Principal payments due on long-term debt (including current maturities)
will require the following future payments: $3,384,000 in fiscal 1999,
$4,223,000 in fiscal 2000, $4,834,000 in fiscal 2001, $199,002,000 in fiscal
2002, $6,309,000 in fiscal 2003 and $173,686,000 thereafter.
12. Leases
During fiscal 1998, the Company acquired all remaining domestic production
equipment which had been previously leased. These assets were associated with
sale and leaseback agreements and were classified as operating leases in
accordance with SFAS No. 13 "Accounting for Leases."
The Company leases various warehousing, production and office facilities
under operating lease agreements. Lease terms generally range from one to
fifteen years with options to renew.
Lease commitments under non-cancelable operating leases extending for one
year or more require the following future payments: $5,955,000 in 1999,
$5,200,000 in 2000, $4,680,000 in 2001, $4,185,000 in 2002, $3,950,000 in 2003
and $13,785,000 thereafter. The total rental expense under operating leases was
$10,338,000, $16,035,000 and $20,856,000 for the years ended June 30, 1998, 1997
and 1996, respectively.
13. Capital Stock
First Brands has four stock option plans ("the plans") three of which are for
certain key employees and one for non-employee directors. The plans' objectives
are to establish a direct link between the financial interest of eligible
employees and the performance of the Company and to attract and retain the most
qualified personnel. Stock options are primarily performance-based and have
terms that are not more than ten years from the date of grant. The exercise
price for
26
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 of the Board of Directors. As of June 30, 1998, the total
number of options available for grant are 2,017,652.
Options granted to certain personnel contain restricted and limited stock
appreciation rights ("LSAR's"). LSAR's 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. LSAR's 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. LSAR's have been granted with respect to
1,288,000 shares.
A summary of the options transactions for the years ended June 30, 1998,
1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding,
beginning of fiscal
year 3,257,472 2,943,822 2,613,380
Options granted--
per share
$22.53-$28.25 20,000 573,000 669,000
Options exercised--
per share
$9.50-$22.52 (159,802) (253,350) (328,558)
Options canceled--
per share
$16.38-$28.25 (26,500) (6,000) (10,000)
- --------------------------------------------------------------------------------
Options outstanding,
end of fiscal year 3,091,170 3,257,472 2,943,822
- --------------------------------------------------------------------------------
Exercisable at June 30 1,934,670 2,028,472 2,287,822
================================================================================
</TABLE>
The following tables set forth information regarding stock options
outstanding and those options which are exercisable as of June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS Weighted Weighted
OUTSTANDING Stock Average Average
Range of Options Exercise Remaining
Exercise Prices Outstanding Price Life
- -----------------------------------------------------------------------------
<C> <C> <C> <C>
$9.50-$12.66 699,170 $11.81 2.7
$14.66-$22.60 1,786,000 $18.03 6.2
$26.00-$28.25 606,000 $25.87 8.8
- -----------------------------------------------------------------------------
3,091,170 $18.16 5.9
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPTIONS Weighted
EXERCISABLE Stock Average
Range of Options Exercise
Exercise Prices Exercisable Price
- -------------------------------------------------------------------------------
<S> <C> <C>
$9.50-$12.66 699,170 $11.81
$14.66-$22.60 1,192,500 $15.79
$26.00-$28.25 43,000 $23.84
- -------------------------------------------------------------------------------
1,934,670 $14.53
===============================================================================
</TABLE>
The Company adopted the disclosure-only provision of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for its time vested option plans. If the Company had elected to
adopt the recognition provision of SFAS No. 123, income and per share amounts
would be the following:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before
extraordinary loss and
accounting change:
As reported $52,330 $50,865 $65,100
Pro forma 51,744 50,265 64,461
Basic earnings per share:
As reported $ 1.32 $ 1.25 $ 1.56
Pro forma 1.31 1.23 1.55
Diluted earnings per share:
As reported $ 1.29 $ 1.22 $ 1.53
Pro forma 1.28 1.20 1.51
================================================================================
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model based on the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 1.5% 1.3% 1.3%
Risk free interest rate 5.5% 5.3% 5.3%
Expected volatility rate 42.6% 25.8% 21.9%
Expected life 7.7 years 7.6 years 7.3 years
===============================================================================
</TABLE>
14. Income Taxes
The geographic components of earnings before income taxes, extraordinary loss
and cumulative change in accounting principle are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $74,951 $75,790 $100,236
International 9,743 7,608 8,683
- --------------------------------------------------------------------------------
$84,694 $83,398 $108,919
================================================================================
</TABLE>
27
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Total income taxes for the years ended June 30, 1998, 1997 and 1996 were
allocated as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before
extraordinary loss and
cumulative change in
accounting principle $32,364 $32,533 $43,819
Extraordinary loss -- (415) --
Cumulative change in
accounting principle (4,512) -- --
Stockholders' equity, for
compensation expense
for tax purposes in
excess of amounts
recognized for financial
reporting purposes (1,071) (1,212) (1,256)
- --------------------------------------------------------------------------------
$26,781 $30,906 $42,563
================================================================================
</TABLE>
Income tax expense attributable to income before extraordinary loss and
cumulative change in accounting principle for the years ended June 30, 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 6,765 $20,418 $11,640
State 1,071 3,539 2,566
Foreign 4,806 2,768 3,805
- -------------------------------------------------------------------------------
Total current 12,642 26,725 18,011
- -------------------------------------------------------------------------------
Deferred:
Federal 17,037 4,638 20,916
State 3,355 1,028 5,275
Foreign (670) 142 (383)
- -------------------------------------------------------------------------------
Total deferred 19,722 5,808 25,808
- -------------------------------------------------------------------------------
$32,364 $32,533 $43,819
===============================================================================
</TABLE>
The fiscal 1998 increase in deferred income tax expense and decrease in
current income tax expense relate primarily to information system expenditures,
restructuring charges and changes in various accruals.
Income tax expense attributable to income before 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>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected"
tax expense $29,643 $29,189 $38,122
Adjustments resulting
from:
Amortization of
goodwill 788 703 440
State income taxes,
net of federal
income tax benefit 2,877 2,919 4,713
Foreign income tax in
excess of statutory
rate 726 238 478
Other, net (1,670) (516) 66
- --------------------------------------------------------------------------------
Actual tax expense $32,364 $32,533 $43,819
================================================================================
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1998 and 1997 are presented below:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable reserves $ 2,557 $ 2,969
Difference between book and
tax basis of inventories 3,539 3,882
Accrued liabilities, not
deductible until paid 5,731 9,141
- -------------------------------------------------------------------------------
Total current deferred tax assets 11,827 15,992
- -------------------------------------------------------------------------------
Long-term deferred tax assets:
Pensions, other post employment
benefits and deferred
compensation 9,127 6,423
Intangible asset, not
amortized for tax 7,344 7,374
- -------------------------------------------------------------------------------
Total long-term deferred tax assets 16,471 13,797
- -------------------------------------------------------------------------------
Long-term deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation (82,472) (73,373)
Deferred charges, principally
purchase accounting and
information systems (11,715) (4,110)
Foreign subsidiaries (1,072) (1,662)
- -------------------------------------------------------------------------------
Total long-term deferred
tax liabilities (95,259) (79,145)
- -------------------------------------------------------------------------------
Long-term deferred tax
liability, net (78,788) (65,348)
- -------------------------------------------------------------------------------
Net deferred tax liability $(66,961) $(49,356)
================================================================================
</TABLE>
28
<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 $51,403,000, $48,787,000 and
$44,921,000 for the years ended June 30, 1998, 1997 and 1996 respectively.
15. Employee Benefits
Retirement Plans
In the U.S., First Brands maintains a non-contributory defined benefit
retirement plan ("pension plan") for some employees and a defined contribution
pre and post-tax savings plans ("savings plan") for all employees.
The Company contributes to the savings plan account of each eligible
employee. Any regular employee of First Brands or its domestic subsidiaries is
eligible to participate in the amended savings plan. The Company matches 50% of
employee contributions up to the lower of statutory limits or 3% of base pay.
Savings plan expense for the years ended June 30, 1998, 1997 and 1996 totaled
$2,442,000, $2,194,000 and $2,028,000, respectively. The Company also maintains
a noncontributory 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. The costs
associated with the profit sharing plan were approximately $423,000, $445,000
and $730,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
The pension plan for First Brands in the U.S., and certain of its
international subsidiaries provides defined benefits that are based on years of
credited service, highest average compensation (as defined) and the primary
social security benefit. Beginning January 2000, in the U.S. the pension plan
formula changes to a defined benefit plan 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 costs are amortized on a straight-line basis over
the average remaining service period for active plan participants.
The Company's U.S. early retirement program (see Note 3) resulted in a
special actuarial termination charge of $1,400,000 for fiscal 1997. This charge
was increased by an additional $28,000 during fiscal 1998 to reflect actual
participation in the early retirement program. The Company's Canadian subsidiary
terminated its defined pension plan and transferred all eligible employees to a
new group registered retirement savings plan ("RRSP") which provides essentially
the same benefits as the former plan. As a result of the plan termination, the
Company recognized a $530,000 curtailment gain during fiscal 1997. Costs
associated with the Canadian RRSP were approximately $250,000 for fiscal 1998.
The following table sets forth the combined domestic and international
plans' net pension cost, funded status and amounts recognized in the Company's
Consolidated Financial Statements at June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension cost
included the following
components:
Service cost--
benefits earned
during the period $ 3,229 $ 3,275 $ 3,455
Interest cost on
projected benefit
obligations 6,307 6,177 4,984
Actual return on plan
assets (6,724) (6,898) (6,838)
Net amortization and
deferral (797) (816) (81)
Cost of Special
termination benefit 28 1,400 --
Curtailment (gain) -- (530) --
- --------------------------------------------------------------------------------
$ 2,043 $ 2,608 $ 1,520
================================================================================
</TABLE>
29
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of funded status:
Vested accumulated benefit
obligation $ 74,250 $ 57,755
Non-vested accumulated benefit
obligation 8,104 6,753
- --------------------------------------------------------------------------------
Accumulated benefit obligation 82,354 64,508
Additional liability based on
projected compensation 14,793 18,251
- --------------------------------------------------------------------------------
Projected benefit obligation 97,147 82,759
Fair value of plan assets 89,489 80,375
- --------------------------------------------------------------------------------
Plan assets less than projected
benefit obligation 7,658 2,384
Unrecognized prior service
benefit 6,940 7,577
Unrecognized net (loss) (3,499) (407)
- --------------------------------------------------------------------------------
Net pension liability recognized in
the consolidated balance sheet 11,099 9,554
================================================================================
</TABLE>
To calculate the expense and liability associated with its pension plans,
the Company utilizes the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC
Discount rate 7.0% 8.0% 8.0%
Compensation
increase rate 4.0% 4.5% 4.5%
Expected long-term
return on plan assets 9.5% 9.5% 9.5%
INTERNATIONAL
Discount rate 5.5% 6.0%-8.5% 8.5%
Compensation
increase rate 4.0% 4.0%-5.0% 5.0%
Expected long-term
return on plan assets 7.0% 7.5%-8.5% 8.5%
- -----------------------------------------------------------------------------
</TABLE>
In the U.S. 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 $485,000, $564,000,
$297,000 during 1998, 1997 and 1996, respectively.
Postretirement 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 1998,
1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 274 $ 370 $ 297
Interest cost 1,371 1,129 1,112
Unrecognized net (gain) -- (36) --
Amortization of prior
service cost 92 92 --
Amortization of
transition obligation 583 583 583
- --------------------------------------------------------------------------------
Net postretirement
benefit cost 2,320 2,138 1,992
Cost of special
termination benefit 183 1,600 --
- --------------------------------------------------------------------------------
$ 2,503 $ 3,738 $ 1,992
================================================================================
</TABLE>
During fiscal 1997, the Company announced an early retirement program (see
Note 3) for which it recorded a special actuarial termination charge of
$1,600,000. This charge was increased by an additional $183,000 during fiscal
1998 to reflect actual participation in the early retirement program.
The Company's accumulated postretirement benefit obligation (the transition
obligation) at June 30, 1998 and 1997 is composed of the following components:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 13,551 $ 7,926
Fully eligible active plan
participants 1,033 3,011
Active plan participants not
fully eligible 5,157 5,770
- --------------------------------------------------------------------------------
Total 19,741 16,707
Unrecognized transition obligation (8,798) (9,381)
Unrecognized prior service cost (1,140) (1,232)
Unrecognized gain (loss) (115) 2,202
- --------------------------------------------------------------------------------
Accrued unfunded postretirement
benefit cost $ 9,688 $ 8,296
================================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8% for fiscal 1998 and 1997, respectively. The
assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation was 9.5% in 1998 and is expected to gradually
decline .5% per year to an ultimate rate of 5% in fiscal year 2007. A 1%
increase in the assumed health care cost trend rate for each year would increase
the accumulated
30
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
postretirement benefit obligation as of June 30, 1998 by $670,000 and increase
the service and interest cost for 1998 by $62,000.
16. Commitments, Contingencies and Related Parties
Litigation
The Company is subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Management believes that the ultimate liability, if any, arising from
these claims and contingencies is not likely to have a material adverse effect
on the Company's annual results of operations or financial condition.
Related Parties
Beginning in January, 1997, Alfred E. Dudley, a Director and former Chairman of
the Company, was retained as a consultant. For these services, he was paid a
yearly consulting fee of $100,000 in fiscal 1998 and 1997.
The Company has utilized the services of Lee Hill Incorporated, a marketing
services company, of which James R. McManus, a Director of First Brands, was the
owner. For fiscal 1998 the total fees paid to Lee Hill Incorporated were
$118,000. During September 1997, Mr. McManus sold his interest in Lee Hill.
The Company believes that each of the related party transactions described
above were on terms as fair to the Company as could have been obtained from
unaffiliated third parties.
Other
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.
17. Geographic Segment Data
The following is a summary of net sales, operating profit, and identifiable
assets in the United States and internationally in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 972,638 $ 954,411 $ 932,183
International 231,032 165,487 140,839
- -------------------------------------------------------------------------------
$ 1,203,670 $ 1,119,898 $ 1,073,022
===============================================================================
Operating profit:
United States $ 118,663 $ 130,032 $ 135,500
International 23,493 15,355 12,513
Less Corporate
Expense (20,097) (20,189) (19,412)
Restructuring
Expense (2,700) (19,000) --
- --------------------------------------------------------------------------------
$ 119,359 $ 106,198 $ 128,601
================================================================================
Identifiable assets:
United States $ 876,092 $ 835,821 $ 775,447
International 184,109 210,960 85,433
- --------------------------------------------------------------------------------
$ 1,060,201 $ 1,046,781 $ 860,880
================================================================================
</TABLE>
Operating profit reflects net sales less cost of goods sold, selling,
general and administrative expenses, amortization and other depreciation and
restructuring expenses.
Included in U.S. revenues are export sales totaling $36,780,000,
$42,076,000 and $37,055,000 during the years ended June 30, 1998, 1997 and 1996,
respectively. The Company does not believe that it is dependent on any single
customer, however, net sales to its largest customer accounted for approximately
12% of total sales for the years ended June 30, 1998, 1997 and 1996.
18. Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of prior year financial statements is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which expands annual financial statement
disclosures about operating segments and establishes disclosure requirements
concerning a company's products, customers and geographic areas. Selected
information about operating segments is also required for interim financial
reports issued to shareholders. Financial statement disclosures for prior
periods are required to be restated.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements previously established by SFAS No. 87, 88 and 106. The new
disclosure requirements are intended to
31
<PAGE>
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
standardize the reporting of pensions and other postretirement benefits. While
SFAS No. 132 does not change the measurement or recognition requirements of
those plans, it does require some new information from plan sponsors and allows
for the elimination of other information which is no longer considered useful.
Restatement of disclosure for earlier periods is required, unless such
information is not readily available.
The Company plans to adopt each of the above pronouncements in its fiscal
year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132
will have no impact on First Brands results of operations, cash flows or
financial position, the Company is currently evaluating the appropriate format
of disclosure for each pronouncement.
19. Subsequent Event
On July 2, 1998, the Company entered into an agreement to acquire, for
approximately $53,000,000, the HANDI WIPES and WASH 'N DRI brands from the
Colgate-Palmolive Company. The acquisition, which will be accounted for as a
purchase, is expected to be completed during the first quarter of fiscal 1999
and will be financed through borrowings from the Company's revolving credit
facility.
20. Quarterly Financial Data (Unaudited)
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1997 1997 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $269,480 $309,282 $296,414 $328,494
Gross profit 86,285 112,288 105,436 123,791
Income before
cumulative
change(a) 12,173 13,307 16,038 10,812
Net income 12,173 6,385 16,038 10,812
Per common
share:
Basic
Income
before
cumulative
change(a) $0.30 $0.33 $0.41 $0.28
Net income $0.30 $0.16 $0.41 $0.28
- --------------------------------------------------------------------------------
Diluted
Income
before
cumulative
change(a) $0.30 $0.33 $0.40 $0.27
Net income $0.30 $0.16 $0.40 $0.27
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1996 1996 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $255,597 $279,952 $264,886 $319,463
Gross profit 88,189 101,719 96,122 120,182
Income before
extraordinary
loss(a) 18,007 15,351 16,054 1,453
Net income 18,007 15,351 15,421 1,453
Per common
share:
Basic
Income
before
extraordinary
loss(a) $0.44 $0.38 $0.40 $0.04
Net income $0.44 $0.38 $0.38 $0.04
- --------------------------------------------------------------------------------
Diluted
Income
before
extraordinary
loss(a) $0.43 $0.37 $0.39 $0.04
Net income $0.43 $0.37 $0.37 $0.04
================================================================================
</TABLE>
(a) The fourth quarter of fiscal 1997 and the second quarter of fiscal 1998,
include a $19,000 and $2,700 charge for restructuring expenses,
respectively.
32
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
FIRST BRANDS CORPORATION:
Under date of August 6, 1998, we reported on the consolidated balance
sheets of First Brands Corporation and subsidiaries as of June 30, 1998 and
1997, 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,
1998 as referenced in the annual report on Form 10-K for the year 1998, which
report refers to a change in the method of accounting for business process
re-engineering cost. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as listed in Item 14 of the annual report on Form 10-K for
the year 1998. 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, the 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 6, 1998
33
<PAGE>
<PAGE>
SCHEDULE VIII
FIRST BRANDS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
OF PERIOD EXPENSES DEDUCTIONS(a) OF PERIOD
---------- ---------- ------------- ---------
(IN THOUSANDS)
FOR THE YEAR ENDED JUNE 30, 1998
------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and discounts................. $ 11,599 $ 41,517 $ (42,292) $10,824
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and discounts................. $ 9,552 $ 39,732 $ (37,685) $11,599
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and discounts................. $ 8,498 $ 36,590 $ (35,536) $ 9,552
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
</TABLE>
- ------------
(a) Deductions represent write-offs and discounts net of recoveries of amounts
previously written off.
34
<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 5, 1998
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
--------- ----- -----
<S> <C> <C>
/S/ WILLIAM V. STEPHENSON Chairman, President, Chief Executive Officer August 5, 1998
......................................... and Director
(WILLIAM V. STEPHENSON)
/S/ THOMAS H. ROWLAND Executive Vice President and Director August 5, 1998
.........................................
(THOMAS H. ROWLAND)
/S/ DONALD A. DESANTIS Senior Vice President and Chief Financial August 5, 1998
......................................... Officer
(DONALD A. DESANTIS)
/S/ ROBERT E. BERNSTOCK Director August 5, 1998
.........................................
(ROBERT E. BERNSTOCK)
/S/ ALFRED E. DUDLEY Director August 5, 1998
.........................................
(ALFRED E. DUDLEY)
/S/ JOHN C. FERRIES Director August 5, 1998
.........................................
(JOHN C. FERRIES)
/S/ JAMES R. MAHER Director August 5, 1998
.........................................
(JAMES R. MAHER)
/S/ JAMES R. MCMANUS Director August 5, 1998
.........................................
(JAMES R. MCMANUS)
/S/ DENIS NEWMAN Director August 5, 1998
.........................................
(DENIS NEWMAN)
/S/ ERVIN R. SHAMES Director August 5, 1998
.........................................
(ERVIN R. SHAMES)
/S/ ROBERT G. TOBIN Director August 5, 1998
.........................................
(ROBERT G. TOBIN)
</TABLE>
35
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company, as amended
to November 6, 1996. Incorporated by reference to Exhibit 4(a) to
the Company's Registration Statement on Form S-8 filed by the
Company on February 3, 1997.
3.2 -- By-Laws of the Company, as amended to January 20, 1995.
Incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995
(Commission File No. 1-10395).
4.1 -- Indenture dated as of March 1, 1997 between the Company and The
Bank of New York, relating to the 7.25% Senior Notes due 2007.
Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-4 filed by the Company on April
24, 1997.
4.2 -- Purchase Agreement dated as of March 5, 1997 among the Company,
Bear Stearns & Co. Inc., TD Securities (USA) Inc., Credit
Lyonnais Securities (USA) Inc. and First Union Capital Markets
Corp., relating to the 7.25% Senior Notes due 2007. Incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4 filed by the Company on April 24, 1997.
4.3 -- Registration Rights Agreement dated as of March 5, 1997 among the
Company, Bear Stearns & Co. Inc., TD Securities (USA) Inc.,
Credit Lyonnais Securities (USA) Inc. and First Union Capital
Markets Corp., relating to the 7.25% Senior Notes due 2007.
Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 filed by the Company on April
24, 1997.
4.4 -- 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
the Company's Registration Statement on Form 8-A dated March 22,
1996.
10.1 -- Amended and Restated Credit Agreement, dated as of February 28,
1997, among the Company, The Chase Manhattan Bank, as Agent, and
The Several Lenders Parties thereto. Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-4
filed by the Company on April 24, 1997.
10.2* -- Receivables Purchase Agreement, dated as of June 5, 1998, among
the Company, First Brands Funding Inc., Market Street Funding
Corporation and PNC Bank, National Association, relating to the
Company's trade receivables-backed financing.
10.3* -- Purchase and Sale Agreement, dated as of June 5, 1998, among the
Company, A & M Products Inc., Himolene Incorporated and First
Brands Funding Inc., relating to the Company's trade
receivables-backed financing.
10.4 -- Amended Long-Term Incentive Plan. Incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 (Commission File No. 1-10395).
</TABLE>
36
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.5 -- 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 Company on September 28, 1993 (Commission File No.
1-10395).
10.6 -- 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
Company on September 26, 1995 (Commission File No. 1-10395).
10.7 -- 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 Company on September
26, 1995 (Commission File No. 1-10395).
10.8 -- First Brands Corporation 1998 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 Company on September 26, 1997 (Commission File No.
1-10395).
10.12 (a)-- Purchase and Sale Agreement, dated as of June 30, 1994, between
the Company and Vestar/Freeze Holdings Corporation and Vestar
Equity Partners, L.P., relating to the sale by the Company 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
the Company's Current Report on Form 8-K, filed by the Company on
September 12, 1994 (Commission File No. 1-10395).
(b)-- Amendment No. 1 thereto, dated as of August 25, 1994.
Incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K filed by the Company on September 12, 1994
(Commission File No. 1-10395).
11* -- Computation of Net Income Per Common Share.
21* -- Subsidiaries of Registrant.
23* -- Consent of KPMG Peat Marwick.
27* -- EDGAR Financial Data Schedule.
</TABLE>
- -----------
* Filed herewith
37
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'
<PAGE>
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
RECEIVABLES PURCHASE AGREEMENT
dated as of June 5, 1998
among
FIRST BRANDS FUNDING INC.
FIRST BRANDS CORPORATION
MARKET STREET FUNDING CORPORATION
and
PNC BANK, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I.
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility..................................................1
Section 1.2 Making Purchases...................................................1
Section 1.3 Purchased Interest Computation.....................................3
Section 1.4 Settlement Procedures..............................................3
Section 1.5 Fees...............................................................6
Section 1.6 Payments and Computations, Etc.....................................6
Section 1.7 Dividing or Combining Portions of the
Capital of the Purchased Interest..................................7
Section 1.8 Increased Costs....................................................7
Section 1.9 Requirements of Law................................................8
Section 1.10 Inability to Determine Eurodollar Rate.............................9
ARTICLE II.
REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
Section 2.1 Representations and Warranties; Covenants..........................9
Section 2.2 Termination Events.................................................9
ARTICLE III.
INDEMNIFICATION
Section 3.1 Indemnities by the Seller..........................................10
Section 3.2 Indemnities by the Servicer........................................11
ARTICLE IV.
ADMINISTRATION AND COLLECTIONS
Section 4.1 Appointment of the Servicer........................................12
Section 4.2 Duties of the Servicer.............................................13
Section 4.3 Lock-Box Arrangements..............................................14
Section 4.4 Enforcement Rights.................................................14
Section 4.5 Responsibilities of the Seller.....................................15
Section 4.6 Servicing Fee......................................................15
</TABLE>
Receivables Purchase Agreement -i-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V.
MISCELLANEOUS
Section 5.1 Amendments, Etc....................................................16
Section 5.2 Notices, Etc.......................................................16
Section 5.3 Assignability......................................................16
Section 5.4 Costs, Expenses and Taxes..........................................17
Section 5.5 No Proceedings; Limitation on Payments.............................17
Section 5.6 Confidentiality....................................................18
Section 5.7 GOVERNING LAW AND JURISDICTION.....................................18
Section 5.8 Execution in Counterparts..........................................19
Section 5.9 Survival of Termination............................................19
Section 5.10 WAIVER OF JURY TRIAL...............................................19
Section 5.11 Entire Agreement...................................................19
Section 5.12 Headings...........................................................19
Section 5.13 Issuer's Liabilities...............................................19
EXHIBIT I Definitions
EXHIBIT II Conditions of Purchases
EXHIBIT III Representations and Warranties
EXHIBIT IV Covenants
EXHIBIT V Termination Events
SCHEDULE I Credit and Collection Policy
SCHEDULE II Lock-box Banks and Lock-box Accounts
SCHEDULE III Trade Names
ANNEX A Form of Information Package
ANNEX B Form of Purchase Notice
</TABLE>
Receivables Purchase Agreement -ii-
<PAGE>
<PAGE>
This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this "Agreement") is entered into as of
June 5, 1998, among FIRST BRANDS FUNDING INC., a Delaware corporation, as seller
(the "Seller"), FIRST BRANDS CORPORATION, a Delaware corporation ("First
Brands"), as initial servicer (in such capacity, together with its successors
and permitted assigns in such capacity, the "Servicer"), MARKET STREET FUNDING
CORPORATION, a Delaware corporation (together with its successors and permitted
assigns, the "Issuer"), and PNC BANK, NATIONAL ASSOCIATION, a national banking
association ("PNC"), as administrator (in such capacity, together with its
successors and assigns in such capacity, the "Administrator").
PRELIMINARY STATEMENTS. Certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I. References in the Exhibits
hereto to "the Agreement" refer to this Agreement, as amended, supplemented or
otherwise modified from time to time.
The Seller desires to sell, transfer and assign an undivided variable
percentage interest in a pool of receivables, and the Issuer desires to acquire
such undivided variable percentage interest, as such percentage interest shall
be adjusted from time to time based upon, in part, reinvestment payments that
are made by the Issuer.
In consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereto agree as follows:
ARTICLE I.
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility. (a) On the terms and conditions
hereinafter set forth, the Issuer hereby agrees to purchase, and make
reinvestments of, undivided percentage ownership interests with regard to the
Purchased Interest from the Seller from time to time from the date hereof to the
Facility Termination Date. Under no circumstances shall the Issuer make any such
purchase or reinvestment if, after giving effect to such purchase or
reinvestment, the aggregate outstanding Capital of the Purchased Interest would
exceed the Purchase Limit.
(b) The Seller may, upon at least 60 days's written notice to the
Administrator, terminate the purchase facility provided in this Section in whole
or, upon at least 30 days's written notice to the Administrator, from time to
time, irrevocably reduce in part the unused portion of the Purchase Limit;
provided, that each partial reduction shall be in the amount of at least
<PAGE>
<PAGE>
$10,000,000, or an integral multiple of $1,000,000 in excess thereof, and that,
unless terminated in whole, the Purchase Limit shall in no event be reduced
below $20,000,000.
Section 1.2. Making Purchases. (a) Each purchase (but not reinvestment)
of undivided percentage ownership interests with regard to the Purchased
Interest hereunder shall be made upon the Seller's irrevocable written notice in
the form of Annex B delivered to the Administrator in accordance with Section
5.2 (which notice must be received by the Administrator before 11:00 a.m., New
York City time): (i) at least three Business Days before the requested purchase
date, in the case of a purchase to be funded at the Alternate Rate and based
upon the Eurodollar Rate, (ii) at least two Business Days before the requested
purchase date, in the case of a purchase to be funded at the Alternate Rate and
based upon the Base Rate, and (iii) at least one Business Day before the
requested purchase date, in the case of a purchase to be funded at the CP Rate,
which notice shall specify: (A) the amount requested to be paid to the Seller
(such amount, which shall not be less than $1,000,000, being the Capital
relating to the undivided percentage ownership interest then being purchased),
(B) the date of such purchase (which shall be a Business Day), (C) the desired
funding basis for such purchase (which shall be based upon the Eurodollar Rate,
the Base Rate or the CP Rate) and (D) a pro forma calculation of the Purchased
Interest after giving effect to the increase in Capital. If the Seller has
requested that the purchase be funded at the CP Rate, the Administrator shall
promptly thereafter notify the Seller whether the Issuer has exercised its
discretion not to fund such purchase with the issuance of Notes because such
purchase with the issuance of Notes would be economically inadvisable to the
Issuer, the Administrator, the Seller or any other similarly situated Person, or
otherwise not permitted, in which case the Seller shall be deemed to have not
requested such purchase.
(b) On the date of each purchase (but not reinvestment) of undivided
percentage ownership interests with regard to the Purchased Interest hereunder,
the Issuer shall, upon satisfaction of the applicable conditions set forth in
Exhibit II, make available to the Seller in same day funds, at The Chase
Manhattan Bank, account number 134-0-89290, ABA 021-000021, an amount equal to
the Capital relating to the undivided percentage ownership interest then being
purchased.
(c) Effective on the date of each purchase pursuant to this Section and
each reinvestment pursuant to Section 1.4, the Seller hereby sells and assigns
to the Issuer an undivided percentage ownership interest in: (i) each Pool
Receivable then existing, (ii) all Related Security with respect to such Pool
Receivables and (iii) all Collections with respect to, and other proceeds of,
Receivables Purchase Agreement -2-
<PAGE>
<PAGE>
such Pool Receivables and Related Security.
(d) To secure all of the Seller's obligations (monetary or otherwise)
under this Agreement and the other Transaction Documents to which it is a party,
whether now or hereafter existing or arising, due or to become due, direct or
indirect, absolute or contingent, the Seller hereby grants to the Issuer a
security interest in all of the Seller's right, title and interest (including
any undivided interest of the Seller) in, to and under all of the following,
whether now or hereafter owned, existing or arising: (i) all Pool Receivables,
(ii) all Related Security with respect to such Pool Receivables, (iii) all
Collections with respect to such Pool Receivables, (iv) the Lock-Box Accounts
and all amounts on deposit therein, and all certificates and instruments, if
any, from time to time evidencing such Lock-Box Accounts and amounts on deposit
therein, (v) all rights (but none of the obligations) of the Seller under the
Sale Agreement, and (vi) all proceeds of, and all amounts received or receivable
under any or all of, the foregoing (collectively, the "Pool Assets"). The Issuer
shall have, with respect to the Pool Assets, and in addition to all the other
rights and remedies available to the Issuer, all the rights and remedies of a
secured party under any applicable UCC.
Section 1.3. Purchased Interest Computation. The Purchased Interest
shall be initially computed on the date of the initial purchase hereunder.
Thereafter, until the Facility Termination Date, the Purchased Interest shall be
automatically recomputed (or deemed to be recomputed) on each Business Day other
than a Termination Day. The Purchased Interest as computed (or deemed
recomputed) as of the day before the Facility Termination Date shall thereafter
remain constant. The Purchased Interest shall become zero when the Capital
thereof and Discount thereon shall have been paid in full, all the amounts owed
by the Seller and the Servicer hereunder to the Issuer, the Administrator and
any other Indemnified Party or Affected Person are paid in full, and the
Servicer shall have received the accrued Servicing Fee thereon.
Section 1.4. Settlement Procedures. (a) The collection of the Pool
Receivables shall be administered by the Servicer in accordance with this
Agreement. The Seller shall provide to the Servicer on a timely basis all
information needed for such administration, including notice of the occurrence
of any Termination Day and current computations of the Purchased Interest.
(b) The Servicer shall, on each day on which Collections of Pool
Receivables are received (or deemed received) by the Seller or the Servicer:
Receivables Purchase Agreement -3-
<PAGE>
<PAGE>
(i) set aside and hold in trust (and shall, at the request of the
Administrator, segregate in a separate account approved by the
Administrator) for the Issuer, out of the Issuer's Share of such
Collections, first, an amount equal to the Discount accrued through such
day for each Portion of Capital and not previously set aside, second, an
amount equal to the fees set forth in the Fee Letter accrued and unpaid
through such day, and third, to the extent funds are available therefor,
an amount equal to the Issuer's Share of the Servicing Fee accrued
through such day and not previously set aside,
(ii) subject to Section 1.4(f), if such day is not a Termination
Day, remit to the Seller, on behalf of the Issuer, the remainder of the
Issuer's Share of such Collections; such remainder shall be
automatically reinvested in Pool Receivables, and in the Related
Security, Collections and other proceeds with respect thereto; provided,
however, that if the Purchased Interest would exceed 100%, then the
Servicer shall not reinvest, but shall set aside and hold in trust for
the Issuer (and shall, at the request of the Administrator, segregate in
a separate account approved by the Administrator) a portion of such
Collections that, together with the other Collections set aside pursuant
to this paragraph, shall equal the amount necessary to reduce the
Purchased Interest to 100%,
(iii) if such day is a Termination Day, set aside, segregate and
hold in trust (and shall, at the request of the Administrator, segregate
in a separate account approved by the Administrator) for the Issuer the
entire remainder of the Issuer's Share of the Collections; provided,
that if amounts are set aside and held in trust on any Termination Day
of the type described in clause (a) of the definition of "Termination
Day" and, thereafter, the conditions set forth in Section 2 of Exhibit
II are satisfied or waived by the Administrator, such previously set
aside amounts shall be reinvested in accordance with clause (ii) on the
day of such subsequent satisfaction or waiver of conditions, and
(iv) subject to the Issuer's security interest under Section
1.2(d), release to the Seller (subject to Section 1.4(f)) for its own
account any Collections in excess of: (x) amounts required to be
reinvested in accordance with clause (ii) or the proviso to clause (iii)
plus (y) the amounts that are required to be set aside pursuant to
clause (i), the proviso to clause (ii) and clause (iii) plus (z) the
Seller's Share of the Servicing Fee accrued and unpaid through such day
and all reasonable and appropriate out-of-pocket costs and expenses of
the Servicer for servicing, collecting and administering the Pool
Receivables.
Receivables Purchase Agreement -4-
<PAGE>
<PAGE>
(c) The Servicer shall deposit into the Administration Account (or such
other account designated by the Administrator), on each Monthly Settlement Date
Collections held for the Issuer pursuant to clause (b)(i) or (f) plus the amount
of Collections then held for the Issuer pursuant to clauses (b)(ii) and (iii) of
Section 1.4 provided, that if First Brands or an Affiliate thereof is the
Servicer, such day is not a Termination Day and the Administrator has not
notified First Brands (or such Affiliate) that such right is revoked, First
Brands (or such Affiliate) may retain the portion of the Collections set aside
pursuant to clause (b)(i) that represents the Issuer's Share of the Servicing
Fee. On the last day of each Settlement Period, the Administrator will notify
the Servicer by facsimile of the amount of Discount accrued with respect to each
Portion of Capital during such Settlement Period or portion thereof.
(d) Upon receipt of funds deposited into the Administration Account
pursuant to clause (c), the Administrator shall cause such funds to be
distributed as follows:
(i) if such distribution occurs on a day that is not a
Termination Day and the Purchased Interest does not exceed 100%, first
to the Issuer in payment in full of all accrued Discount and fees (other
than Servicing Fees) with respect to each Portion of Capital, and
second, if the Servicer has set aside amounts in respect of the
Servicing Fee pursuant to clause (b)(i) and has not retained such
amounts pursuant to clause (c), to the Servicer (payable in arrears on
each Monthly Settlement Date) in payment in full of the Issuer's Share
of accrued Servicing Fees so set aside, and
(ii) if such distribution occurs on a Termination Day or on a day
when the Purchased Interest exceeds 100%, first to the Issuer in payment
in full of all accrued Discount with respect to each Portion of Capital,
second to the Issuer in payment in full of Capital (or, if such day is
not a Termination Day, the amount necessary to reduce the Purchased
Interest to 100%), third, if First Brands or an Affiliate thereof is not
the Servicer, to the Servicer in payment in full of all accrued
Servicing Fees, fourth, if the Capital and accrued Discount with respect
to each Portion of Capital have been reduced to zero, and all accrued
Servicing Fees payable to the Servicer (if other than First Brands or an
Affiliate thereof) have been paid in full, to the Issuer, the
Administrator and any other Indemnified Party or Affected Person in
payment in full of any other amounts owed thereto by the Seller
hereunder and, fifth, unless such amount has been retained by the
Servicer pursuant to clause (c), then to the Servicer (if the Servicer
is First Brands or an Affiliate thereof) in payment in full of the
Issuer's Share of all accrued Servicing Fees.
Receivables Purchase Agreement -5-
<PAGE>
<PAGE>
After the Capital, Discount, fees payable pursuant to the Fee Letter and
Servicing Fees with respect to the Purchased Interest, and any other amounts
payable by the Seller and the Servicer to the Issuer, the Administrator or any
other Indemnified Party or Affected Person hereunder, have been paid in full,
all additional Collections with respect to the Purchased Interest shall be paid
to the Seller for its own account.
(e) For the purposes of this Section 1.4:
(i) if on any day the Outstanding Balance of any Pool Receivable
is reduced or adjusted as a result of any defective, rejected, returned,
repossessed or foreclosed goods or services, or any revision,
cancellation, allowance, discount or other adjustment made by the Seller
or any Affiliate of the Seller, or any setoff or dispute between the
Seller or any Affiliate of the Seller and an Obligor, the Seller shall
be deemed to have received on such day a Collection of such Pool
Receivable in the amount of such reduction or adjustment ("Deemed
Collection");
(ii) if on any day any of the representations or warranties in
Section 1(g) or (n) of Exhibit III is not true with respect to any Pool
Receivable, the Seller shall be deemed to have received on such day a
Collection of such Pool Receivable in full;
(iii) except as provided in clause (i) or (ii), or as otherwise
required by applicable law or the relevant Contract, all Collections
received from an Obligor of any Receivable shall be applied to the
Receivables of such Obligor in the order of the age of such Receivables,
starting with the oldest such Receivable, unless such Obligor designates
in writing its payment for application to specific Receivables; and
(iv) if and to the extent the Administrator or the Issuer shall
be required for any reason to pay over to an Obligor (or any trustee,
receiver, custodian or similar official in any Insolvency Proceeding)
any amount received by it hereunder, such amount shall be deemed not to
have been so received by the Administrator or the Issuer but rather to
have been retained by the Seller and, accordingly, the Administrator or
the Issuer, as the case may be, shall have a claim against the Seller
for such amount, payable when and to the extent that any distribution
from or on behalf of such Obligor is made in respect thereof.
(f) If at any time the Seller shall wish to cause the reduction of
Capital (but not to commence the liquidation, or reduction to zero, of the
entire Capital of the Purchased
Receivables Purchase Agreement -6-
<PAGE>
<PAGE>
Interest), the Seller may do so as follows:
(i) the Seller shall give the Administrator and the Servicer (A)
at least two Business Days' prior written notice thereof for any
reduction of Capital less than or equal to $20,000,000 and (B) at least
ten Business Days' prior written notice thereof for any reduction of
Capital greater than $20,000,000 (in each case such notice shall include
the amount of such proposed reduction and the proposed date on which
such reduction will commence);
(ii) on the proposed date of commencement of such reduction and
on each day thereafter, the Servicer shall cause Collections not to be
reinvested until the amount thereof not so reinvested shall equal the
desired amount of reduction; and
(iii) the Servicer shall hold such Collections in trust for the
Issuer, for payment to the Administrator on the next Monthly Settlement
Date immediately following the current Settlement Period and Capital
shall be deemed reduced in the amount to be paid to the Administrator
only when in fact finally so paid;
provided, that:
(A) the amount of any such reduction shall be not less than
$5,000,000 and shall be an integral multiple of $1,000,000, and the
entire Capital of the Purchased Interest after giving effect to such
reduction shall be not less than $20,000,000 and shall be in an integral
multiple of $1,000,000 (unless Capital shall have been reduced to zero);
and
(B) the Seller shall choose a reduction amount, and the date of
commencement thereof, so that to the extent practicable such reduction
shall commence and conclude in the same Settlement Period.
Section 1.5. Fees. The Seller shall pay to the Administrator certain
fees in the amounts and on the dates set forth in a letter, dated the date
hereof, among First Brands, the Seller and the Administrator (as such letter
agreement may be amended, supplemented or otherwise modified from time to time,
the "Fee Letter").
Section 1.6. Payments and Computations, Etc. (a) All amounts to be paid
or deposited by the Seller or the Servicer hereunder shall be made without
reduction for offset or counterclaim and shall be paid or deposited no later
than 2:00 p.m. (New York City time) on the day when due in same day funds
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to the Administration Account. All amounts received after noon (New York City
time) will be deemed to have been received on the next Business Day.
(b) The Seller or the Servicer, as the case may be, shall, to the extent
permitted by law, pay interest on any amount not paid or deposited by the Seller
or the Servicer, as the case may be, when due hereunder, at an interest rate
equal to 2.0% per annum above the Base Rate, payable on demand.
(c) All computations of interest under clause (b) and all computations
of Discount, fees and other amounts hereunder shall be made on the basis of a
year of 360 (or 365 or 366, as applicable, with respect to Discount or other
amounts calculated by reference to the Base Rate) days for the actual number of
days elapsed. Whenever any payment or deposit to be made hereunder shall be due
on a day other than a Business Day, such payment or deposit shall be made on the
next Business Day and such extension of time shall be included in the
computation of such payment or deposit.
Section 1.7. Dividing or Combining Portions of the Capital of the
Purchased Interest. The Seller may, on the last day of any Settlement Period,
pursuant to written notice delivered to the Administrator in accordance with
Section 5.2: (a) at least three Business Days before such last day in the case
of a Portion of Capital to be funded based upon the Eurodollar Rate and (b) at
least two Business Days before such last day in all other cases, either: (i)
divide the Capital of the Purchased Interest into two or more portions (each a
"Portion of Capital"), which Portions of Capital may accrue Discount by
reference to different rates, equal, in aggregate, to the Capital of the
Purchased Interest; provided, that after giving effect to such division the
amount of each such Portion of Capital shall be not less than $5,000,000 and
shall be an integral multiple of $1,000,000, or (ii) combine any two or more
Portions of Capital outstanding on such last day and having Settlement Periods
ending on such last day into a single Portion of Capital equal to the aggregate
of the Capital of such Portions of Capital.
Section 1.8. Increased Costs. (a) If the Administrator, the Issuer, any
Purchaser, any other Program Support Provider or any of their respective
Affiliates (each an "Affected Person") reasonably determines that the existence
of or compliance with: (i) any law or regulation or any change therein or in the
interpretation or application thereof, in each case adopted, issued or occurring
after the date hereof, or (ii) any request, guideline or directive from any
central bank or other Governmental Authority (whether or not having the force of
law) issued or occurring after the date of this Agreement, affects or would
affect the amount of capital required or expected to be
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maintained by such Affected Person, and such Affected Person determines that the
amount of such capital is increased by or based upon the existence of any
commitment to make purchases of (or otherwise to maintain the investment in)
Pool Receivables related to this Agreement or any related liquidity facility,
credit enhancement facility and other commitments of the same type, then, upon
demand by such Affected Person (with a copy to the Administrator), the Seller
shall promptly pay to the Administrator, for the account of such Affected
Person, from time to time as specified by such Affected Person, additional
amounts sufficient to compensate such Affected Person in the light of such
circumstances, to the extent that such Affected Person reasonably determines
such increase in capital to be allocable to the existence of any of such
commitments. A certificate as to such amounts submitted to the Seller and the
Administrator by such Affected Person shall be conclusive and binding for all
purposes, absent manifest error.
(b) If, due to either: (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Affected Person of agreeing to purchase or purchasing, or
maintaining the ownership of, the Purchased Interest in respect of which
Discount is computed by reference to the Eurodollar Rate, then, upon demand by
such Affected Person, the Seller shall promptly pay to such Affected Person,
from time to time as specified by such Affected Person, additional amounts
sufficient to compensate such Affected Person for such increased costs. A
certificate as to such amounts submitted to the Seller and the Administrator by
such Affected Person shall be conclusive and binding for all purposes, absent
manifest error.
(c) If such increased costs affect the related Affected Person's
portfolio of financing transactions, such Affected Person shall use reasonable
averaging and attribution methods to allocate such increased costs to the
transactions contemplated by this Agreement.
Section 1.9. Requirements of Law. If any Affected Person reasonably
determines that the existence of or compliance with: (a) any law or regulation
or any change therein or in the interpretation or application thereof, in each
case adopted, issued or occurring after the date hereof, or (b) any request,
guideline or directive from any central bank or other Governmental Authority
(whether or not having the force of law) issued or occurring after the date of
this Agreement:
(i) does or shall subject such Affected Person to any tax of any
kind whatsoever with respect to this Agreement,
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any increase in the Purchased Interest or in the amount of Capital
relating thereto, or does or shall change the basis of taxation of
payments to such Affected Person on account of Collections, Discount or
any other amounts payable hereunder (excluding taxes imposed on the
overall pre-tax net income of such Affected Person, and franchise taxes
imposed on such Affected Person, by the jurisdiction under the laws of
which such Affected Person is organized or a political subdivision
thereof),
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, or deposits or other liabilities in or for the account of,
purchases, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Affected Person that
are not otherwise included in the determination of the Eurodollar Rate
or the Base Rate hereunder, or
(iii) does or shall impose on such Affected Person any other
condition,
and the result of any of the foregoing is: (A) to increase the cost to such
Affected Person of acting as Administrator, or of agreeing to purchase or
purchasing or maintaining the ownership of undivided percentage ownership
interests with regard to the Purchased Interest (or interests therein) or any
Portion of Capital, or (B) to reduce any amount receivable hereunder (whether
directly or indirectly), then, in any such case, upon demand by such Affected
Person, the Seller shall promptly pay to such Affected Person additional amounts
necessary to compensate such Affected Person for such additional cost or reduced
amount receivable. All such amounts shall be payable as incurred. A certificate
from such Affected Person to the Seller and the Administrator certifying, in
reasonably specific detail, the basis for, calculation of, and amount of such
additional costs or reduced amount receivable shall be conclusive and binding
for all purposes, absent manifest error; provided, however, that no Affected
Person shall be required to disclose any confidential or tax planning
information in any such certificate.
Section 1.10. Inability to Determine Eurodollar Rate. If the
Administrator shall have determined before the first day of any Settlement
Period (which determination shall be conclusive and binding upon the parties
hereto), by reason of circumstances affecting the interbank Eurodollar market,
either that: (a) dollar deposits in the relevant amounts and for the relevant
Settlement Period are not available, (b) adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for such Settlement Period or (c) the
Eurodollar Rate determined pursuant hereto does not accurately reflect the cost
to the Issuer (as
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conclusively determined by the Administrator) of maintaining any Portion of
Capital during such Settlement Period, the Administrator shall promptly give
telephonic notice of such determination, confirmed in writing, to the Seller
before the first day of such Settlement Period. Upon delivery of such notice:
(i) no Portion of Capital shall be funded thereafter at the Alternate Rate
determined by reference to the Eurodollar Rate unless and until the
Administrator shall have given notice to the Seller that the circumstances
giving rise to such determination no longer exist, and (ii) with respect to any
outstanding Portions of Capital then funded at the Alternate Rate determined by
reference to the Eurodollar Rate, such Alternate Rate shall automatically be
converted to the Alternate Rate determined by reference to the Base Rate at the
respective last days of the then-current Settlement Periods relating to such
Portions of Capital.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
Section 2.1 Representations and Warranties; Covenants. Each of the
Seller, First Brands and the Servicer hereby makes the representations and
warranties, and hereby agrees to perform and observe the covenants, applicable
to it set forth in Exhibits III and IV, respectively.
Section 2.2. Termination Events. If any of the Termination Events set
forth in Exhibit V shall occur, the Administrator may by notice to the Seller,
declare the Facility Termination Date to have occurred (in which case the
Facility Termination Date shall be deemed to have occurred); provided, that
automatically upon the occurrence of any event (without any requirement for the
passage of time or the giving of notice) described in paragraph (f) of Exhibit
V, the Facility Termination Date shall occur. Upon any such declaration,
occurrence or deemed occurrence of the Facility Termination Date, the Issuer and
the Administrator shall have, in addition to the rights and remedies that they
may have under this Agreement, all other rights and remedies provided after
default under the Connecticut UCC and under other applicable law, which rights
and remedies shall be cumulative.
ARTICLE III.
INDEMNIFICATION
Section 3.1. Indemnities by the Seller. Without limiting any other
rights that the Administrator, the Issuer, any Program Support Provider or any
of their respective Affiliates,
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employees, officers, directors, agents, counsel, successors, transferees or
assigns (each, an "Indemnified Party") may have hereunder or under applicable
law, the Seller hereby agrees to indemnify each Indemnified Party from and
against any and all claims, damages, expenses, costs, losses and liabilities
(including Attorney Costs) (all of the foregoing being collectively referred to
as "Indemnified Amounts") arising out of or resulting from this Agreement
(whether directly or indirectly), the use of proceeds of purchases or
reinvestments, the ownership of the Purchased Interest, or any interest therein,
or in respect of any Receivable, Related Security or Contract, excluding,
however: (a) Indemnified Amounts to the extent resulting from gross negligence
or willful misconduct on the part of such Indemnified Party or its officers,
directors, agents or counsel, (b) recourse (except as otherwise specifically
provided in this Agreement) for Receivables, or (c) any overall net income taxes
or franchise taxes imposed on such Indemnified Party by the jurisdiction under
the laws of which such Indemnified Party is organized or any political
subdivision thereof. Without limiting or being limited by the foregoing, and
subject to the exclusions set forth in the preceding sentence, the Seller shall
pay on demand (which demand shall be accompanied by documentation of the
Indemnified Amounts, in reasonable detail) to each Indemnified Party any and all
amounts necessary to indemnify such Indemnified Party from and against any and
all Indemnified Amounts relating to or resulting from any of the following:
(i) the failure of any Receivable included in the calculation of
the Net Receivables Pool Balance as an Eligible Receivable to be an
Eligible Receivable, the failure of any information contained in an
Information Package to be true and correct, or the failure of any other
information provided to the Issuer or the Administrator with respect to
Receivables or this Agreement to be true and correct,
(ii) the failure of any representation, warranty or statement
made or deemed made by the Seller (or any of its officers) under or in
connection with this Agreement to have been true and correct as of the
date made or deemed made in all respects when made,
(iii) the failure by the Seller to comply with any applicable
law, rule or regulation with respect to any Pool Receivable or the
related Contract, or the failure of any Pool Receivable or the related
Contract to conform to any such applicable law, rule or regulation,
(iv) the failure to vest in the Issuer a valid and enforceable:
(A) perfected undivided percentage ownership interest, to the extent of
the Purchased Interest, in the
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Receivables in, or purporting to be in, the Receivables Pool and the
other Pool Assets, or (B) first priority perfected security interest in
the Pool Assets, in each case, free and clear of any Adverse Claim,
(v) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other applicable laws with respect to any
Receivables in, or purporting to be in, the Receivables Pool and the
other Pool Assets, whether at the time of any purchase or reinvestment
or at any subsequent time,
(vi) any dispute, claim, offset or defense (other than discharge
in bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable in, or purporting to be in, the Receivables Pool (including a
defense based on such Receivable or the related Contract not being a
legal, valid and binding obligation of such Obligor enforceable against
it in accordance with its terms), or any other claim resulting from the
sale of the goods or services related to such Receivable or the
furnishing or failure to furnish such goods or services or relating to
collection activities with respect to such Receivable (if such
collection activities were performed by the Seller or any of its
Affiliates acting as Servicer or by any agent or independent contractor
retained by the Seller or any of its Affiliates),
(vii) any failure of the Seller (or any of its Affiliates acting
as the Servicer) to perform its duties or obligations in accordance with
the provisions hereof or under the Contracts,
(viii) any products liability or other claim, investigation,
litigation or proceeding arising out of or in connection with
merchandise, insurance or services that are the subject of any Contract,
(ix) the commingling of Collections at any time with other funds,
(x) the use of proceeds of purchases or reinvestments, or
(xi) any reduction in Capital as a result of the distribution of
Collections pursuant to Section 1.4(d), if all or a portion of such
distributions shall thereafter be rescinded or otherwise must be
returned for any reason.
Section 3.2. Indemnities by the Servicer. Without limiting any other
rights that the Administrator, the Issuer or any other
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Indemnified Party may have hereunder or under applicable law, the Servicer
hereby agrees to indemnify each Indemnified Party from and against any and all
Indemnified Amounts arising out of or resulting from (whether directly or
indirectly): (a) the failure of any information contained in an Information
Package to be true and correct, or the failure of any other information provided
to the Issuer or the Administrator by, or on behalf of, the Servicer to be true
and correct, (b) the failure of any representation, warranty or statement made
or deemed made by the Servicer (or any of its officers) under or in connection
with this Agreement to have been true and correct as of the date made or deemed
made in all respects when made, (c) the failure by the Servicer to comply with
any applicable law, rule or regulation with respect to any Pool Receivable or
the related Contract, (d) any dispute, claim, offset or defense of the Obligor
to the payment of any Receivable in, or purporting to be in, the Receivables
Pool resulting from or related to the collection activities with respect to such
Receivable, or (e) any failure of the Servicer to perform its duties or
obligations in accordance with the provisions hereof.
ARTICLE IV.
ADMINISTRATION AND COLLECTIONS
Section 4.1. Appointment of the Servicer. (a) The servicing,
administering and collection of the Pool Receivables shall be conducted by the
Person so designated from time to time as the Servicer in accordance with this
Section. Until the Administrator gives notice to First Brands (in accordance
with this Section) of the designation of a new Servicer, First Brands is hereby
designated as, and hereby agrees to perform the duties and obligations of, the
Servicer pursuant to the terms hereof. Upon the occurrence of a Termination
Event, the Administrator may designate as Servicer any Person (including itself)
to succeed First Brands or any successor Servicer, on the condition in each case
that any such Person so designated shall agree to perform the duties and
obligations of the Servicer pursuant to the terms hereof.
(b) Upon the designation of a successor Servicer as set forth in clause
(a), First Brands agrees that it will terminate its activities as Servicer
hereunder in a manner that the Administrator determines will facilitate the
transition of the performance of such activities to the new Servicer, and First
Brands shall cooperate with and assist such new Servicer. Such cooperation shall
include access to and transfer of related records and use by the new Servicer of
all licenses, hardware or software necessary or desirable to collect the Pool
Receivables and the Related Security.
(c) First Brands acknowledges that, in making their decision
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to execute and deliver this Agreement, the Administrator and the Issuer have
relied on First Brands' agreement to act as Servicer hereunder. Accordingly,
First Brands agrees that it will not voluntarily resign as Servicer.
(d) The Servicer may delegate its duties and obligations hereunder to
any subservicer (each a "Sub-Servicer"); provided, that, in each such
delegation: (i) such Sub-Servicer shall agree in writing to perform the duties
and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer
shall remain primarily liable for the performance of the duties and obligations
so delegated, (iii) the Seller, the Administrator and the Issuer shall have the
right to look solely to the Servicer for performance and (iv) the terms of any
agreement with any Sub-Servicer shall provide that the Administrator may
terminate such agreement upon the termination of the Servicer hereunder by
giving notice of its desire to terminate such agreement to the Servicer (and the
Servicer shall provide appropriate notice to each such Sub-Servicer); provided,
however, that if any such delegation is to any Person other than an Originator,
the Administrator shall have consented in writing in advance to such delegation.
Section 4.2. Duties of the Servicer. (a) The Servicer shall take or
cause to be taken all such action as may be necessary or advisable to administer
and collect each Pool Receivable from time to time, all in accordance with this
Agreement and all applicable laws, rules and regulations, with reasonable care
and diligence, and in accordance with the Credit and Collection Policies. The
Servicer shall set aside for the accounts of the Seller and the Issuer the
amount of the Collections to which each is entitled in accordance with Article
I. The Servicer may, in accordance with the applicable Credit and Collection
Policy, extend the maturity of any Pool Receivable (but not beyond 30 days) and
extend the maturity or adjust the Outstanding Balance of any Defaulted
Receivable as the Servicer may determine to be appropriate to maximize
Collections thereof; provided, however, that: (i) such extension or adjustment
shall not alter the status of such Pool Receivable as a Delinquent Receivable or
a Defaulted Receivable or limit the rights of the Issuer or the Administrator
under this Agreement and (ii) if a Termination Event has occurred and First
Brands or an Affiliate thereof is serving as the Servicer, First Brands or such
Affiliate may make such extension or adjustment only upon the prior written
approval of the Administrator. The Seller shall deliver to the Servicer and the
Servicer shall hold for the benefit of the Seller and the Administrator (for the
benefit of the Issuer and individually), in accordance with their respective
interests, all records and documents (including computer tapes or disks) with
respect to each Pool Receivable. Notwithstanding anything to the contrary
contained herein, the Administrator may direct the Servicer
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(whether the Servicer is First Brands or any other Person) to commence or settle
any legal action to enforce collection of any Pool Receivable or to foreclose
upon or repossess any Related Security; provided, however, that no such
direction may be given unless either: (A) a Termination Event has occurred or
(B) the Administrator believes in good faith that failure to commence, settle or
effect such legal action, foreclosure or repossession could adversely affect
Receivables constituting a material portion of the Pool Receivables.
(b) The Servicer shall, as soon as practicable following actual receipt
of collected funds, turn over to the Seller the collections of any indebtedness
that is not a Pool Receivable, less, if First Brands or an Affiliate thereof is
not the Servicer, all reasonable and appropriate out-of-pocket costs and
expenses of such Servicer of servicing, collecting and administering such
collections. The Servicer, if other than First Brands or an Affiliate thereof,
shall, as soon as practicable upon demand, deliver to the Seller all records in
its possession that evidence or relate to any indebtedness that is not a Pool
Receivable, and copies of records in its possession that evidence or relate to
any indebtedness that is a Pool Receivable.
(c) The Servicer's obligations hereunder shall terminate on the later
of: (i) the Facility Termination Date and (ii) the date on which all amounts
required to be paid to the Issuer, the Administrator and any other Indemnified
Party or Affected Person hereunder shall have been paid in full.
After such termination, if First Brands or an Affiliate thereof was not
the Servicer on the date of such termination, the Servicer shall promptly
deliver to the Seller all books, records and related materials that the Seller
previously provided to the Servicer, or that have been obtained by the Servicer,
in connection with this Agreement.
Section 4.3. Lock-Box Arrangements. Before the initial purchase
hereunder, the Seller shall enter into Lock-Box Agreements with all of the
Lock-Box Banks and deliver original counterparts thereof to the Administrator.
Upon the occurrence of a Termination Event, the Administrator may at any time
thereafter give notice to each Lock-Box Bank that the Administrator is
exercising its rights under the Lock-Box Agreements to do any or all of the
following: (a) to have the exclusive ownership and control of the Lock-Box
Accounts transferred to the Administrator and to exercise exclusive dominion and
control over the funds deposited therein, (b) to have the proceeds that are sent
to the respective Lock-Box Accounts be redirected pursuant to the
Administrator's instructions rather than deposited in the applicable Lock-Box
Account, and (c) to take any or all other actions permitted under the applicable
Lock-Box Agreement. The
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Seller hereby agrees that if the Administrator at any time takes any action set
forth in the preceding sentence, the Administrator shall have exclusive control
of the proceeds (including Collections) of all Pool Receivables and the Seller
hereby further agrees to take any other action that the Administrator may
reasonably request to transfer such control. Any proceeds of Pool Receivables
received by the Seller or the Servicer thereafter shall be sent immediately to
the Administrator. The parties hereto hereby acknowledge that if at any time the
Administrator takes control of any Lock-Box Account, the Administrator shall not
have any rights to the funds therein in excess of the unpaid amounts due to the
Administrator, the Issuer or any other Person hereunder and the Administrator
shall distribute or cause to be distributed such funds in accordance with
Section 4.2(b) and Article I (in each case as if such funds were held by the
Servicer thereunder).
Section 4.4. Enforcement Rights. (a) At any time following the
occurrence of a Termination Event:
(i) the Administrator may direct the Obligors that payment of all
amounts payable under any Pool Receivable is to be made directly to the
Administrator or its designee,
(ii) the Administrator may instruct the Seller or the Servicer to
give notice of the Issuer's interest in Pool Receivables to each
Obligor, which notice shall direct that payments be made directly to the
Administrator or its designee, and the Seller or the Servicer, as the
case may be, shall give such notice at the expense of the Seller or the
Servicer, as the case may be; provided, that if the Seller or the
Servicer, as the case may be, fails to so notify each Obligor, the
Administrator (at the Seller's or the Servicer's, as the case may be,
expense) may so notify the Obligors, and
(iii) the Administrator may request the Servicer to, and upon
such request the Servicer shall: (A) assemble all of the records
necessary or desirable to collect the Pool Receivables and the Related
Security, and transfer or license to a successor Servicer the use of all
software necessary or desirable to collect the Pool Receivables and the
Related Security, and make the same available to the Administrator or
its designee at a place selected by the Administrator, and (B) segregate
all cash, checks and other instruments received by it from time to time
constituting Collections in a manner acceptable to the Administrator
and, promptly upon receipt, remit all such cash, checks and instruments,
duly endorsed or with duly executed instruments of transfer, to the
Administrator or its designee.
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(b) The Seller hereby authorizes the Administrator, and irrevocably
appoints the Administrator as its attorney-in-fact with full power of
substitution and with full authority in the place and stead of the Seller, which
appointment is coupled with an interest, to take any and all steps in the name
of the Seller and on behalf of the Seller necessary or desirable, in the
determination of the Administrator, after the occurrence of a Termination Event,
to collect any and all amounts or portions thereof due under any and all Pool
Assets, including endorsing the name of the Seller on checks and other
instruments representing Collections and enforcing such Pool Assets.
Notwithstanding anything to the contrary contained in this subsection, none of
the powers conferred upon such attorney-in-fact pursuant to the preceding
sentence shall subject such attorney-in-fact to any liability if any action
taken by it shall prove to be inadequate or invalid, nor shall they confer any
obligations upon such attorney-in-fact in any manner whatsoever.
Section 4.5. Responsibilities of the Seller. (a) Anything herein to the
contrary notwithstanding, the Seller shall: (i) perform all of its obligations,
if any, under the Contracts related to the Pool Receivables to the same extent
as if interests in such Pool Receivables had not been transferred hereunder, and
the exercise by the Administrator or the Issuer of their respective rights
hereunder shall not relieve the Seller from such obligations, and (ii) pay when
due any taxes, including any sales taxes payable in connection with the Pool
Receivables and their creation and satisfaction. The Administrator and the
Issuer shall not have any obligation or liability with respect to any Pool
Asset, nor shall either of them be obligated to perform any of the obligations
of the Seller, First Brands or the Originators thereunder.
(b) First Brands hereby irrevocably agrees that if at any time it shall
cease to be the Servicer hereunder, it shall act (if the then-current Servicer
so requests) as the data-processing agent of the Servicer and, in such capacity,
First Brands shall conduct the data-processing functions of the administration
of the Receivables and the Collections thereon in substantially the same way
that First Brands conducted such data-processing functions while it acted as the
Servicer.
Section 4.6. Servicing Fee. (a) Subject to clause (b), the Servicer
shall be paid a fee equal to 0.25% per annum (the "Servicing Fee Rate") of the
daily average aggregate Outstanding Balance of the Pool Receivables. The
Issuer's Share of such fee shall be paid through the distributions contemplated
by Section 1.4(d), and the Seller's Share of such fee shall be paid by the
Seller.
(b) If the Servicer ceases to be First Brands or an
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Affiliate thereof, the servicing fee shall be the greater of: (i) the amount
calculated pursuant to clause (a) and (ii) an alternative amount specified by
the successor Servicer not to exceed 110% of the aggregate reasonable costs and
expenses incurred by such successor Servicer in connection with the performance
of its obligations as Servicer.
ARTICLE V.
MISCELLANEOUS
Section 5.1. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or any other Transaction Document, or consent to any departure by
the Seller or the Servicer therefrom, shall be effective unless in a writing
signed by the Administrator, and, in the case of any amendment, by the other
parties thereto; and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no such material amendment shall be effective until both
Moody's and Standard & Poor's have notified the Servicer and the Administrator
in writing that such action will not result in a reduction or withdrawal of the
rating of any Notes. No failure on the part of the Issuer or the Administrator
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
Section 5.2. Notices, Etc. All notices and other communications
hereunder shall, unless otherwise stated herein, be in writing (which shall
include facsimile communication) and be sent or delivered to each party hereto
at its address set forth under its name on the signature pages hereof or at such
other address as shall be designated by such party in a written notice to the
other parties hereto. Notices and communications by facsimile shall be effective
when sent (and shall be followed by hard copy sent by first class mail), and
notices and communications sent by other means shall be effective when received.
Section 5.3. Assignability. (a) This Agreement and the Issuer's rights
and obligations herein (including ownership of the Purchased Interest or an
interest therein) shall be assignable, in whole or in part, by the Issuer and
its successors and assigns with the prior written consent of the Seller;
provided, however, that such consent shall not be unreasonably withheld; and
provided further, that no such consent shall be required if the assignment is
made to PNC, any Affiliate of PNC, any Purchaser or other Program Support
Provider or any Person that is: (i) in the business of issuing Notes and (ii)
associated
Receivables Purchase Agreement -19-
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<PAGE>
with or administered by PNC or any Affiliate of PNC. Each assignor may, in
connection with the assignment, disclose to the applicable assignee (that shall
have agreed to be bound by Section 5.6) any information relating to the
Servicer, the Seller or the Pool Receivables furnished to such assignor by or on
behalf of the Servicer, the Seller, the Issuer or the Administrator. The
Administrator shall give prior written notice of any assignment of the Issuer's
rights and obligations (including ownership of the Purchased interest to any
Person other than a Program Support Provider).
(b) The Issuer may at any time grant to one or more banks or other
institutions (each a "Purchaser") party to the Liquidity Agreement, or to any
other Program Support Provider, participating interests in the Purchased
Interest. In the event of any such grant by the Issuer of a participating
interest to a Purchaser or other Program Support Provider, the Issuer shall
remain responsible for the performance of its obligations hereunder. The Seller
agrees that each Purchaser or other Program Support Provider shall be entitled
to the benefits of Sections 1.8 and 1.9.
(c) This Agreement and the rights and obligations of the Administrator
hereunder shall be assignable, in whole or in part, by the Administrator and its
successors and assigns; provided, that, unless: (i) such assignment is to an
Affiliate of PNC, (ii) it becomes unlawful for PNC to serve as the Administrator
or (iii) a Termination Event exists, the Seller has consented to such
assignment, which consent shall not be unreasonably withheld.
(d) Except as provided in Section 4.1(d), none of the Seller, First
Brands or the Servicer may assign its rights or delegate its obligations
hereunder or any interest herein without the prior written consent of the
Administrator.
(e) Without limiting any other rights that may be available under
applicable law, the rights of the Issuer may be enforced through it or by its
agents.
Section 5.4. Costs, Expenses and Taxes. (a) In addition to the rights of
indemnification granted under Section 3.1, the Seller agrees to pay on demand
(which demand shall be accompanied by documentation thereof in reasonable
detail) all reasonable costs and expenses in connection with the preparation,
execution, delivery and administration (including periodic internal audits by
the Administrator of Pool Receivables) of this Agreement, the other Transaction
Documents and the other documents and agreements to be delivered hereunder (and
all reasonable costs and expenses in connection with any amendment, waiver or
modification of any thereof), including: (i) Attorney Costs for
Receivables Purchase Agreement -20-
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<PAGE>
the Administrator, the Issuer and their respective Affiliates and agents with
respect thereto and with respect to advising the Administrator, the Issuer and
their respective Affiliates and agents as to their rights and remedies under
this Agreement and the other Transaction Documents, and (ii) all reasonable
costs and expenses (including Attorney Costs), if any, of the Administrator, the
Issuer and their respective Affiliates and agents in connection with the
enforcement of this Agreement and the other Transaction Documents.
(b) In addition, the Seller shall pay on demand any and all stamp and
other taxes and fees payable in connection with the execution, delivery, filing
and recording of this Agreement or the other documents or agreements to be
delivered hereunder, and agrees to save each Indemnified Party harmless from and
against any liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees.
Section 5.5. No Proceedings; Limitation on Payments. Each of the Seller,
First Brands, the Servicer, the Administrator, each assignee of the Purchased
Interest or any interest therein, and each Person that enters into a commitment
to purchase the Purchased Interest or interests therein, hereby covenants and
agrees that it will not institute against, or join any other Person in
instituting against, the Issuer any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after the latest
maturing Note issued by the Issuer is paid in full. The provision of this
Section 5.5 shall survive any termination of this Agreement.
Section 5.6. Confidentiality. Unless otherwise required by applicable
law, each of the Seller and the Servicer agrees to maintain the confidentiality
of this Agreement and the other Transaction Documents (and all drafts thereof)
in communications with third parties and otherwise; provided, that this
Agreement may be disclosed to: (a) third parties to the extent such disclosure
is made pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the Administrator and (b) the Seller's legal counsel
and auditors if they agree to hold it confidential. Unless otherwise required by
applicable law, each of the Administrator and the Issuer agrees to maintain the
confidentiality of non-public financial information regarding First Brands and
its Subsidiaries and other non-public information marked as confidential by the
Servicer or the Seller; provided, that such information may be disclosed to: (i)
third parties to the extent such disclosure is made pursuant to a written
agreement of confidentiality in form and substance reasonably satisfactory to
First Brands, (ii) legal counsel and auditors of the Issuer or the Administrator
if they
Receivables Purchase Agreement -21-
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<PAGE>
agree to hold it confidential, (iii) the rating agencies rating the Notes to the
extent such information relates to the Receivables Pool or the transactions
contemplated by this Agreement, or if not so related, upon obtaining the prior
consent of First Brands (such consent not to be unreasonably withheld), (iv) any
Program Support Provider or potential Program Support Provider to the extent
such information relates to the Receivables Pool or the transactions
contemplated by this Agreement, or if not so related, upon obtaining the prior
consent of First Brands (such consent not to be unreasonably withheld), (v) any
placement agent placing the Notes and (vi) any regulatory authorities having
jurisdiction over PNC, the Issuer, any Program Support Provider or any
Purchaser.
Section 5.7. GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CONNECTICUT (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF)
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR OF THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT; AND, BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH
OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY
LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE PARTIES HERETO WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH SERVICE MAY
BE MADE BY ANY OTHER MEANS PERMITTED BY CONNECTICUT LAW.
Section 5.8. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
Section 5.9. Survival of Termination. The provisions of Sections 1.8,
1.9, 3.1, 3.2, 5.4, 5.5, 5.6, 5.7, 5.10 and 5.13 shall survive any termination
of this Agreement.
Section 5.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. EACH OF THE
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<PAGE>
PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES
HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
Section 5.11. Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding between the parties
hereto, and supersede all prior or contemporaneous agreements and understandings
of such Persons, verbal or written, relating to the subject matter hereof and
thereof, except for any prior arrangements made with respect to the payment by
the Issuer of (or any indemnification for) any fees, costs or expenses payable
to or incurred (or to be incurred) by or on behalf of the Seller, the Servicer
and the Administrator.
Section 5.12. Headings. The captions and headings of this Agreement and
in any Exhibit, Schedule or Annex hereto are for convenience of reference only
and shall not affect the interpretation hereof or thereof.
Section 5.13. Issuer's Liabilities. The obligations of the Issuer under
the Transaction Documents are solely the corporate obligations of the Issuer. No
recourse shall be had for any obligation or claim arising out of or based upon
any Transaction Document against any stockholder, employee, officer, director or
incorporator of the Issuer; provided, however, that this Section shall not
relieve any such Person of any liability it might otherwise have for its own
gross negligence or willful misconduct.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
FIRST BRANDS FUNDING INC.
By: /s/ Donald A. DeSantis
----------------------------------
Name: Donald A. DeSantis
----------------------------
Title: President
----------------------------
Address: First Brands Funding Inc.
83 Wooster Heights Road
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
FIRST BRANDS CORPORATION
By: /s/ Einar M. Rod
----------------------------------
Name: Einar M. Rod
----------------------------
Title: Vice President
----------------------------
Address: First Brands Funding Inc.
83 Wooster Heights Road
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
Receivables Purchase Agreement -24-
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MARKET STREET FUNDING CORPORATION
By: /s/ Juliana C. Johnson
-------------------------------
Name: Juliana C. Johnson
---------------------------
Title: Vice President
---------------------------
Address:
Market Street Funding Corporation
c/o AMACAR Group, L.L.C.
6707-D Fairview Road
Charlotte, North Carolina 28210
Attention: Douglas K. Johnson
Telephone No.: (704) 365-0569
Facsimile No.: (704) 365-1362
With a copy to:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15220-2707
Attention: John Smathers
Telephone No.: (412) 762-6440
Facsimile No.: (412) 762-9184
PNC BANK, NATIONAL ASSOCIATION,
as Administrator
By: /s/ John Smathers
-------------------------------
Name: John Smathers
----------------------------
Title: Vice President
----------------------------
Address:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15220-2707
Attention: John Smathers
Telephone No.: (412) 762-6440
Facsimile No.: (412) 762-9184
Receivables Purchase Agreement -25-
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EXHIBIT I
DEFINITIONS
As used in the Agreement (including its Exhibits, Schedules and
Annexes), the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined). Unless otherwise indicated, all Section, Annex, Exhibit and Schedule
references in this Exhibit are to Sections of and Annexes, Exhibits and
Schedules to the Agreement.
"A&M" means A&M Products Inc., a Texas corporation.
"Administration Account" means the account (account number 1002422076)
of the Administrator maintained at the office of PNC at One PNC Plaza, 249 Fifth
Avenue, Pittsburgh, Pennsylvania 15220-2707, or such other account as may be so
designated in writing by the Administrator to the Servicer.
"Administrator" has the meaning set forth in the preamble to the
Agreement.
"Adverse Claim" means a lien, security interest or other charge or
encumbrance, or any other type of preferential arrangement; it being understood
that any thereof in favor of the Issuer or the Administrator (for the benefit of
the Issuer) shall not constitute an Adverse Claim.
"Affected Person" has the meaning set forth in Section 1.8 of the
Agreement.
"Affiliate" means, as to any Person: (a) any Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person, or (b) who is a director or officer: (i) of such Person or (ii) of
any Person described in clause (a), except that with respect to the Issuer,
Affiliate shall mean the holder(s) of its capital stock. For purposes of this
definition, control of a Person shall mean the power, direct or indirect: (x) to
vote 25% or more of the securities having ordinary voting power for the election
of directors of such Person or (y) to direct or cause the direction of the
management and policies of such Person, in either case whether by ownership of
securities, contract, proxy or otherwise.
"Agreement" has the meaning set forth in the preamble to the Agreement.
Receivables Purchase Agreement -I-1-
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"Alternate Rate" for any Settlement Period for any Portion of Capital of
the Purchased Interest means an interest rate per annum equal to, at the
Seller's option: (a) 0.75% per annum above the Eurodollar Rate for such
Settlement Period, or (b) the Base Rate for such Settlement Period; provided,
however, that in the case of:
(i) any Settlement Period on or before the first day of which the
Administrator shall have been notified by the Issuer, a Purchaser or any
other Program Support Provider that the introduction of or any change in
or in the interpretation of any law or regulation makes it unlawful, or
any central bank or other Governmental Authority asserts that it is
unlawful, for the Issuer, such Purchaser or other Program Support
Provider, as applicable, to fund any Portion of Capital based on the
Eurodollar Rate (and the Issuer, such Purchaser or other Program Support
Provider shall not have subsequently notified the Administrator that
such circumstances no longer exist),
(ii) any Settlement Period of one to (and including) 30 days,
(iii) any Settlement Period as to which: (A) the Administrator
does not receive notice before noon (New York City time) on: (1) the
first Business Day preceding the first day of such Settlement Period
that the Seller desires that the related Portion of Capital be funded at
the CP Rate or (2) the third Business Day preceding the first day of
such Settlement Period that the Seller desires that the related Portion
of Capital be funded at the Alternate Rate and based on the Eurodollar
Rate, or (B) the Seller has given the notice contemplated by clause
(A)(1) and the Administrator shall have notified the Seller that funding
the related Portion of Capital at the CP Rate is (in the Administrator's
sole discretion) economically inadvisable to the Issuer, the
Administrator, the Seller or any similarly situated Person or the Issuer
is not permitted to issue Notes to fund the Purchased Interest
hereunder, or
(iv) any Settlement Period relating to a Portion of Capital that
is less than $5,000,000,
the "Alternate Rate" for each such Settlement Period shall be an interest rate
per annum equal to the Base Rate in effect on each day of such Settlement
Period. The "Alternate Rate" for any day while a Termination Event exists shall
be an interest rate equal to 2% per annum above the Base Rate in effect on such
day.
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the
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reasonable allocated cost of internal legal services and all reasonable
disbursements of internal counsel.
"Autozone" means Autozone Inc.
"Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978
(11 U.S.C. 'SS' 101, et seq.), as amended from time to time.
"Base Rate" means for any day, a fluctuating interest rate per annum as
shall be in effect from time to time, which rate shall be at all times equal to
the higher of:
(a) the rate of interest in effect for such day as publicly
announced from time to time by PNC in Pittsburgh, Pennsylvania as its
"prime rate." Such "prime rate" is set by PNC based upon various
factors, including PNC's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above or below such
announced rate, and
(b) 0.50% per annum above the latest Federal Funds Rate.
"Benefit Plan" means any employee benefit pension plan as defined in
Section 3(2) of ERISA in respect of which the Seller, any Originator, First
Brands or any ERISA Affiliate is, or at any time during the immediately
preceding six years was, an "employer" as defined in Section 3(5) of ERISA.
"Business Day" means any day (other than a Saturday or Sunday) on which:
(a) banks are not authorized or required to close in New York City, New York or
Pittsburgh, Pennsylvania, and (b) if this definition of "Business Day" is
utilized in connection with the Eurodollar Rate, dealings are carried out in the
London interbank market.
"Capital" means the amount paid to the Seller in respect of the
Purchased Interest by the Issuer pursuant to the Agreement, or such amount
divided or combined in accordance with Section 1.7 of the Agreement, in each
case reduced from time to time by Collections distributed and applied on account
of such Capital pursuant to Section 1.4(d) of the Agreement; provided, that if
such Capital shall have been reduced by any distribution and thereafter all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason, such Capital shall be increased by the amount of such rescinded or
returned distribution as though it had not been made.
Receivables Purchase Agreement -I-3-
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"Cash Discount" means, at any time, the amount of payments made or owed
by the Seller pursuant to Section 1.4(e)(i) of the Agreement as a result of any
discount offered by the Seller or an Affiliate of the Seller to any Obligor.
"Cash Discount Ratio" means the ratio (expressed as a percentage and
rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward),
computed as of the last day of each calendar month by dividing: (a) the
aggregate amount of Cash Discounts arising during such calendar month, by (b)
the aggregate credit sales made by all the Originators during the calendar month
that is one month prior to such calendar month.
"Change in Control" means that First Brands ceases to own, directly or
indirectly, 100% of the capital stock of the Seller free and clear of all
Adverse Claims or a majority of the capital stock of any Originator.
"Chargeback" means, at any time, the amount of payments made or owed by
the Seller pursuant to Section 1.4(e)(i) of the Agreement as a result of any
chargeback between the Seller or an Affiliate of the Seller and an Obligor.
"Chargeback and Cash Discount Reserve" means, at any time, the product
of (a) the aggregate Capital at such time multiplied by (b)(i) the Chargeback
and Cash Discount Reserve Percentage, divided by (ii) 100% minus the Chargeback
and Cash Discount Reserve Percentage.
"Chargeback and Cash Discount Reserve Percentage" means, as of any date,
the product of: (a) the sum of (i) 2 times the highest average of the Chargeback
Ratios for any three consecutive calendar months during the twelve most recent
calendar months and (ii) the greater of (A) 2% and (B) and the Cash Discount
Ratio, and (b) the Dilution Horizon.
"Chargeback Ratio" means the ratio (expressed as a percentage and
rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward),
computed as of the last day of each calendar month by dividing: (a) the
aggregate amount of Chargebacks arising during such calendar month, by (b) the
aggregate credit sales made by all the Originators during the calendar month
that is one month prior to such calendar month.
"Closing Date" means June 5, 1998.
"Collections" means, with respect to any Pool Receivable: (a) all funds
that are received by any Originator, First Brands, the Seller or the Servicer in
payment of any amounts owed in respect of such Receivable (including purchase
price, finance charges, interest and all other charges), or applied to amounts
Receivables Purchase Agreement -I-4-
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owed in respect of such Receivable (including insurance payments and net
proceeds of the sale or other disposition of repossessed goods or other
collateral or property of the related Obligor or any other Person directly or
indirectly liable for the payment of such Pool Receivable and available to be
applied thereon), (b) all Collections deemed to have been received pursuant to
Section 1.4(e) of the Agreement and (c) all other proceeds of such Pool
Receivable.
"Company Note" has the meaning set forth in Section 3.1 of the Purchase
and Sale Agreement.
"Concentration Percentage" means: (a) for any Group A Obligor, 30%, (b)
for any Group B Obligor, 14%, (c) for any Group C Obligor, 7% and (d) for any
Group D Obligor, 3.5%; provided, however, that the Issuer may, with prior
written consent from the Administrator and the Liquidity Agent and if the Rating
Agency Condition is satisfied, approve higher Concentration Percentages for
selected Obligors
"Concentration Reserve" means, at any time: (a) the aggregate Capital at
such time multiplied by (b)(i) the Concentration Reserve Percentage divided by
(ii) 100% minus the Concentration Reserve Percentage.
"Concentration Reserve Percentage" means, at any time, the largest of:
(a) the sum of four largest Group D Obligor Percentages, (b) the sum of the two
largest Group C Obligor Percentages and (c) the largest Group B Obligor
Percentage.
"Contract" means, with respect to any Receivable, any and all contracts,
instruments, agreements, leases, invoices, notes or other writings pursuant to
which such Receivable arises or that evidence such Receivable or under which an
Obligor becomes or is obligated to make payment in respect of such Receivable.
"CP Rate" for any Settlement Period for any Portion of Capital means a
rate calculated by the Administrator equal to: (a) the rate (or if more than one
rate, the weighted average of the rates) at which Notes of the Issuer on each
day during such period have been sold by any placement agent or commercial paper
dealer selected by the Administrator on behalf of the Issuer; provided, that if
such rate(s) is a discount rate(s), then the CP Rate shall be the rate (or if
more than one rate, the weighted average of the rates) resulting from converting
such discount rate(s) to an interest-bearing equivalent rate plus (b) the
commissions and charges charged by such placement agent or commercial paper
dealer with respect to such Notes, expressed as a percentage of the face amount
of such Notes and converted to an interest-bearing equivalent rate per annum.
Notwithstanding the foregoing, the "CP Rate" for any day while a Termination
Event
Receivables Purchase Agreement -I-5-
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exists shall be an interest rate equal to 2% above the Base Rate in effect on
such day.
"Credit and Collection Policy" means, as the context may require, those
receivables credit and collection policies and practices of each Originator in
effect on the date of the Agreement and described in Schedule I to the
Agreement, as modified in compliance with the Agreement.
"Cut-off Date" has the meaning set forth in the Sale Agreement.
"Days' Sales Outstanding" means, for any Settlement Period: (a) the
Outstanding Balance of all Pool Receivables at the end of such Settlement Period
divided by (b)(i) the aggregate credit sales made by all the Originators during
the three calendar months ended on or before the last day of such Settlement
Period divided by (ii) the number of days in such three-month period.
"Debt" means: (a) indebtedness for borrowed money, (b) obligations
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations to pay the deferred purchase price of property or services, (d)
obligations as lessee under leases that shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, and (e) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (d).
"Debt-to-Capital Ratio" means, with respect to Autozone, the ratio
(expressed as a percentage and rounded to the nearest 1/100 of 1% with 5/1000 of
1% rounded upward) computed as of the last day of each fiscal quarter by
dividing (a) Autozone's total debt (as reported in its most recent 10Q), by (b)
the sum of (i) Autozone's total debt (as reported in its most recent 10Q), plus
(ii) the total shareholder's equity of Autozone.
"Defaulted Receivable" means a Receivable:
(a) as to which any payment, or part thereof, remains unpaid for
more than 60 days from the original due date for such payment, or
(b) without duplication, (i) as to which an Event of Bankruptcy
shall have occurred with respect to the Obligor thereof or any other
Person obligated thereon or owning any Related Security with respect
thereto or (ii) that has been written off the Seller's books as
uncollectible.
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"Default Ratio" means the ratio (expressed as a percentage and rounded
to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of
the last day of each calendar month by dividing: (a) the aggregate Outstanding
Balance (excluding credit balances) of all Pool Receivables that became
Defaulted Receivables during such month plus, without double counting, the
aggregate Outstanding Balance of all Pool Receivables as to which a payment, or
part thereof, remained unpaid for less than 61 days from the original due date
for such payment and that was written off as uncollectible during such month, by
(b) the aggregate credit sales made by all the Originators during the month that
is three calendar months before such month.
"Delinquency Ratio" means the ratio (expressed as a percentage and
rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed
as of the last day of each calendar month by dividing: (a) the aggregate
Outstanding Balance of all Pool Receivables as to which a payment, or part
thereof, became unpaid for more than 30 days from the original due date for such
payment on such day by (b) the aggregate Outstanding Balance of all Pool
Receivables on such day.
"Delinquent Receivable" means a Receivable (other than a Defaulted
Receivable) as to which any payment, or part thereof, remains unpaid for more
than 60 days from the original due date for such payment.
"Dilution Horizon" means, for any calendar month, the ratio (expressed
as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1%
rounded upward) computed as of the last day of such calendar month of: (a) the
aggregate credit sales made by all the Originators during the most recent
calendar month to (b) the aggregate Outstanding Balance of the Eligible
Receivables at the last day of such calendar month.
"Dilution Ratio" means the ratio (expressed as a percentage and rounded
to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward), computed as
of the last day of each calendar month by dividing: (a) the aggregate amount of
payments made or owed by the Seller pursuant to Section 1.4(e)(i) of the
Agreement during such calendar month (including without limitation Chargebacks,
Cash Discounts and Radar Receivables) by (b) the aggregate credit sales made by
all the Originators during the calendar month that is one month prior to such
calendar month.
"Dilution Reserve" means, on any day, an amount equal to the greater of
: (a) 11.11% of the Capital at the close of business of the Servicer on such
date and (b) the sum of (i) the Chargeback and Cash Discount Reserve and (ii)
the Radar Reserve.
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"Discount" means:
(a) for the Portion of Capital for any Settlement Period to the
extent the Issuer will be funding such Portion of Capital during such
Settlement Period through the issuance of Notes,
CPR x C x ED/360
(b) for the Portion of Capital for any Settlement Period to the
extent the Issuer will not be funding such Portion of Capital during
such Settlement Period through the issuance of Notes:
AR x C x ED/Year + TF
where:
AR = the Alternate Rate for the Portion of Capital for
such Settlement Period,
C = the Portion of Capital during such Settlement
Period,
CPR = the CP Rate for the Portion of Capital for such
Settlement Period,
ED = the actual number of days during such Settlement
Period,
Year = if such Portion of Capital is funded based upon:
(i) the Eurodollar Rate, 360 days, and (ii) the
Base Rate, 365 or 366 days, as applicable, and
TF = the Termination Fee, if any, for the Portion of
Capital for such Settlement Period;
provided, that no provision of the Agreement shall require the payment or permit
the collection of Discount in excess of the maximum permitted by applicable law;
and provided further, that Discount for the Portion of Capital shall not be
considered paid by any distribution to the extent that at any time all or a
portion of such distribution is rescinded or must otherwise be returned for any
reason.
"Eligible Receivable" means, at any time, a Pool Receivable:
(a) the Obligor of which is (i) a United States resident, (ii)
not a government or a governmental subdivision, affiliate or agency,
(iii) not subject to any
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action of the type described in paragraph (f) of Exhibit V to the
Agreement and (iv) not an Affiliate of First Brands or any other
Originator,
(b) that is denominated and payable only in U.S. dollars in the
United States,
(c) that has a stated maturity that is not more than 90 days
after the original invoice date of such Receivable; provided, however,
that up to 4% of the Net Receivables Pool Balance may have a stated
maturity that is greater than 90 days after the original invoice date
but less than 120 days from such original invoice date of such
Receivable.
(d) that arises under a duly authorized Contract for the sale and
delivery of goods and services in the ordinary course of an Originator's
business,
(e) that arises under a duly authorized Contract that is in full
force and effect and that is a legal, valid and binding obligation of
the related Obligor, enforceable against such Obligor in accordance with
its terms,
(f) that conforms in all material respects with all applicable
laws, rulings and regulations in effect,
(g) that is not the subject of any asserted dispute, offset, hold
back defense, Adverse Claim or other claim,
(h) that satisfies all applicable requirements of the applicable
Credit and Collection Policy,
(i) that has not been modified, waived or restructured since its
creation, except as permitted pursuant to Section 4.2 of the Agreement,
(j) in which the Seller owns good and marketable title, free and
clear of any Adverse Claims, and that is freely assignable by the Seller
(including without any consent of the related Obligor),
(k) for which the Issuer shall have a valid and enforceable
undivided percentage ownership or security interest, to the extent of
the Purchased Interest, and a valid and enforceable first priority
perfected security interest therein and in the Related Security and
Collections with respect thereto, in each case free and clear of any
Adverse Claim,
(l) that constitutes an account as defined in the UCC, and that
is not evidenced by instruments or chattel paper,
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(m) that is neither a Defaulted Receivable nor a Delinquent
Receivable,
(n) for which neither the Originator thereof, the Seller nor the
Servicer has established any offset arrangements with the related
Obligor,
(o) for which Defaulted Receivables of the related Obligor do not
exceed 25% of the Outstanding Balance of all such Obligor's Receivables,
and
(p) that represents amounts earned and payable by the Obligor
that are not subject to the performance of additional services by the
Originator thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"ERISA Affiliate" means: (a) any corporation that is a member of the
same controlled group of corporations (within the meaning of Section 414(b) of
the Internal Revenue Code) as the Seller, any Originator or First Brands, (b) a
trade or business (whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Internal Revenue Code) with the Seller, any
Originator or First Brands, (c) a member of the same affiliated service group
(within the meaning of Section 414(m) of the Internal Revenue Code) as the
Seller, any Originator, First Brands, any corporation described in clause (a) or
any trade or business described in clause (b), or (d) as to the Seller or any of
its Affiliates, Eagle Industrial Products Corporation and all other Person(s)
that are members of Eagle Industrial Products Corporation's controlled group or
under common control therewith (within the meaning of Sections 414(b) and (c) of
the Internal Revenue Code), but only until the termination of the Agreement
dated as of October 24, 1994 among the Pension Benefit Guaranty Corporation,
First Brands and certain of its Affiliates.
"Eurodollar Rate" means, for any Settlement Period, an interest rate per
annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the
following formula:
LIBOR
-------------------------------------------
100% - Eurodollar Rate Reserve Percentage
where "Eurodollar Rate Reserve Percentage" means, for any Settlement Period, the
maximum reserve percentage (expressed as a decimal, rounded upward to the
nearest 1/100th of 1%) in effect
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on the date LIBOR for such Settlement Period is determined under regulations
issued from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to "Eurocurrency" funding (currently
referred to as "Eurocurrency liabilities") having a term comparable to such
Settlement Period.
"Event of Bankruptcy" means (a) any case, action or proceeding before
any court or other governmental authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors or (b) any general assignment for the benefit of creditors
of a Person composition, marshalling of assets for creditors of a Person, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each of cases (a) and (b) undertaken
under U.S. Federal, state or foreign law, including the U.S. Bankruptcy Code.
"Excess Concentration" means the sum of the amounts by which the
Outstanding Balance of Eligible Receivables of each Obligor then in the
Receivables Pool exceeds an amount equal to: (a) the Concentration Percentage
for such Obligor multiplied by (b) the Outstanding Balance of all Eligible
Receivables then in the Receivables Pool.
"Extended Term Receivable" means, at any time, a Receivable that has a
stated maturity greater than 30 days after the date on which such Receivable was
invoiced.
"Facility Termination Date" means the earliest to occur of: (a) June 4,
2001, (b) the date determined pursuant to Section 2.2 of the Agreement, (c) the
date the Purchase Limit reduces to zero pursuant to Section 1.1(b) of the
Agreement and (d) the date that the commitments of the Purchasers terminate
under the Liquidity Agreement.
"Federal Funds Rate" means, for any day, the per annum rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)." If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotations") for such day under the caption "Federal Funds Effective Rate." If
on any relevant day the appropriate rate is
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not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the
rate for such day will be the arithmetic mean as determined by the Administrator
of the rates for the last transaction in overnight Federal funds arranged before
9:00 a.m. (New York time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Administrator.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
"Fee Letter" has the meaning set forth in Section 1.5 of the Agreement.
"First Brands" has the meaning set forth in the preamble to the
Agreement.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any body or entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any court, and any Person owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Group A Obligor" means any Obligor with a short-term rating of at
least: (a) "A-1" by Standard & Poor's, or if such Obligor does not have a
short-term rating from Standard & Poor's, a rating of "A+" or better by Standard
& Poor's on its long-term senior unsecured and uncredit-enhanced debt
securities, and (b) "P-1" by Moody's, or if such Obligor does not have a
short-term rating from Moody's, "A1" or better by Moody's on its long-term
senior unsecured and uncredit-enhanced debt securities.
"Group B Obligor" means (i) an Obligor, not a Group A Obligor, with a
short-term rating of at least: (a) "A-2" by Standard & Poor's, or if such
Obligor does not have a short-term rating from Standard & Poor's, a rating of
"BBB+" to "A" by Standard & Poor's on its long-term senior unsecured and
uncredit-enhanced debt securities, and (b) "P-2" by Moody's, or if such Obligor
does not have a short-term rating from Moody's, "Baa1" to "A2" by Moody's on its
long-term senior unsecured and uncredit-enhanced debt securities and (ii)
Autozone, if Autozone remains unrated by the Rating Agencies and maintains a
Debt-to-Capital Ratio of not greater than 25%.
"Group B Obligor Percentage" means, at any time, for each Group B
Obligor, the percentage equivalent of: (a) the aggregate Outstanding Balance of
the Eligible Receivables of such Group B
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Obligor less any Excess Concentrations of such Obligor, divided by (b) the
aggregate Outstanding Balance of all Eligible Receivables at such time.
"Group C Obligor" means an Obligor, not a Group A Obligor or a Group B
Obligor, with a short-term rating of at least: (a) "A-3" by Standard & Poor's,
or if such Obligor does not have a short-term rating from Standard & Poor's, a
rating of "BBB-" to "BBB" by Standard & Poor's on its long-term senior unsecured
and uncredit-enhanced debt securities, and (b) "P-3" by Moody's, or if such
Obligor does not have a short-term rating from Moody's, "Baa3" to "Baa2" by
Moody's on its long-term senior unsecured and uncredit-enhanced debt securities.
"Group C Obligor Percentage" means, at any time, for each Group C
Obligor, the percentage equivalent of: (a) the aggregate Outstanding Balance of
the Eligible Receivables of such Group C Obligor less any Excess Concentrations
of such Obligor, divided by (b) the aggregate Outstanding Balance of all
Eligible Receivables at such time.
"Group D Obligor" means any Obligor that is not a Group A Obligor, Group
B Obligor or Group C Obligor.
"Group D Obligor Percentage" means, at any time, for each Group D
Obligor: (a) the aggregate Outstanding Balance of the Eligible Receivables of
such Group D Obligor less any Excess Concentrations of such Obligor, divided by
(b) the aggregate Outstanding Balance of all Eligible Receivables at such time.
"Himolene" means Himolene Incorporated, a Delaware corporation.
"Indemnified Amounts" has the meaning set forth in Section 3.1 of the
Agreement.
"Indemnified Party" has the meaning set forth in Section 3.1 of the
Agreement.
"Independent Director" has the meaning set forth in paragraph 3(c) of
Exhibit IV to the Agreement.
"Information Package" means a report, in substantially the form of Annex
A to the Agreement, furnished to the Administrator pursuant to (i) Section
2(j)(iii) of Exhibit IV of the Agreement (a) as of the last day of each calendar
month, not later than the eighth Business Day after the last day of such
calendar month or (b) for such periods as is specified by the Administrator
(including on a semi-monthly, weekly or daily basis) within six Business Days of
a request by the Administrator, and (ii) Section
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1(j) and 2(a) of Exhibit II to the Agreement as a condition to the respective
initial and subsequent purchases thereunder.
"Insolvency Proceeding" means: (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidations, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, in each case undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
References to sections of the Internal Revenue Code also refer to any successor
sections.
"Issuer" has the meaning set forth in the preamble to the Agreement.
"Issuer's Share" of any amount means such amount multiplied by the
Purchased Interest at the time of determination.
"LIBOR" means the rate of interest per annum determined by the
Administrator to be the arithmetic mean (rounded upward to the nearest 1/16th of
1%) of the rates of interest per annum notified to the Administrator by each
Reference Bank as the rate of interest at which dollar deposits in the
approximate amount of the Portion of Capital to be in funded at the Eurodollar
Rate during such Settlement Period would be offered by major banks in the London
interbank market to such Reference Bank at its request at or about 11:00 a.m.
(London time) on the second Business Day before the commencement of such
Settlement Period.
"Liquidity Agent" means PNC in its capacity as the Liquidity Agent
pursuant to the Liquidity Agreement.
"Liquidity Agreement" means the Liquidity Asset Purchase Agreement,
dated as of June 5, 1998 between the purchasers from time to time party thereto,
the Issuer and PNC, as Administrator and Liquidity Agent, as the same may be
further amended, supplemented or otherwise modified from time to time.
"Lock-Box Account" means an account maintained at a bank or other
financial institution for the purpose of receiving Collections.
"Lock-Box Agreement" means an agreement, in substantially
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the form of Annex A to the Agreement, among the Seller, the Servicer and a
Lock-Box Bank.
"Lock-Box Bank" means any of the banks or other financial institutions
holding one or more Lock-Box Accounts.
"Loss Reserve" means, on any date, an amount equal to: (a) the Capital
at the close of business of the Servicer on such date multiplied by (b)(i) the
Loss Reserve Percentage on such date divided by (ii) 100% minus the Loss Reserve
Percentage on such date.
"Loss Reserve Percentage" means, on any date, the greater of: (a) 4% or
(b) a percentage (calculated as of the end of each calendar month) equal to (i)
the product of (A) 2 times the highest average of the Default Ratios for any
three consecutive calendar months during the twelve most recent calendar months
multiplied by (B) the sum of (I) the aggregate credit sales made during the four
most recent calendar months and (II) the product of (x) the aggregate credit
sales made during the fifth preceding calendar month, and (y) a fraction
(expressed as a percentage) the numerator of which is the Outstanding Balance of
Eligible Receivables then in the Receivables Pool that are Extended Term
Receivables and the denominator of which is the Outstanding Balance of
Receivables then in the Receivables Pool, divided by (ii) the aggregate
Outstanding Balance of Eligible Receivables as of such date.
"Material Adverse Effect" means, relative to any Person with respect to
any event or circumstance, a material adverse effect on:
(a) the assets, operations, business or financial condition of
such Person,
(b) the ability of any of such Person to perform its obligations
under the Agreement or any other Transaction Document to which it is a
party,
(c) the validity or enforceability of any other Transaction
Document, or the validity, enforceability or collectibility of a
material portion of the Pool Receivables or
(d) the status, perfection, enforceability or priority of the
Issuer's or the Seller's interest in the Pool Assets.
"Monthly Settlement Date" means the tenth Business Day of each calendar
month.
"Moody's" means Moody's Investors Service, Inc.
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"Net Receivables Pool Balance" means, at any time: (a) the Outstanding
Balance of Eligible Receivables then in the Receivables Pool minus (b) the
Excess Concentration.
"Notes" means short-term promissory notes issued or to be issued by the
Issuer to fund its investments in accounts receivable or other financial assets.
"Obligor" means, with respect to any Receivable, the Person obligated to
make payments pursuant to the Contract relating to such Receivable.
"Originator" has the meaning set forth in the Sale Agreement.
"Originator Assignment Certificate" means each assignment, in
substantially the form of Exhibit C to the Sale Agreement, evidencing Seller's
ownership of the Receivables generated by a particular Originator, as the same
may be amended, supplemented, amended and restated, or otherwise modified from
time to time in accordance with the Sale Agreement.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Payment Date" has the meaning set forth in Section 2.1 of the Sale
Agreement.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.
"PNC" has the meaning set forth in the preamble to the Agreement.
"Pool Assets" has the meaning set forth in Section 1.2(d) of the
Agreement.
"Pool Receivable" means a Receivable in the Receivables Pool.
"Portion of Capital" has the meaning set forth in Section 1.7 of the
Agreement. In addition, at any time when the Capital of the Purchased Interest
is not divided into two or more such portions, APortion of Capital" means 100%
of the Capital.
"Program Support Agreement" means and includes the Liquidity Agreement
and any other agreement entered into by any Program
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Support Provider providing for: (a) the issuance of one or more letters of
credit for the account of the Issuer, (b) the issuance of one or more surety
bonds for which the Issuer is obligated to reimburse the applicable Program
Support Provider for any drawings thereunder, (c) the sale by the Issuer to any
Program Support Provider of the Purchased Interest (or portions thereof) and/or
(d) the making of loans and/or other extensions of credit to the Issuer in
connection with the Issuer's Receivables-securitization program contemplated in
the Agreement, together with any letter of credit, surety bond or other
instrument issued thereunder (but excluding any discretionary advance facility
provided by the Administrator).
"Program Support Provider" means and includes any Purchaser and any
other Person (other than any customer of the Issuer) now or hereafter extending
credit or having a commitment to extend credit to or for the account of, or to
make purchases from, the Issuer pursuant to any Program Support Agreement.
"Purchase and Sale Indemnified Amounts" has the meaning set forth in
Section 9.1 of the Sale Agreement.
"Purchase and Sale Indemnified Party" has the meaning set forth in
Section 9.1 of the Sale Agreement.
"Purchase and Sale Termination Date" has the meaning set forth in
Section 1.4 of the Sale Agreement.
"Purchase and Sale Termination Event" has the meaning set forth in
Section 8.1 of the Sale Agreement.
"Purchase Facility" has the meaning set forth in Section 1.1 of the Sale
Agreement.
"Purchase Limit" means $100,000,000, as such amount may be reduced
pursuant to Section 1.1(b) of the Agreement. References to the unused portion of
the Purchase Limit shall mean, at any time, the Purchase Limit minus the then
outstanding Capital.
"Purchase Price" has the meaning set forth in Section 2.1 of the Sale
Agreement.
"Purchase Report" has the meaning set forth in Section 2.1 of the Sale
Agreement.
"Purchased Interest" means, at any time, the undivided percentage
ownership interest in: (a) each and every Pool Receivable now existing or
hereafter arising, other than any Pool Receivable that arises on or after the
Facility Termination Date, (b) all Related Security with respect to such Pool
Receivables and (c) all Collections with respect to, and other proceeds of,
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such Pool Receivables and Related Security. Such undivided percentage interest
shall be computed as:
Capital + Total Reserves
----------------------------------
Net Receivables Pool Balance
The Purchased Interest shall be determined from time to time pursuant to Section
1.3 of the Agreement.
"Purchaser" has the meaning set forth in Section 5.3(b) of the
Agreement.
"Purchaser's Yield" means, for any Settlement Period, the Discount plus
all Fees payable under the Fee Letter accrued or to accrue during such
Settlement Period, expressed as a percentage of Capital and converted to an
interest-bearing equivalent rate per annum.
"Radar Receivable" means each Receivable of any Originator which is
identified on the books and records of such Originator as a Radar Receivable.
"Radar Reserve" means, at any time, the product of (a) the aggregate
Outstanding Balance of Radar Receivables originated during the current calendar
month, times (b) the Turnover Rate.
"Rating Agency Condition" means, with respect to any event or
occurrence, receipt by the Issuer of written confirmation from Standard & Poor's
and Moody's that such event or occurrence shall not cause the rating on the then
outstanding Notes to be downgraded or withdrawn.
"Receivable" means any indebtedness and other obligations owed to the
Seller or any Originator by, or any right of the Seller or any Originator to
payment from or on behalf of, an Obligor (other than an Obligor which is not a
U.S. Obligor), whether constituting an account, chattel paper, instrument or
general intangible, arising in connection with the sale of goods or the
rendering of services by an Originator, and includes the obligation to pay any
finance charges, fees and other charges with respect thereto. Indebtedness and
other obligations arising from any one transaction, including indebtedness and
other obligations represented by an individual invoice or agreement, shall
constitute a Receivable separate from a Receivable consisting of the
indebtedness and other obligations arising from any other transaction.
"Receivables Pool" means, at any time, all of the then outstanding
Receivables purchased by the Seller pursuant to the Sale Agreement.
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"Reference Bank" means PNC.
"Related Rights" has the meaning set forth in Section 1.1 of the Sale
Agreement.
"Related Security" means, with respect to any Receivable:
(a) all of the Seller's and the Originator thereof's interest in
any goods (including returned goods), and documentation of title
evidencing the shipment or storage of any goods (including returned
goods), relating to any sale giving rise to such Receivable,
(b) all other security interests or 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, together with all UCC financing statements or similar
filings relating thereto, and
(c) all of the Seller's and Originator's rights, interests and
claims under the Contracts and all guaranties, indemnities, insurance
and other agreements (including the related Contract) or arrangements of
whatever character from time to time supporting or securing payment of
such Receivable or otherwise relating to such Receivable, whether
pursuant to the Contract related to such Receivable or otherwise.
"Sale Agreement" means the Purchase and Sale Agreement, dated as of June
5, 1998, between the Seller and the Originators as such agreement may be
amended, amended and restated, supplemented or otherwise modified from time to
time.
"Seller" has the meaning set forth in the preamble to the Agreement.
"Seller Party" means any of the Seller, Servicer or any Originator or
any of their respective successors or assigns.
"Seller's Share" of any amount means the greater of: (a) $0 and (b) such
amount minus the Issuer's Share.
"Servicer" has the meaning set forth in the preamble to the Agreement.
"Servicing Fee" shall mean the fee referred to in Section 4.6 of the
Agreement.
"Servicing Fee Rate" shall mean the rate referred to in
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Section 4.6 of the Agreement.
"Servicing Fee Reserve" for the Purchased Interest at any time means the
sum of (i) the unpaid Servicing Fee accrued to such time, plus (ii) an amount
equal to (a) the Net Receivables Pool Balance at the time of computation
multiplied by (b) the product of (x) the percentage per annum at which the
Servicing Fee is accruing on such date and (y) a fraction having the sum of 2
times the Days' Sales Outstanding as its numerator and 360 as its denominator.
"Settlement Period" means: (a) before the Facility Termination Date: (i)
initially the period commencing on the date of the initial purchase pursuant to
Section 1.2 of the Agreement (or in the case of any fees payable hereunder,
commencing on the Closing Date) and ending on (but not including) the next
Monthly Settlement Date, and (ii) thereafter, each period commencing on such
Monthly Settlement Date and ending on (but not including) the next Monthly
Settlement Date, and (b) on and after the Facility Termination Date, such period
(including a period of one day) as shall be selected from time to time by the
Administrator or, in the absence of any such selection, each period of 30 days
from the last day of the preceding Settlement Period.
"Solvent" means, with respect to any Person at any time, a condition
under which:
(i) the fair value and present fair saleable value of such
Person's total assets is, on the date of determination, greater than
such Person's total liabilities (including contingent and unliquidated
liabilities) at such time;
(ii) the fair value and present fair saleable value of such
Person's assets is greater than the amount that will be required to pay
such Person's probable liability on its existing debts as they become
absolute and matured ("debts," for this purpose, includes all legal
liabilities, whether matured or unmatured, liquidated or unliquidated,
absolute, fixed, or contingent);
(iii) such Person is and shall continue to be able to pay all of
its liabilities as such liabilities mature; and
(iv) such Person does not have unreasonably small capital with
which to engage in its current and in its anticipated business.
For purposes of this definition:
(A) the amount of a Person's contingent or unliquidated
liabilities at any time shall be that amount
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which, in light of all the facts and circumstances then existing,
represents the amount which can reasonably be expected to become an
actual or matured liability;
(B) the "fair value" of an asset shall be the amount which may be
realized within a reasonable time either through collection or sale of
such asset at its regular market value;
(C) the "regular market value" of an asset shall be the amount
which a capable and diligent business person could obtain for such asset
from an interested buyer who is willing to Purchase such asset under
ordinary selling conditions; and
(D) the "present fair saleable value" of an asset means the
amount which can be obtained if such asset is sold with reasonable
promptness in an arm's-length transaction in an existing and not
theoretical market.
"Spike Factor" means, for any calendar month the positive difference, if
any, between: (a) the highest Dilution Ratio for any calendar month during the
twelve most recent calendar months and (b) the arithmetic average of the
Dilution Ratios for such twelve months.
"Standard & Poor's" means Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
"Subsidiary" means, as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock of each class
or other interests having ordinary voting power (other than stock or other
interests having such power only by reason of the happening of a contingency) to
elect a majority of the Board of Directors or other managers of such entity are
at the time owned, or management of which is otherwise controlled: (a) by such
Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and
one or more Subsidiaries of such Person.
"Termination Day" means: (a) each day on which the conditions set forth
in Section 2 of Exhibit II to the Agreement are not satisfied or (b) each day
that occurs on or after the Facility Termination Date.
"Termination Event" has the meaning specified in Exhibit V to the
Agreement.
"Termination Fee" means, for any Settlement Period during which a
Termination Day occurs, the amount, if any, by which: (a) the additional
Discount (calculated without taking into account
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any Termination Fee or any shortened duration of such Settlement Period pursuant
to the definition thereof) that would have accrued during such Settlement Period
on the reductions of Capital relating to such Settlement Period had such
reductions not been made, exceeds (b) the income, if any, received by the Issuer
from investing the proceeds of such reductions of Capital, as determined by the
Administrator, which determination shall be binding and conclusive for all
purposes, absent manifest error.
"Total Reserves" means, at any time the sum of : (a) the Yield Reserve,
plus (b) the greatest of (i) the sum of (A) the Loss Reserve, plus (B) the
Dilution Reserve, or (ii) the Concentration Reserve.
"Transaction Documents" means the Agreement, the Lock-Box Agreements,
the Liquidity Agreement, the Fee Letter, the Sale Agreement and all other
certificates, instruments, UCC financing statements, reports, notices,
agreements and documents executed or delivered under or in connection with the
Agreement, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the Agreement.
"Transfer Event" has the meaning set forth in Section 1(e) of Exhibit IV
to the Agreement.
"Turnover Rate" means, for any Settlement Period: (a) the Outstanding
Balance of all Pool Receivables at the end of such Settlement Period divided by
(b)(i) the aggregate credit sales made by all the Originators during the three
calendar months ended on or before the last day of such Settlement Period
divided by (ii) three.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction.
"Unmatured Purchase and Sale Termination Event" means any event which,
with the giving of notice or lapse of time, or both, would become a Purchase and
Sale Termination Event.
"Unmatured Termination Event" means an event that, with the giving of
notice or lapse of time, or both, would constitute a Termination Event.
"U.S. Obligor" means an Obligor that is organized under the laws of the
United States or any State thereof and whose principal place of business is
located in the United States.
Receivables Purchase Agreement -I-22-
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"Yield Reserve" means, at any time:
(BR + 2.0% + SFR x 1.5(TR) x Capital)
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12
where:
BR = the Base Rate in effect at such time,
TR = the Turnover Rate, and
SFR = the Servicing Fee Rate
Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of Connecticut, and not
specifically defined herein, are used herein as defined in such Article 9.
Unless the context otherwise requires, "or" means "and/or," and "including" (and
with correlative meaning "include" and "includes") means including without
limiting the generality of any description preceding such term.
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EXHIBIT II
CONDITIONS OF PURCHASES
1. Conditions Precedent to Initial Purchase. The Initial Purchase under
this Agreement is subject to the conditions precedent that the Administrator
shall have received on or before the date of such purchase the following, each
in form and substance (including the date thereof) satisfactory to the
Administrator:
(a) A counterpart of the Agreement and the other Transaction Documents
executed by the parties thereto.
(b) Certified copies of: (i) the resolutions of the Board of Directors of
each of the Seller, the Originators and First Brands authorizing the execution,
delivery and performance by the Seller, such Originator and First Brands, as the
case may be, of the Agreement and the other Transaction Documents to which it is
a party, (ii) all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Agreement and the other
Transaction Documents and (iii) the certificate of incorporation and by-laws of
each of the Seller, each Originator and First Brands.
(c) A certificate of the Secretary or Assistant Secretary of each of the
Seller, the Originators and First Brands certifying the names and true
signatures of its officers who are authorized to sign the Agreement and the
other Transaction Documents. Until the Administrator receives a subsequent
incumbency certificate from the Seller, an Originator or First Brands, as the
case may be, the Administrator shall be entitled to rely on the last such
certificate delivered to it by the Seller, an Originator or First Brands, as the
case may be.
(d) Acknowledgment copies, or time stamped receipt copies, of proper
financing statements, duly filed on or before the date of such initial purchase
under the UCC of all jurisdictions that the Administrator may deem necessary or
desirable in order to perfect the interests of the Seller, First Brands and the
Issuer contemplated by the Agreement and the Sale Agreement.
(e) Acknowledgment copies, or time-stamped receipt copies, of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Receivables, Contracts or Related Security
previously granted by the Originators, First Brands or the Seller.
(f) Completed UCC search reports, dated on or shortly before the date of
the initial purchase hereunder, listing the financing
Receivables Purchase Agreement - II-1
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statements filed all applicable the jurisdictions referred to in subsection (e)
above that name the Originators or the Seller as debtor, together with copies of
such other financing statements, and similar search reports with respect to
judgment liens, federal tax liens and liens of the Pension Benefit Guaranty
Corporation in such jurisdictions, as the Administrator may request, showing no
Adverse Claims on any Pool Assets.
(g) Copies of executed Lock-Box Agreements with the Lock-Box Banks.
(h) Favorable opinions, in form and substance reasonably satisfactory to
the Administrator, of Cummings & Lockwood, counsel for the Seller, the
Originators, First Brands and the Servicer.
(i) Satisfactory results of a review and audit (performed by
representatives of the Administrator) of the Servicer's collection, operating
and reporting systems, the Credit and Collection Policy of each Originator,
historical receivables data and accounts, including satisfactory results of a
review of the Servicer's operating location(s) and satisfactory review and
approval of the Eligible Receivables in existence on the date of the initial
purchase under the Agreement.
(j) A pro forma Information Package representing the performance of the
Receivables Pool for the calendar month before closing.
(k) Evidence of payment by the Seller of all accrued and unpaid fees
(including those contemplated by the Fee Letter), costs and expenses to the
extent then due and payable on the date thereof, including any such costs, fees
and expenses arising under or referenced in Section 5.4 of the Agreement and the
Fee Letter.
(l) The Fee Letter duly executed by the Seller and the Servicer.
(m) Good standing certificates with respect to each of the Seller, the
Originators and the Servicer issued by the Secretaries of State (or similar
official) of the states of each such Person's organization and principal place
of business.
(n) Letters from each of the rating agencies then rating the Notes
confirming the rating of such Notes after giving effect to the transaction
contemplated by the Agreement.
(o) The Liquidity Agreement and all other Transaction Documents duly
executed by the parties thereto.
Receivables Purchase Agreement - II-2
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(p) A computer file containing all information with respect to the
Receivables as the Administrator or the Issuer may reasonably request.
(q) Such other approvals, opinions or documents as the Administrator or the
Issuer may reasonably request.
2. Conditions Precedent to All Purchases and Reinvestments. Each purchase
(except as to clause (a), including the initial purchase) and each reinvestment
shall be subject to the further conditions precedent that:
(a) in the case of each purchase, the Servicer shall have delivered to the
Administrator on or before such purchase, in form and substance satisfactory to
the Administrator, a completed pro forma Information Package to reflect the
level of Capital and related reserves after such subsequent purchase, and
(b) on the date of such purchase or reinvestment the following statements
shall be true (and acceptance of the proceeds of such purchase or reinvestment
shall be deemed a representation and warranty by the Seller that such statements
are then true):
(i) the representations and warranties contained in Exhibit III to the
Agreement are true and correct in all material respects on and as of the
date of such purchase or reinvestment as though made on and as of such
date; and
(ii) no event has occurred and is continuing, or would result from
such purchase or reinvestment, that constitutes a Termination Event or an
Unmatured Termination Event.
Receivables Purchase Agreement - II-3
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EXHIBIT III
REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties of the Seller. The Seller represents and
warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and is duly qualified to
do business, and is in good standing, as a foreign corporation in every
jurisdiction where the nature of its business requires it to be so qualified,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(b) The execution, delivery and performance by the Seller of the Agreement
and the other Transaction Documents to which it is a party, including its use of
the proceeds of purchases and reinvestments: (i) are within its corporate
powers, (ii) have been duly authorized by all necessary corporate action, (iii)
do not contravene or result in a default under or conflict with: (A) its charter
or by-laws, (B) any law, rule or regulation applicable to it, (C) any
contractual restriction binding on or affecting it or any of its property or (D)
any order, writ, judgment, award, injunction or decree binding on or affecting
it or any of its property, and (iv) do not result in or require the creation of
any Adverse Claim upon or with respect to any of its properties. The Agreement
and the other Transaction Documents to which it is a party have been duly
executed and delivered by the Seller.
(c) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or other Person is required for its due
execution, delivery and performance by the Seller of the Agreement or any other
Transaction Document to which it is a party, other than the Uniform Commercial
Code filings referred to in Exhibit II to the Agreement, all of which shall have
been filed on or before the date of the first purchase hereunder.
(d) Each of the Agreement and the other Transaction Documents to which the
Seller is a party constitutes its legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws from time to time in effect affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
Receivables Purchase Agreement - III-1
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(e) There is no pending or, to Seller's best knowledge, threatened action
or proceeding affecting Seller or any of its properties before any Governmental
Authority or arbitrator.
(f) No proceeds of any purchase or reinvestment will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
(g) The Seller is the legal and beneficial owner of the Pool Receivables
and Related Security, free and clear of any Adverse Claim. Upon each purchase or
reinvestment, the Issuer shall acquire a valid and enforceable perfected
undivided percentage ownership or security interest, to the extent of the
Purchased Interest, in each Pool Receivable then existing or thereafter arising
and in the Related Security, Collections and other proceeds with respect
thereto, free and clear of any Adverse Claim. The Agreement creates a security
interest in favor of the Issuer in the Pool Assets, and the Issuer has a first
priority perfected security interest in the Pool Assets, free and clear of any
Adverse Claims. No effective financing statement or other instrument similar in
effect covering any Pool Asset is on file in any recording office, except those
filed in favor of the Seller pursuant to the Sale Agreement and the Issuer
relating to the Agreement.
(h) Each Information Package (if prepared by the Seller or one of its
Affiliates, or to the extent that information contained therein is supplied by
the Seller or an Affiliate), information, exhibit, financial statement,
document, book, record or report furnished or to be furnished at any time by or
on behalf of the Seller to the Administrator in connection with the Agreement or
any other Transaction Document to which it is a party is or will be complete and
accurate in all material respects as of its date or (except as otherwise
disclosed to the Administrator at such time) as of the date so furnished,
(i) The Seller's principal place of business and chief executive office (as
such terms are used in the UCC) and the office where it keeps its records
concerning the Receivables are located at the address referred to in Sections
1(b) and 2(b) of Exhibit IV to the Agreement.
(j) The names and addresses of all the Lock-Box Banks, together with the
account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified
in Schedule II to the Agreement (or at such other Lock-Box Banks and/or with
such other Lock-Box Accounts as have been notified to the Administrator in
accordance with the Agreement) and all Lock-Box Accounts are subject to Lock-Box
Agreements.
Receivables Purchase Agreement - III-2
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(k) The Seller is not in violation of any order of any court, arbitrator or
Governmental Authority that is likely to have a Material Adverse Effect.
(l) Neither the Seller nor any of its Affiliates has any direct or indirect
ownership or other financial interest in the Issuer.
(m) No proceeds of any purchase or reinvestment will be used for any
purpose that violates any applicable law, rule or regulation, including
Regulations G or U of the Federal Reserve Board.
(n) Each Pool Receivable included as an Eligible Receivable in the
calculation of the Net Receivables Pool Balance is an Eligible Receivable.
(o) No event has occurred and is continuing, or would result from a
purchase in respect of, or reinvestment in respect of, the Purchased Interest or
from the application of the proceeds therefrom, that constitutes a Termination
Event or an Unmatured Termination Event.
(p) The Seller has accounted for each sale of undivided percentage
ownership interests in Receivables in its books and financial statements as
sales, consistent with generally accepted accounting principles.
(q) The Seller has complied in all material respects with the Credit and
Collection Policy of each Originator with regard to each Receivable originated
by such Originator.
(r) The Seller has complied in all material respects with all of the terms,
covenants and agreements contained in the Agreement and the other Transaction
Documents that are applicable to it.
(s) The Seller's complete corporate name is set forth in the preamble to
the Agreement, and it does not use and has not during the last six years used
any other corporate name, trade name, doing-business name or fictitious name,
except as set forth on Schedule III to the Agreement and except for names first
used after the date of the Agreement and set forth in a notice delivered to the
Administrator pursuant to Section 1(l)(iv) of Exhibit IV to the Agreement.
(t) The Seller is not an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended. In addition, the Seller is not a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or of a
Receivables Purchase Agreement - III-3
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"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
2. Representations and Warranties of First Brands (including in its
capacity as the Servicer). First Brands, individually and in its capacity as the
Servicer, represents and warrants as follows:
(a) First Brands is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware, and is duly qualified
to do business, and is in good standing, as a foreign corporation in every
jurisdiction where the nature of its business requires it to be so qualified,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(b) The execution, delivery and performance by First Brands of the
Agreement and the other Transaction Documents to which it is a party, including
the Servicer's use of the proceeds of purchases and reinvestments: (i) are
within its corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) do not contravene or result in a default under or
conflict with: (A) its charter or by-laws, (B) any law, rule or regulation
applicable to it, (C) any contractual restriction binding on or affecting it or
any of its property or (D) any order, writ, judgment, award, injunction or
decree binding on or affecting it or any of its property, and (iv) do not result
in or require the creation of any Adverse Claim upon or with respect to any of
its properties. The Agreement and the other Transaction Documents to which First
Brands is a party have been duly executed and delivered by First Brands.
(c) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or other Person is required for the due
execution, delivery and performance by First Brands of the Agreement or any
other Transaction Document to which it is a party.
(d) Each of the Agreement and the other Transaction Documents to which
First Brands is a party constitutes the legal, valid and binding obligation of
First Brands enforceable against First Brands in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
(e) The balance sheets of First Brands and its consolidated Subsidiaries as
at December 31, 1997, and the related statements of income and retained earnings
for the fiscal year then ended,
Receivables Purchase Agreement - III-4
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copies of which have been furnished to the Administrator, fairly present the
financial condition of First Brands and its consolidated Subsidiaries as at such
date and the results of the operations of First Brands and its Subsidiaries for
the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since December 31, 1997 there
has been no event or circumstances which have had a Material Adverse Effect.
(f) Except as disclosed in the most recent audited financial statements of
First Brands furnished to the Administrator, there is no pending or, to its best
knowledge, threatened action or proceeding affecting it or any of its
Subsidiaries before any Governmental Authority or arbitrator that could have a
Material Adverse Effect.
(g) No proceeds of any purchase or reinvestment will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
(h) Each Information Package (if prepared by First Brands or one of its
Affiliates, or to the extent that information contained therein is supplied by
First Brands or an Affiliate), information, exhibit, financial statement,
document, book, record or report furnished or to be furnished at any time by or
on behalf of the Servicer to the Administrator in connection with the Agreement
is or will be complete and accurate in all material respects as of its date or
(except as otherwise disclosed to the Administrator at such time) as of the date
so furnished.
(i) The principal place of business and chief executive office (as such
terms are used in the UCC) of First Brands and the office where it keeps its
records concerning the Receivables are located at the address referred to in
Section 2(b) of Exhibit IV to the Agreement.
(j) First Brands is not in violation of any order of any court, arbitrator
or Governmental Authority, which could have a Material Adverse Effect.
(k) Neither First Brands nor any of its Affiliates has any direct or
indirect ownership or other financial interest in the Issuer.
(l) The Servicer has complied in all material respects with the Credit and
Collection Policy of each Originator with regard to each Receivable originated
by such Originator.
(m) First Brands has complied in all material respects with all of the
terms, covenants and agreements contained in the Agreement and the other
Transaction Documents that are applicable
Receivables Purchase Agreement - III-5
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to it.
(n) First Brands is not an "investment company," or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940, as amended. In addition, First Brands is not a "holding company," a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
Receivables Purchase Agreement - III-6
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EXHIBIT IV
COVENANTS
1. Covenants of the Seller. Until the latest of the Facility Termination
Date, the date on which no Capital of or Discount in respect of the Purchased
Interest shall be outstanding or the date all other amounts owed by the Seller
under the Agreement to the Issuer, the Administrator and any other Indemnified
Party or Affected Person shall be paid in full:
(a) Compliance with Laws, Etc. The Seller shall comply in all material
respects with all applicable laws, rules, regulations and orders, and preserve
and maintain its corporate existence, rights, franchises, qualifications and
privileges, except to the extent that the failure so to comply with such laws,
rules and regulations or the failure so to preserve and maintain such rights,
franchises, qualifications and privileges would not have a Material Adverse
Effect.
(b) Offices, Records and Books of Account, Etc. The Seller: (i) shall keep
its principal place of business and chief executive office (as such terms or
similar terms are used in the UCC) and the office where it keeps its records
concerning the Receivables at the address of the Seller set forth under its name
on the signature page to the Agreement or, pursuant to clause (l)(iv) below, at
any other locations in jurisdictions where all actions reasonably requested by
the Administrator to protect and perfect the interest of the Issuer in the
Receivables and related items (including the Pool Assets) have been taken and
completed and (ii) shall provide the Administrator with at least 30 days'
written notice before making any change in the Seller's name or making any other
change in the Seller's identity or corporate structure (including a Change in
Control) that could render any UCC financing statement filed in connection with
this Agreement "seriously misleading" as such term (or similar term) is used in
the UCC; each notice to the Administrator pursuant to this sentence shall set
forth the applicable change and the effective date thereof. The Seller also will
maintain and implement (or cause the Servicer to maintain and implement)
administrative and operating procedures (including an ability to recreate
records evidencing Receivables and related Contracts in the event of the
destruction of the originals thereof), and keep and maintain (or cause the
Servicer to keep and maintain) all documents, books, records, computer tapes and
disks and other information reasonably necessary or advisable for the collection
of all Receivables (including records adequate to permit the daily
identification of each Receivable and all Collections of and adjustments to each
existing Receivable). Notwithstanding the above, in no event shall the Seller
have or maintain, or be a
Receivables Purchase Agreement - IV-1
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partner in any partnership that has or maintains, its jurisdiction of
organization, principal place of business or principal assets in any of the
states of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming.
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. The Seller shall (and shall cause the Servicer to), at its expense,
timely and fully perform and comply with all material provisions, covenants and
other promises required to be observed by it under the Contracts related to the
Receivables, and timely and fully comply in all material respects with the
applicable Credit and Collection Policies with regard to each Receivable and the
related Contract.
(d) Ownership Interest, Etc. The Seller shall (and shall cause the Servicer
to), at its expense, take all action necessary or desirable to establish and
maintain a valid and enforceable undivided percentage ownership or security
interest, to the extent of the Purchased Interest, in the Pool Receivables, the
Related Security and Collections with respect thereto, and a first priority
perfected security interest in the Pool Assets, in each case free and clear of
any Adverse Claim, in favor of the Issuer, including taking such action to
perfect, protect or more fully evidence the interest of the Issuer as the
Issuer, through the Administrator, may reasonably request.
(e) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, any or all of its right, title or
interest in, to or under any Pool Assets (including the Seller's undivided
interest in any Receivable, Related Security or Collections, or upon or with
respect to any account to which any Collections of any Receivables are sent), or
assign any right to receive income in respect of any items contemplated by this
paragraph; provided, however, if (i) a Change in Control shall occur with
respect to Himolene or A&M, (ii) Himolene or A&M becomes a party to any merger
or consolidation where First Brands, Himolene or A&M is not the surviving
corporation or (iii) Himolene or A&M sells all or substantially all of its
assets (the occurrence of any event described in clauses (i), (ii) and (iii) is
herein referred to as a "Transfer Event"), then upon 30 days prior written
notice to the Administrator, the Seller may, in connection with such Transfer
Event, sell or assign to any Person, without recourse, all of the Receivables
and Related Rights then in the Receivables Pool that were originated by either
Himolene or A&M, as applicable; provided, however, that after giving effect to
such sale or assignment, and the application of the proceeds thereof in
accordance with Section 1.4, no Unmatured Termination Event or Termination Event
shall have occurred.
Receivables Purchase Agreement - IV-2
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(f) Extension or Amendment of Receivables. Except as provided in the
Agreement, the Seller shall not, and shall not permit the Servicer to, extend
the maturity or adjust the Outstanding Balance or otherwise modify the terms of
any Pool Receivable, or amend, modify or waive any term or condition of any
related Contract.
(g) Change in Business or Credit and Collection Policy. The Seller shall
not make (or permit any Originator to make) any material change in the character
of its business or in any Credit and Collection Policy, or any change in any
Credit and Collection Policy that would have a Material Adverse Effect with
respect to the Receivables. The Seller shall not make (or permit any Originator
to make) any other change in any Credit and Collection Policy without giving
prior written notice thereof to the Administrator.
(h) Audits. The Seller shall (and shall cause each Originator to), from
time to time during regular business hours as reasonably requested in advance
(unless a Termination Event or Unmatured Termination Event exists) by the
Administrator, permit the Administrator, or its agents or representatives: (i)
to examine and make copies of and abstracts from all books, records and
documents (including computer tapes and disks) in the possession or under the
control of the Seller (or any such Originator) relating to Receivables and the
Related Security, including the related Contracts, and (ii) to visit the offices
and properties of the Seller and the Originators for the purpose of examining
such materials described in clause (i) above, and to discuss matters relating to
Receivables and the Related Security or the Seller's, First Brands' or the
Originators' performance under the Transaction Documents or under the Contracts
with any of the officers, employees, agents or contractors of the Seller, First
Brands or the Originators having knowledge of such matters.
(i) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to
Obligors. The Seller shall not, and shall not permit the Servicer or any
Originator to, add or terminate any bank as a Lock-Box Bank or any account as a
Lock-Box Account from those listed in Schedule II to the Agreement, or make any
change in its instructions to Obligors regarding payments to be made to the
Seller, the Originators, the Servicer or any Lock-Box Account (or related post
office box), unless the Administrator shall have consented thereto in writing
and the Administrator shall have received copies of all agreements and documents
(including Lock-Box Agreements) that it may request in connection therewith.
(j) Deposits to Lock-Box Accounts. The Seller shall (or shall cause the
Servicer to): (i) instruct all Obligors to make payments of all Receivables to
one or more Lock-Box Accounts or to post office boxes to which only Lock-Box
Banks have access
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(and shall instruct the Lock-Box Banks to cause all items and amounts relating
to such Receivables received in such post office boxes to be removed and
deposited into a Lock-Box Account on a daily basis), and (ii) deposit, or cause
to be deposited, any Collections received by it, the Servicer or any Originator
into Lock-Box Accounts not later than one Business Day after receipt thereof.
Each Lock-Box Account shall at all times be subject to a Lock-Box Agreement. The
Seller will not (and will not permit the Servicer to) deposit or otherwise
credit, or cause or permit to be so deposited or credited, to any Lock-Box
Account cash or cash proceeds other than Collections.
(k) Marking of Records. At its expense, the Seller shall: (i) mark (or
cause the Servicer to mark) its master data processing records relating to Pool
Receivables and related Contracts, including with a legend evidencing that the
undivided percentage ownership interests with regard to the Purchased Interest
related to such Receivables and related Contracts have been sold in accordance
with the Agreement, and (ii) cause each Originator so to mark their master data
processing records pursuant to the Sale Agreement.
(l) Reporting Requirements. The Seller will provide to the Administrator
(in multiple copies, if requested by the Administrator) the following:
(i) as soon as available and in any event within 90 days after the end
of each fiscal year of the Seller, a copy of the annual report for such
year for the Seller, containing unaudited financial statements for such
year certified as to accuracy by the chief financial officer or treasurer
of the Seller;
(ii) as soon as possible and in any event within five days after the
occurrence of each Termination Event or Unmatured Termination Event, a
statement of the chief financial officer of the Seller setting forth
details of such Termination Event or Unmatured Termination Event and the
action that the Seller has taken and proposes to take with respect thereto;
(iii) promptly after the filing or receiving thereof, copies of all
reports and notices that the Seller or any Affiliate files under ERISA with
the Internal Revenue Service, the Pension Benefit Guaranty Corporation or
the U.S. Department of Labor or that the Seller or any Affiliate receives
from any of the foregoing or from any multiemployer plan (within the
meaning of Section 4001(a)(3) of ERISA) to which the Seller or any of its
Affiliates is or was, within the preceding five years, a contributing
employer, in each case in respect of the assessment of withdrawal liability
or
Receivables Purchase Agreement - IV-4
<PAGE>
<PAGE>
an event or condition that could, in the aggregate, result in the
imposition of liability on the Seller and/or any such Affiliate;
(iv) at least thirty days before any change in the Seller's name or
any other change requiring the amendment of UCC financing statements, a
notice setting forth such changes and the effective date thereof;
(v) promptly after the Seller obtains knowledge thereof, notice of
any: (A) litigation, investigation or proceeding that may exist at any time
between the Seller and any Person or (B) litigation or proceeding relating
to any Transaction Document;
(vi) promptly after the occurrence thereof, notice of a material
adverse change in the business, operations, property or financial or other
condition of the Seller, the Servicer or any Originator; and
(vii) such other information respecting the Receivables or the
condition or operations, financial or otherwise, of the Seller or any of
its Affiliates as the Administrator may from time to time reasonably
request.
(m) Certain Agreements. Without the prior written consent of the
Administrator, the Seller will not (and will not permit any Originator to)
amend, modify, waive, revoke or terminate any Transaction Document to which it
is a party or any provision of Seller's certificate of incorporation or by-laws.
(n) Restricted Payments. (i) Except pursuant to clause (ii) below, the
Seller will not: (A) purchase or redeem any shares of its capital stock, (B)
declare or pay any dividend or set aside any funds for any such purpose, (C)
prepay, purchase or redeem any Debt, (D) lend or advance any funds or (E) repay
any loans or advances to, for or from any of its Affiliates (the amounts
described in clauses (A) through (E) being referred to as "Restricted
Payments").
(ii) Subject to the limitations set forth in clause (iii) below, the
Seller may make Restricted Payments so long as such Restricted Payments are
made only in one or more of the following ways: (A) the Seller may make
cash payments (including prepayments) on the Company Note in accordance
with its terms, and (B) if no amounts are then outstanding under the
Company Note, the Seller may declare and pay dividends.
(iii) The Seller may make Restricted Payments only out of the funds it
receives pursuant to Sections 1.4(b)(ii) and
Receivables Purchase Agreement - IV-5
<PAGE>
<PAGE>
(iv) of the Agreement. Furthermore, the Seller shall not pay, make or
declare: (A) any dividend if, after giving effect thereto, the Seller's
tangible net worth would be less than $5,000,000, or (B) any Restricted
Payment (including any dividend) if, after giving effect thereto, any
Termination Event or Unmatured Termination Event shall have occurred and be
continuing.
(o) Other Business. The Seller will not: (i) engage in any business other
than the transactions contemplated by the Transaction Documents, (ii) create,
incur or permit to exist any Debt of any kind (or cause or permit to be issued
for its account any letters of credit or bankers' acceptances) other than
pursuant to this Agreement or the Company Note, or (iii) form any Subsidiary or
make any investments in any other Person; provided, however, that the Seller
shall be permitted to incur minimal obligations to the extent necessary for the
day-to-day operations of the Seller (such as expenses for stationery, audits,
maintenance of legal status, etc.).
(p) Use of Seller's Share of Collections. The Seller shall apply the
Seller's Share of Collections to make payments in the following order of
priority: (i) the payment of its expenses (including all obligations payable to
the Issuer and the Administrator under the Agreement and under the Fee Letter),
(ii) the payment of accrued and unpaid interest on the Company Note and (iii)
other legal and valid corporate purposes.
(q) Tangible Net Worth. The Seller will not permit its tangible net worth,
at any time, to be less than $5,000,000.
2. Covenants of the Servicer and First Brands. Until the latest of the
Facility Termination Date, the date on which no Capital of or Discount in
respect of the Purchased Interest shall be outstanding or the date all other
amounts owed by the Seller under the Agreement to the Issuer, the Administrator
and any other Indemnified Party or Affected Person shall be paid in full:
(a) Compliance with Laws, Etc. The Servicer and, to the extent that it
ceases to be the Servicer, First Brands shall comply (and shall cause each
Originator to comply) in all material respects with all applicable laws, rules,
regulations and orders, and preserve and maintain its corporate existence,
rights, franchises, qualifications and privileges, except to the extent that the
failure so to comply with such laws, rules and regulations or the failure so to
preserve and maintain such existence, rights, franchises, qualifications and
privileges would not have a Material Adverse Effect.
(b) Offices, Records and Books of Account, Etc. The Servicer and, to the
extent that it ceases to be the Servicer, First
Receivables Purchase Agreement - IV-6
<PAGE>
<PAGE>
Brands shall keep (and shall cause each Originator to keep) its principal place
of business and chief executive office (as such terms or similar terms are used
in the applicable UCC) and the office where it keeps its records concerning the
Receivables at the address of the Servicer set forth under its name on the
signature page to the Agreement or, upon at least 30 days' prior written notice
of a proposed change to the Administrator, at any other locations in
jurisdictions where all actions reasonably requested by the Administrator to
protect and perfect the interest of the Issuer in the Receivables and related
items (including the Pool Assets) have been taken and completed. The Servicer
and, to the extent that it ceases to be the Servicer, First Brands also will
(and will cause each Originator to) maintain and implement administrative and
operating procedures (including an ability to recreate records evidencing
Receivables and related Contracts in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records,
computer tapes and disks and other information reasonably necessary or advisable
for the collection of all Receivables (including records adequate to permit the
daily identification of each Receivable and all Collections of and adjustments
to each existing Receivable).
(c) Performance and Compliance with Contracts and Credit and Collection
Policy. The Servicer and, to the extent that it ceases to be the Servicer, First
Brands shall (and shall cause each Originator to), at its expense, timely and
fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Contracts related to the
Receivables, and timely and fully comply in all material respects with the
Credit and Collection Policy with regard to each Receivable and the related
Contract.
(d) Extension or Amendment of Receivables. Except as provided in the
Agreement, the Servicer and, to the extent that it ceases to be the Servicer,
First Brands shall not extend (and shall not permit any Originator to extend)
the maturity or adjust the Outstanding Balance or otherwise modify the terms of
any Pool Receivable, or amend, modify or waive any term or condition of any
related Contract.
(e) Change in Business or Credit and Collection Policy. The Servicer and,
to the extent that it ceases to be the Servicer, First Brands shall not make
(and shall not permit any Originator to make) any material change in the
character of its business or in any Credit and Collection Policy, or any change
in any Credit and Collection Policy that would have a Material Adverse Effect.
The Servicer and, to the extent that it ceases to be the Servicer, First Brands
shall not make (and shall not permit any Originator to make) any other change in
any Credit and Collection Policy without giving prior written notice thereof to
the
Receivables Purchase Agreement - IV-7
<PAGE>
<PAGE>
Administrator.
(f) Audits. The Servicer and, to the extent that it ceases to be the
Servicer, First Brands shall (and shall cause each Originator to), from time to
time during regular business hours as reasonably requested in advance (unless a
Termination Event or Unmatured Termination Event exists) by the Administrator,
permit the Administrator, or its agents or representatives: (i) to examine and
make copies of and abstracts from all books, records and documents (including
computer tapes and disks) in its possession or under its control relating to
Receivables and the Related Security, including the related Contracts, and (ii)
to visit its offices and properties for the purpose of examining such materials
described in clause (i) above, and to discuss matters relating to Receivables
and the Related Security or its performance hereunder or under the Contracts
with any of its officers, employees, agents or contractors having knowledge of
such matters.
(g) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to
Obligors. The Servicer and, to the extent that it ceases to be the Servicer,
First Brands shall not (and shall not permit any Originator to) add or terminate
any bank as a Lock-Box Bank or any account as a Lock-Box Account from those
listed in Schedule II to the Agreement, or make any change in its instructions
to Obligors regarding payments to be made to the Servicer or any Lock-Box
Account (or related post office box), unless the Administrator shall have
consented thereto in writing and the Administrator shall have received copies of
all agreements and documents (including Lock-Box Agreements) that it may request
in connection therewith.
(h) Deposits to Lock-Box Accounts. The Servicer shall: (i) instruct all
Obligors to make payments of all Receivables to one or more Lock-Box Accounts or
to post office boxes to which only Lock-Box Banks have access (and shall
instruct the Lock-Box Banks to cause all items and amounts relating to such
Receivables received in such post office boxes to be removed and deposited into
a Lock-Box Account on a daily basis), and (ii) deposit, or cause to be
deposited, any Collections received by it into Lock-Box Accounts not later than
one Business Day after receipt thereof. Each Lock-Box Account shall at all times
be subject to a Lock-Box Agreement. The Servicer will not deposit or otherwise
credit, or cause or permit to be so deposited or credited, to any Lock-Box
Account cash or cash proceeds other than Collections.
(i) Marking of Records. At its expense, the Servicer shall mark its master
data processing records relating to Pool Receivables and related Contracts,
including with a legend evidencing that the undivided percentage ownership
interests with regard to the Purchased Interest related to such Receivables and
Receivables Purchase Agreement - IV-8
<PAGE>
<PAGE>
related Contracts have been sold in accordance with the Agreement.
(j) Reporting Requirements. First Brands shall provide to the Administrator
(in multiple copies, if requested by the Administrator) the following:
(i) as soon as available and in any event within 45 days after the end
of the first three quarters of each fiscal year of First Brands, balance
sheets of First Brands and its consolidated Subsidiaries as of the end of
such quarter and statements of income, retained earnings and cash flow of
First Brands and its consolidated Subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of such
quarter, certified by the chief financial officer of such Person;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of such Person, a copy of the annual report for
such year for such Person and its consolidated Subsidiaries, containing
financial statements for such year audited by independent certified public
accountants of nationally recognized standing;
(iii) as to the Servicer only, as soon as available and in any event
not later than the eighth Business Day after the last day of each calendar
month, an Information Package as of the last day of such month, or, within
six Business Days of a request by the Administrator, an Information Package
for such periods as is specified by the Administrator (including on a
semi-monthly, weekly or daily basis);
(iv) as soon as possible and in any event within five days after
becoming aware of the occurrence of each Termination Event or Unmatured
Termination Event, a statement of the chief financial officer of First
Brands setting forth details of such Termination Event or Unmatured
Termination Event and the action that such Person has taken and proposes to
take with respect thereto;
(v) promptly after the sending or filing thereof, copies of all
reports that First Brands sends to any of its security holders, and copies
of all reports and registration statements that First Brands or any
Subsidiary files with the Securities and Exchange Commission or any
national securities exchange; provided, that any filings with the
Securities and Exchange Commission that have been granted "confidential"
treatment shall be provided promptly after such filings have become
publicly available;
Receivables Purchase Agreement - IV-9
<PAGE>
<PAGE>
(vi) promptly after the filing or receiving thereof, copies of all
reports and notices that First Brands or any of its Affiliate files under
ERISA with the Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or that such Person or any of
its Affiliate receives from any of the foregoing or from any multiemployer
plan (within the meaning of Section 4001(a)(3) of ERISA) to which such
Person or any of its Affiliate is or was, within the preceding five years,
a contributing employer, in each case in respect of the assessment of
withdrawal liability or an event or condition that could, in the aggregate,
result in the imposition of liability on First Brands and/or any such
Affiliate;
(vii) at least thirty days before any change in First Brands' or any
Originator's name or any other change requiring the amendment of UCC
financing statements, a notice setting forth such changes and the effective
date thereof;
(viii) promptly after First Brands obtains knowledge thereof, notice
of any: (A) litigation, investigation or proceeding that may exist at any
time between First Brands or any of its Subsidiaries and any Governmental
Authority that, if not cured or if adversely determined, as the case may
be, would have a Material Adverse Effect, (B) litigation or proceeding
adversely affecting such Person or any of its Subsidiaries in which the
amount involved is $5,000,000 or more and not covered by insurance or in
which injunctive or similar relief is sought, or (C) litigation or
proceeding relating to any Transaction Document;
(ix) promptly after the occurrence thereof, notice of a material
adverse change in the business, operations, property or financial or other
condition of First Brands or any of its Subsidiaries;
(x) such other information respecting the Receivables or the condition
or operations, financial or otherwise, of First Brands or any of its
Affiliates as the Administrator may from time to time reasonably request.
3. Separate Existence. Each of the Seller and First Brands hereby
acknowledges that the Purchasers, the Issuer and the Administrator are entering
into the transactions contemplated by this Agreement and the other Transaction
Documents in reliance upon the Seller's identity as a legal entity separate from
First Brands and its Affiliates. Therefore, from and after the date hereof, each
of the Seller and First Brands shall take all steps specifically required by the
Agreement or reasonably required by the Administrator to continue the Seller's
identity as a separate
Receivables Purchase Agreement - IV-10
<PAGE>
<PAGE>
legal entity and to make it apparent to third Persons that the Seller is an
entity with assets and liabilities distinct from those of First Brands and any
other Person, and is not a division of First Brands, its Affiliates or any other
Person. Without limiting the generality of the foregoing and in addition to and
consistent with the other covenants set forth herein, each of the Seller and
First Brands shall take such actions as shall be required in order that:
(a) The Seller will be a limited purpose corporation whose primary
activities are restricted in its certificate of incorporation to: (i)
purchasing or otherwise acquiring from the Originators, owning, holding,
granting security interests or selling interests in Pool Assets, (ii)
entering into agreements for the selling and servicing of the Receivables
Pool, and (iii) conducting such other activities as it deems necessary or
appropriate to carry out its primary activities;
(b) The Seller shall not engage in any business or activity, or incur
any indebtedness or liability, other than as expressly permitted by the
Transaction Documents;
(c) Not less than one member of the Seller's Board of Directors (the
"Independent Director") shall be an individual who is not a direct,
indirect or beneficial stockholder, officer, director, employee, affiliate,
associate or supplier of First Brands or any of its Affiliates. The
certificate of incorporation of the Seller shall provide that: (i) the
Seller's Board of Directors shall not approve, or take any other action to
cause the filing of, a voluntary bankruptcy petition with respect to the
Seller unless the Independent Director shall approve the taking of such
action in writing before the taking of such action, and (ii) such provision
cannot be amended without the prior written consent of the Independent
Director;
(d) The Independent Director shall not at any time serve as a trustee
in bankruptcy for the Seller, First Brands or any Affiliate thereof;
(e) Any employee, consultant or agent of the Seller will be
compensated from the Seller's funds for services provided to the Seller.
The Seller will not engage any agents other than its attorneys, auditors
and other professionals, and a servicer and any other agent contemplated by
the Transaction Documents for the Receivables Pool, which servicer will be
fully compensated for its services by payment of the Servicing Fee, and a
manager, which manager will be fully compensated from the Seller's funds;
Receivables Purchase Agreement - IV-11
<PAGE>
<PAGE>
(f) The Seller will contract with the Servicer to perform for the
Seller all operations required on a daily basis to service the Receivables
Pool. The Seller will pay the Servicer the Servicing Fee pursuant hereto.
The Seller will not incur any material indirect or overhead expenses for
items shared with First Brands (or any other Affiliate thereof) that are
not reflected in the Servicing Fee. To the extent, if any, that the Seller
(or any Affiliate thereof) shares items of expenses not reflected in the
Servicing Fee or the manager's fee, such as legal, auditing and other
professional services, such expenses will be allocated to the extent
practical on the basis of actual use or the value of services rendered, and
otherwise on a basis reasonably related to the actual use or the value of
services rendered; it being understood that First Brands shall pay all
expenses relating to the preparation, negotiation, execution and delivery
of the Transaction Documents, including legal, agency and other fees;
(g) The Seller's operating expenses will not be paid by First Brands
or any other Affiliate thereof;
(h) The Seller will have its own separate stationery;
(i) The Seller's books and records will be maintained separately from
those of First Brands and any other Affiliate thereof;
(j) All financial statements of First Brands or any Affiliate thereof
that are consolidated to include Seller will contain detailed notes clearly
stating that: (i) a special purpose corporation exists as a Subsidiary of
First Brands, and (ii) the Originators have sold receivables and other
related assets to such special purpose Subsidiary that, in turn, has sold
undivided interests therein to certain financial institutions and other
entities;
(k) The Seller's assets will be maintained in a manner that
facilitates their identification and segregation from those of First Brands
or any Affiliate thereof;
(l) The Seller will strictly observe corporate formalities in its
dealings with First Brands or any Affiliate thereof, and funds or other
assets of the Seller will not be commingled with those of First Brands or
any Affiliate thereof except as permitted by the Agreement in connection
with servicing the Pool Receivables. The Seller shall not maintain joint
bank accounts or other depository accounts to which First Brands or any
Affiliate thereof (other than First Brands in its capacity as the Servicer)
has independent access. The Seller is not named, and has not
Receivables Purchase Agreement - IV-12
<PAGE>
<PAGE>
entered into any agreement to be named, directly or indirectly, as a direct
or contingent beneficiary or loss payee on any insurance policy with
respect to any loss relating to the property of First Brands or any
Subsidiary or other Affiliate of First Brands. The Seller will pay to the
appropriate Affiliate the marginal increase or, in the absence of such
increase, the market amount of its portion of the premium payable with
respect to any insurance policy that covers the Seller and such Affiliate;
and
(m) The Seller will maintain arm's-length relationships with First
Brands (and any Affiliate thereof). Any Person that renders or otherwise
furnishes services to the Seller will be compensated by the Seller at
market rates for such services it renders or otherwise furnishes to the
Seller. Neither the Seller nor First Brands will be or will hold itself out
to be responsible for the debts of the other or the decisions or actions
respecting the daily business and affairs of the other. The Seller and
First Brands will immediately correct any known misrepresentation with
respect to the foregoing, and they will not operate or purport to operate
as an integrated single economic unit with respect to each other or in
their dealing with any other entity.
Receivables Purchase Agreement - IV-13
<PAGE>
<PAGE>
EXHIBIT V
TERMINATION EVENTS
Each of the following shall be a "Termination Event":
(a)(i) the Seller, First Brands, any Originator or the Servicer (if First
Brands or any of its Affiliates) shall fail to perform or observe any term,
covenant or agreement under the Agreement or any other Transaction Document and,
except as otherwise provided herein, such failure shall continue for 30 days
after knowledge or notice thereof, (ii) the Seller or the Servicer shall fail to
make when due any payment or deposit to be made by it under the Agreement and
such failure shall continue unremedied for two Business Days or (iii) First
Brands shall resign as Servicer, and no successor Servicer reasonably
satisfactory to the Administrator shall have been appointed;
(b) First Brands (or any Affiliate thereof) shall fail to transfer to any
successor Servicer when required any rights pursuant to the Agreement that First
Brands (or such Affiliate) then has as Servicer;
(c) any representation or warranty made or deemed made by the Seller, First
Brands or any Originator (or any of their respective officers) under or in
connection with the Agreement or any other Transaction Document, or any
information or report delivered by the Seller, First Brands or any Originator or
the Servicer pursuant to the Agreement or any other Transaction Document, shall
prove to have been incorrect or untrue in any material respect when made or
deemed made or delivered;
(d) the Seller or the Servicer shall fail to deliver the Information
Package pursuant to the Agreement, and such failure shall remain unremedied for
five days;
(e) the Agreement or any purchase or reinvestment pursuant to the Agreement
shall for any reason: (i) cease to create, or the Purchased Interest shall for
any reason cease to be, a valid and enforceable perfected undivided percentage
ownership or security interest to the extent of the Purchased Interest in each
Pool Receivable, the Related Security and Collections with respect thereto, free
and clear of any Adverse Claim, or (ii) cease to create with respect to the Pool
Assets, or the interest of the Issuer with respect to such Pool Assets shall
cease to be, a valid and enforceable first priority perfected security interest,
free and clear of any Adverse Claim,
(f) the Seller, First Brands or any Originator shall generally not pay its
debts as such debts become due, or shall
Receivables Purchase Agreement - V-1
<PAGE>
<PAGE>
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Seller, First Brands or any Originator seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property) shall
occur; or the Seller, First Brands or any Originator shall take any corporate
action to authorize any of the actions set forth above in this paragraph;
(g)(i) the (A) Default Ratio shall exceed 1.75% (B) the Delinquency Ratio
shall exceed 2.31% or (ii) the average for three consecutive calendar months of:
(A) the Default Ratio shall exceed 0.90%, (B) the Delinquency Ratio shall exceed
1.51%, or (C) the Dilution Ratio shall exceed 15.10%.
(h) a Change in Control shall occur (other than a Change in Control with
respect to Himolene or A&M as to which the Seller shall have complied with
Section 1(e) of Exhibit IV to the Agreement).
(i) the Purchased Interest shall exceed 100% and such circumstance shall
not have been cured within five Business Days,
(j) First Brands or any of its Subsidiaries shall fail to pay any principal
of or premium or interest on any of its Debt that is outstanding in a principal
amount of at least $5,000,000 in the aggregate when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement, mortgage, indenture or instrument
relating to such Debt (and shall have not been waived); or any other event shall
occur or condition shall exist under any agreement, mortgage, indenture or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement, mortgage, indenture or
instrument (and shall have not been waived), if, in either case: (a) the effect
of such non-payment, event or condition is to give the applicable debtholders
the right (whether acted upon or not) to accelerate the maturity of
Receivables Purchase Agreement - V-2
<PAGE>
<PAGE>
such Debt, or (b) any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Debt shall be required to be made, in each case before
the stated maturity thereof;
(k) either: (i) a contribution failure shall occur with respect to any
Benefit Plan sufficient to give rise to a lien under Section 302(f) of ERISA,
(ii) the Internal Revenue Service shall, or shall indicate its intention in
writing to the Seller, any Originator, First Brands or any ERISA Affiliate to,
file a notice of lien asserting a claim or claims of $100,000 or more in the
aggregate pursuant to the Internal Revenue Code with regard to any of the assets
of Seller, any Originator, First Brands or any ERISA Affiliate and such lien
shall have been filed and not released within 10 days, or (iii) the Pension
Benefit Guaranty Corporation shall, or shall indicate its intention in writing
to the Seller, any Originator, First Brands or any ERISA Affiliate to, either
file a notice of lien asserting a claim pursuant to ERISA with regard to any
assets of the Seller, any Originator, First Brands or any ERISA Affiliate or
terminate any Benefit Plan that has unfunded benefit liabilities, or any steps
shall have been taken to terminate any Benefit Plan subject to Title IV of ERISA
so as to result in any liability in excess of $100,000 and such lien shall have
been filed and not released within 10 days.
Receivables Purchase Agreement - V-3
<PAGE>
<PAGE>
SCHEDULE I
CREDIT AND COLLECTION POLICY
Receivables Purchase Agreement - Schedule I-1
<PAGE>
<PAGE>
SCHEDULE II
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
LOCK-BOX BANK LOCK-BOX ACCOUNTS LOCK-BOX
- ------------- ----------------- --------
NUMBER
- ------
Receivables Purchase Agreement - Schedule II-1
<PAGE>
<PAGE>
SCHEDULE III
TRADE NAMES
None
Receivables Purchase Agreement - Schedule III-1
<PAGE>
<PAGE>
ANNEX A
TO RECEIVABLES PURCHASE AGREEMENT
FORM OF INFORMATION PACKAGE
Receivables Purchase Agreement - Annex B-1
<PAGE>
<PAGE>
EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
Dated as of June 5, 1998
among
THE ORIGINATORS NAMED HEREIN,
FIRST BRANDS FUNDING INC.
and
FIRST BRANDS CORPORATION
individually and as the initial Servicer
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I AGREEMENT TO PURCHASE AND SELL;........................................................2
1.1 Agreement To Purchase and Sell.........................................................2
1.2 Timing of Purchases....................................................................3
1.3 Consideration for Purchases............................................................3
1.4 Purchase and Sale Termination Date.....................................................3
1.5 Intention of the Parties...............................................................3
ARTICLE II CALCULATION OF PURCHASE PRICE..........................................................4
2.1 Calculation of Purchase Price..........................................................4
ARTICLE III PAYMENT OF PURCHASE PRICE..............................................................5
3.1 Initial Purchase Price Payment.........................................................5
3.2 Subsequent Purchase Price Payments.....................................................5
3.3 Settlement as to Specific Receivables and
Dilution...............................................................................6
3.4 Reconveyance of Receivables............................................................7
ARTICLE IV CONDITIONS OF PURCHASES................................................................7
4.1 Conditions Precedent to Initial Purchase...............................................7
4.2 Certification as to Representations and
Warranties.............................................................................9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
ORIGINATORS............................................................................9
5.1 Organization and Good Standing.........................................................9
5.2 Due Qualification......................................................................9
5.3 Power and Authority; Due Authorization.................................................9
5.4 Valid Sale; Binding Obligations.......................................................10
5.5 No Violation..........................................................................10
5.6 Proceedings...........................................................................10
5.7 Bulk Sales Acts.......................................................................10
5.8 Government Approvals..................................................................11
5.9 Financial Condition...................................................................11
5.10 Licenses, Contingent Liabilities, and Labor
Controversies.........................................................................11
5.11 Margin Regulations....................................................................11
5.12 Quality of Title......................................................................11
5.13 Accuracy of Information...............................................................12
5.14 Offices...............................................................................12
5.15 Trade Names...........................................................................12
5.16 Taxes.................................................................................12
5.17 Compliance with Applicable Laws.......................................................13
5.18 Reliance on Separate Legal Identity...................................................13
</TABLE>
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<S> <C> <C>
ARTICLE VI COVENANTS OF FIRST BRANDS AND THE
ORIGINATORS ..........................................................................13
6.1 Affirmative Covenants.................................................................13
6.2 Reporting Requirements................................................................15
6.3 Negative Covenants....................................................................15
6.4 Lock-box Banks. .....................................................................16
6.5 Accounting for Purchases. ...........................................................16
6.6 Transaction Documents. ..............................................................17
ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES............................................................17
7.1 Rights of the Company.................................................................17
7.2 Responsibilities of Each Originator...................................................17
7.3 Further Action Evidencing Purchases...................................................18
7.4 Application of Collections............................................................18
ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS..................................................19
8.1 Purchase and Sale Termination Events..................................................19
8.2 Remedies 19
ARTICLE IX INDEMNIFICATION.......................................................................20
9.1 Indemnities by First Brands and the
Originators...........................................................................20
ARTICLE X MISCELLANEOUS.........................................................................22
10.1 Amendments, etc.......................................................................22
10.2 Notices, etc..........................................................................22
10.3 No Waiver; Cumulative Remedies........................................................23
10.4 Binding Effect; Assignability.........................................................23
10.5 Governing Law.........................................................................23
10.6 Costs, Expenses and Taxes.............................................................23
10.7 Submission to Jurisdiction............................................................24
10.8 Waiver of Jury Trial..................................................................24
10.9 Captions and Cross References; Incorporation by
Reference.............................................................................24
10.10 Execution in Counterparts.............................................................24
10.11 Acknowledgment and Agreement..........................................................25
</TABLE>
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EXHIBIT A - Form of Purchase Report
EXHIBIT B - Form of Company Note
EXHIBIT C - Form of Originator Assignment Certificate
EXHIBIT D - Proceedings
EXHIBIT E - Office Locations
EXHIBIT F - Trade Names
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of June 5,
1998, is among FIRST BRANDS CORPORATION, a Delaware corporation ("First
Brands"), individually and as the initial Servicer, HIMOLENE INCORPORATED
("Himolene"), a Delaware corporation, A&M PRODUCTS INC. ("A&M"), a Texas
corporation (First Brands, Himolene and A&M are herein collectively called the
"Originators" and individually called an "Originator"), and FIRST BRANDS FUNDING
INC., a Delaware corporation (the "Company").
Definitions
Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I to the Receivables Purchase
Agreement of even date herewith (as the same may be amended, supplemented or
otherwise modified from time to time, the "Receivables Purchase Agreement")
among First Brands, the Company, Market Street Funding Corp., as Issuer ("the
Issuer") and PNC Bank, National Association. All references herein to months are
to calendar months unless otherwise expressly indicated.
Background
1. The Company is a special purpose corporation, all of the issued and
outstanding shares of which are owned by First Brands.
2. The Originators generate Receivables in the ordinary course of their
respective businesses.
3. The Originators, in order to finance their respective businesses, wish to
sell Receivables to the Company, and the Company is willing, on the terms and
subject to the conditions set forth herein, to purchase Receivables from the
Originators.
4. Each Originator and the Company intends this transaction to be a true
sale of Receivables by each Originator to the Company providing the Company with
the full benefits of ownership of the Receivables and each Originator and the
Company do not intend the transactions hereunder to be, or for any purpose to
be, characterized as a loan from the Company to any Originator.
5. The Company intends to sell the Purchased Interest in the Receivables
pursuant to the Receivables Purchase Agreement.
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NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE AND SELL
1.1 Agreement To Purchase and Sell. On the terms and subject to the
conditions set forth in this Agreement (including Article V), each Originator,
severally and for itself alone, agrees to sell to the Company, and the Company
agrees to purchase from such Originator, from time to time on or after the
Initial Closing Date, but before the Purchase and Sale Termination Date, all of
such Originator's right, title and interest in and to:
(a) each Receivable of such Originator that existed and was owing to
such Originator as at the closing of such Originator's business on June 5,
1998 of (the "Cut-off Date");
(b) each Receivable created by such Originator from and including the
Cut-off Date to and including the Purchase and Sale Termination Date;
(c) all rights to, but not the obligations under, all Related Security;
(d) all monies due or to become due with respect to any of the
foregoing;
(e) all books and records related to any of the foregoing; and
(f) all collections and other proceeds of any of the foregoing (as
defined in the applicable UCC) that are or were received by such Originator
on or after Cut-off Date, including, without limitation, all funds which
either are received by such Originator, the Company or Servicer from or on
behalf of the Obligors in payment of any amounts owed (including, without
limitation, invoice price, finance charges, interest and all other charges)
in respect of Receivables, or are applied to such amounts owed by the
Obligors (including, without limitation, insurance payments that an
Originator or Servicer applies in the ordinary course of its business to
amounts owed in respect of any Receivable and net proceeds of sale or other
disposition of repossessed goods or other collateral or property of the
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Obligors or any other parties directly or indirectly liable for
payment of such Receivables).
All purchases hereunder shall be made without recourse, but shall be made
pursuant to, and in reliance upon, the representations, warranties and covenants
of each Originator set forth in this Agreement and each other Transaction
Document. No obligation or liability to any Obligor on any Receivable is
intended to be assumed by the Company hereunder, and any such assumption is
expressly disclaimed. The Company's foregoing commitment to purchase Receivables
and the proceeds and rights described in clauses (c) through (f) (collectively,
the "Related Rights") is herein called the "Purchase Facility."
1.2 Timing of Purchases.
(a) Initial Closing Date Purchases. Each Originator's entire right,
title and interest in (i) each Receivable that existed and was owing to
such Originator as at the Cut-off Date, (ii) all Receivables created by
such Originator from and including the Cut-off Date, to and including the
Closing Date, and (iii) all Related Rights automatically shall be deemed to
have been sold to the Company on the Closing Date.
(b) Regular Purchases. After the Closing Date, until the Purchase and
Sale Termination Date, each Receivable (and the Related Rights) created by
each Originator shall be deemed to have been sold to the Company
immediately (and without further action) upon the creation of such
Receivable.
1.3 Consideration for Purchases. On the terms and subject to the conditions
set forth in this Agreement, the Company agrees to make Purchase Price payments
to the respective Originators in accordance with Article III.
1.4 Purchase and Sale Termination Date. The "Purchase and Sale Termination
Date" shall be the earliest to occur of (a) the date of the termination of this
Agreement pursuant to Section 8.2 and (b) the Payment Date immediately following
the day on which the Originators shall have given notice to the Company at or
prior to 10:00 a.m. (New York City time) that the Originators desire to
terminate this Agreement.
1.5 Intention of the Parties. It is the express intent of the parties hereto
that the transfers of the Receivables and Related Rights by each Originator to
the Company, as contemplated by this Agreement be, and be treated as sales, and
not as secured loans secured by the Receivables and Related Rights. If, however,
notwithstanding the intent of the parties, such
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transactions are deemed to be loans, such Originator hereby grants to the
Company a first priority security interest in all of such Originator's right,
title and interest in and to the Receivables and the Related Rights now existing
and hereafter created, all monies due or to become due and all amounts received
with respect thereto, and all proceeds thereof, to secure all of such
Originator's obligations hereunder.
ARTICLE II
CALCULATION OF PURCHASE PRICE
2.1 Calculation of Purchase Price. On each Monthly Settlement Date, the
Servicer shall deliver to the Company, the Administrator and each Originator a
report in substantially the form of Exhibit A (each such report being herein
called a "Purchase Report") with respect to the matters set forth therein and
the Company's purchases of Receivables from each Originator
(a) that are to be made on the Closing Date (in the case of the Purchase
Report to be delivered on the Closing Date), or
(b) that were made during the period commencing on the Monthly
Settlement Date immediately preceding such Monthly Settlement Date to (but
not including) such Monthly Settlement Date (in the case of each subsequent
Purchase Report).
The "Purchase Price" (to be paid to each Originator in accordance with the terms
of Article III) for the Receivables and the Related Rights that are purchased
hereunder from such Originator shall be determined in accordance with the
following formula:
PP = OB X FMVD
where:
PP = Purchase Price for each Receivable as calculated on the
relevant Payment Date.
OB = the Outstanding Balance of such Receivable.
FMVD = Fair Market Value Discount, as measured on such Payment
Date, which is equal to the quotient (expressed as
percentage) of (a) one divided by (b) the sum of (i) one,
plus (ii) the product of (A) the Prime Rate on such
Payment Date plus .25% and (B) a fraction, the numerator
of which is the Days' Sales Outstanding (calculated as
of the last day of the calendar month next preceding
such
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Payment Date) and the denominator of which is 365.
"Payment Date" means (i) the Closing Date and (ii) each Business Day
thereafter that Originator is open for business.
"Prime Rate" means a per annum rate equal to the "Prime Rate" as
published in the "Money Rates" section of The Wall Street Journal or such
other publication as determined by the Administrator in its sole discretion.
ARTICLE III
PAYMENT OF PURCHASE PRICE
3.1 Initial Purchase Price Payment. On the terms and subject to the
conditions set forth in this Agreement, the Company agrees to pay to each
Originator the Purchase Price for the purchase to be made from such Originator
on the Closing Date partially in cash (in an amount to be agreed between the
Company and such Originator and set forth in the initial Purchase Report) and
partially by issuing a promissory note in the form of Exhibit B to such
Originator with an initial principal balance equal to the remaining Purchase
Price (each such promissory note, as it may be amended, supplemented, indorsed
or otherwise modified from time to time, together with all promissory notes
issued from time to time in substitution therefor or renewal thereof in
accordance with the Transaction Documents, being herein called a "Company
Note").
3.2 Subsequent Purchase Price Payments. On each Payment Date falling after
the Closing Date, on the terms and subject to the conditions set forth in this
Agreement, the Company shall pay to each Originator the Purchase Price for the
Receivables generated by such Originator during the immediately preceding month
as follows:
(a) First, the Purchase Price shall be paid in cash to the extent the
Company has cash available therefor; and
(b) Second, to the extent any portion of the Purchase Price remains
unpaid, the principal amount outstanding under the Company Note issued to
such Originator shall be increased by an amount equal to such remaining
Purchase Price.
Servicer shall make all appropriate record keeping entries with respect to
Company Notes or otherwise to reflect the foregoing payments and Servicer's
books and records shall constitute rebuttable presumptive evidence of the
principal
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amount of and accrued interest on any Company Note at any time. Furthermore,
Servicer shall hold the Company Notes for the benefit of the Originators. Each
Originator hereby irrevocably authorizes Servicer to mark the Company Notes
"CANCELLED" and to return such Company Notes to the Company upon the final
payment thereof after the occurrence of the Purchase and Sale Termination Date.
3.3 Settlement as to Specific Receivables and Dilution
(a) If on the day of purchase of any Receivable from Originator
hereunder, any of the representations or warranties set forth in Section
5.12 of such Originator is not true with respect to such Receivable or as a
result of any action or inaction of such Originator, on any day any of such
representations or warranties set forth in Section 5.12 is no longer true
with respect to such a Receivable, then the Purchase Price with respect to
such Receivables shall be reduced by an amount equal to the Outstanding
Balance of such Receivable and shall be accounted to Originator as provided
in subsection (c) below; provided, that if the Company thereafter receives
payment on account of Collections due with respect to such Receivable, the
Company promptly shall deliver such funds to Originator.
(b) If, on any day, the Outstanding Balance of any Receivable purchased
hereunder is reduced or adjusted as a result of any defective, rejected,
returned goods or services, or any discount or other adjustment made by
Originator, the Company or Servicer or any setoff or dispute between such
Originator or the Servicer and an Obligor as indicated on the books of the
Company (or, for periods prior to the Closing Date, the books of such
Originator), then the Purchase Price, with respect to such Receivable shall
be reduced by the amount of such net reduction and shall be accounted to
such Originator as provided in subsection (c) below.
(c) Any reduction in the Purchase Price of any Receivable pursuant to
subsection (a) or (b) above shall be applied as a credit for the account of
the Company against the Purchase Price of Receivables subsequently
purchased by the Company from such Originator hereunder; provided, however
if there have been no purchases of Receivables from such Originator (or
insufficiently large purchases of Receivables) to create a Purchase Price
sufficient to so apply such credit against, the amount of such credit
(i) shall be paid in cash to the Company by such Originator
in the manner and for application as described in the following
proviso, or
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(ii) shall be deemed to be a payment under, and shall
be deducted from the principal amount outstanding under, the
Company Note payable to such Originator;
provided, further, that at any time (y) when a Termination Event or Unmatured
Termination Event exists under the Receivables Purchase Agreement or (z) on or
after the Purchase and Sale Termination Date, the amount of any such credit
shall be paid by such Originator to the Company by deposit in immediately
available funds into the relevant Lock-Box Account for application by Servicer
to the same extent as if Collections of the applicable Receivable in such amount
had actually been received on such date.
(d) Each Purchase Report (other than the Purchase Report delivered on
the Closing Date) shall include, in respect of the Receivables previously
generated by each Originator, a calculation of the aggregate reductions
described in subsection (a) or (b) relating to such Receivables since the
last Purchase Report delivered hereunder, as indicated on the books of the
Company (or, for such period prior to the Closing Date, the books of
Originator).
3.4 Reconveyance of Receivables. In the event that Originator has paid to
the Company the full Outstanding Balance of any Receivable pursuant to Section
3.3, the Company shall reconvey such Receivable to such Originator, without
representation or warranty, but free and clear of all liens created by the
Company.
ARTICLE IV
CONDITIONS OF PURCHASES
4.1 Conditions Precedent to Initial Purchase. The initial purchase hereunder
is subject to the condition precedent that Servicer (on the Company's behalf)
shall have received, on or before the Closing Date, the following, each (unless
otherwise indicated) dated the Closing Date, and each in form and substance
satisfactory to Servicer (acting on the Company's behalf):
(a) An Originator Assignment Certificate in the form of Exhibit C from
each Originator, duly completed, executed and delivered by such Originator;
(b) A copy of the resolutions of the Board of Directors of each
Originator approving the Transaction
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Documents to be delivered by it and the transactions contemplated hereby
and thereby, certified by the respective Secretary or Assistant Secretary
of each Originator;
(c) Good standing certificates for each Originator issued as of a recent
date acceptable to Servicer by the Secretary of State of the jurisdiction
of such Originator's incorporation and the jurisdiction where such
Originator's chief executive office is located;
(d) A certificate of the Secretary or Assistant Secretary of each
Originator certifying the names and true signatures of the officers
authorized on such Person's behalf to sign the Transaction Documents to be
delivered by it (on which certificate Servicer and the Company may
conclusively rely until such time as Servicer shall receive from such
Person a revised certificate meeting the requirements of this
subsection (d));
(e) The certificate or articles of incorporation or other organizational
document of each Originator, duly certified by the Secretary of State of
the jurisdiction of such Originator's incorporation as of a recent date
acceptable to Servicer, together with a copy of the by-laws of such
Originator, each duly certified by the Secretary or an Assistant Secretary
of such Originator;
(f) Originals of the proper financing statements (Form UCC-1) that have
been duly executed and name each Originator as the assignor and the Company
as the assignee (and the Issuer), as assignee of the Company) of the
Receivables generated by such Originator as may be necessary or, in
Servicer's or the Administrator's opinion, desirable under the UCC of all
appropriate jurisdictions to perfect the Company's ownership interest in
all Receivables and such other rights, accounts, instruments and moneys
(including, without limitation, Related Security) in which an ownership or
security interest may be assigned to it hereunder;
(g) A written search report from a Person satisfactory to Servicer
listing all effective financing statements that name any Originator as
debtor or assignor and that are filed in the jurisdictions in which filings
were made pursuant to the foregoing subsection (f), together with copies of
such financing statements (none of which, except for those described in the
foregoing subsection (f), shall cover any Receivable or any Related Rights)
which is to be sold to the Company hereunder, and tax and judgment lien
search reports from a Person satisfactory to Servicer showing no evidence
of such liens filed against any Originator;
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(h) A favorable opinion of Cummings & Lockwood, counsel to the
Originators, in form and substance satisfactory to Servicer and the
Administrator;
(i) A Company Note in favor of each Originator, duly executed by the
Company; and
(j) A certificate from an officer of each Originator to the effect that
Servicer and each Originator have placed on the most recent, and have taken
all steps reasonably necessary to ensure that there shall be placed on each
subsequent, data processing report that it generates which are of the type
that a proposed purchaser or lender would use to evaluate the Receivables,
the following legend (or the substantive equivalent thereof): "THE
RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO FIRST BRANDS FUNDING INC.,
PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF JUNE 5,1998, AMONG
FIRST BRANDS CORPORATION, THE ORIGINATORS NAMED THEREIN AND FIRST BRANDS
FUNDING INC.; AND UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN THE
RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO MARKET STREET FUNDING
CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF JUNE
5,1998, AMONG FIRST BRANDS FUNDING INC., FIRST BRANDS CORPORATION, MARKET
STREET FUNDING CORPORATION AND PNC BANK, NATIONAL ASSOCIATION, AS
ADMINISTRATOR."
4.2 Certification as to Representations and Warranties. Each Originator, by
accepting the Purchase Price related to each purchase of Receivables generated
by such Originator, shall be deemed to have certified that the representations
and warranties contained in Article V are true and correct on and as of such
day, with the same effect as though made on and as of such day.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS
In order to induce the Company to enter into this Agreement and to make
purchases hereunder, each Originator hereby makes with respect to itself, and
First Brands, jointly and severally, with each Originator makes with respect to
such Originator, the representations and warranties set forth in this Article V.
5.1 Organization and Good Standing. Such Originator has been duly organized
and is validly existing as a corporation in good standing under the laws of the
state of its incorporation, with power and authority to own its properties and
to conduct its business as such properties are presently owned and such business
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is presently conducted.
5.2 Due Qualification. Such Originator is duly licensed or qualified to do
business as a foreign corporation in good standing in the jurisdiction where its
chief executive office is located and in all other jurisdictions in which (a)
the ownership or lease of its property or the conduct of its business requires
such licensing or qualification and (b) the failure to be so licensed or
qualified would be reasonably likely to have a Material Adverse Effect.
5.3 Power and Authority; Due Authorization. Such Originator has (a) all
necessary power, authority and legal right (i) to execute and deliver, and
perform its obligations under, each Transaction Document to which it is a party
and (ii) to generate, own, sell and assign Receivables on the terms and subject
to the conditions herein and therein provided; and (b) duly authorized such
execution and delivery and such sale and assignment and the performance of such
obligations by all necessary corporate action.
5.4 Valid Sale; Binding Obligations. Each sale made by such Originator
pursuant to this Agreement shall constitute a valid sale, transfer, and
assignment of Receivables to the Company, enforceable against creditors of, and
purchasers from, such Originator; and this Agreement constitutes, and each other
Transaction Document to be signed by such Originator, when duly executed and
delivered, will constitute, a legal, valid, and binding obligation of such
Originator, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
5.5 No Violation. The consummation of the transactions contemplated by this
Agreement and the other Transaction Documents and the fulfillment of the terms
hereof or thereof, will not (a) conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time) a default under (i) such Originator's articles or certificate of
incorporation or by-laws, or (ii) any indenture, loan agreement, mortgage, deed
of trust, or other agreement or instrument to which it is a party or by which it
is bound, (b) result in the creation or imposition of any Adverse Claim upon any
of its properties pursuant to the terms of any such indenture, loan agreement,
mortgage, deed of trust, or other agreement or instrument, other than the
Transaction Documents, or (c) violate any law or any order, rule, or regulation
applicable to it of any court or of any state or foreign regulatory body,
administrative agency, or other governmental instrumentality
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having jurisdiction over it or any of its properties.
5.6 Proceedings. Except as set forth in Exhibit D, there is no action, suit,
proceeding or investigation pending before any court, regulatory body,
arbitrator, administrative agency, or other tribunal or governmental
instrumentality (a) asserting the invalidity of any Transaction Document, (b)
seeking to prevent the issuance of such Originator's Originator Assignment
Certificate or the consummation of any of the transactions contemplated by any
Transaction Document, or (c) seeking any determination or ruling that is
reasonably likely to have a Material Adverse Effect.
5.7 Bulk Sales Acts. No transaction contemplated hereby requires compliance
with, or will be subject to avoidance under, any bulk sales act or similar law.
5.8 Government Approvals. Except for the filing of the UCC financing
statements referred to in Article IV, all of which, at the time required in
Article IV, shall have been duly made and shall be in full force and effect, no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for such Originator's
due execution, delivery and performance of any Transaction Document to which it
is a party.
5.9 Financial Condition.
(a) Material Adverse Change. Since December 31, 1997, no event has
occurred that has had, or is reasonably likely to have, a Material Adverse
Effect.
(b) Solvent. On the date hereof, and on the date of each purchase
hereunder (both before and after giving effect to such purchase), such
Originator shall be Solvent.
5.10 Licenses, Contingent Liabilities, and Labor Controversies.
(a) Such Originator has not failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the ownership
of its properties or to the conduct of its business, which violation or
failure to obtain would be reasonably likely to have a Material Adverse
Effect.
(b) There are no labor controversies pending against such Originator
that have had (or are reasonably likely to have) a Material Adverse Effect.
5.11 Margin Regulations. No use of any funds acquired by
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such Originator under this Agreement will conflict with or contravene any
of Regulations G, T, U and X promulgated by the F.R.S. Board from time to time.
5.12 Quality of Title.
(a) Each Receivable of such Originator (together with the Related Rights
with respect to such Receivable) which is to be sold to the Company
hereunder is or shall be owned by such Originator, free and clear of any
Adverse Claim, except as provided herein and in the Receivables Purchase
Agreement. Whenever the Company makes a purchase hereunder, it shall have
acquired and shall continue to have maintained a valid and perfected
ownership interest (free and clear of any Adverse Claim) in all Receivables
generated by such Originator and all Collections related thereto, and in
such Originator's entire right, title and interest in and to the Related
Rights with respect thereto.
(b) No effective financing statement or other instrument similar in
effect covering any Receivable generated by such Originator or any Related
Rights is on file in any recording office except such as may be filed in
favor of the Company or the Originators, as the case may be, in accordance
with this Agreement or in favor of the Issuer in accordance with the
Receivables Purchase Agreement.
(c) Unless otherwise identified to the Company on the date of the
purchase hereunder, each Receivable purchased thereunder is on the date of
purchase an Eligible Receivable.
5.13 Accuracy of Information. All factual written information heretofore or
contemporaneously furnished (and prepared) by such Originator to the Company or
the Administrator for purposes of or in connection with any Transaction Document
or any transaction contemplated hereby or thereby is, and all other such factual
written information hereafter furnished (and prepared) by such Originator to the
Company or the Administrator pursuant to or in connection with any Transaction
Document will be, true and accurate in every material respect on the date as of
which such information is dated or certified.
5.14 Offices. Such Originator's principal place of business and chief
executive office is located at the address set forth under such Originator's
signature hereto, and the offices where such Originator keeps all its books,
records and documents evidencing its Receivables, the related Contracts and all
other agreements related to such Receivables are located at the addresses
specified in Exhibit E (or at such other locations, notified to Servicer and the
Administrator in accordance with
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Section 6.1(f), in jurisdictions where all action required by Section 7.3 has
been taken and completed).
5.15 Trade Names. Such Originator does not use any trade name other than its
actual corporate name and the trade names set forth in Exhibit F. From and after
the date that fell five (5) years before the date hereof, except as set forth in
Exhibit F, such Originator has not been known by any legal name other than its
corporate name as of the date hereof, nor has such Originator been the subject
of any merger or other corporate reorganization.
5.16 Taxes. Such Originator has filed all tax returns and reports required
by law to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
5.17 Compliance with Applicable Laws. Such Originator is in compliance with
the requirements of all applicable laws, rules, regulations, and orders of all
governmental authorities, a breach of any of which, individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect.
5.18 Reliance on Separate Legal Identity. Such Originator acknowledges that
the Issuer and the Administrator are entering into the Receivables Purchase
Agreement in reliance upon the Company's identity as a legal entity separate
from any Originator.
ARTICLE VI
COVENANTS OF FIRST BRANDS AND THE ORIGINATORS
6.1 Affirmative Covenants. From the date hereof until the first day
following the Purchase and Sale Termination Date, each Originator will, unless
the Administrator and the Company shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders with respect to the
Receivables generated by it and the Contracts and other agreements related
thereto except where the failure to so comply would not materially and
adversely affect the collectibility of such Receivables or the rights of
the Company hereunder.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and
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privileges in the jurisdiction of its incorporation, and qualify
and remain qualified in good standing as a foreign corporation
in each jurisdiction where the failure to preserve and maintain
such existence, rights, franchises, privileges and qualification
would be reasonably likely to have a Material Adverse Effect.
(c) Receivables Reviews. (i) At any time and from time to time during
regular business hours, and upon reasonable prior notice permit the Company
or the Administrator, or their respective agents, or representatives, (A)
to examine and make copies of and abstracts from all books, records and
documents (including, without limitation, computer tapes and disks) in
possession or under the control of such Originator relating to Receivables,
including, without limitation, the related Contracts and purchase orders
and other agreements related thereto, and (B) to visit the offices and
properties of such Originator for the purpose of examining such materials
described in clause (i)(A) next above, and to discuss matters relating to
Receivables originated by it or the performance hereunder with any of the
officers or employees of such Originator having knowledge of such matters,
and (ii) without limiting the foregoing clause (i) above, from time to time
on request of the Administrator, permit certified public accountants or
other auditors acceptable to the Company and Administrator to conduct, at
the Company's expense, a review of such Originator's books and records with
respect to such Receivables.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Receivables it generates in the
event of the destruction of the originals thereof), and keep and maintain
all documents, books, records and other information reasonably necessary or
advisable for the collection of such Receivables (including, without
limitation, records adequate to permit the daily identification of each new
Receivable and all Collections of and adjustments to each existing
Receivable).
(e) Performance and Compliance with Receivables and Contracts. Timely
and fully perform and comply with all provisions, covenants and other
promises required to be observed by it under the Contracts and all other
agreements related to the Receivables that it generates.
(f) Location of Records. Keep its principal place of business and chief
executive office, and the offices where it keeps its records concerning or
related to Receivables,
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at the address(es) referred to in Exhibit E or, upon 30 days' prior written
notice to the Company and the Administrator, at such other locations in
jurisdictions where all action required by Section 7.3 shall have been
taken and completed.
(g) Credit and Collection Policies. Comply in all material respects with
its Credit and Collection Policy in connection with the Receivables that it
generates and all Contracts and other agreements related thereto.
(h) Post Office Boxes. Within 30 days after the date hereof, deliver to
Servicer (on behalf of the Company) a certificate from an authorized
officer of such Originator to the effect that (i) the name of the renter of
all post office boxes into which Collections may from time to time be
mailed have been changed to the name of the Company (unless such post
office boxes are in the name of the relevant Lock-box Banks) and (ii) all
relevant postmasters have been notified that each of Servicer and the
Administrator are authorized to collect mail delivered to such post office
boxes (unless such post office boxes are in the name of the relevant
Lock-box Banks).
6.2 Reporting Requirements. From the date hereof until the first day
following the Purchase and Sale Termination Date, each Originator will, unless
Servicer (on behalf of the Company) shall otherwise consent in writing, furnish
to the Company and the Administrator:
(a) Purchase and Sale Termination Events. As soon as possible after
knowledge of the occurrence of, and in any event within three Business Days
after knowledge of the occurrence of each Purchase and Sale Termination
Event or each Unmatured Purchase and Sale Termination Event in respect of
such Originator, the statement of the chief financial officer or chief
accounting officer of such Originator describing such Purchase and Sale
Termination Event or Unmatured Purchase and Sale Termination Event and the
action that such Originator proposes to take with respect thereto, in each
case in reasonable detail;
(b) Proceedings. As soon as possible and in any event within three
Business Days after such Originator otherwise has knowledge thereof,
written notice of (i) litigation, investigation or proceeding of the type
described in Section 5.6 not previously disclosed to the Company and (ii)
all material adverse developments that have occurred with respect to any
previously disclosed litigation, proceedings and investigations; and
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(c) Other. Promptly, from time to time, such other information,
documents, records or reports respecting the Receivables or the conditions
or operations, financial or otherwise, of such Originator as the Company,
Purchaser or the Administrator may from time to time reasonably request in
order to protect the interests of the Company, Purchaser or the
Administrator under or as contemplated by the Transaction Documents.
6.3 Negative Covenants. From the date hereof until the date following the
Purchase and Sale Termination Date, each Originator agrees that, unless Servicer
(on behalf of the Company) shall otherwise consent in writing, it shall not:
(a) Sales, Liens, Etc. Except as otherwise provided herein or in any
other Transaction Document, sell, assign (by operation of law or otherwise)
or otherwise dispose of, or create or suffer to exist any Adverse Claim
upon or with respect to, any Receivable or related Contract or Related
Security, or any interest therein, or any Collections thereon, or assign
any right to receive income in respect thereof.
(b) Extension or Amendment of Receivables. Except as otherwise permitted
in Section 4.2(a) of the Receivables Purchase Agreement, extend, amend or
otherwise modify the terms of any Receivable in any material respect
generated by it, or amend, modify or waive, in any material respect, any
term or condition of any Contract related thereto (which term or condition
relates to payments under, or the enforcement of, such Contract).
(c) Change in Business or Credit and Collection Policy. Make any change
in the character of its business or materially alter its Credit and
Collection Policy, which change would, in either case, materially change
the credit standing required of particular Obligors or potential Obligors
or impair, in any material respect, the collectibility of the Receivables
generated by it.
(d) Receivables Not to be Evidenced by Promissory Notes or Chattel
Paper. Take any action to cause or permit any Receivable generated by it to
become evidenced by any "instrument" or "chattel paper" (as defined in the
applicable UCC).
(e) Mergers, Acquisitions, Sales, etc. (i) Be a party to any merger or
consolidation, except (A) a merger or consolidation involving First Brands
where First Brands is the surviving corporation, or (B) a merger or
consolidation among two or more Originators, or (ii) directly or
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indirectly sell, transfer, assign, convey or lease (A) whether in one or a
series of transactions, all or substantially all of its assets, except to
another Originator (including, without limitation, First Brands), or (B)
any Receivables or any interest therein (other than pursuant to this
Agreement); provided, however, that (i) First Brands may sell, transfer or
assign all the capital stock of Himolene or A&M and (ii) Himolene or A&M
may (A) sell, transfer or assign to any Person all or substantially all of
its assets or (B) be a party to a merger or consolidation with any Person
(including one where it is not the surviving corporation); provided,
further, that upon any such sale, tranfer, assignment or merger, Himolene
or A&M, as applicable (or any Person who is the surviving corporation of a
merger or consolidation with Himolene or A&M), shall cease to be an
Originator hereunder. First Brands hereby covenants and agrees that from
and after the occurrence of any sale, transfer, assignment or merger
pursuant this Section 6.3(e), First Brands does hereby assume all
obligations of Himolene or A&M, as applicable, arising under Section 3.3 of
this Agreement with respect to any Receivables originated by Himolene or
A&M.
6.4 Lock-box Banks. Make any changes in its instructions to Obligors
regarding Collections or add or terminate any Lock-box Bank unless the
requirements of paragraph 2 (g) of Exhibit IV of the Receivables Purchase
Agreement have been met.
6.5 Accounting for Purchases. Account for or treat (whether in financial
statements or otherwise) the transactions contemplated hereby in any manner
other than as sales of the Receivables and Related Rights by such Originator to
the Company.
6.6 Transaction Documents. Enter into, execute, deliver or otherwise become
bound by any agreement, instrument, document or other arrangement that restricts
the right of such Originator to amend, supplement, amend and restate or
otherwise modify, or to extend or renew, or to waive any right under, this
Agreement or any other Transaction Documents.
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
7.1 Rights of the Company. Each Originator hereby authorizes the Company,
Servicer or their respective designees to take any and all steps in such
Originator's name necessary or desirable, in their respective determination, to
collect all
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amounts due under any and all Receivables, including, without limitation,
indorsing the name of such Originator on checks and other instruments
representing Collections and enforcing such Receivables and the provisions of
the related Contracts that concern payment and/or enforcement of rights to
payment.
7.2 Responsibilities of Each Originator. Anything herein to the contrary
notwithstanding:
(a) Collection Procedures. Each Originator agrees to direct its
respective Obligors to make payments of Receivables directly to a post
office box related to the relevant Lock-box Account at a Lock-box Bank.
Each Originator further agrees to transfer any Collections that it receives
directly to Servicer (for the Company's account) within one (1) Business
Day of receipt thereof, and agrees that all such Collections shall be
deemed to be received in trust for the Company and shall be maintained and
segregated separate and apart from all other funds and monies of such
Originator until transfer of such Collections to Servicer.
(b) Each Originator shall perform its obligations hereunder, and the
exercise by the Company or its designee of its rights hereunder shall not
relieve such Originator from such obligations.
(c) None of the Company, Servicer or the Administrator shall have any
obligation or liability to any Obligor or any other third Person with
respect to any Receivables, Contracts related thereto or any other related
agreements, nor shall the Company, Servicer, Issuer or the Administrator be
obligated to perform any of the obligations of any Originator thereunder.
(d) Each Originator hereby grants to Servicer an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to
take in the name of such Originator all steps necessary or advisable to
indorse, negotiate or otherwise realize on any writing or other right of
any kind held or transmitted by such Originator or transmitted or received
by the Company (whether or not from such Originator) in connection with any
Receivable.
7.3 Further Action Evidencing Purchases. Each Originator agrees that from
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action that Servicer may
reasonably request in order to perfect, protect or more fully evidence the
Receivables and Related Rights purchased by the Company hereunder, or to enable
the Company to exercise or
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enforce any of its rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, upon the request of Servicer,
each Originator will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate; and
(b) mark the master data processing records that evidence or list (i)
such Receivables and (ii) related Contracts with the legend set forth in
Section 4.1(j).
Each Originator hereby authorizes the Company or its designee to file one or
more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Receivables and Related
Rights now existing or hereafter generated by such Originator. If any
Originator fails to perform any of its agreements or obligations under this
Agreement, the Company or its designee may (but shall not be required to) itself
perform, or cause performance of, such agreement or obligation, and the expenses
of the Company or its designee incurred in connection therewith shall be payable
by such non-performing Originator as provided in Section 9.1.
7.4 Application of Collections. Any payment by an Obligor in respect of any
indebtedness owed by it to any Originator shall, except as otherwise specified
by such Obligor or otherwise required by contract or law and unless otherwise
instructed by the Company or the Administrator, be applied as a Collection of
any Receivable or Receivables of such Obligor to the extent of any amounts then
due and payable thereunder before being applied to any other indebtedness of
such Obligor.
ARTICLE VIII
PURCHASE AND SALE TERMINATION EVENTS
8.1 Purchase and Sale Termination Events. Each of the following events or
occurrences described in this Section 8.1 shall constitute a "Purchase and Sale
Termination Event":
(a) A Termination Event (as defined in the Receivables Purchase
Agreement) shall have occurred and, in the case of a Termination Event
(other than one described in paragraph (f) of Exhibit V of the Receivables
Purchase Agreement), the Administrator, the Issuer shall have declared the
Facility Termination Date to have occurred; or
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(b) Any Originator shall fail to make any payment or deposit to be made
by it hereunder when due and such failure shall remain unremedied for two
(2) Business Days; or
(c) Any representation or warranty made or deemed to be made by any
Originator (or any of its officers) under or in connection with this
Agreement, any other Transaction Documents or any other information or
report delivered pursuant hereto or thereto shall prove to have been false
or incorrect in any material respect when made or deemed made; or
(d) Any Originator shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement on its part to be
performed or observed and such failure shall remain unremedied for 30
calendar days after written notice thereof shall have been given by
Servicer to such Originator.
8.2 Remedies.
(a) Optional Termination. Upon the occurrence of a Purchase and Sale
Termination Event, the Company (and not Servicer) shall have the option by
notice to the Originators (with a copy to the Administrator) to declare the
Purchase and Sale Termination Date to have occurred.
(b) Remedies Cumulative. Upon any termination of the Purchase Facility
pursuant to this Section 8.2 (a), the Company shall have, in addition to
all other rights and remedies under this Agreement or otherwise, all other
rights and remedies provided under the UCC of each applicable jurisdiction
and other applicable laws, which rights shall be cumulative. Without
limiting the foregoing, the occurrence of the Purchase and Sale Termination
Date shall not deny the Company any remedy in addition to termination of
the Purchase Facility to which the Company may be otherwise appropriately
entitled, whether at law or equity.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnities by First Brands and the Originators. Without limiting any
other rights which the Company may have hereunder or under applicable law, each
Originator, severally and for itself alone, and First Brands, jointly and
severally with each Originator, hereby agrees to indemnify the Company and each
of its officers, directors, employees and Administrators (each of
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the foregoing Persons being individually called a "Purchase and Sale Indemnified
Party"), forthwith on demand, from and against any and all damages, losses,
claims, judgments, liabilities and related costs and expenses, including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively called "Purchase and Sale Indemnified Amounts") awarded against or
incurred by any of them arising out of or as a result of the failure of such
Originator to perform its obligations under this Agreement, any other
Transaction Document or arising out of the claims asserted against a Purchase
and Sale Indemnified Party relating to the transactions contemplated herein or
therein or the use of proceeds thereof or therefrom, excluding, however, (i)
Purchase and Sale Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Purchase and Sale
Indemnified Party, (ii) any indemnification which has the effect of recourse for
non-payment of the Receivables to any indemnitor (except as otherwise
specifically provided under this Section 9.1) and (iii) any tax based upon or
measured by net income or gross receipts. Without limiting the foregoing, each
Originator, severally and for itself alone, and First Brands, jointly and
severally with each Originator, indemnifies each Purchase and Sale Indemnified
Party for Purchase and Sale Indemnified Amounts relating to or resulting from:
(a) the transfer by such Originator of an interest in any Receivable to
any Person other than the Company;
(b) the breach of any representation or warranty made by such Originator
(or any of its officers) under or in connection with this Agreement or any
other Transaction Document, or any information or report delivered by such
Originator pursuant hereto or thereto which shall have been false or
incorrect in any material respect when made or deemed made;
(c) the failure by such Originator to comply with any applicable law,
rule or regulation with respect to any Receivable generated by such
Originator or the related Contract, or the nonconformity of any Receivable
generated by such Originator or the related Contract with any such
applicable law, rule or regulation;
(d) the failure to vest and maintain vested in the Company an ownership
interest in the Receivables generated by such Originator free and clear of
any Adverse Claim, other than an Adverse Claim arising solely as a result
of an act of the Company, whether existing at the time of the purchase of
such Receivables or at any time thereafter;
(e) the failure to file, or any delay in filing, financing statements or
other similar instruments or
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documents under the UCC of any applicable jurisdiction or other applicable
laws with respect to any Receivables or purported Receivables generated
by such Originator, whether at the time of any purchase or at any
subsequent time;
(f) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable or purported
Receivable generated by such Originator (including, without limitation, a
defense based on such Receivable's or the related Contract's not being a
legal, valid and binding obligation of such Obligor enforceable against it
in accordance with its terms), or any other claim resulting from the
services related to any such Receivable or the furnishing of or failure to
furnish such services;
(g) any product liability claim arising out of or in connection with
services that are the subject of any Receivable generated by such
Originator; and
(h) any tax or governmental fee or charge (other than any tax excluded
pursuant to clause (iii) in the proviso to the preceding sentence), all
interest and penalties thereon or with respect thereto, and all
out-of-pocket costs and expenses, including the reasonable fees and
expenses of counsel in defending against the same, which may arise by
reason of the purchase or ownership of the Receivables generated by such
Originator or any Related Security connected with any such Receivables.
If for any reason the indemnification provided above in this Section 9.1
is unavailable to a Purchase and Sale Indemnified Party or is insufficient to
hold such Purchase and Sale Indemnified Party harmless, then each of the
Originators, severally and for itself alone, and First Brands, jointly and
severally with each Originator, shall contribute to the amount paid or payable
by such Purchase and Sale Indemnified Party to the maximum extent permitted
under applicable law.
ARTICLE X
MISCELLANEOUS
10.1 Amendments, etc.
(a) The provisions of this Agreement may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing
and consented to by the Company, First Brands and the Originators (with
respect to an amendment) or by the Company (with respect to a waiver or
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consent by it).
(b) No failure or delay on the part of the Company, Servicer, any
Originator or any third party beneficiary in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to
or demand on the Company, Servicer, First Brands or any Originator in any
case shall entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by the Company or Servicer under this
Agreement shall, except as may otherwise be stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
under this Agreement shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
(c) The Transaction Documents contain a final and complete integration
of all prior expressions by the parties hereto with respect to the subject
matter thereof and shall constitute the entire agreement among the parties
hereto with respect to the subject matter thereof, superseding all prior
oral or written understandings.
10.2 Notices, etc. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including
facsimile communication) and shall be personally delivered or sent by certified
mail, postage-prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth under its name on the signature pages
hereof or at such other address or facsimile number as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be effective, (i) if personally delivered, when received,
(ii) if sent by certified mail three (3) Business Days after having been
deposited in the mail, postage prepaid, and (iii) if transmitted by facsimile,
when sent, receipt confirmed by telephone or electronic means.
10.3 No Waiver; Cumulative Remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Without limiting
the foregoing, First Brands and each Originator hereby authorizes the Company,
at any time and from time to time, to the fullest extent permitted by law, to
setoff, against any obligations of such Originator to the Company arising in
connection with the Transaction Documents (including without limitation amounts
payable pursuant to Section 9.1) that are then due and payable or that are not
then due and payable but are accruing in respect of the then current Settlement
Period, any and all indebtedness at any time owing by the Company to or
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for the credit or the account of First Brands or any Originator.
10.4 Binding Effect; Assignability. This Agreement shall be binding upon and
inure to the benefit of the Company, First Brands and each Originator and their
respective successors and permitted assigns. No Originator may assign any of its
rights hereunder or any interest herein without the prior written consent of the
Company, except as otherwise herein specifically provided. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until such
time as the parties hereto shall agree. The rights and remedies with respect to
any breach of any representation and warranty made by any Originator pursuant to
Article V and the indemnification and payment provisions of Article IX and
Section 10.6 shall be continuing and shall survive any termination of this
Agreement.
10.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT (WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF).
10.6 Costs, Expenses and Taxes. In addition to the obligations of the
Originators under Article IX, each Originator, severally and for itself alone,
and First Brands, jointly and severally with each Originator, agrees to pay on
demand:
(a) all reasonable costs and expenses in connection with the enforcement
of this Agreement, the Originator Assignment Certificates and the other
Transaction Documents; and
(b) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of
this Agreement or the other Transaction Documents to be delivered
hereunder, and agrees to indemnify each Purchase and Sale Indemnified Party
against any liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees.
10.7 Submission to Jurisdiction. EACH PARTY HERETO HEREBY IRREVOCABLY (a)
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF PENNSYLVANIA OR UNITED STATES
FEDERAL COURT SITTING IN PITTSBURGH, PENNSYLVANIA, OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT; (b) AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH STATE OR UNITED STATES FEDERAL COURT; (c)
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WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; (d)
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS
ADDRESS SPECIFIED IN SECTION 10.2; AND (e) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS SECTION 10.7 SHALL AFFECT THE COMPANY'S RIGHT TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR
PROCEEDING AGAINST FIRST BRANDS, ANY ORIGINATOR OR ITS RESPECTIVE PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTIONS.
10.8 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES
THAT (a) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY AND (b) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD PARTY
BENEFICIARY OF THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER
PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
10.9 Captions and Cross References; Incorporation by Reference. 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. References in this Agreement
to any underscored Section or Exhibit are to such Section or Exhibit of this
Agreement, as the case may be. Appendix A and the Exhibits hereto are hereby
incorporated by reference into and made a part of this Agreement.
10.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same Agreement.
10.11 Acknowledgment and Agreement. By execution
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below, First Brands and each other Originator expressly acknowledges and agrees
that all of the Company's rights, title, and interests in, to, and under this
Agreement (but not its obligations), shall be assigned by the Company pursuant
to the Receivables Purchase Agreement, and First Brands and each Originator
consents to such assignment. Each of the parties hereto acknowledges and agrees
that the Administrator and Purchaser are third party beneficiaries of the rights
of the Company arising hereunder and under the other Transaction Documents to
which First Brands or any Originator is a party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
FIRST BRANDS FUNDING INC.
By: /s/ Donald A. DeSantis
----------------------------
Name: Donald A. DeSantis
Title: President
First Brands Funding Inc.
83 Wooster Heights Road
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
FIRST BRANDS CORPORATION,
as initial Servicer
By: /s/ Einar M. Rod
----------------------------
Name: Einar M. Rod
Title: Vice President
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
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ORIGINATORS:
FIRST BRANDS CORPORATION,
as initial Servicer
By: /s/ Einar M. Rod
----------------------------
Name: Einar M. Rod
Title: Vice President
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
HIMOLENE INCORPORATED
By: /s/ Joseph B. Furey
---------------------------
Name: Joseph B. Furey
Title: Vice President
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
A&M PRODUCTS INC.
By: /s/ Joseph B. Furey
------------------------------
Name: Joseph B. Furey
Title: Vice President
83 Wooster Heights Road
P.O. Box 1911
Danbury, CT 06813
Attention: Richard J. Mosback
Telephone No.: (203) 731-2485
Facsimile No.: (203) 731-3668
<PAGE>
<PAGE>
Exhibit 11
COMPUTATON OF NET INCOME PER COMMON SHARE
(in thousands -- except per share amounts)
<TABLE>
<CAPTION>
BASIC DILUTED
Year ended June 30, Year ended June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before extraordinary loss and
cumulative effect of change in
accounting principle................... $52,330 $50,865 $52,330 $50,865
Extraordinary loss on repurchase of
subordinated notes, net of taxes....... -- (633) -- (633)
Cumulative effect of change
in accounting principle................ (6,922) -- (6,922) --
-------- -------- -------- --------
Net income............................... $45,408 $50,232 $45,408 $50,232
======== ======== ======== ========
Average common shares outstanding
during the period...................... 43,483 43,271 43,483 43,271
Average treasury shares held
during the period...................... (3,867) (2,499) (3,867) (2,499)
Common shares issuable with
respect to common equivalents
for stock options...................... 0 0 886 985
-------- -------- -------- --------
Average common shares outstanding........ 39,616 40,772 40,502 41,757
======== ======== ======== ========
Earnings per share:
- ---------------------------
Income before extraordinary loss and
cumulative effective of change in
accounting principle................... $ 1.32 $ 1.25 $ 1.29 $ 1.22
Extraordinary loss on repurchase of
subordinated notes, net of taxes....... -- (0.02) -- (0.02)
Cumulative effect of change
in accounting principle................ (0.17) -- (0.17) --
-------- -------- -------- --------
Net income............................... $ 1.15 $ 1.23 $ 1.12 $ 1.20
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21
Page 1 of 2
Subsidiaries of First Brands Corporation (Delaware)
(Unless otherwise noted, the following are wholly-owned by First Brands
Corporation)
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.]
First Brands Australia Pty Limited (Australia) [66% owned by First
Brands Properties Inc.; 29.6% owned by FBC, LLC; 4.4% owned by
management]
NationalPak Pty Limited (Australia) [wholly owned by First
Brands Australia Ltd.]
First Brands New Zealand Limited (New Zealand) [wholly owned by First
Brands Properties Inc.]
National Pak New Zealand Limited (New Zealand) [wholly-owned by
First Brands New Zealand Limited
Forest Technology Corporation (Delaware)
Himolene Incorporated (Delaware)
Paulsboro Packaging, Inc. (New Jersey)
STP Products, Inc. (Delaware)
First Brands Funding Inc. (Delaware)
Polysak, Inc. (Connecticut)
STP Corporation (Delaware)
Antifreeze Technology Systems,Inc. (Delaware)
Antifreeze Properties, Inc. (Delaware)
First Brands International, Inc. (Delaware)
First Brands Asia Limited (Hong Kong)
First Brands (Guangzhou) Ltd. (China) [51% owned by First Brands Asia
Limited]
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]
<PAGE>
<PAGE>
EXHIBIT 21
Page 2 of 2
Subsidiaries of First Brands Corporation (Delaware)
(Unless otherwise noted, the following are wholly-owned by First Brands
Corporation)
First Brands Holdings Corporation (Canada)
First Brands (Canada) Corporation (Canada) [wholly-owned by First
Brands Holdings Corporation]
FBC, LLC (Delaware) [wholly-owned by First Brands (Canada)
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) [93% owned by
First Brands Holdings Corporation]
First Brands Africa (Pty) Ltd. (South Africa) (wholly-owned by
First Brands Africa Holdings (Pty) Ltd.)
Sealapac (Pvt) Ltd. (South Africa) [76% owned by First
Brands Africa (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 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.]
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)
Comercial STP Ltda. (Brazil) [in liquidation]
STP Corporation (Deutschland) GmbH (Germany) [in liquidation]
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
First Brands Corporation:
We consent to incorporation by reference in the Registration Statement No.
333-25773 on Form S-4 and Nos. 33-35770, 33-56992, 33-56503, 333-20949 and
333-45379 on Form S-8 of First Brands Corporation of our report dated August 6,
1998, relating to the consolidated balance sheets of First Brands Corporation
and subsidiaries as of June 30, 1998 and 1997, 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, 1998, which report refers to a
change in the method of accounting for business process re-engineering costs,
and our report dated August 6, 1998 on the related schedule, which reports
respectively are incorporated by reference and appear in the June 30, 1998
annual report on Form 10-K of First Brands Corporation.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
September 22, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 12,029
<SECURITIES> 0
<RECEIVABLES> 118,326
<ALLOWANCES> 8,297
<INVENTORY> 155,480
<CURRENT-ASSETS> 307,832
<PP&E> 580,284
<DEPRECIATION> 160,529
<TOTAL-ASSETS> 1,060,201
<CURRENT-LIABILITIES> 180,810
<BONDS> 388,054
<COMMON> 435
0
0
<OTHER-SE> 385,713
<TOTAL-LIABILITY-AND-EQUITY> 1,060,201
<SALES> 1,203,670
<TOTAL-REVENUES> 1,203,670
<CGS> 775,870
<TOTAL-COSTS> 775,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,604
<INCOME-PRETAX> 84,694
<INCOME-TAX> 32,364
<INCOME-CONTINUING> 52,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (6,922)
<NET-INCOME> 45,408
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.12
</TABLE>
