UNITED STATES
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number - 1-9294
Imo Industries Inc.
(Exact name of registrant as specified in its charter)
Delaware 21-0733751
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
997 Lenox Drive, Suite 111
Lawrenceville, New Jersey 08648
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 609-896-7600.
Securities registered pursuant to Section 12(b) of the Act: None
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, and will not be contained, to the best
of Registrant's knowledge, in this Form 10-K or any amendment to this Form 10-K.
(X )
Shares of Registrant's common stock, $.01 par value, outstanding as of
March 30, 2000 ......................100
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Documents Part into which Incorporated
None
PART I
Item 1. Business.
General
Imo Industries Inc. (hereinafter with its subsidiaries referred to as the
"Company") is an integrated multinational manufacturer of a broad range of
engineered industrial products designed primarily to transfer liquids or
regulate and control motion in a variety of industrial applications. The Company
markets its products on a worldwide basis to a diverse customer base. The
Company operates in two distinct industry segments: Fluid Handling and
Industrial Positioning.
Fluid Handling. The Fluid Handling segment designs and produces a broad
range of pumps, including screw, centrifugal and gear pumps. The pumps designed
and produced by the Fluid Handling segment serve a variety of applications in
the following industries: chemicals, marine and offshore engineering, energy and
power generation, sewage and environmental engineering, pulp and paper, water
treatment and other process industries. In Fluid Handling, the Company markets
its products principally under the Imo and Warren brand names.
Industrial Positioning. The Industrial Positioning segment designs and
produces a wide range of power transmission and motion control products,
including enclosed gear drives, speed reducers, open gearing components, AC and
DC motor controllers, push-pull cable, remote control systems and marine and
power equipment after-market products. In Industrial Positioning, the Company's
Boston Gear and Morse Controls units are among sales leaders in their respective
market segments. Boston Gear products have applications in a wide range of
industrial manufacturing operations, ranging from packaging machinery and
equipment to integrated steel and pulp and paper mills. Morse Controls products
are sold into a variety of end use markets with a concentration in the marine,
mobile equipment and aviation sectors.
History
The Company, founded in 1901 in the United States by Dr. Carl Gustaf Patrick de
Laval, a Swedish scientist, was incorporated in Delaware on March 2, 1959. The
Company was acquired by Transamerica Corporation ("Transamerica") in 1963, and
in 1964, Transamerica merged its existing wholly owned manufacturing subsidiary,
General Metals Corporation, into the Company. At the close of business on
December 18, 1986, Transamerica distributed all of the issued and outstanding
shares of the Company common stock to holders of record of Transamerica common
stock on the basis of one share of Company common stock for each ten shares of
Transamerica common stock held and since that time the Company has operated on a
stand-alone basis.
On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of
the Company's outstanding shares of common stock pursuant to its tender offer
for all outstanding shares of common stock of the Company (the "Acquisition").
The consideration paid was $7.05 per share of common stock or $112.1 million in
total. On July 2, 1998, Imo Merger Corp., a wholly owned subsidiary of Colfax,
merged with and into Imo, pursuant to a short-form merger under Delaware law
("back-end merger"). The Company was the surviving corporation in the back-end
merger and as result became a wholly owned subsidiary of Colfax.
Information regarding the Acquisition of the Company is contained in Note 2 to
the Consolidated Financial Statements included in Part IV of this Form 10-K
Report as indexed at Item 14(a)(1).
Industry Segments
A description of the principal products and services offered by each business
segment of the Company, as well as the principal markets for such products and
services, are set forth below. Certain information with respect to net sales,
operating profit, and identifiable assets of each of these segments and by
geographic area is contained in Note 11 to the Consolidated Financial
Statements.
Fluid Handling
The Fluid Handling business segment is a leading worldwide manufacturer of
rotary screw pumps. The three units that comprise the Fluid Handling segment --
Imo Pump, Imo AB and Warren Pumps Inc. -- design and manufacture screw-type
fuel, lube oil and hydraulic pumps for use primarily by the marine, process, oil
and gas and elevator industries. The segment's three-screw pumps are the leading
low-noise-level pumps used in United States Navy and commercial vessels. These
pumps are also used to power hydraulic elevators, lubricate diesel engines and
fuel gas turbines. The segment's two-screw pumps are used by the pulp and paper
industry and in other high-viscosity process applications.
Industrial Positioning
The Industrial Positioning business segment produces speed reducers, loose
gearing, and precision mechanical and electronic control products and systems,
that are recognized as leading products in their market niches. This segment is
comprised of four units: Boston Gear, a leading producer of gears and speed
reducers, Fincor Electronics, a producer of adjustable-speed motor controllers,
Morse Controls, a manufacturer of push-pull cable and control systems and Sierra
International Inc., a marketer of after-market marine and power equipment
products. Speed reducers are used to reduce the output speed and increase the
torque of power trains in numerous products, ranging from industrial machinery
to exercise treadmills. Adjustable-speed motor controllers are used for the
accurate control of electric motor speed, torque, shaft position and direction
of rotation in applications such as ski lifts, textile machinery, overhead
cranes and large printing presses. These operations also produce worm gear sets
used as speed reducers by original equipment manufacturers and by oil and gas
and industrial machinery customers. Push-pull cable and control systems are used
to control and actuate functions, such as steering and valve adjustment, as an
alternative to electrical systems. Applications include throttle control and
steering systems for both off-the-road vehicles and pleasure boats. After-market
marine and power equipment products include engine parts and flexible hose for
pleasure craft and lawn and garden equipment.
Discontinued Operations
In April 1997, August 1997 and February 1998, the Company sold its
Electro-Optical Systems, Instrumentation and Roltra Morse businesses,
respectively. In accordance with APB Opinion No. 30, the disposals of these
business segments have been accounted for as discontinued operations and,
accordingly, their operating results have been segregated and reported as
Discontinued Operations in the accompanying Consolidated Statements of Income.
Roltra Morse
On February 27, 1998, the Company completed the sale of its Roltra Morse
business to Magna International Inc. for cash of $30 million, plus the
assumption of Roltra Morse's debt. The sale price approximated the recorded net
book value of the business. Net proceeds were used to reduce domestic senior
debt.
Instrumentation
On August 29, 1997, the Company completed the sale of its Instrumentation
business segment to Danaher Corporation for proceeds of $85 million, which
approximated its net book value. Net cash proceeds were used to reduce domestic
senior debt. The majority shareholders of the Company are also substantial
shareholders of Danaher Corporation.
Electro-Optical Systems
On April 28, 1997, the Company completed the sale of the Varo Electronic Systems
division to a small defense contractor for $12 million in cash, the proceeds of
which were used to reduce its domestic senior debt. The sale of this business
completed the sale of the Electro-Optical Systems business.
See Note 3 to the Consolidated Financial Statements for additional details
regarding the discontinued operations.
Cost Reduction Programs
In connection with the Acquisition, the Company implemented a cost reduction
program. The cost of this program was $18.6 million and was accrued for in
accordance with the purchase method of accounting. It is comprised of $10.5
million related to severance and termination benefits as a result of headcount
reductions at the Company's corporate headquarters. In addition, $1.2 million
and $6.9 million of costs for the Company's Fluid Handling and Industrial
Positioning segments, respectively, related to severance and termination
benefits resulting from headcount reductions and the consolidation of certain
manufacturing facilities. The program was completed in 1999. The required cash
outlay related to this program was $8.1 million in 1997, $7.4 million in 1998
and $3.1 million in 1999.
Competition
The Company's products and services are marketed on a worldwide basis. Most
markets in which the Company operates are highly competitive. The principal
elements of competition for the products manufactured in each of the Company's
business segments are design features, product quality, customer service, and
price. Because the Company competes in certain narrowly defined niche markets,
there is not any single company that competes directly with the Company across
all of the Company's product lines.
Product Distribution and Customers
The Company's products are sold primarily through the Company's direct sales
forces. During 1999, sales by the Company's direct sales forces were
approximately 77% and 60% of the Fluid Handling and Industrial Positioning
segments, respectively. The Company's remaining sales are made through
distributors, dealers and agents.
None of the Company's business segments is dependent on any single customer or a
few customers, the loss of which would have a material adverse effect on the
respective segments, or on the Company as a whole. No customer accounted for 10%
or more of consolidated sales from continuing operations in 1999, 1998 or 1997.
Backlog
The Company's backlog of unfilled orders at February 25, 2000 and 1999, and at
December 31, 1999, 1998 and 1997, by business segment, was as follows:
February 25, December 31,
2000 1999 1999 1998 1997
(Dollars in millions)
Fluid Handling $ 27.9 $ 33.0 $25.7 $ 32.1 $ 29.5
Industrial 36.6 29.8 33.3 30.2 31.8
Positioning
$ 64.5 $ 62.8 $ 59.0 $ 62.3 $ 61.3
Backlog is considered significant only to the Fluid Handling segment, given that
the products of that operation require long lead times for manufacture. Of the
total backlog at December 31, 1999, the Company believes that all but
approximately $1.1 million of its orders will be filled in 2000.
Raw Materials
The Company obtains raw materials, component parts and supplies from a variety
of sources, generally from more than one supplier. The Company's principal raw
materials are metals and plastics. The Company's suppliers and sources of raw
materials are based in both the United States and international countries. The
Company believes that its sources of raw materials are adequate for its needs
for the foreseeable future. The loss of any one supplier would not have a
material adverse effect on the Company's financial condition or results of
operations.
Patents, Licenses and Trademarks
The Company owns numerous unexpired U.S. patents (currently having a term of 17
years from the date of issuance and expiring at various times in the future) and
foreign patents (having an initial term that is governed by the law of the
country and expiring at various times in the future), including counterparts of
certain of its U.S. patents, in major industrial countries of the world. The
Company's products are marketed under various trade names and registered U.S.
and foreign trademarks (having an initial term that is governed by the law of
the country and expiring at various times in the future). The Company, however,
does not consider any one patent or trademark, or any group thereof, essential
to its business as a whole, or to any of its business segments. The Company
relies, to an extent, on proprietary product knowledge and manufacturing
processes in its operations.
Research and Development
The Company's ongoing research and development programs involve the development
of new technologies to enhance the performance or lower the cost of
manufacturing its products, and the redesign of existing product lines either to
increase their efficiency or to lower their manufacturing cost. Expenditures for
research and development charged against continuing operations for 1999, 1998
and 1997 by business segment were as follows:
Year Ended December 31,
1999 1998 1997
(Dollars in millions)
Fluid Handling $1.5 $2.1 $2.1
Industrial Positioning 2.8 3.2 3.4
$4.3 $5.3 $5.5
Environmental Matters
In connection with the Company's separation from Transamerica in 1986, three of
the Company's properties required compliance with the New Jersey Environmental
Cleanup Responsibility Act, which was amended by the Industrial Site Recovery
Act ("ISRA"). ISRA required that the Company's three New Jersey industrial
establishments undergo an approved remediation. Remediation has been completed
at two sites and final closure approvals have been sought. As a result of the
sale of a portion of the third establishment, this site has been divided into
two separate sites for ISRA compliance. Both sites have undergone cleanup, but
the New Jersey Department of Environmental Protection and Energy has requested
and received from the Company additional sampling information. If further
cleanup is required, the Company does not expect it to have a material adverse
effect on its financial condition.
The Company has been identified in a number of instances as a "Potentially
Responsible Party" by the U.S. Environmental Protection Agency, and in one
instance by the State of Washington, with respect to the disposal of hazardous
wastes at a number of facilities that have been targeted for clean-up pursuant
to the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") or similar state law. Similarly, the Company has received notice that
it is one of a number of defendants named in an action filed in the United
States District Court, for the Southern District of Ohio Western Division by a
group of plaintiffs who are attempting to allocate a share of cleanup costs, for
which they are responsible, to a large number of additional parties, including
the Company. Although CERCLA and corresponding state law liability is joint and
several, the Company believes that its liability will not have a material
adverse effect on the financial condition of the Company since it believes that
it either qualifies as a de minimis or minor contributor at each site.
Accordingly, the Company believes that the portion of remediation costs that it
will be responsible for will therefore not be material.
The Company has current and former operations in numerous locations, some of
which require environmental remediation. The Company, however, does not know of
or believe that any such matters or the cost of any required corrective measure,
either individually or in the aggregate, will have a material adverse effect on
the financial condition of the Company. There can be no assurance, however, that
these matters, or other environmental matters not currently known to the Company
will not have such a material adverse effect.
Seasonality
General economic conditions worldwide continue to create business opportunities
for the coming year in many of the markets in which the Company operates.
Management believes that because of the nature of its industrial products and
the fact that the Company sells diverse products to many markets, the Company is
not significantly affected by the cyclical behavior, or seasonality, of any
particular market that it serves.
Associates
At February 25, 2000, the Company employed approximately 1,900 associates
worldwide. Approximately 1,300 associates were employed in the United States,
and approximately 600 associates were employed outside of the United States.
There are approximately 400 associates worldwide covered by collective
bargaining agreements with various unions expiring in 2000 through 2002. The
Company considers its relations with its associates to be satisfactory.
Item 2. Properties.
The location of the Company's manufacturing facilities at February 25, 2000 are
as follows:
Location Product Owned/Leased
Fluid Handling
Monroe, North Carolina Three-screw and two-screw pumps Owned
Columbia, Kentucky Three-screw, gear and elevator pumps Owned
Warren, Massachusetts Two-screw, gear and centrifugal pumps Owned
Stockholm, Sweden Three-screw pumps Owned
Paris, France Three-screw pumps Leased
Industrial Positioning
Charlotte, North Carolina Open gearing and clutches Owned
Clearwater, Florida Marine hose products Leased
Hudson, Ohio Cables and controls Leased
Litchfield, Illinois Marine and power equipment after-market Owned
parts
Louisburg, North Carolina Worm gear speed reducers Owned
Sarasota, Florida Marine hydraulics Owned
York, Pennsylvania Electronic drives Owned
Basildon, England Cables and controls Leased
Heiligenhaus, Germany Cables and controls Owned
Paris, France Cables and controls Leased
Marsta, Sweden Cables and controls Owned
Singapore Cables, controls and roller chain Leased
Sydney, Australia Cables and controls Owned
The Company believes that its machinery, plants and offices are in satisfactory
operating condition and are adequate for the uses to which they are put. The
Company believes that its properties have sufficient capacity to substantially
increase its current utilization without incurring significant additional
capital expenditures.
Item 3. Legal Proceedings.
The Company and one of its subsidiaries are two of a large number of defendants
in a number of lawsuits brought in various jurisdictions by approximately 4,500
claimants who allege injury caused by exposure to asbestos. Although neither the
Company nor any of its subsidiaries has ever been a producer or direct supplier
of asbestos, it is alleged that the industrial and marine products sold by the
Company and the subsidiary named in such complaints contained components which
contained asbestos. Suits against the Company and its subsidiary have been
tendered to its insurers, who are defending under their stated reservation of
rights. In addition, the Company and the subsidiary are named in cases,
involving approximately 32,000 claimants, which were "administratively
dismissed" by the U.S. District Court for the Eastern District of Pennsylvania.
Cases that have been "administratively dismissed" may be reinstated only upon a
showing to the Court that (i) there is satisfactory evidence of an
asbestos-related injury; and (ii) there is probative evidence that the plaintiff
was exposed to products or equipment supplied by each individual defendant in
the case. The Company believes that it has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities related to these
cases.
The Company is a defendant in a lawsuit brought in the United States District
Court for the District of New Jersey alleging failure in performance of
equipment sold in 1986 by the Company's former Deltex division. The complaint
seeks damages in excess of $12 million. The Company believes that there are
legal and factual defenses to the claim and intends to defend the action
vigorously. On June 2, 1999, the Court granted a summary judgment motion filed
by the Company which effectively dismissed all claims. Plaintiffs have appealed
this judgment to the United States Court of Appeals for the Third Circuit.
The Company was a defendant in a lawsuit in the U.S. District Court for the
Western District of Pennsylvania, which alleged component failures in equipment
sold by its former diesel engine division. The complaint sought damages of
approximately $3 million. On September 30, 1997, the Court granted a summary
judgment motion filed by the Company which effectively dismissed all claims
against it. Plaintiffs have appealed this judgment to the United States Court of
Appeals for the Third Circuit. On June 3, 1999, the United States Court of
Appeals for the Third Circuit upheld the District Court's September 30, 1997,
decision thereby upholding the dismissal of all claims against the Company.
The Company is a defendant in a lawsuit in the Circuit Court of Cook County,
Illinois alleging performance shortfalls in products delivered by the Company's
former Delaval Turbine Division and claiming damages of approximately $8
million. The Company entered into an agreement with the plaintiff settling all
claims. Co-Defendant, Federal Insurance Company, has recently filed a
counterclaim for attorney's fees. The Company believes that there are legal and
factual defenses to the claim and intends to defend the action vigorously.
On June 3, 1997, the Company was served with a complaint in a case brought in
the Superior Court of New Jersey which alleges damages in excess of $10 million
incurred as a result of losses under a Government Contract Bid transferred in
connection with the sale of the Company's former Electro-Optical Systems
business. The Electro-Optical Systems business was sold in a transaction that
closed on June 2, 1995. The sales contract provided certain representations and
warranties as to the status of the business at the time of sale. The complaint
alleges that the Company failed to provide notice of a "reasonably anticipated
loss" under a bid that was pending at the time of the transfer of the business
and therefore a representation was breached. The contract was subsequently
awarded to the Company's Varo subsidiary and thereafter transferred to the buyer
of the Electro-Optical Systems business. The case is in the preliminary stages
of pleading but the Company believes that there are legal and factual defenses
to the claims and intends to defend the action vigorously.
The operations of the Company, like those of other companies engaged in similar
businesses, involve the use, disposal and clean up of substances regulated under
environmental protection laws. In a number of instances the Company has been
identified as a Potentially Responsible Party by the U.S. Environmental
Protection Agency, and in one instance by the State of Washington, with respect
to the disposal of hazardous wastes at a number of facilities that have been
targeted for clean-up pursuant to CERCLA or similar state law. Similarly, the
Company has received notice that it is one of a number of defendants named in an
action filed in the United States District Court, for the Southern District of
Ohio Western Division by a group of plaintiffs who are attempting to allocate a
share of cleanup costs, for which they are responsible, to a large number of
additional parties, including the Company. Although CERCLA and corresponding
state law liability is joint and several, the Company believes that its
liability will not have a material adverse effect on the financial condition of
the Company since it believes that it either qualifies as a de minimis or minor
contributor at each site. Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will not be material. For
additional information see section entitled Environmental Matters in Part I,
Item 1 of this Form 10-K Report.
The Company is also involved in various other pending legal proceedings arising
out of the ordinary course of the Company's business. None of these legal
proceedings is expected to have a material adverse effect on the financial
condition of the Company. With respect to these proceedings and the litigation
and claims described in the preceding paragraphs, management of the Company
believes that it either will prevail, has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities. There can be no
assurance, however, as to the ultimate outcome of any of these matters, and if
all or substantially all of these legal proceedings were to be determined
adversely to the Company, there could be a material adverse effect on the
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company delisted its Common Stock from the New York Stock Exchange on July
2, 1998. The Common Stock was deregistered under the Securities Exchange Act of
1934.
Item 6. Selected Financial Data.
(Dollars in millions except per share amounts) (a)
Post-Acquis. Pre-Acquis.
Year Year August 29, January 1, Year Ended
Ended Ended 1997 to 1997 December 31,
December December December to August --------------
31, 1999* 31, 1998* 31, 1997 28, 1997 1996 1995
- --------------------------------------------------------------------------------
Net sales $287.5 $308.9 $106.7 $210.2 $309.5 $297.1
Income (loss) from continuing
operations before
extraordinary item 15.3 10.9 (5.7) (31.3) (33.1) 7.2
Discontinued operations,
net of taxes --- --- (12.2) 2.4 (16.8) 27.0
Extraordinary item (net
of tax) (0.2) (5.2) (3.3) --- (8.5) (4.4)
Net income (loss) 15.1 5.7 (21.2) (28.9) (58.4) 29.8
- --------------------------------------------------------------------------------
(Loss) earnings per share, basic and diluted:
Continuing operations before
extraordinary item (.33) (1.82) (1.93) .42
Discontinued operations, net of taxes (.71) .14 ( .99) 1.58
Extraordinary item (.20) --- (.49) (.26)
Net (loss) income (1.24) (1.68) (3.41) 1.74
Cash dividends per share --- --- --- --- --- ---
- --------------------------------------------------------------------------------
Total assets 377.1 389.0 463.3 330.9 365.4
Total long-term debt, including
current portion 169.1 174.3 223.4 276.0 244.5
================================================================================
(a) The notes to the consolidated financial statements located in Part IV of
this Form 10-K Report as indexed atItem 14(a)(l) should be read in
conjunction with this summary.
* As a result of the back-end merger on July 2, 1998, earnings per share is not
presented for 1999 and 1998.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of the Company's consolidated results of
operations and financial condition should be read in conjunction with the
audited Consolidated Financial Statements included elsewhere in this Form 10-K
Report.
Comparisons of the results of operations for the year ended December 31, 1999,
with the results for the years ended December 31, 1998 and 1997, are being
presented on an historical basis. The year ended December 31, 1999 and 1998 and
the four months ended December 31, 1997, include changes in depreciation and
amortization that resulted from the application of the purchase method of
accounting for the Acquisition. For further information on the pro forma effect
of the Acquisition on the Company, see Note 2 in the Notes to Consolidated
Financial Statements.
Recent Events
Sierra International Inc. Acquisition: On December 1, 1999, the Company
purchased the stock of Sierra International Inc. ("Sierra") from Echlin
Inc., a subsidiary of Dana Corporation. Sierra sells and distributes
replacement parts for marine and power equipment applications and marine
hose products. Sierra has become part of the Company's Industrial
Positioning segment.
Results of Operations
The Company's former Roltra Morse, Instrumentation and Electro-Optical Systems
businesses are accounted for as discontinued operations. Accordingly, the
operating results of these businesses have been segregated and reported as
Discontinued Operations in the audited Consolidated Financial Statements
included elsewhere in this Form 10-K Report. The discussion that follows
concerns only the results of continuing operations, which are grouped into two
business segments for management and financial reporting purposes: Fluid
Handling and Industrial Positioning.
1999 Compared to 1998
Sales. Net sales from continuing operations in 1999 decreased 6.9% to $287.5
million, compared with $308.9 million in 1998, as a result of the Fluid Handling
segment's sales decreasing 10.4% and a decrease of 4.9% in the Industrial
Positioning segment's sales. The decrease in the Fluid Handling segment is due
to cyclicality in the crude oil, machinery support and pulp & paper markets and
unfavorable effects of a 4.6% change in the exchange rates for the Swedish
Krona. The decrease in the Industrial Positioning segment is due to lower demand
in the agricultural and power transmission sectors, unfavorable foreign currency
fluctuations, the sale of the conveyor business in Germany on July 31, 1998, and
inventory reduction programs initiated by key customers.
Gross Profit. Gross profit in 1999 decreased as a percentage of sales to 32.2%
compared with 32.5% in 1998, as a result of reduced sales volume and
manufacturing levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 17.6% of net sales in the twelve months
ended December 31, 1999, as compared with 18.3% in the 1998 period. The
decreased expenses as a percentage of sales in 1999 was the result of continued
cost reduction programs in each of the Company's operating units.
Interest Expense. Average borrowings in 1999 were approximately $33.2 million
lower than in 1998. Total interest expense of $16.7 million in 1999 was $4.6
million, or 21.6%, lower than in 1998, due primarily to the reduction of debt,
through the generation of operating cash flow.
Income from Continuing Operations. The Company had income from continuing
operations of $15.3 million in 1999, compared with $10.9 million in 1998, due to
the decrease in interest expense.
1998 Compared to 1997
Sales. Net sales from continuing operations in 1998 decreased 2.5% to $308.9
million, compared with $316.9 million in 1997, as a result of the Fluid Handling
segment's sales remaining flat and a decrease of 4.0% in the Industrial
Positioning segment's sales. The decrease in the Industrial Positioning segment
sales is primarily due to the sale of the Delroyd product line, which was sold
on December 31, 1997.
Gross Profit. Gross profit in 1998 increased as a percentage of sales to 32.5%
compared with 30.0% in 1997. The higher gross profit was a result of
productivity improvements in each segment due to cost reduction and efficiency
initiatives implemented after the Acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 18.3% of net sales in the twelve months
ended December 31, 1998, as compared with 21.5% in the 1997 period. The decrease
in expenses, as a percent of sales in 1998, was primarily due to the reduction
in corporate overhead expenses and Company-wide cost reduction programs
instituted after the Acquisition.
Interest Expense. Average borrowings in 1998 were approximately $102.6 million
lower than in 1997. Total interest expense of $21.3 million in 1998 was $5
million, or 19.0%, lower than in 1997, due primarily to the reduction of debt as
a result of the sale of Roltra Morse and the Instrumentation business and the
purchase of a portion of the 11.75% senior subordinated debentures during 1998.
Income (Loss) from Continuing Operations. The Company had income from continuing
operations of $10.9 million in 1998. In 1997, the loss from continuing
operations was $36.9 million, which included unusual charges of $31.3 million.
Income (Loss) from Discontinued Operations. Roltra Morse's net loss of $1.0
million, which includes $0.2 million of allocated interest, was included with
the net book value of the assets on the date of sale February 27, 1998.
Therefore there was no income from discontinued operations for the year ended
December 31, 1998 compared with a loss of $9.8 million for the year ended
December 31, 1997.
Other Operating Results
Unusual Items. During the year ended December 31, 1997, the Company recorded
unusual charges of $31.3 million against income from continuing operations. The
first nine months of 1997 included an unusual charge of $10.5 million relating
to the settlement of a judgment against the Company in favor of International
Insurance Company. In addition, the Company recorded unusual charges of $20.8
million in the third quarter of 1997. Of these charges, $15.8 million related to
the sale of the Company and represent indirect and general expenses incurred by
the Company in connection with the sale process which were paid in 1997, and $5
million related to an additional legal provision concerning certain litigation
matters.
Extraordinary Items. The year ended December 31, 1999, include an extraordinary
charge of $0.2 million net of tax, related to the early extinguishment of $3.5
million of its 11.75% senior subordinated notes due in 2006.
The year ended December 31, 1998, include an extraordinary charge of $5.2
million net of tax, representing charges related to the early extinguishment of
the Company's debt under its current senior secured credit facilities (the "New
Credit Agreement") and its Notes, as well as the write-off of previously
deferred loan costs.
Provision for Income Taxes. Income tax expense from continuing operations was
$8.8 million, $7.0 million, and $1.5 million for 1999, 1998 and 1997,
respectively.
Income tax expense for the year ended 1999, represents current tax expense of
$1.1 million for federal alternative minimum tax, foreign and state income
taxes, as the Company is utilizing existing U.S. net operating loss
carryforwards to offset its domestic earnings.
The net deferred tax benefit currently recorded at December 31, 1999, is $32.8
million, a level where management believes that it is more likely than not that
the tax benefit will be realized.
The Company establishes valuation allowances in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and is recognizing
these benefits only as reassessment indicates that it is more likely than not
that the benefits will be realized. The valuation allowance was $1.7 million for
December 31, 1999 and December 31, 1998. In 1998, the Company reduced its
valuation reserve by $51.6 million due to its belief that it is more likely than
not these tax benefits will be realized in future years. The revision of the
valuation reserve is due to the change in purchase accounting estimates during
the first year after acquisition.
The Company has net operating loss carryforwards of approximately $82.9 million
expiring in years 2000 through 2018, and minimum tax credits of approximately
$2.6 million, which may be carried forward indefinitely. Tax credit
carryforwards include foreign tax credits of approximately $3.4 million,
expiring beginning in the year 2002. These carryforwards are available to offset
future taxable income, subject to Section 382 limitations, due to the
Acquisition.
Taxes have not been provided on the unremitted earnings of foreign subsidiaries
since it is the Company's intention to indefinitely reinvest these earnings
overseas. The amount of foreign withholding taxes that would be payable on
remittance of these earnings is approximately $1.3 million.
Liquidity and Capital Resources
Short-term and Long-term Debt
As of December 31, 1999, the Company had $10.4 million of outstanding standby
letters of credit. The Company had $7.3 million in foreign short-term credit
facilities with amounts outstanding at December 31, 1999 of $1.3 million. Due to
the short-term nature of these debt instruments it is the Company's opinion that
the carrying amounts approximate the fair value.
In addition, the Company had outstanding $75 million of its 11.75% senior
subordinated notes due in 2006, $36.7 million of term loan borrowings, $52.3
million in revolver borrowings, and $5 million due to Ameridrives International,
L.P., whose majority shareholders are also the majority shareholders of the
Company.
Cash Flow
The Company's operating activities provided cash of $39.5 million in 1999,
compared with cash provided of $39.6 million in 1998. The cash provided in 1999
is principally due to net operating profits and the decrease in working capital.
The Company's total debt as a percent of its total capitalization decreased to
59.2% at December 31, 1999, compared with 62.6% at December 31, 1998, as a
result of the debt paid down due to internal cash generation.
Capital expenditures of continuing operations increased to $6.4 million compared
with the 1998 level of $6 million due to expenditures related to productivity
improvements and new product development in the operating segments. In 1999
capital spending was used for the purpose of maintaining and improving
competitive advantages at the Company's operations. The Company anticipates that
capital expenditures in 2000 will increase over the 1999 level primarily due to
expenditures related to new product development in the operating segments. There
were no material outstanding commitments for the acquisition of property, plant,
and equipment at December 31, 1999.
Management believes that cash flow from operations and cash available from
unused credit facilities will be sufficient to fund future anticipated working
capital needs, capital spending requirements and debt service requirements.
Year 2000
All of the Company's essential processes, systems, and business functions were
compliant with the Year 2000 requirements by the end of 1999. The Company did
not experience any Year 2000 consequences that affected its financial position,
liquidity or results of operations.
The costs of the Company's Year 2000 compliance program were funded with cash
flows from operations. Some of these costs related solely to the modification of
existing systems, while others were for new systems that also improved business
functionality. In total, these costs were not substantially different from the
normal, recurring costs for system development, in part due to the reallocation
of internal resources to implement the new business systems. Costs incurred
related to Year 2000 issues, outside of normal and routine upgrades, were
approximately $1.6 million in total which was spread over the last few years.
The Company does not believe that there will be any significant future costs or
problems related to the Year 2000.
Seasonality; Customer Concentration; Inflation
General economic conditions worldwide continue to create business opportunities
for the coming year in many of the markets in which the Company operates.
Management believes that because of the nature of its industrial products and
the fact that the Company sells diverse products to many markets, the Company is
not significantly affected by the cyclical behavior, or seasonality, of any
particular market that it serves.
None of the Company's business segments is dependent on any single customer or a
few customers, the loss of which would have a material adverse effect on the
respective segments, or on the Company as a whole. No customer accounted for 10%
or more of consolidated sales in 1999, 1998 or 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the
matters discussed in this Form 10-K Report are forward-looking statements based
on current expectations and involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements under the following
headings: (i) Item 1 - "Backlog, Raw Materials and Environmental Matters" - the
expected ability to fill existing orders in 2000, the continued adequacy of the
Company's raw materials sources, and the future impact of environmental matters
on the financial condition of the Company; (ii) Item 3 - "Legal Proceedings" -
the future impact of legal proceedings on the financial condition of the
Company. The Company wishes to caution the reader that, in addition to the
matters described above, various factors such as delays in contracts from key
customers, demand and market acceptance risk for new products, continued or
increased competitive pricing and the effects of under-utilization of plants and
facilities, particularly in Europe, and the impact of worldwide economic
conditions on demand for the Company's products, could cause results to differ
materially from those in any forward-looking statement.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company periodically enters into foreign exchange contracts for purposes of
hedging its exposure to foreign currency exchange rate fluctuations. These
contracts hedge firm commitments between the Swedish Krona and the German
Deutschmark and the United States Dollar. At December 31, 1999, the Company had
foreign currency contracts with notional amounts totaling approximately $0.1
million with various expiration dates through June 2000. The amount of deferred
gain or loss associated with these contracts is not material.
All foreign currency derivative agreements are with major commercial banks;
therefore the risk of credit loss from nonperformance by the banks is considered
by management to be minimal. The Company evaluates its exposure to credit loss
on an ongoing basis.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data required by Part
II, Item 8 of Form 10-K are included in Part IV of this Form 10-K Report as
indexed at Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Not Applicable
Item 11. Executive Compensation.
Not Applicable
Item 12. Security Ownership ofCertain Beneficial Owners and Management.
Not Applicable
Item 13. Certain Relationships and Related Transactions.
None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
The Financial Statements and Supplementary Data required by Part II,
Item 8 of Form 10-K are included in this Part IV of this Form 10-K Report
as follows:
Consolidated Financial Statements
Consolidated Statements of Income and Comprehensive Income for Years Ended
December 31, 1999, December 31, 1998, the period from January 1, 1997 to
August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to
December 31, 1997 (post-Acquisition)
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
December 31, 1998, the period from January 1, 1997 to August 28, 1997
(pre-Acquisition) and the period from August 29, 1997 to December 31, 1997
(post-Acquisition)
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1999, December 31, 1998, the period from January 1, 1997 to
August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to
December 31, 1997 (post-Acquisition)
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Report of Independent Public Accountants on Schedule II
Quarterly Financial Information (unaudited)
(2) Financial Statement Schedules
The following consolidated financial statement schedule for the years
ended December 31, 1999 and 1998, the period from January 1, 1997 to
August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to
December 31, 1997 (post-Acquisition) is filed as part of this Report and
should be read in conjunction with the Company's Consolidated Financial
Statements.
Schedule
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable regulation of the Securities and Exchange Commission are
omitted because they are not required under the related instructions or
because the required information is given in the financial statements or
notes thereto.
(3) Exhibits
The Exhibits listed in the accompanying Index to Exhibits are filed
as part of this Report.
(b) Reports on Form 8-K
None
EXHIBIT INDEX
Exhibit No. Note No. Description
3(i) (23) The Company's Restated Certificate of
Incorporation, as amended March 10, 1989 and
November 10, 1992 and April 30, 1997
3(ii) (28) The Company's Bylaws
4.1 (A) (18) Indenture, dated as of April 15, 1996, between the
Company and IBJ Schroder Bank & Trust Company, as
Trustee
(B) (28) Second Supplemental Indenture, dated as of August
26, 1997, between the Company and IBJ
Schroder Bank & Trust Company, as Trustee
4.3 (18) Registration Rights Agreement, dated as of April
23, 1996, between the Company and the Initial
Purchasers
4.3 (A) (20) Rights Agreement dated as of April 30, 1997 between
the Company and First Chicago Trust Company of New
York, which includes, as Exhibit A thereto, the
Certificate of Designation, Preferences and Rights
of Series B Junior Participating Preferred Stock
of Imo Industries Inc., as Exhibit B thereto, the
Form of Rights Certificate and as Exhibit C
thereto, the Summary of Rights to Purchase
Preferred Stock.
(B) (21) Amendment to Rights Agreement dated June 25, 1997
between the Company and First Chicago Trust Company
of New York
(C) (22) Second Amendment to Rights Agreement dated July 25,
1997 between the Company and First Chicago Trust
Company of New York
(D) (24) Third Amendment to Rights Agreement dated August
21, 1997 between the Company and First Chicago
Trust Company of New York
(E) (29) Fourth Amendment to Rights Agreement dated April
30, 1998 between the Company and First Chicago
Trust Company of New York
Management Contracts, Compensatory Plans and Arrangements:
10.1 (14) Amended and restated Equity Incentive Plan for
Key Employees
10.2 (16) Amended and restated 1988 Equity Incentive Plan for
Outside Directors
10.3 (15) 1995 Equity Incentive Plan for Outside Directors
10.4 (17) The Company's Supplemental Retirement Income Plan
10.5 (8) Change in Control Agreement dated January 9, 1987
between the Company and John J. Carr
10.6 (8) Change in Control Agreement dated August 5, 1992
between the Company and William M. Brown
10.7 (8) Change in Control Agreement dated August 13, 1992
between the Company and Thomas J. Bird
10.8 (10) Change in Control Agreement dated September 13,
1993 between the Company and Donald K. Farrar
10.9 (19) Change in Control Agreement dated May 21, 1996
between the Company and Donald N. Rosenberg
10.10 (19) Severance Agreement dated February 6, 1997 between
Imo Industries (UK) Limited and Brian Lewis
10.11 (19) Consultancy Agreement dated February 13, 1997
between Imo Industries Inc. and Brian Lewis
Other Material Contracts:
10.12 (A) (3),(4) The Company's Salaried Employees Stock
Savings Plan as amended on July 1, 1987 and as
amended on June 14, 1988
(B) (7) Amendment dated March 16, 1989 to the Imo
Industries Inc. Employees Stock Savings Plan
(C) (5) Amendments dated September 6,1990 and February 14,
1991 to the Imo Industries Inc. Employees Stock
Savings Plan
(D) (6) Amendment dated May 9, 1991 to the Imo Industries
Inc. Employees Stock Savings Plan
(E) (8) Amendments dated December 30, 1991 and August 3,
1992 to the Imo Industries Inc. Employees Stock
Savings Plan
(F) (12) Trust Agreement for the Imo Industries Inc.
Employees Stock Savings Plan as of March 1, 1995
between the Company and Eagle Trust Company
10.13 (1) Distribution Agreement dated December 18, 1986
between Transamerica Corporation and the Company
10.14 (1) Tax Agreement between the Company and Transamerica
Corporation
10.15 (J) (9) Warrant dated July 15, 1993 issued by the Company
to The Prudential Insurance Company of America
10.16 (2) Stock Purchase Agreement dated November 30, 1987
between the Company and TRIFIN B.V.
10.17 (5) Stock Purchase Agreement dated as of May 31, 1990
among United Scientific Holdings PLC, United
Scientific Inc. and the Company
10.18 (10) Stock Purchase Agreement dated as of October 28,
1993 among the Company, Imo Industries GmbH, Mark
Controls Corporation and Mark Controls GmbH i. Gr.,
as amended
10.19 (A) (18) Credit Agreement dated as of April 29, 1996 among
the Company, as Borrower, Varo Inc., as Guarantor,
Warren Pumps Inc. as Guarantor, the Institutions
from time to time party thereto as Lenders and
Issuing Banks, and Citicorp USA, Inc., as Agent
10.19 (B) (19) First Amendment dated as of February 19, 1997 to
the Credit Agreement dated as of April 29, 1996
among the Company, as Borrower, Varo Inc., as
Guarantor, Warren Pumps, Inc. as Guarantor, the
Institutions from time to time party thereto as
Lenders and Issuing Banks, and Citicorp USA, Inc.,
as Agent
10.20 (A) (11) Asset Purchase Agreement dated as of November 4,
1994 by and among the Company, Imo Industries
International Inc. and Mannesmann Capital
Corporation
(B) (12) Agreement, Amendment and Waiver dated January 17,
1995 by and among the Company and Mannesmann
Capital Corporation
10.21 (12) Asset and Stock Purchase Agreement dated as of
January 1, 1995 by and among the Company and Thermo
Jarrell Ash Corporation
10.22 (13) Purchase and Sale Agreement among Litton
Industries, Inc., and Litton Systems, Inc. and
Imo Industries Inc., Baird Corporation,
Optic-Electronic International, Inc. and Varo Inc.
dated May 11, 1995 and amended and restated as of
June 2, 1995
10.23 (A) (19) Asset Purchase Agreement dated as of September 13,
1996 between Varo Inc. and Varo Acquisition Corp.
(B) (19) Reinstatement Agreement dated January 28, 1997
between Varo Inc. and Varo Acquisition Corp.
10.24 (21) Agreement and Plan of Merger, dated June 26, 1997,
among United Dominion Industries Limited, UD
Delaware Corp. and Imo Industries Inc.
10.25 (22) Share Purchase Agreement, dated July 25, 1997,
between II Acquisition Corp. and the Company
10.26 (25) Asset Purchase Agreement dated as of August 29,
1997 among the Registrant and certain of its
subsidiaries and Danaher Corporation and
certain of its subsidiaries
10.27 (A) (26) Credit and Guaranty Agreement dated as of August
29, 1997 among the Company, as Borrower, II
Acquisition Corp., as Guarantor, Certain
Financial Institutions, as Lenders, The Bank of
Nova Scotia, as Administrative and Documentation
Agent and Nationsbanc Capital Markets, Inc., as
Syndication Agent for the Lenders
(B) (28) First Amendment to Credit and Guaranty Agreement
dated as of November 6, 1997
(C) (28) Second Amendment to Credit and Guaranty Agreement
dated as of December 2, 1997
(D) (28) Third Amendment to Credit and Guaranty Agreement
dated as of February 16, 1998
(E) (30) Fourth Amendment to Credit and Guaranty Agreement
dated as of March 9, 1998
(F) (31) Fifth Amendment to Credit and Guaranty Agreement
dated as of June 1, 1998
(G) (32) Sixth Amendment to Credit and Guaranty Agreement
dated as of October 15, 1998
(H) Seventh Amendment to Credit and Guaranty Agreement
dated as of August 3, 1999
(I) Eighth Amendment to Credit and Guaranty Agreement
dated as of November 29, 1999
10.28 (27) Stock Purchase Agreement dated as of January 30,
1998 between the Registrant and Magna International
Inc.
10.29 Receivables Purchase Agreement dated as of November
29, 1999 among Imo Funding Company, LLC, Imo
Industries Inc., Liberty Street Funding Corp. and
The Bank of Nova Scotia
10.30 Purchase and Sale Agreement dated as of November
29, 1999 among the Originators named herein, Imo
Industries Inc. and Imo Funding Company, LLC
10.31 Stock Purchase Agreement by and between Echlin Inc.
and Imo Industries, Inc. dated as of October 13,
1999
21 Subsidiaries of the Company
27 Financial Data Schedule as of December 31, 1999
- -----------------------------------------------
NOTES
(1) Incorporated by reference to the Company's Form 8 Amendment No. 2 filed
with the Commission on December 9, 1986 amending the Company's Form 10 as
filed with the Commission on October 15, 1986.
(2) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 17, 1987.
(3) Incorporated by reference to the Imo Industries Inc. Employees Stock
Savings Plan Form 11-K filed with the Commission on April 13, 1988.
(4) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1990.
(5) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 28, 1991.
(6) Incorporated by reference to the Company's Form S-8 filed with the
Commission on June 17, 1991.
(7) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 1992.
(8) Incorporated by reference to the Company's Form 10-K filed with the
Commission on April 19, 1993.
(9) Incorporated by reference to the Company's Form 10-K/A filed with the
Commission on August 6, 1993 amending the Company's Form 10-K as filed
with the Commission on April 19, 1993.
(10) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 31, 1994.
(11) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 14, 1994.
(12) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1995.
(13) Incorporated by reference to the Company's Form 8-K filed with the
Commission on June 19, 1995.
(14) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60533
(15) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60535
(16) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 13, 1995.
(17) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 28, 1996.
(18) Incorporated by reference to the Company's Form S-4 (Registration
No. 333-3477) filed with the Commission on May 10, 1996.
(19) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 27, 1997.
(20) Incorporated by reference to the Company's Form 8-A Registration Statement
filed with the Commission on May 2, 1997.
(21) Incorporated by reference to the Company's Schedule 14D-9
Solicitation/Recommendation Statement filed with the Commission on July 2,
1997.
(22) Incorporated by reference to the Company's Schedule 14D-9
Solicitation/Recommendation Statement filed with the Commission on July
31, 1997.
(23) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on August 14, 1997.
(24) Incorporated by reference to the Company's Form 8-K filed with the
Commission on August 27, 1997.
(25) Incorporated by reference to the Company's Form 8-K filed with the
Commission on September 15, 1997.
(26) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 14, 1997.
(27) Incorporated by reference to the Company's Form 8-K filed with the
Commission on March 13, 1998.
(28) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 31, 1998.
(29) Incorporated by reference to the Company's Form 8-A/A filed with the
Commission on May 1, 1998.
(30) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on May 13, 1998.
(31) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on August 14, 1998.
(32) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Imo Industries Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2000
IMO INDUSTRIES INC.
By: /s/ JOHN A. YOUNG
John A. Young
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Imo Industries Inc.
and in the capacities and on the dates indicated.
/s/ PHILIP W. KNISELY Chief Executive Officer,
Philip W. Knisely President and Director
(principal executive officer) March 30, 2000
/s/ JOHN A. YOUNG Vice President and
John A. Young Chief Financial Officer
(principal financial officer) March 30, 2000
/s/ G. SCOTT FAISON Corporate Controller
G. Scott Faison (principal accounting officer) March 30, 2000
/s/ STEVEN M. RALES Director March 30, 2000
Steven M. Rales
/s/ MITCHELL P. RALES Director March 30, 2000
Mitchell P. Rales
/s/ NEIL D. COHEN Director March 30, 2000
Neil D. Cohen
Consolidated Statements of Income and Comprehensive Income
(Dollars in thousands except per share amounts)
Post-Acquis. Pre-Acquis.
Year Ended Year Ended Aug.29, 1997 Jan.1, 1997
December December to Dec. to Aug.
31, 1999 31, 1998 31, 1997 28, 1997
- --------------------------------------------------------------------------------
Net Sales $287,507 $308,870 $106,711 $210,151
Cost of products sold 194,936 208,579 76,597 145,276
- --------------------------------------------------------------------------------
Gross Profit 92,571 100,291 30,114 64,875
Selling, general and administrative
expenses 50,516 56,464 21,411 46,724
Research and development expenses 4,344 5,317 1,913 3,636
Unusual items --- --- 5,000 26,344
- --------------------------------------------------------------------------------
Income (Loss) From Operations 37,711 38,510 1,790 (11,829)
Other income 1,045 684 825 22
Gain on sale of assets 2,066 --- --- ---
Interest expense 16,668 21,293 8,069 18,190
- --------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations Before Income
Taxes and Extraordinary Item 24,154 17,901 (5,454) (29,997)
Income taxes 8,840 7,008 235 1,254
- --------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations Before
Extraordinary Item 15,314 10,893 (5,689) (31,251)
Discontinued operations:
Income (loss) from operations (net
of income tax expense of
$0, $0, $77 and $664) --- --- (3,753) 2,372
Estimated loss on disposal --- --- (8,430) ---
- --------------------------------------------------------------------------------
Total Income (Loss) from
Discontinued Operations --- --- (12,183) 2,372
- --------------------------------------------------------------------------------
Extraordinary item - loss on
extinguishment of debt (net of tax) (216) (5,223) (3,348) ---
- --------------------------------------------------------------------------------
Net Income (Loss) $ 15,098 $5,670 $(21,220) $(28,879)
================================================================================
Other comprehensive income (loss), net of taxes -
Foreign currency translation
adjustments (1,774) (266) 2,122 (3,346)
- --------------------------------------------------------------------------------
Comprehensive Income (Loss) $ 13,324 $5,404 $(19,098) $(32,225)
================================================================================
Earnings (loss) per share, basic and diluted: (See Note 1)
Continuing operations before extraordinary item $ (.33) $(1.82)
Discontinued operations (.71) .14
Extraordinary item (.20) ---
- --------------------------------------------------------------------------------
Net loss $(1.24) $(1.68)
- --------------------------------------------------------------------------------
Weighted average number of shares
outstanding 17,127,859 17,126,192
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements
Imo Industries Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except par value)
December 31, 1999 1998
- ------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $2,898 $ 6,230
Trade accounts and notes receivable, less
allowance of $1,348 in 1999 and $1,058 in 1998 30,075 40,125
Inventories 57,844 53,114
Deferred income tax assets 11,972 16,096
Prepaid expenses and other current assets 3,051 2,525
- ------------------------------------------------------------------
Total Current Assets 105,840 118,090
- ------------------------------------------------------------------
Property, plant and equipment
Land 4,710 4,450
Buildings and improvements 20,745 21,063
Machinery and equipment 49,040 41,577
- ------------------------------------------------------------------
74,495 67,090
Less accumulated depreciation and
amortization (12,911) (7,660)
- -------------------------------------------------------------------
Net property, plant and equipment 61,584 59,430
Intangible assets, principally goodwill, net 180,746 177,826
Investments in and advances to
unconsolidated companies 5,069 4,536
Deferred income tax assets 20,845 25,680
Other assets 2,637 3,410
- ------------------------------------------------------------------
Total Assets $ 376,721 $ 388,972
==================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 1,295 $ 817
Trade accounts payable 21,854 15,350
Accrued expenses and other liabilities 31,928 43,125
Accrued costs related to discontinued
operations 2,559 4,289
Income taxes payable --- 5,505
Current portion of long-term debt 9,447 8,486
- ------------------------------------------------------------------
Total Current Liabilities 67,083 77,572
- ------------------------------------------------------------------
Long-term debt 159,624 165,843
Accrued postretirement benefits - long-term 8,555 9,155
Accrued pension expense and other
liabilities 23,869 32,136
- ------------------------------------------------------------------
Total Liabilities 259,131 284,706
- ------------------------------------------------------------------
Shareholders' Equity
Preferred stock: $1.00 par value;
authorized and
unissued 5,000,000 shares --- ---
Common stock: $1.00 par value; authorized
and issued 100 shares 1 1
Additional paid-in capital 120,751 120,751
Retained deficit (452) (15,550)
Cumulative foreign currency translation
adjustments (2,710) (936)
- ------------------------------------------------------------------
Total Shareholders' Equity 117,590 104,266
- ------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 376,721 $ 388,972
==================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Post-Acquis. Pre-Acquis.
Year Ended Year Ended Aug.29, 1997 Jan.1, 1997
December December to Dec. to Aug.
31, 1999 31, 1998 31, 1997 28, 1997
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 15,098 $5,670 $(21,220) $ (28,879)
Adjustments to reconcile net income
(loss) to net cash provided by (used by)
continuing operations:
Discontinued operations --- --- 12,183 (2,372)
Depreciation 5,597 4,880 3,674 6,747
Amortization 5,354 6,872 2,007 1,867
Provision for deferred income
taxes 7,730 4,668 --- ---
Extraordinary item 216 5,223 3,348 ---
Unusual items --- --- 5,000 26,344
Other 111 49 369 750
Other changes in operating assets and liabilities (excluding the effects of
acquisitions and dispositions):
Accounts and notes receivable 15,413 13,549 (6,467) 1,730
Inventories 5,737 11,774 1,759 (1,930)
Accounts payable and accrued
expenses (5,330) (21,019) (17,028) (9,794)
Other operating assets and
liabilities (8,713) 9,163 (1,608) (3,855)
- --------------------------------------------------------------------------------
Net cash provided by (used by)
continuing operations 41,213 40,829 (17,983) (9,392)
Net cash used by discontinued
operations (1,730) (1,219) (1,342) (1,377)
- --------------------------------------------------------------------------------
Net Cash Provided by (Used by)
Operating Activities 39,483 39,610 (19,325) (10,769)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net proceeds from sale of businesses
and sales of property, plant and
equipment 2,332 32,726 88,024 25,235
Purchases of property, plant and
equipment (6,402) (6,049) (3,740) (4,555)
Acquisition of Sierra International
Inc. (33,036) --- --- ---
Net investing activities of
discontinued operations --- (1,164) (5,104) (3,692)
Other --- 80 (497) 141
- --------------------------------------------------------------------------------
Net Cash (Used by) Provided by
Investing Activities (37,106) 25,593 78,683 17,129
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in notes payable 511 (2,421) (15,900) 18,786
Proceeds from long-term borrowings 68,500 23,559 129,270 119
Principal payments on long-term debt(73,685) (71,583) (164,719) (25,792)
Purchase of minority shares --- (6,247) --- ---
Payment of debt financing costs --- --- (5,368) (384)
Premium payment on repurchase of
long-term debt (210) (5,822) --- ---
Other --- (37) 281 (102)
- --------------------------------------------------------------------------------
Net Cash (Used by) Provided by
Financing Activities (4,884) (62,551) (56,436) (7,373)
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash(825) 50 453 (253)
- --------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash
Equivalents (3,332) 2,702 3,375 (1,266)
Cash and cash equivalents at beginning
of the period 6,230 3,528 153 1,419
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of
the Period $2,898 $6,230 $ 3,528 $ 153
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $15,560 $22,443 $ 13,344 $ 19,564
Income taxes $ 2,671 $ 2,725 $ 1,263 $ 2,006
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
<CAPTION>
Cumulative
Foreign Minimum
Additional Currency Pension Unearned
Common Paid-in RetainedTranslation Liability Compen- Treasury
Stock Capital Deficit Adjustment Adjustment sation Stock Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 $18,797 $80,466 $(134,962) $ 554 $(2,503) $ (719) $(18,020) $(56,387)
Net loss --- --- (28,879) --- --- --- --- (28,879)
Foreign currency
translation
adjustments --- --- --- (3,346) --- --- --- (3,346)
Restricted shares
issued under
the equity
incentive plans 4 11 --- --- --- 48 --- 63
- --------------------------------------------------------------------------------------------
Pre-Acquisition
Balance at
August 28, 1997 18,801 80,477 (163,841) (2,792) (2,503) (671) (18,020) (88,549)
- ---------------------------------------------------------------------------------------------
Adjustment to new
cost basis of Colfax
Corporation on August
29, 1997 (1,673) 26,328 152,045 2,792 2,503 671 18,020 200,686
- ---------------------------------------------------------------------------------------------
Post-Acquisition
Balance at
August 29, 1997 17,128 106,805 (11,796) --- --- --- --- 112,137
Net loss --- --- (21,220) --- --- --- --- (21,220)
Foreign currency
translation
adjustments --- --- --- (670) --- --- --- (670)
- ---------------------------------------------------------------------------------------------
Balance at
December 31, 1997 17,128 106,805 (33,016) (670) --- --- --- 90,247
Net income --- --- 5,670 --- --- --- --- 5,670
Purchase of minority
interest --- (3,181) 11,796 --- --- --- --- 8,615
New equity structure
upon merger with
Imo Merger Corp. (17,127) 17,127 --- --- --- --- --- ---
Foreign currency
translation
adjustments --- --- --- (266) --- --- --- (266)
- ---------------------------------------------------------------------------------------------
Balance at
December 31, 1998 1 120,751 (15,550) (936) --- --- --- 104,266
Net income --- --- 15,098 --- --- --- --- 15,098
Foreign currency
translation
adjustments --- --- --- (1,774) --- --- --- (1,774)
- ---------------------------------------------------------------------------------------------
Balance at
December 31, 1999 $ 1 $ 120,751 $ (452)$(2,710) $ --- $ --- $ --- $ 117,590
=============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
Notes to Consolidated Financial Statements
Note 1 Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. Significant intercompany
transactions have been eliminated in consolidation. The Company uses the equity
method to account for investments in corporations in which it does not own a
majority voting interest but has the ability to exercise significant influence
over operating and financial policies.
Translation of Foreign Currencies: Assets and liabilities of international
operations are translated into U.S. dollars at year-end exchange rates. Income
and expense accounts are translated into U.S. dollars at average rates of
exchange prevailing during the year. Translation adjustments are reflected as a
separate component of shareholders' equity and comprehensive income.
Cash Equivalents: Cash equivalents include investments in government securities
funds and certificates of deposit. Investment periods are generally less than
one month.
Inventories: Inventories are carried at the lower of cost or market, cost being
determined principally on the basis of standards which approximate actual costs
on the first-in, first-out method, and market being determined by net realizable
value. Appropriate consideration is being given to deterioration, obsolescence
and other factors in evaluating net realizable value.
Revenue Recognition: Revenues are recorded generally when the Company's products
are shipped. Revenue is recorded on unshipped, completed products when certain
criteria are met, including the customer requesting to be billed prior to
shipment and the title and risk of loss passing to the customer at the billing
date.
Depreciation and Amortization: Depreciation and amortization of plant and
equipment are computed principally by the straight-line method based on the
estimated useful lives of the assets as follows: buildings and improvements, 10
to 40 years and machinery and equipment, 3 to 15 years.
Earnings Per Share: Basic and diluted net income (loss) per share for 1997 is
calculated based on the actual weighted average shares outstanding. For 1997,
outstanding stock options and warrants are not considered as their effect is
antidulutive. As a result of the back-end merger on July 2, 1998, earnings per
share is not presented for 1999 and 1998. (See Note 2).
Recent Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This statement is effective for
fiscal years beginning after June 15, 2000. The Company believes that results of
operations will not be materially affected by the adoption of this statement.
Intangible Assets: Goodwill of businesses acquired is being amortized on the
straight-line basis over 40 years. The carrying value of goodwill is reviewed
when indicators of impairment are present, by evaluating future cash flows of
the associated operations to determine if impairment exists. Goodwill at
December 31, 1999 and 1998 was $177.2 million and $173.1 million, respectively,
net of respective accumulated amortization of $12.0 million and $7.5 million.
Patents are amortized over the shorter of their legal or estimated useful lives.
Management Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2 Acquisition By Colfax Corporation
On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of
the Company's outstanding shares of common stock pursuant to its tender offer
for all outstanding shares of the common stock of the Company (the
"Acquisition"). The consideration paid was $7.05 per share of common stock or
$112.1 million in total. On July 2, 1998, Imo Merger Corp., a wholly owned
subsidiary of Colfax, merged with and into Imo, pursuant to a short-form merger
under Delaware law ("back-end merger"). The Company was the surviving
corporation in the back-end merger and as result became a wholly owned
subsidiary of Colfax. As of December 31, 1999, 942,693 of the outstanding
1,221,888 common shares held by minority shareholders were converted to cash. A
payable of $2.0 million was accrued at December 31, 1999, for the remaining
279,195 shares that were not converted as of that date. Total consideration for
the purchase of Imo was $120.7 million.
The Acquisition has been accounted for under the purchase method. The purchase
price was allocated as follows: tangible assets - $314.5 million; other
intangible assets - $8.4 million; and liabilities - $382.7 million. The
allocation was based on the estimated fair values at the date of acquisition and
resulted in an excess of purchase price over assets acquired, liabilities
assumed, and additional purchase liabilities recorded, for continuing operations
of $180.5 million, which is being amortized on a straight-line basis over 40
years.
Included in the liabilities above were approximately $18.6 million for severance
and related costs, and consolidation of certain acquired facilities. At December
31, 1999, none of these liabilities remained on the balance sheet and $3.1
million remained at December 31, 1998. Of the $18.6 million charged against the
liability, $16.2 million related to restructuring and $2.4 million related to
severance payments.
In conjunction with the Acquisition, the Company recorded a charge of $15.8
million including a $10.0 million contract fee paid to United Dominion
Industries ("UDI") as a result of the termination of a merger agreement between
UDI and the Company, $3.4 million of commissions, advisory and legal fees, and
$2.4 million of employee retention bonuses. (See Note 7).
Cost Reduction Programs
In connection with the Acquisition, the Company implemented a cost reduction
program. The cost of this program was $18.6 million and was accrued for in
accordance with the purchase method of accounting. It is comprised of $10.5
million related to severance and termination benefits as a result of headcount
reductions at the Company's corporate headquarters. In addition, $1.2 million
and $6.9 million of costs for the Company's Fluid Handling and Industrial
Positioning segments, respectively, related to severance and termination
benefits resulting from headcount reductions and the consolidation of certain
manufacturing facilities. The program was completed in 1999. The cash outlay
related to this program was $8.1 million in 1997, $7.4 million in 1998 and $3.1
million during 1999.
Note 3 Discontinued Operations
In February 1998 and August 1997, the Company sold its Roltra Morse and
Instrumentation businesses, respectively. In April 1997, the Company completed
the sale of the Varo Electronic Systems division. In accordance with APB Opinion
No. 30, the disposals of these business segments have been accounted for as
discontinued operations and, accordingly, their operating results have been
segregated and reported as Discontinued Operations in the accompanying
Consolidated Statements of Income and Comprehensive Income.
The income (loss) from operations of the Discontinued Operations for 1998 and
1997 includes allocated interest expense of $0.2 million and $2.7 million ($2.4
million - pre-Acquisition), respectively. Allocated interest expense is an
allocation of corporate interest expense to the Discontinued Operations based on
the ratio of net assets to be sold to the sum of the Company's consolidated net
assets, if positive, plus consolidated debt. The operating loss of $0.9 million
for Roltra Morse for the two months ended February 28, 1998 was accrued as a
portion of the estimated loss on disposal as of December 31, 1997.
Roltra Morse
On February 27, 1998, the Company completed the sale of its Roltra Morse
business to Magna International Inc. for cash of $30 million, plus the
assumption of Roltra Morse's debt. The sale price approximated the recorded net
book value of the business. Net proceeds were used to reduce domestic senior
debt.
The Roltra Morse business had operating losses of $0.9 million and $6.7 million
for 1998 and 1997, respectively. The 1997 operating loss included an unusual
charge of $0.7 million (pre-Acquisition) due to fees incurred related to the
previously failed attempt to sell the Roltra Morse business.
Instrumentation
On August 29, 1997, the Company completed the sale of its Instrumentation
business segment to Danaher Corporation for approximately $85 million, which
approximated its net book value. The majority shareholders of the Company are
also substantial shareholders of Danaher Corporation. The purchase price was
determined on the basis of arms length negotiations between the Company and
Danaher Corporation. A portion of the proceeds was used to reduce domestic
senior debt by $68.1 million.
The Instrumentation business had income from operations of $5.3 million for
1997.
Electro-Optical Systems
On April 28, 1997, the Company completed the sale of the Varo Electronic Systems
division to a small defense contractor for $12 million, which was used to reduce
senior domestic debt. The sale of this business completed the disposal of the
Electro-Optical Systems business.
In the third quarter of 1997, the Company recorded an additional $3.4 million
loss on disposal related to changes in estimates on certain reserve requirements
associated with the retained liabilities of this business.
The Electro-Optical Systems business had income from operations of $0.8 million
for 1997. The income in 1997 offset increases in estimated reserve requirements.
Note 4 Restructuring Asset Sales
1999 Assets Sales: During 1999, the Company completed the sales of certain
non-operating real estate for net proceeds of $0.1 million.
1998 Assets Sales: On February 27, 1998, the Company sold its Roltra Morse
business segment to Magna International. During 1998, the Company also completed
the sales of certain non-operating real estate for net proceeds of $0.6 million.
1997 Asset Sales: On August 29, 1997, the Company completed the sale of its
Instrumentation business segment to Danaher Corporation for proceeds of $85
million, which approximated its net book value. In April 1997, the Company
completed the sale of its Varo Electronic Systems division to a small defense
contractor for $12 million. The sale of this business completed the sale of the
Electro-Optical Systems business. In 1997, the Company also completed sales of
certain of its non-operating real estate for total proceeds of approximately
$14.1 million.
On December 31, 1997, the Company sold certain assets of its Delroyd business
unit to Nuttall Gear LLC for $2.3 million in cash. Also on December 31, 1997,
the Company acquired certain assets of the Centric Clutch business unit of
Ameridrives International, L.P. for $1.3 million in cash. The majority owners of
Nuttall Gear and Ameridrives International, L.P. are also majority owners of the
Company. The transactions were negotiated on an arms length basis, and were
based on the valuations of independent appraisers.
Note 5 Inventories
Inventories are summarized as follows:
December 31 (Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------
Finished products $ 24,740 $ 18,926
Work in process 14,277 17,880
Materials and supplies 19,904 17,545
- -------------------------------------------------------------------------
58,921 54,351
Less customers' progress payments (1,077) (1,237)
- --------------------------------------------------------------------------
$ 57,844 $ 53,114
=========================================================================
Note 6 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31 (Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------
Accrued product warranty costs $2,507 $ 1,423
Accrued litigation and claims costs 7,124 15,003
Payroll and related items 8,403 8,845
Accrued interest payable 2,496 2,014
Accrued restructuring costs 909 3,126
Accrued divestiture costs 977 1,502
Accrued environmental costs 1,548 1,934
Advance customer payments 539 1,363
Other 7,425 7,915
- -------------------------------------------------------------------------
$ 31,928 $ 43,125
=========================================================================
Note 7 Unusual Items
1997
During the year ended December 31, 1997, the Company recorded unusual charges of
$31.3 million in income from continuing operations. The first eight months of
1997 included an unusual charge of $10.5 million relating to the judgment
against the Company in favor of International Insurance Company. In addition,
the Company recorded unusual charges of $20.8 million in the third quarter of
1997. Of these charges, $15.8 million related to the sale of the Company and
represented indirect and general expenses incurred by the Company in connection
with the sale process which were paid in 1997, and $5 million related to an
additional legal provision concerning certain litigation matters.
Note 8 Income Taxes
The components of income tax expense from continuing operations are:
Post-Acquis. Pre-Acquis.
August 29, January 1,
1997 1997
Year Ended December 31, to December to August
(Dollars in thousands) 1999 1998 31, 1997 28, 1997
- ----------------------------------------------------------------------
Current:
Federal $ (449) $ 233 $ --- $ ---
Foreign 1,326 1,801 94 994
State 233 306 141 260
- ----------------------------------------------------------------------
1,110 2,340 235 1,254
- ----------------------------------------------------------------------
Deferred:
Federal 6,450 4,668 --- ---
Foreign and State 1,280 --- --- ---
- ----------------------------------------------------------------------
7,730 4,668 --- ---
- ----------------------------------------------------------------------
$8,840 $7,008 $235 $1,254
======================================================================
Income tax expense for 1997 from discontinued operations was $.7 million. There
was no income tax expense for discontinued operations during 1998 or 1999.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 and
1998 are as follows:
December 31
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------
Current Long-term Current Long-term
- ----------------------------------------------------------------------
Deferred tax assets:
Postretirement benefit $ 234 $ 3,235 $ 234 $ 3,204
obligation
Expenses not currently 12,942 6,467 17,066 7,720
deductible
Net operating loss --- 29,026 --- 32,299
carryover
Tax credit carryover --- 6,071 --- 4,471
- ----------------------------------------------------------------------
Total deferred tax assets 13,176 44,799 17,300 47,694
Valuation allowance for
deferred tax assets (1,204) (516) (1,204) (516)
- ----------------------------------------------------------------------
Net deferred tax assets 11,972 44,283 16,096 47,178
- ----------------------------------------------------------------------
Deferred tax liabilities:
Tax over book depreciation --- 16,835 --- 14,487
Other --- 6,603 --- 7,011
- ----------------------------------------------------------------------
Total deferred tax liabilities --- 23,438 --- 21,498
- ----------------------------------------------------------------------
Net deferred tax assets $ 11,972 $ 20,845 $ 16,096 $ 25,680
======================================================================
The net deferred tax asset currently recorded at December 31, 1999 is $32.8
million, a level where management believes that it is more likely than not that
the tax benefit will be realized. Although the Company has a history of prior
losses, these losses were primarily attributable to divested businesses and
unusual items.
The Company establishes valuation allowances in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation allowance and is recognizing
these benefits only as reassessment indicates that it is more likely than not
that the benefits will be realized. The valuation allowance was $1.7 million for
December 31, 1999 and December 31, 1998. In 1998, the Company reduced its
valuation reserve by $51.6 million due to its belief that it is more likely than
not that these tax benefits will be realized in future years. The revision of
the valuation reserve is due to the change in purchase accounting estimates
during the first year after acquisition.
At December 31, 1999, unremitted earnings of foreign subsidiaries were
approximately $26 million. Since it is the Company's intention to indefinitely
reinvest these earnings, no U.S. taxes have been provided. Determination of the
amount of unrecognized deferred tax liability on these unremitted earnings is
not practicable. The amount of foreign withholding taxes that would be payable
upon remittance of those earnings is approximately $1.3 million.
The components of income (loss) from continuing operations before income taxes
and extraordinary item:
Post-Acquisition Pre-Acquisition
August 29, January 1,
1997 1997
Year Ended December 31 to December to August
(Dollars in thousands) 1999 1998 31, 1997 28, 1997
- -----------------------------------------------------------------------
United States $ 14,291 $ 7,963 $(7,612) $(29,023)
Foreign 9,863 9,938 2,158 (974)
- -----------------------------------------------------------------------
$24,154 $17,901 $(5,454) $(29,997)
=======================================================================
U.S. income tax expense (benefit) at the statutory tax rate is
reconciled below to the overall U.S. and foreign income tax expense.
Post-Acquisition Pre-Acquisition
August 29, January 1,
1997 1997
Year Ended December 31 to December to August
(Dollars in thousands) 1999 1998 31, 1997 28, 1997
- -----------------------------------------------------------------------------
Tax at U.S. federal income $ 8,454 $ 6,265 $ (1,909) $ (10,499)
tax rate
State taxes, net of federal
income tax effect 151 198 92 169
Impact of foreign tax rates
and credits, and tax
refunds (1,247) (1,677) 228 (660)
Net U.S. tax on
distributions of
current foreign earnings 486 266 355 ---
Goodwill amortization and
write-off 1,574 1,995 458 222
Change in valuation reserve --- --- 1,720 7,472
Nondeductible foreign losses --- --- 89 1,017
Other (578) (39) (798) 3,533
- -----------------------------------------------------------------------------
Income tax expense $ 8,840 $ 7,008 $ 235 $ 1,254
=============================================================================
The Company has net operating loss carryforwards of approximately $82.9 million
expiring in years 2000 through 2018, and minimum tax credits of approximately
$2.6 million, which may be carried forward indefinitely. Tax credit
carryforwards include foreign tax credits of approximately $3.4 million that
expire beginning in the year 2002. These carryforwards are available to offset
future federal taxable income, subject to the Section 382 limitations, due to
the Acquisition.
Note 9 Long-Term Debt and Notes Payable
Long-Term Debt
Long-term debt consists of the following:
December 31 (Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------
Term Loans (1) (2) $ 36,689 $46,538
Revolver Loans (1) (2) 52,250 41,000
Due to Amerdrives International, L.P. (3) 5,000 5,000
Senior subordinated notes with interest at
11.75%, due May 1, 2006, net of unamortized
discount of $0.8 million in 1999 and
$0.9 million in 1998 74,217 77,591
Other 915 4,200
- ---------------------------------------------------------------------
169,071 174,329
Less current portion (9,447) (8,486)
- ---------------------------------------------------------------------
$159,624 $165,843
=====================================================================
(1)Quarterly principal payments are as follows: $2.1 million due quarterly
November 29, 1999 to August 29, 2000; $3.0 million due quarterly November 29,
2000 to August 29, 2001; and $4.5 million due quarterly November 29, 2001 to
August 29, 2002. All revolver balances are due on August 29, 2002.
(2)These loans bear interest at prime plus .50%, or LIBOR plus 1.75%. The prime
and LIBOR margins are a sliding scale based on the Company's total debt to
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.)
(3)The majority shareholders of Ameridrives International, L.P. are also
the majority shareholders of the Company. This loan bears interest
at LIBOR + 1.50%.
- -------------------------------------------------------------------
On August 29, 1997, the Company completed the refinancing of its domestic senior
debt. Under terms of the refinancing, the Company entered into an agreement for
$143 million in senior secured credit facilities with a group of lenders (the
"Credit Agreement"). Initial borrowings under the Credit Agreement were
approximately $127.1 million. Proceeds of the Credit Agreement were used to
refinance all obligations under the Company's previous credit agreement. The
cost of the implementation of the New Credit Agreement will be amortized over
its term.
The Credit Agreement, which is secured by the assets of the Company's domestic
operations and all or a portion of the stock of certain subsidiaries, provided
for a five year, $70 million revolving credit facility ("Revolver Loans") (which
includes a $30 million letter of credit sub-facility), and a $73 million term
loan facility ("Term Loans") amortizing to August 29, 2002. Proceeds from the
August 29, 1997 sale of the Instrumentation business were used to repay amounts
on the Revolver Loans and Term Loans of $54.2 million and $13.9 million,
respectively (See Note 3). At the same time, and in keeping with the terms of
the Credit Agreement, the $73 million term loan facility was reduced to $59
million, which reduced the total facility to $129 million.
On February 27, 1998, the Company completed the sale of its Roltra Morse
business to Magna International Inc. (See Note 3). The net proceeds were used to
reduce domestic senior debt by $30 million on February 27, 1998, including $8
million of the outstanding Term Loans. The sale of Roltra Morse and use of the
proceeds to reduce its domestic senior debt increased the availability under its
revolving credit facility to purchase a portion of its 11.75% senior
subordinated notes (the "Notes") on the open market.
The aggregate annual maturities of long-term debt, in thousands, for the four
years subsequent to 2000 are:
(Dollars in thousands)
- ----------------------------------------------------------------------
2001 $13,682
2002 70,895
2003 ---
2004 ---
Thereafter 75,047
- ----------------------------------------------------------------------
Total $ 159,624
======================================================================
The Term Loans have required mandatory prepayments under certain conditions such
as from proceeds from asset sales, specified percentages of net proceeds of debt
or equity issuances, and a percentage of excess cash flow. The mandatory
prepayments will be applied to the Term Loans pro rata, and then to the
repayment of the Revolver Loans. Mandatory prepayments applied to the Term Loans
reduce the scheduled quarterly principal payments on a pro rata basis. The
interest rates on the Revolver and Term Loans are based on current market rates.
Consequently, the carrying value of the Term Loans approximates fair value.
The Credit Agreement requires the Company to meet certain objectives with
respect to financial ratios. The Credit Agreement and the Notes contain
provisions, which place certain limitations on dividend payments and outside
borrowings. Under the most restrictive of such provisions, the Credit Agreement
requires the Company to maintain certain minimum interest coverage, fixed charge
coverage and maximum permitted debt levels and prohibits dividends. The Company
was in compliance with all of its covenants under the Credit Agreement at
December 31, 1999.
The Notes are not redeemable prior to May 1, 2001. On or after May 1, 2001, the
Notes are redeemable at the option of the Company, in whole or in part, at 106%
of their principal amount, plus accrued interest, declining to 100% of their
principal amount plus accrued interest on or after May 1, 2004. Interest is
payable semi-annually on May 1 and November 1.
The year ended December 31, 1999, includes an extraordinary charge of $0.2
million, as a result of the early extinguishment of a portion of its Notes.
The year ended December 31, 1998, include an extraordinary charge of $5.2
million net of tax, representing charges related to the early extinguishment of
the Company's debt under its current senior secured credit facilities and its
Notes, as well as the write-off of previously deferred loan costs.
The year ended December 31, 1997 includes an extraordinary charge of $3.3
million. In the third quarter of 1997, a $0.3 million extraordinary charge
consisting of the write-off of deferred debt expense was recorded related to the
repayment of a portion of the Term Loans under the Credit Agreement with the
proceeds from the sale of the Instrumentation business. An extraordinary charge
of $3 million was recorded in the fourth quarter of 1997, as a result of the
open market purchase of a portion of the Notes in November 1997. This charge
represents a cash outlay of $2.3 million incurred in connection with the early
extinguishment of the debt as well as the write-off of previously deferred loan
costs.
Notes Payable
The Company's continuing operations had $7.3 million in foreign short-term
credit facilities with amounts outstanding at December 31, 1999 of $1.3 million.
Due to the short-term nature of these debt instruments it is the Company's
opinion that the carrying amounts approximate the fair value. As of December 31,
1999, the Company had $10.4 million of outstanding standby letters of credit.
Note 10 Shareholders' Equity
On August 29, 1997, the Board of Directors accelerated the exercisability and
deemed exercised for cash all stock options outstanding under the Company's
Equity Incentive Plan for Key Employees, the Equity Incentive Plan for Outside
Directors, and the 1995 Equity Incentive Plan for Outside Directors,
(collectively the "Plans"). The cash paid for outstanding stock options deemed
exercised was based upon the greater of the excess of the tender offer price of
Acquisition Corp. of $7.05 over the per share option exercise price and zero.
The cash payment of outstanding options resulted in no options remaining
outstanding as of August 29, 1997. In addition, on November 5, 1997, pursuant to
resolution of the Board of Directors, the Plans were terminated effective August
29, 1997.
On July 2, 1998, Colfax Corporation's wholly-owned subsidiary, Imo Merger Corp.,
merged with and into Imo, pursuant to a short-form merger under Delaware law
("back-end merger"). Imo was the surviving corporation in the back-end merger
and as a result became a wholly-owned subsidiary of Colfax. At the merger date,
Imo assumed the capital structure of Imo Merger Corp., of 100 shares of common
stock, par value $.01 per share.
Employees Stock Savings Plan
Prior to August 1, 1997, up to 1,600,000 shares of the Company's common stock
were reserved for issuance under the Company's Employee Stock Savings Plan
("ESSP"). The Committee of the ESSP approved a policy change, effective August
1, 1997, in that employer matching contributions to the ESSP are to be paid in
cash rather than through issuance of Company common stock. As of August 1, 1997,
this plan policy change effectively eliminated the restriction on the use of
authorized but unissued shares of common stock.
Treasury Stock
On August 29, 1997, the Company canceled the shares of treasury stock
outstanding as of that date totaling 1,672,788 shares of the Company's common
stock with a cost basis of approximately $18 million.
Note 11 Operations by Industry Segment and Geographic Area
The Company classifies its continuing operations into two business segments:
Fluid Handling and Industrial Positioning. Detailed information regarding
products by segment is contained in the section entitled "Business" included in
Part I, Item 1 of this Form 10-K Report. Amounts related to pre-Acquisition and
post-Acquisition have not been separated, as the effect of the Acquisition on
the segments was not material. Information about the business of the Company by
business segment, foreign operations and geographic area is presented below:
Year Ended December 31
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Net Sales
Fluid Handling $101,094 $112,768 $112,486
Industrial Positioning 186,413 196,102 204,376
- --------------------------------------------------------------------------
Total net sales $287,507 $308,870 $316,862
==========================================================================
Segment operating income
Fluid Handling $ 22,779 $ 21,462 $14,503
Industrial Positioning 23,198 26,323 12,984
- --------------------------------------------------------------------------
Total segment operating income 45,977 47,785 27,487
- --------------------------------------------------------------------------
Equity in income (loss) of --- 31 (519)
unconsolidated companies
Unallocated corporate expenses (1) (7,344) (9,275) (37,703)
Gain on sale of assets 2,066 --- ---
Net interest expense (16,545) (20,640) (24,716)
- --------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes and
extraordinary item $ 24,154 $ 17,901 $(35,451)
==========================================================================
A reconciliation of segment operating income to income from operations follows:
Year Ended December 31
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------
Segment operating income $ 45,977 $ 47,785 $27,487
Unallocated corporate
expenses (1) (7,344) (9,275) (37,703)
Other income (expense) (922) --- 177
- -------------------------------------------------------------------
Income (loss) from operations $ 37,711 $ 38,510 $ (10,039)
====================================================================
(1)Unallocated corporate expenses include unusual items of $31.3 million for the
year ended December 31, 1997.
Year Ended December 31
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------
Identifiable assets
Fluid Handling $ 53,536 $ 58,090
Industrial Positioning 125,018 105,169
Corporate 198,167 225,713
- ---------------------------------------------------------
Total identifiable assets $376,721 $388,972
=========================================================
Depreciation and amortization
Fluid Handling $ 1,978 $ 1,651
Industrial Positioning 3,360 2,930
Corporate 5,613 7,171
- ---------------------------------------------------------
Total depreciation and
amortization $10,951 $11,752
=========================================================
Capital expenditures
Fluid Handling $1,362 $ 2,768
Industrial Positioning 4,738 3,233
Corporate 302 48
- ---------------------------------------------------------
Total capital expenditures $6,402 $ 6,049
=========================================================
Identifiable assets of corporate at December 31, 1999 and 1998 include goodwill
of $178.2 million and $173.1 million related to the Acquisition of Imo,
respectively (See Note 2).
The continuing operations of the Company on a geographic basis are as follows:
Year Ended December 31
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Net sales
United States $199,691 $203,685 $214,150
Foreign 87,816 105,185 102,712
- ----------------------------------------------------------------------
Total net sales $287,507 $308,870 $316,862
======================================================================
Segment operating income
United States $ 34,881 $34,523 $25,050
Foreign 11,096 13,262 2,437
- ----------------------------------------------------------------------
Total segment operating income $ 45,977 $47,785 $27,487
======================================================================
Year Ended December 31
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Identifiable assets
Continuing Operations:
United States $319,711 $327,720 $380,263
Foreign 57,010 61,252 68,110
Discontinued Operations:
United States --- --- (562)
Foreign --- --- 15,489
- ----------------------------------------------------------------------
Total identifiable assets $376,721 $388,972 $463,300
======================================================================
Export sales
Asia $3,463 $5,277 $ 5,011
Canada 5,616 3,801 4,878
Europe 3,461 3,288 2,745
Latin America 1,105 1,241 779
Middle East & North Africa 544 769 604
South America 3,215 7,031 7,349
Other 2,183 3,440 2,236
- ----------------------------------------------------------------------
Total export sales $ 19,587 $ 24,847 $23,602
======================================================================
No one customer accounted for 10% or more of consolidated sales in 1999, 1998 or
1997.
Note 12 Pension Plans and Other Postretirement Benefits
The Company and its subsidiaries have various pension plans covering
substantially all of their employees. Benefits under these pension plans for
substantially all U.S. employees ceased to accrue on January 31, 1999, when the
Company froze benefits under its primary pension plan. At the same time, the
Company increased the length of service credit for the pension plan by 20% and
enhanced its 401k plan. Curtailment of the pension plan resulted in a
curtailment gain of $6.5 million, while the increased length of service resulted
in a loss of $4.9 million. Both changes were contemplated at the Acquisition and
were recorded as purchase accounting adjustments.
It is the general policy of the Company to fund its pension plans in conformity
with requirements of applicable laws and regulations. Net periodic pension
(income) cost was $(3.8) million in 1999, $0.7 million in 1998 and $3.8 million
in 1997, and includes amortization of prior service cost and transition amounts
for periods of 5 to 15 years. The 1999, 1998 and 1997 expense includes costs
related to retained pension liabilities of discontinued operations.
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for certain retired union employees. The
Company's unionized retiree benefits are determined by their individually
negotiated contracts. The Company's contribution toward the full cost of the
benefits is based on the retiree's age and continuous unbroken length of service
with the Company. The Company's policy is to pay the cost of medical benefits as
claims are incurred. Life insurance costs are paid as insured premiums are due.
The following sets forth the funded status of the plans as of the most recent
actuarial valuation using a measurement date of December 31.
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of
year $219,638 $208,778 $10,004 $9,345
Service cost 331 2,367 19 9
Interest cost 14,882 15,169 643 674
Amendments --- 241 --- 85
Actuarial loss (gain) (12,813) 13,807 (705) 1,027
Purchase accounting --- (7,292) --- ---
Effect of plan change 407 --- --- ---
Estimated benefits paid (15,683) (13,432) (947) (1,136)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $206,762 $219,638 $ 9,014 $10,004
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $214,742 $201,638 --- ---
Estimated return on plan assets 35,811 25,424 --- ---
Employer contribution 844 1,112 947 1,136
Estimated benefits paid (15,683) (13,432) (947) (1,136)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of
year $ 235,714 $214,742 --- ---
- --------------------------------------------------------------------------------
Funded status $ 28,952 $ (4,896) $(9,014) $(10,004)
Unrecognized actuarial (gain) loss (30,056) (340) (197) 508
Unrecognized prior service cost 583 55 79 85
Unrecognized net obligation 153 --- --- ---
- --------------------------------------------------------------------------------
Accrued benefit cost $ (368) $ (5,181) $ (9,132) $(9,411)
================================================================================
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 9.25% 9.0% --- ---
Rate of compensation increase --- 5.3% --- ---
For measurement purposes, a 5% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2000 and in all future years. The
rate of compensation increase was zero in 1999 because the plan was frozen on
January 31, 1999.
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------
Year Ended December 31
(Dollars in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Components of net periodic benefit cost:
Service cost $ 331 $2,367 $ 19 $ 9
Interest cost 14,882 15,169 643 674
Expected return on plan assets (19,128) (16,834) --- ---
Amortization of prior service cost 132 (8) 6 ---
- --------------------------------------------------------------------------------
Net periodic benefit (income) cost $ (3,783) $694 $668 $ 683
================================================================================
The Canada pension plan had a curtailment loss of $.1 million for 1999. The
Louisburg pension plan had a settlement loss of $.1 million for 1999.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $2.8 million, $2.8 million and $1.4 million,
respectively, as of December 31, 1999 and related to the Louisburg, Varo and
Canada pension plans. The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $203.4 million, $203.4 million
and $197.8 million, respectively, as of December 31, 1998 and related to the US
Salaried, Louisburg, Warren and Varo pension plans
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
(Dollars in thousands) Increase Decrease
- ------------------------------------------------------------------
Effect on total of service and
interest cost components $ 55 $ (46)
Effect on the postretirement benefit $688 $(595)
obligation
Plan assets at December 31, 1999 are invested in fixed income investments and
equity securities whose values are subject to fluctuations of the securities
market.
The Company maintains a defined contribution plan ("Plan") covering
substantially all domestic, non-union employees. Eligible employees may
generally contribute from 1% to 15% of their compensation on a pre-tax basis to
the Plan. The Company's expense for 1999, 1998 and 1997 was $2 million, $.4
million and $.6 million, respectively, related to the Plan. Effective February
1, 1999, the Company contributions are based on 50% of the first 6% of each
participant's pre-tax contribution. In addition, the Company will also
contribute 3% of all employees' salary (including non-contribution plan
participants) to the defined contribution plan, effective January 1, 1999.
Note 13 Leases
The Company leases certain manufacturing and office facilities, equipment, and
automobiles under long-term leases. Future minimum rental payments required
under operating leases of continuing operations that have initial or remaining
noncancelable lease terms in excess of one year, as of December 31, 1999, are:
(Dollars in thousands)
- ----------------------------------------------------------------------
2000 $3,470
2001 2,723
2002 2,131
2003 1,693
2004 514
Thereafter 3,259
- ----------------------------------------------------------------------
Total minimum lease payments $ 13,790
======================================================================
Total rental expense under operating leases charged against continuing
operations was $6.5 million in 1999, $7.3 million in 1998 and $7.8 million in
1997.
Note 14 Foreign Exchange Contracts
The Company periodically enters into foreign exchange contracts for purposes of
hedging its exposure to foreign currency exchange rate fluctuations. These
contracts hedge firm commitments between the Swedish Krona and the German
Deutschmark and the United States Dollar. At December 31, 1999, the Company had
foreign currency contracts with notional amounts totaling approximately $0.1
million with various expiration dates through June 2000. The amount of deferred
gain or loss associated with these contracts is not material.
All foreign currency derivative agreements are with major commercial banks;
therefore the risk of credit loss from nonperformance by the banks is considered
by management to be minimal. The Company evaluates its exposure to credit loss
on an ongoing basis.
Note 15 Sierra International Inc. Acquisition
On December 1, 1999, the Company purchased the stock of Sierra International
Inc. ("Sierra") from Echlin Inc., a subsidiary of Dana Corporation. Sierra sells
and distributes replacement parts for marine and power equipment applications
and marine hose products. Sierra has become part of the Company's Industrial
Positioning segment.
Note 16 Accounts Receivable Securitization
On November 29, 1999, the Company entered into an agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable of
up to $35 million. At December 31, 1999, a $21 million interest had been sold
under this agreement. Proceeds from the sale were used to finance a portion of
the Sierra acquisition. The sale is reflected as a reduction of accounts
receivable and as operating cash flows. As collections reduce previously sold
interests, new accounts receivable are customarily sold. The discount fees were
$0.1 million in 1999, and are included in interest expense. The Company, as
agent for the purchaser, retains collection and administrative responsibilities
for the participating interests of the defined pool.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," provides accounting and reporting standards for
sales, securitization and servicing of receivables and other financial assets
and extinguishments of liabilities. The Company adopted the Statement in the
1999 fourth quarter. The provisions of the Statement do not have a material
impact on the accounting for actual or future sales of trade accounts receivable
under the securitization agreement referred to above.
Note 17 Contingencies
The Company and one of its subsidiaries are two of a large number of defendants
in a number of lawsuits brought in various jurisdictions by approximately 4,500
claimants who allege injury caused by exposure to asbestos. Although neither the
Company nor any of its subsidiaries has ever been a producer or direct supplier
of asbestos, it is alleged that the industrial and marine products sold by the
Company and the subsidiary named in such complaints contained components which
contained asbestos. Suits against the Company and its subsidiary have been
tendered to its insurers, who are defending under their stated reservation of
rights. In addition, the Company and the subsidiary are named in cases,
involving approximately 32,000 claimants, which were "administratively
dismissed" by the U.S. District Court for the Eastern District of Pennsylvania.
Cases that have been "administratively dismissed" may be reinstated only upon a
showing to the Court that (i) there is satisfactory evidence of an
asbestos-related injury; and (ii) there is probative evidence that the plaintiff
was exposed to products or equipment supplied by each individual defendant in
the case. The Company believes that it has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities related to these
cases.
The Company is a defendant in a lawsuit brought in the United States District
Court for the District of New Jersey alleging failure in performance of
equipment sold in 1986 by the Company's former Deltex division. The complaint
seeks damages in excess of $12 million. The Company believes that there are
legal and factual defenses to the claim and intends to defend the action
vigorously. On June 2, 1999, the Court granted a summary judgment motion filed
by the Company which effectively dismissed all claims. Plaintiffs have appealed
this judgment to the United States Court of Appeals for the Third Circuit.
The Company was a defendant in a lawsuit in the U.S. District Court for the
Western District of Pennsylvania, which alleged component failures in equipment
sold by its former diesel engine division. The complaint sought damages of
approximately $3 million. On September 30, 1997, the Court granted a summary
judgment motion filed by the Company which effectively dismissed all claims
against it. Plaintiffs have appealed this judgment to the United States Court of
Appeals for the Third Circuit. On June 3, 1999, the United States Court of
Appeals for the Third Circuit upheld the District Court's September 30, 1997,
decision thereby upholding the dismissal of all claims against the Company.
The Company is a defendant in a lawsuit in the Circuit Court of Cook County,
Illinois alleging performance shortfalls in products delivered by the Company's
former Delaval Turbine Division and claiming damages of approximately $8
million. The Company entered into an agreement with the plaintiff settling all
claims. Co-Defendant, Federal Insurance Company, has recently filed a
counterclaim for attorney's fees. The Company believes that there are legal and
factual defenses to the claim and intends to defend the action vigorously.
On June 3, 1997, the Company was served with a complaint in a case brought in
the Superior Court of New Jersey which alleges damages in excess of $10 million
incurred as a result of losses under a Government Contract Bid transferred in
connection with the sale of the Company's former Electro-Optical Systems
business. The Electro-Optical Systems business was sold in a transaction that
closed on June 2, 1995. The sales contract provided certain representations and
warranties as to the status of the business at the time of sale. The complaint
alleges that the Company failed to provide notice of a "reasonably anticipated
loss" under a bid that was pending at the time of the transfer of the business
and therefore a representation was breached. The contract was subsequently
awarded to the Company's Varo subsidiary and thereafter transferred to the buyer
of the Electro-Optical Systems business. The case is in the preliminary stages
of pleading but the Company believes that there are legal and factual defenses
to the claims and intends to defend the action vigorously.
The operations of the Company, like those of other companies engaged in similar
businesses, involve the use, disposal and clean up of substances regulated under
environmental protection laws. In a number of instances the Company has been
identified as a Potentially Responsible Party by the U.S. Environmental
Protection Agency, and in one instance by the State of Washington, with respect
to the disposal of hazardous wastes at a number of facilities that have been
targeted for clean-up pursuant to CERCLA or similar state law. Similarly, the
Company has received notice that it is one of a number of defendants named in an
action filed in the United States District Court, for the Southern District of
Ohio Western Division by a group of plaintiffs who are attempting to allocate a
share of cleanup costs, for which they are responsible, to a large number of
additional parties, including the Company. Although CERCLA and corresponding
state law liability is joint and several, the Company believes that its
liability will not have a material adverse effect on the financial condition of
the Company since it believes that it either qualifies as a de minimis or minor
contributor at each site. Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will not be material. For
additional information see section entitled Environmental Matters in Part I,
Item 1 of this Form 10-K Report.
The Company is also involved in various other pending legal proceedings arising
out of the ordinary course of the Company's business. None of these legal
proceedings is expected to have a material adverse effect on the financial
condition of the Company. With respect to these proceedings and the litigation
and claims described in the preceding paragraphs, management of the Company
believes that it either will prevail, has adequate insurance coverage or has
established appropriate reserves to cover potential liabilities. There can be no
assurance, however, as to the ultimate outcome of any of these matters, and if
all or substantially all of these legal proceedings were to be determined
adversely to the Company, there could be a material adverse effect on the
financial condition of the Company.
The Company is self-insured for a portion of its product liability and certain
other liability exposures. Depending on the nature of the liability claim, and
with certain exceptions, the Company's maximum self-insured exposure ranges from
$250,000 to $500,000 per claim with certain maximum aggregate policy limits per
claim year. With respect to the exceptions, which relate principally to diesel
and turbine units sold before 1991, the Company's maximum self-insured exposure
is $5 million per claim.
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Imo Industries Inc.:
We have audited the accompanying consolidated balance sheets of Imo Industries
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for the years ended December 31, 1999 and
1998, and for the periods from August 29, 1997, through December 31, 1997
(post-Acquisition), and from January 1, 1997, through August 28, 1997
(pre-Acquisition.) These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 Imo Industries Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and its cash flows for the years ended December 31, 1999 and 1998,
and for the periods from August 29, 1997, through December 31, 1997
(post-Acquisition), and from January 1, 1997, through August 28, 1997
(pre-Acquisition), in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 11, 2000
Report of Independent Public Accountants on Schedule II
To the Shareholders and Board of Directors of
Imo Industries Inc.:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements included in the Form 10-K Annual Report of Imo
Industries Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and for the years ended December 31, 1999 and 1998, and for the
periods from August 29, 1997, through December 31, 1997 (post-Acquisition), and
from January 1, 1997, through August 28, 1997 (pre-Acquisition), and have issued
our report thereon dated February 17, 2000. Our audits were made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II filed as a part of the Company's Form 10-K Annual Report is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 11, 2000
Imo Industries Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
Quarterly financial information for 1999 and 1998 is as follows:
1st 2nd 3rd 4th
1999 (Dollars in thousands except per Quarter Quarter Quarter Quarter
share amounts) (a)
Net Sales $ 74,499 $ 75,843 $ 67,159 $ 70,006
Gross profit 23,768 25,650 20,899 22,254
Income from continuing operations before
extraordinary item 3,321 5,352 2,278 4,363
Extraordinary Item (216) --- --- ---
Net income 3,105 5,352 2,278 4,363
1st 2nd 3rd 4th
1998 (Dollars in thousands except per Quarter Quarter Quarter Quarter
share amounts) (a)
Net Sales $ 83,031 $ 81,084 $ 75,464 $ 69,291
Gross profit 26,745 26,447 24,047 23,052
Income (loss)from continuing operations
before extraordinary item 3,324 3,842 3,772 (45)
Extraordinary Item (5,603) --- (1,114) 1,494
Net income (loss) (2,279) 3,842 2,658 1,449
(a) The notes to the consolidated financial statements located in Part IV of
this Form 10-K Report as indexed at Item 14(a)(1) should be read in conjunction
with this summary.
<TABLE>
SCHEDULE II
IMO INDUSTRIES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONS
BALANCE ----------------------
AT CHARGED BALANCE
BEGINNING TO COSTS OTHER - DEDUCTIONS - AT END
OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $1,058 $ 360 $ 200 (8) $ 50 (2) $1,348
220 (3)
========= ========== ========== ========= =========
Inventory valuation allowance $7,222 $ 1,211 $ 36 (2) $2,810 (5) $5,682
821 (8) 700 (2)
98 (1)
========= ========== ========== ========= =========
Valuation allowance for deferred
tax assets $1,720 $ --- $ --- $ --- $1,720
========= ========== ========== ========= =========
Accrued product warranty
liability $1,423 $ 1,655 $ 602 (2) $1,349 (4) $2,507
176 (8)
========= ========== ========== ========= =========
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $1,435 $ (158) $ 3 (2) $ 229 (3) $1,058
(7) (1)
========= ========== ========== ========= =========
Inventory valuation allowance $9,508 $ 974 $ 53 (2) $3,249 (5) $7,222
64 (1)
========= ========== ========== ========= =========
Valuation allowance for deferred
tax assets $53,257 $ --- $ --- $51,537 (7) $1,720
========= ========== ========== ========= =========
Accrued product warranty
liability $1,844 $ 1,224 $ 46 $1,691 (4) $1,423
========= ========== ========== ========= =========
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $1,346 $ 1,813 $ 32 (2) $ 295 (3) $1,435
55 (1)
1,406 (6)
========= ========== ========== ========= =========
Inventory valuation allowance $9,929 $13,418 $ 360 (2) $3,613 (5) $9,508
382 (1)
10,204 (6)
========= ========== ========== ========= =========
Valuation allowance for deferred
tax assets $44,065 $ 9,192 $ --- $ --- $53,257
========= ========== ========== ========= =========
Accrued product warranty
liability $2,007 $ 1,815 $ --- $ 28 (1) $1,844
1,950 (4)
========= ========== ========== ========= =========
(1) Foreign exchange adjustments.
(2) Reclassifications and adjustments.
(3) Uncollectible accounts written off, net of recoveries.
(4) Product warranty claims honored during the year.
(5) Charges against inventory valuation account during the year.
(6) In conjunction with the acquisition of the Company and purchase accounting
adjustments as of August 28, 1997, the reserves were reset to zero.
(7) True up balances and reduce valuation reserve due to management's belief
that it is more likely than not that deferred tax benefits will be utilized
in the future.
(8) Sierra acquisition (not included in the beginning balance)
</TABLE>
SEVENTH AMENDMENT TO CREDIT
AND GUARANTY AGREEMENT
THIS SEVENTH AMENDMENT, dated as of August 3, 1999 (this "Amendment") to
the Existing Credit Agreement referred to below, is among IMO INDUSTRIES INC., a
Delaware corporation (the "Borrower"), COLFAX CORPORATION (formerly known as II
Acquisition Corp.), a Delaware corporation (the "Parent") and the Lenders (as
defined below) parties hereto.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Parent, certain financial institutions from
time to time parties thereto (collectively, the "Lenders"), The Bank of Nova
Scotia, as the Administrative Agent and the Documentation Agent and NationsBanc
Capital Markets, Inc., as the Syndication Agent have entered into the Credit and
Guaranty Agreement, dated as of August 29, 1997 (as amended, supplemented,
amended and restated or otherwise modified prior to the date hereof, the
"Existing Credit Agreement" and, as amended by, and together with, this
Amendment, the "Credit Agreement"); and
WHEREAS, the Borrower and the Parent have requested that the Existing
Credit Agreement be amended in certain respects and that the Lenders grant a
waiver of certain provisions of the Existing Credit Agreement and the Lenders
have agreed to amend the Existing Credit Agreement and to grant such waiver
(subject to the terms and conditions of this Amendment);
NOW, THEREFORE, in consideration of the premises and the other provisions
herein contained, the parties hereto hereby agree as follows.
PART I
DEFINITIONS
SUBPART I.1. Use of Defined Terms. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment, including its preamble
and recitals, have the meanings set forth in the Existing Credit Agreement.
PART II
AMENDMENTS AND WAIVERS TO
THE EXISTING CREDIT AGREEMENT
Effective upon (and subject to) the occurrence of the Seventh Amendment
Effective Date (as defined in Subpart 3.1), certain terms and provisions of the
Existing Credit Agreement are hereby amended, and the waiver described below is
hereby granted, all in accordance with this Part. Except as so amended, modified
or waived by this Amendment, the Existing Credit Agreement and the Loan
Documents shall continue in full force and effect in accordance with their
terms.
SUBPART II.1. Amendment to Article I. Article I of the Existing Credit
Agreement is hereby amended in accordance with Subparts 2.1.1 through 2.1.2.
SUBPART II.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by adding the following new definition in its appropriate alphabetical
sequence:
"Morse Controls Disposition" means the disposition of the Borrower's
facility located at 21 Clinton Street, Hudson, Ohio.
SUBPART II.1.2. Section 1.1 of the Existing Credit Agreement is hereby
further amended by amending the definition of "Permitted Amount" by deleting the
figure "$85,000,000" each time it appears therein and, in each case, inserting
the figure "$105,000,000" in its place.
SUBPART II.2. Amendment to Article IV. Clause (iv)(B) of Section 4.10 of
the Existing Credit Agreement is hereby amended by deleting the figure
"$85,000,000" in such clause and inserting the figure "$105,000,000" in its
place.
SUBPART II.3. Amendment to Article VII. Clause (b)(ii) of Section 7.2.6 of
the Existing Credit Agreement is hereby amended by deleting the figure
"$85,000,000" in such clause and inserting the figure "$105,000,000" in its
place.
SUBPART II.4. Waiver Regarding Section 3.1.2 of the Existing Credit
Agreement ("Mandatory Repayments and Prepayments"). Notwithstanding anything to
the contrary contained in the Existing Credit Agreement (including the
definition of the term "Net Disposition Proceeds" or Section 3.1.2 thereto), the
Lenders hereby waive any mandatory prepayment event which would otherwise arise
in connection with the receipt by the Borrower of Net Disposition Proceeds in
connection with the Morse Controls Disposition.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART III.1. This Amendment shall become effective on the date (the
"Seventh Amendment Effective Date") when all of the following conditions have
been satisfied to the satisfaction of the Administrative Agent.
SUBPART III.1.1. Execution of Counterparts. The Administrative Agent
-------------------------
shall have received copies of this Amendment, duly executed and delivered by the
Borrower, the Parent and the Lenders.
SUBPART III.1.2. Affirmation and Consent. The Administrative Agent
-----------------------
shall have received an affirmation and consent in form and substance
satisfactory to it, duly executed and delivered by each Subsidiary Guarantor.
SUBPART III.1.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto shall be satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies of such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.
PART IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Issuers to enter into this
Amendment, the Borrower and the Parent represent and warrant to the
Administrative Agent, each Issuer and each Lender as set forth in this Part.
SUBPART IV.1. Compliance with Warranties. After giving effect to the terms
of this Amendment, (a) the representations and warranties set forth herein, in
Article VI of the Credit Agreement and in each other Loan Document are true and
correct in all material respects with the same effect as if made on and as of
the date hereof (unless stated to relate solely to an earlier date, in which
case they were true and correct as of such earlier date) and (b) the Borrower
shall be in full compliance with Section 4.03 of the Subordinated Note
Indenture.
SUBPART IV.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower and the Parent of this Amendment and
other documents delivered pursuant hereto are within the Borrower's and the
Parent's corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene either the Borrower's or the Parent's Organic
Documents, (ii) contravene or result in a default under any contractual
restriction, law or governmental regulation or court decree or order binding on
or affecting either the Borrower or the Parent, or (iii) result in, or require
the creation or imposition of, any Lien (except as contemplated in or created by
the Loan Documents).
SUBPART IV.3. Validity, etc. This Amendment has been duly executed and
delivered by the Borrower and the Parent and constitutes the legal, valid and
binding obligation of the Borrower and the Parent enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity.
SUBPART IV.4. Compliance With Existing Credit Agreement. As of the
-----------------------------------------
Seventh Amendment Effective Date, both before and after giving effect to the
terms of this Amendment, no Default has occurred and is continuing.
PART V
MISCELLANEOUS PROVISIONS
SUBPART V.1. Ratification of and Limited Amendment to the Credit
Agreement. The Existing Credit Agreement, as amended hereby, is hereby ratified,
approved and confirmed in each and every respect by the parties hereto. Except
as specifically amended or modified herein, the Existing Credit Agreement and
the other Loan Documents shall continue in full force and effect in accordance
with the provisions thereof and except as expressly set forth herein the
provisions hereof shall not operate as a waiver or amendment of any right, power
or privilege of the Administrative Agent and the Lenders nor shall the entering
into of this Amendment preclude the Lenders from refusing to enter into any
further or future amendments.
SECTION V.2. Consent and Acknowledgment of Guarantor, etc. By its
signature below, the Parent in its capacity as a guarantor and as grantor of
collateral security under certain Loan Documents, hereby acknowledges, consents
and agrees to this Amendment and hereby ratifies and confirms its obligations
under its guaranty and each Loan Document executed and delivered by it in all
respects.
SUBPART V.3. Credit Agreement, References, etc. All references to the
Credit Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Existing Credit Agreement as amended hereby.
As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter",
"hereunder", "hereto" and words of similar import shall mean, from and after the
date hereof, the Existing Credit Agreement as amended by this Amendment.
SUBPART V.4. Expenses. The Borrower agrees to pay all out-of-pocket
expenses incurred by the Administrative Agent (including fees and expenses of
counsel to the Administrative Agent) in connection with the preparation,
negotiation, execution and delivery of this Amendment.
SUBPART V.5. Headings; Counterparts. The various headings of this
Amendment are inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof. This Amendment may be
signed in any number of separate counterparts, each of which shall be an
original, and all of which taken together shall constitute one instrument.
SUBPART V.6. Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK. This Amendment constitutes the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes any prior
agreements, written or oral, with respect thereto.
SUBPART V.7. Loan Document Pursuant to Credit Agreement. This Amendment is
a Loan. Document executed pursuant to the Credit Agreement and shall be
construed, administered and applied in accordance with all of the terms and
provisions of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
EIGHTH AMENDMENT TO CREDIT
AND GUARANTY AGREEMENT
THIS EIGHTH AMENDMENT, dated as of November 29, 1999 (this "Amendment"),
to the Existing Credit Agreement referred to below, is among IMO INDUSTRIES
INC., a Delaware corporation (the "Borrower"), COLFAX CORPORATION (formerly
known as II Acquisition Corp.), a Delaware corporation (the "Parent"), and the
Lenders (as defined below) parties hereto.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Parent, certain financial institutions from
time to time parties thereto (collectively, the "Lenders"), The Bank of Nova
Scotia, as the Administrative Agent and the Documentation Agent, and NationsBanc
Capital Markets, Inc., as the Syndication Agent, have entered into the Credit
and Guaranty Agreement, dated as of August 29, 1997 (as amended, supplemented,
amended and restated or otherwise modified prior to the date hereof, the
"Existing Credit Agreement" and, as amended by, and together with, this
Amendment, the "Credit Agreement"); and
WHEREAS, the Borrower and the Parent have requested that the Existing
Credit Agreement be amended in certain respects and that the Lenders waive
certain requirements of, and provide their consent with respect to certain
transactions which would otherwise be prohibited by the provisions of, the
Existing Credit Agreement and the Lenders have agreed to amend the Existing
Credit Agreement and to grant such waivers and consents (subject to the terms
and conditions of this Amendment);
NOW, THEREFORE, in consideration of the premises and the other provisions
herein contained, the parties hereto hereby agree as follows.
PART I
DEFINITIONS
SUBPART I.1. Use of Defined Terms. Unless otherwise defined herein or
--------------------
the context otherwise requires, terms used in this Amendment, including its
preamble and recitals, have the meanings set forth in the Existing Credit
Agreement.
PART II
AMENDMENTS, WAIVERS AND CONSENTS
TO THE EXISTING CREDIT AGREEMENT
Effective upon (and subject to) the occurrence of the Eighth Amendment
Effective Date (as defined in Subpart 3.1) or, as applicable, the Sierra
Acquisition Effective Date (as defined in Subpart 3.2), certain terms and
provisions of the Existing Credit Agreement are hereby amended, and the waivers
and consent described below are hereby granted, all in accordance with this
Part. Except as so amended or modified by this Amendment, the Existing Credit
Agreement and the Loan Documents shall continue in full force and effect in
accordance with their terms.
SUBPART II.1. Amendment to Article I. Article I of the Existing
----------------------
Credit Agreement is hereby amended in accordance with Subparts 2.1.1 through
--------------
2.1.2.
- -----
SUBPART II.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by adding the following new definitions in their appropriate
alphabetical sequence:
"Amendment No. 8" means the Eighth Amendment, dated as of
---------------
November 29, 1999, to this Agreement among the Borrower, the Parent and
the Lenders parties thereto.
"Conduit" means Liberty Street Funding Corp., a Delaware
-------
corporation.
"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 a Receivables Obligor becomes or is obligated to
make payment in respect of such Receivable.
"Eighth Amendment Effective Date" is defined in Subpart 3.1 of
-------------------------------
Amendment No. 8.
"Illinois Fee Property" is defined in Subpart 3.2.3 of Amendment
---------------------
No. 8.
"Illinois Lease" is defined in Subpart 3.2.3 of Amendment No. 8.
--------------
"Illinois Leased Property" is defined in Subpart 3.2.3 of
------------------------
Amendment No. 8.
"Mortgage Amendment" is defined in Subpart 3.2.3 of Amendment No. 8.
------------------
"Permitted Receivables Transaction" means the transaction effected
pursuant to the Transaction Documents (as such term is defined in the
Receivables Purchase Agreement) providing for the sale or financing of
Receivables and Related Rights by the Borrower and its U.S. Subsidiaries
with no more than customary limited recourse based on the collectability
of the Receivables sold.
"Purchase and Sale Agreement" means the Purchase and Sale Agreement,
dated as of November 29, 1999 among the Borrower and Warren Pumps, Inc.,
as originators, the Borrower, as servicer, and the Conduit, as purchaser.
"Receivable" means (a) any indebtedness and other obligations owed
to the Borrower or any U.S. Subsidiary by, or any right of the Borrower or
any U.S. Subsidiary to payment from or on behalf of, a Receivables 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 such Person, and includes the obligation to pay any finance
charges, fees and other charges with respect thereto; provided, that none
of the foregoing shall be deemed to be a "Receivable" hereunder unless and
until the same shall be purchased by Receivables Co. pursuant to the terms
of the Permitted Receivables Transaction and (b) any "Receivable"
purchased from the Borrower or any U.S. Subsidiary (other than Receivables
Co.) by Receivables Co. pursuant to the terms of the Permitted Receivables
Transaction.
"Receivables Co." means Imo Funding Company, LLC, a special
---------------
purpose, bankruptcy-remote wholly-owned U.S. Subsidiary of the Borrower
organized under the laws of the state of Delaware.
"Receivables Facility Outstandings" means, at any date of
determination, with respect to the Permitted Receivables Transaction, the
aggregate cash proceeds received by the Borrower or any of its
wholly-owned U.S. Subsidiaries from the sale or financing of Receivables
and Related Rights pursuant to the Permitted Receivables Transaction which
Receivables and Related Rights are outstanding on the date of
determination, which amount shall be equal to the amount of Capital (as
defined in the Receivables Purchase Agreement) outstanding on such date of
determination.
"Receivables Obligor" means, with respect to any Receivable, the
Person obligated to make payments pursuant to the Contract relating to
such Receivable.
"Receivables Purchase Agreement" means the Receivables Purchase
Agreement, dated as of November 29, 1999 among Receivables Co., as seller,
the Borrower, as servicer, the Conduit, as issuer, and Scotiabank, as
administrator.
"Related Rights" means,
--------------
(a) all rights to, but not the obligations under, all Related
Security;
(b) all monies due or to become due with respect to any
Receivable and any of the foregoing;
(c) all books and records related to any Receivable and any of
the foregoing; and
(d) all proceeds thereof (as defined in the U.C.C.) received on or
after the date hereof including, without limitation, all funds which
either are received by the Borrower or any U.S. Subsidiary from or on
behalf of the Receivables Obligors in payment of any amounts owed
(including, without limitation, finance charges, interest and all other
charges) in respect of Receivables, or are applied to such amounts owed by
the Receivables Obligors (including, without limitation, insurance
payments, if any, that the Borrower or any U.S. Subsidiary applies in the
ordinary course of its business to amounts owed in respect of any
Receivable).
"Related Security" means, with respect to any Receivable:
(a) all of the Borrower's or any U.S. Subsidiary'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 instruments and chattel paper that may evidence such
Receivable,
(c) 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 U.C.C. financing statements or similar filings relating
thereto, and
(d) all of the Borrower's or any U.S. Subsidiary'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.
"Sierra" means Sierra International Inc., an Illinois corporation.
------
"Sierra Acquisition Effective Date" is defined in Subpart 3.2 of
---------------------------------
Amendment No. 8.
"Sierra Mortgage" is defined in Subpart 3.2.3 of Amendment No. 8.
---------------
"Sierra Stock Purchase Agreement" means the Stock Purchase
-------------------------------
Agreement, dated as of October 13, 1999, between the Borrower and
Echlin Inc., a Connecticut corporation.
SUBPART II.1.2. Section 1.1 of the Existing Credit Agreement is hereby
further amended as follows:
(a) by amending the definitions of "Applicable Commitment Fee
Margin" and "Applicable Margin", in each case, by replacing the reference
to "clause (c) of Section 7.1.1" each time it appears therein with a
reference to "clause (b) of Section 7.1.1";
(b) by amending the definition of "Indebtedness" by (i) deleting the
word "and" which immediately follows clause (f) thereto, (ii) adding a new
clause (g) thereto which shall read "(g) for purposes of calculating the
Leverage Ratio and Total Debt, all Receivables Facility Outstandings (it
being understood and agreed by the parties that for GAAP and other
purposes, such Receivables Facility Outstandings shall not be deemed to be
"Indebtedness"); and" and (iii) re-lettering the current clause (g)
thereto as clause (h) thereto;
(c) by amending the definition of "Interest Expense" by (i)
replacing the phrase "including, without duplication," appearing therein
with the phrase "including, without duplication, (i)" and (ii) replacing
the "." appearing at the end of such definition with the phrase "and (ii)
interest (or other fees in the nature of interest or discount accrued and
paid or payable in cash for such period) in respect of the Permitted
Receivables Transaction.";
(d) by amending the definition of "Net Debt Proceeds" by replacing
the reference to "clause (m) of Section 7.2.2" appearing therein with a
reference to "clause (n) of Section 7.2.2";
(e) by amending the definition of "Net Income" by adding a proviso
prior to the "." at the end of such definition which shall provide:
"provided, however, that following the Sierra Acquisition Effective Date,
such net income for the first three Fiscal Quarters prior to the Sierra
Acquisition Effective Date will, for all purposes other than the
calculation of Excess Cash Flow, be calculated on a pro forma basis to
give effect to the acquisition of Sierra as if such acquisition had
occurred at the beginning of such period"; and
(f) by amending the definition of "Total Debt" by replacing the
reference to "clause (a), (b) or (c) of the definition of Indebtedness"
appearing therein with a reference to "clauses (a), (b), (c) or (g) of the
definition of Indebtedness".
SUBPART II.2. Amendment to Article VI. Article VI of the Existing
-----------------------
Credit Agreement is hereby amended in accordance with Subpart 2.2.1.
-------------
SUBPART II.2.1. A new Section 6.25 is hereby added to the Existing Credit
Agreement immediately following Section 6.24 which shall provide as follows:
"SECTION 6.25. Year 2000. Each Obligor has reviewed the areas within
its business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by
such Obligor may be unable to recognize and properly perform
date-sensitive functions involving certain dates prior to, and any date
after, December 31, 1999). Based on such review and program, the Year 2000
Problem could not reasonably be expected to have a material adverse effect
on the financial condition, operations, assets, business, properties,
revenues or prospects of the Borrower and its Subsidiaries taken as a
whole."
SUBPART II.3. Amendments to Article VII. Article VII of the Existing
-------------------------
Credit Agreement is hereby amended in accordance with Subparts 2.3.1 through
--------------
Subpart 2.3.16.
- ---------------
SUBPART II.3.1. Section 7.1.8 of the Existing Credit Agreement is hereby
amended by replacing the phrase "upon any Person" appearing therein with the
phrase "upon any Person (other than, at all times prior to the termination of
the Permitted Receivables Transaction, Receivables Co.)".
SUBPART II.3.2. Section 7.1.16 of the Existing Credit Agreement is hereby
amended by replacing the word "Subsidiaries" each time such word appears therein
with the phrase "Subsidiaries (other than, at all times prior to the termination
of the Permitted Receivables Transaction, Receivables Co.)".
SUBPART II.3.3. A new Section 7.1.19 is hereby added to the Existing
Credit Agreement immediately following Section 7.1.18 which shall provide as
follows:
"SECTION 7.1.19. Sierra Real Estate Matters. Each of the Borrower
and the Parent agrees to use its best efforts to obtain a Landlord Waiver
and Consent Agreement, in form and substance reasonably satisfactory to
the Administrative Agent, with respect to any Lease encumbering the
Florida Property under which Sierra, the Borrower or any other Obligor is
lessee."
SUBPART II.3.4. Effective upon the Sierra Acquisition Effective Date,
Section 7.1.19 is hereby amended in its entirety to read as follows:
"SECTION 7.1.19. Sierra Real Estate Matters. The Borrower and the
Parent agree to cause Sierra, no later than ninety (90) days after the
Sierra Acquisition Effective Date, to:
(a) acquire the Illinois Leased Property pursuant to and in
accordance with the terms of the Illinois Lease. Immediately upon
Sierra's acquisition of the Illinois Leased Property, the Borrower
and the Parent agree to so notify the Administrative Agent and, at
the Borrower's sole cost and expense, the Borrower shall, or shall
cause Sierra to, (i) authorize the Administrative Agent to record
the Mortgage Amendment, (ii) take all further actions necessary or
required by the Administrative Agent, in its sole discretion, to
cause said Illinois Leased Property to be subject to the Lien of the
Sierra Mortgage and (iii) deliver to the Administrative Agent an
endorsement to the mortgagee's title insurance policy with respect
to the Illinois Fee Property, which endorsement shall insure that
the Sierra Mortgage, as modified and spread by the Mortgage
Amendment, constitutes a valid first priority Lien on the Illinois
Fee Property and the Illinois Leased Property, free and clear of all
Liens other than those approved by the Administrative Agent. If
Sierra fails to exercise its option to acquire the Illinois Leased
Property within the ninety (90) day period described above, then the
Borrower and the Parent shall cause Sierra to immediately deliver to
the Administrative Agent any instrument or documents required by the
Administrative Agent, in its sole discretion, to create a valid
first priority Lien on Sierra's leasehold interest in the Illinois
Leased Property and any other instruments, agreements, insurance
policies, surveys or other documents required by the Administrative
Agent with respect to the Illinois Leased Property, including,
without limitation, all of the documents described in Subpart 3.2.3
to Amendment No. 8; and
(b) obtain a Landlord Waiver and Consent Agreement, in form
and substance reasonably satisfactory to the Administrative Agent,
with respect to any Lease encumbering the Florida Property under
which Sierra, the Borrower or any other Obligor is lessee."
SUBPART II.3.5. Section 7.2.1 of the Existing Credit Agreement is hereby
amended by replacing the word "Subsidiaries" which appears therein with the
phrase "Subsidiaries (other than, at all times prior to the termination of the
Permitted Receivables Transaction, Receivables Co.)".
SUBPART II.3.6. Section 7.2.2 of the Existing Credit Agreement is hereby
amended by (i) deleting the word "and" which immediately follows clause (l)
thereto, (ii) adding a new clause (m) thereto which shall read "(m) without
duplication, Indebtedness of the Borrower, its U.S. Subsidiaries (other than
Receivables Co.) or Receivables Co., in each case, incurred in connection with
the Permitted Receivables Transaction in an aggregate amount at any time not to
exceed $35,000,000; and", (iii) re-lettering the current clause (m) thereto as
clause (n) thereto and (iv) by deleting the phrase "(l) and (m)" appearing in
the proviso thereto and replacing such phrase with the phrase "(l), (m) and
(n)".
SUBPART II.3.7. Section 7.2.3 of the Existing Credit Agreement is hereby
amended by (i) deleting the word "and" which immediately follows clause (h)
thereto, (ii) adding a new clause (i) thereto which shall read "(i) Liens on
Receivables and Related Rights of the Borrower or any U.S. Subsidiary; provided,
that such Liens shall only be permitted to the extent that they solely cover
Excluded Property (as such term is defined in the Security Agreements) and are
created in connection with the Permitted Receivables Transaction; and", and
(iii) re-lettering the current clause (i) thereto as clause (j) thereto.
SUBPART II.3.8. Effective upon the Sierra Acquisition Effective Date,
Section 7.2.3 of the Existing Credit Agreement is hereby further amended by (i)
deleting the word "and" which immediately follows clause (i) thereto, (ii)
adding a new clause (j) thereto which shall read "(j) those certain Liens on
assets of Sierra set forth on Schedule 4.8(a) of the Sierra Stock Purchase
Agreement to the extent that such Liens extend solely to equipment leased by
Sierra; and", and (iii) re-lettering the current clause (j) thereto as clause
(k) thereto.
SUBPART II.3.9. Section 7.2.5 of the Existing Credit Agreement is hereby
amended by (i) replacing the phrase "the Borrower's Investment existing on the
Effective Date in its Subsidiaries" appearing in clause (a) thereof with the
phrase "the Borrower's Investment (i) existing on the Effective Date in its
Subsidiaries and (ii) in Receivables Co., by way of contributions to capital
from time to time; provided, that such Investments in Receivables Co. shall (x)
only be made in connection with, and subject to the terms of, the Permitted
Receivables Transaction and (y) not in the aggregate exceed $3,000,000.00 (not
more than $1,000,000.00 of which shall have been made in cash)", (ii) deleting
clause (c) thereof in its entirety and replacing such clause with the following
"without duplication, Investments (i) permitted as Indebtedness pursuant to
clauses (d), (f), (h) and (k) of Section 7.2.2 and (ii) to the extent that
Receivables Co. is not a Subsidiary of the Borrower, Investments in Receivables
Co. in connection with the Permitted Receivables Transaction made by the
Borrower and/or its Subsidiaries (x) on terms satisfactory to the Administrative
Agent and (y) not in the aggregate to exceed $3,000,000.00 (not more than
$1,000,000.00 of which shall have been made in cash)" and (iii) replacing the
phrase "other Investments" appearing in clause (g) thereof with the phrase
"other Investments (other than by Receivables Co.)".
SUBPART II.3.10. Section 7.2.7 of the Existing Credit Agreement is hereby
amended by replacing the phrase "other Subsidiaries of the Parent" appearing
therein with the phrase "other Subsidiaries of the Parent (other than
Receivables Co.)".
SUBPART II.3.11. Section 7.2.10 of the Existing Credit Agreement is hereby
amended by replacing the word "Subsidiary" appearing therein with the phrase
"Subsidiary (other than Receivables Co.)".
SUBPART II.3.12. Section 7.2.11 of the Existing Credit Agreement is hereby
amended by replacing the phrase "or (iv) any assets of a Subsidiary of the
Borrower to the Borrower" set forth in clause (c) thereof with the phrase "(iv)
any assets of a Subsidiary of the Borrower to the Borrower, or (v) Receivables
and Related Rights pursuant to the Permitted Receivables Transaction; provided,
however, that notwithstanding the foregoing, the aggregate fair market value
outstanding at any one time of Receivables and Related Rights which may be
Disposed of pursuant to this clause (c)(v) shall not exceed $45,000,000.00".
SUBPART II.3.13. Section 7.2.12 of the Existing Credit Agreement is hereby
amended by deleting such section in its entirety and replacing such section with
the following:
"SECTION 7.2.12. Modification of Certain Agreements. Neither the
Borrower nor the Parent will, nor will they permit any of their respective
Subsidiaries to, (a) consent to any amendment, supplement or other
modification of any of the terms or provisions contained in, or applicable
to, any Organic Document, the Borrower Preferred Stock, the Parent
Subscription Agreement, the Borrower Subscription Agreement, the
Subordinated Notes, other than any such amendment, supplement or other
modification which is immaterial and which could not adversely affect the
Administrative Agent or any Lender (it being understood and agreed that,
in any event, any modification to the subordination provisions of, and any
of the defined terms therein, including, but not limited to, the
definition of "Specified Senior Indebtedness" of the Subordinated Notes
shall be deemed to be material); or
(b) without the prior written consent of the Required Lenders,
consent to any material amendment, supplement, or other modification to
any of the terms of the documents, instruments and agreements delivered in
connection with the Permitted Receivables Transaction, other than any such
amendment, modification or change which (x) would extend the maturity
thereof or (y) does not in any way adversely affect the interests of the
Managing Agents, the Lenders or the Issuer hereunder or under the Loan
Documents (including, without limitation, amendments, modifications or
changes of a technical or clarifying nature)."
SUBPART II.3.14. Section 7.2.14 of the Existing Credit Agreement is hereby
amended by (i) replacing the phrase "excluding this Agreement" appearing therein
with the phrase "excluding (i) this Agreement", (ii) replacing the phrase
"guaranteed by the Borrower" appearing therein with the phrase "guaranteed by
the Borrower, (ii) in the case of clause (a)(i), restrictions contained in
documents or agreements delivered in connection with the Permitted Receivables
Transaction, provided that such restrictions are only effective against the
Receivables and Related Rights financed or acquired thereby and (iii) in the
case of clause (b), restrictions on Receivables Co. contained in documentation
delivered for the Permitted Receivables Transaction (including, without
limitation, the operating agreement and other Organic Documents of Receivables
Co.)", (iii) replacing the phrase "the creation" appearing in clause (a) thereof
with the phrase "the (i) creation" and (iv) replacing the phrase "or the
ability" appearing in clause (a) thereof with the phrase "or (ii) ability".
SUBPART II.3.15. Section 7.2.15 of the Existing Credit Agreement is hereby
amended by replacing the phrase "payable to independent directors, or (v)"
appearing therein with the phrase "payable to independent directors, (v)
reasonable fees payable in connection with the Permitted Receivables
Transaction, or (vi)".
SUBPART II.3.16. Section 7.2.20 of the Existing Credit Agreement is
hereby amended by replacing the phrase "any U.S. Subsidiaries" appearing
therein with the phrase "any U.S. Subsidiaries (other than Receivables Co.)".
SUBPART II.4. Amendment to Article VIII. Article VIII of the Existing
-------------------------
Credit Agreement is hereby amended by inserting a new Section 8.1.11 therein
which provides as follows:
"SECTION 8.1.11. Termination of Permitted Receivables Transaction.
Any event or circumstance shall occur which permits or requires the
Persons purchasing, or financing the purchase of, eligible Receivables and
Related Rights under the Permitted Receivables Transaction to stop so
purchasing or financing such Receivables and Related Rights, other than by
reason of the occurrence of the stated expiry date of the Permitted
Receivables Transaction; provided, that any notices or cure periods that
are conditions to the rights of such Persons to stop purchasing, or
financing the purchase of, such Receivables and Related Rights have been
given or have expired, as the case may be."
SUBPART II.5. Amendment to Article XI. Article XI of the Existing
-----------------------
Credit Agreement
is hereby amended in accordance with Subpart 2.5.1.
-------------
SUBPART II.5.1. Section 11.1 of the Existing Credit Agreement is hereby
amended by replacing the phrase "except as otherwise specifically provided in
any Loan Document" appearing in clause (b) thereof with the phrase "except as
otherwise specifically provided in any Loan Document (including the sale or
transfer of Receivables and Related Rights in accordance with the Permitted
Receivables Transaction)".
SUBPART II.6. Additional Conforming Amendments to Exhibits to Credit
------------------------------------------------------
Agreement.
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SUBPART II.6.1. Exhibit F (Form of Compliance Certificate) to the Credit
Agreement is hereby amended by replacing Attachments 1 and 3 thereto with
Attachments 1 and 3 attached hereto as Annex 1.
SUBPART II.7. Waiver Regarding Section 3.1.2 of the Existing Credit
-----------------------------------------------------
Agreement ("Mandatory Repayments and Prepayments"). Notwithstanding anything
- --------------------------------------------------
to the contrary contained in the Existing Credit Agreement (including the
definition of the term "Net Disposition Proceeds" or Section 3.1.2 thereto), the
Lenders hereby waive any mandatory prepayment event which would otherwise arise
in connection with the sale or transfer of Receivables and Related Rights to
Receivables Co. or by Receivables Co. to the Conduit.
SUBPART II.8. Waiver Regarding Section 7.1.8 of the Existing Credit
Agreement ("Future Subsidiaries"). Effective upon the Sierra Acquisition
Effective Date, notwithstanding anything to the contrary contained in the
Existing Credit Agreement (including Section 7.1.8 thereto), the Lenders hereby
waive any requirement that, in connection with the acquisition by the Borrower
of Sierra pursuant to the terms and conditions contained in the Sierra Stock
Purchase Agreement, the Liens set forth on Schedule 4.8(a) of such agreement be
released to the extent that such Liens extend solely to equipment leased by
Sierra.
SUBPART II.9. Consent Regarding Partial Release of Liens. Each of the
Lenders hereby authorizes and directs the Administrative Agent to release and
terminate, at the Borrower's expense and without representation or warranty of
any kind by any Lender or any Managing Agent, all Liens and security interests
in and to all Receivables and Related Rights previously granted by the Obligors
under any Security Agreement in favor of the Administrative Agent and the
Lenders to the extent (and only to the extent) such Receivables and Related
Rights are sold, or purported to be sold, pursuant to the Permitted Receivables
Transaction. The Administrative Agent will, at the Borrower's expense and
without representation or warranty (and the Lenders hereby authorize and direct
the Administrative Agent to) deliver to the Borrower executed copies of Uniform
Commercial Code (Form U.C.C.-3) amendment statements or similar instruments with
respect to each of the filings previously made pursuant to a Security Agreement
(as such term is defined in the Credit Agreement) necessary to give effect to
the release of the Liens set forth in this Subpart.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART III.1. This Amendment shall become effective on the date (the
"Eighth Amendment Effective Date") when all of the following conditions have
been satisfied to the satisfaction of the Administrative Agent.
SUBPART III.1.1. Execution of Counterparts. The Administrative Agent
-------------------------
shall have received copies of this Amendment, duly executed and delivered by the
Borrower, the Parent and the Lenders.
SUBPART III.1.2. Resolutions, etc. The Administrative Agent shall have
received from the Borrower and each other Obligor a certificate, dated the
Eighth Amendment Effective Date, of its Secretary or Assistant Secretary as to
resolutions of its Board of Directors then in full force and effect authorizing
the execution, delivery and performance of this Amendment and each other Loan
Document to be executed by such Obligor.
SUBPART III.1.3. Affirmation and Consent. The Administrative Agent
-----------------------
shall have received an affirmation and consent in form and substance
satisfactory to it, duly executed and delivered by each Subsidiary Guarantor.
SUBPART III.1.4. Pro Forma Compliance Certificate. The Administrative
Agent shall have received, with counterparts for each Lender, a Compliance
Certificate (which Compliance Certificate shall be prepared by using Attachments
1 and 3 attached hereto as Annex 1) giving pro forma effect to the initial
funding of the Permitted Receivables Transaction, dated the Eighth Amendment
Effective Date, duly executed (and with all schedules thereto duly completed)
and delivered by the chief executive, financial or accounting Authorized Officer
of the Borrower, and such Compliance Certificate shall be satisfactory in form
and substance to the Administrative Agent.
SUBPART III.1.5. Documents Relating to Permitted Receivables Transaction.
The Administrative Agent shall have received (with copies for each of the
Lenders) true and correct executed copies, certified by the Borrower, of the
Receivables Purchase Agreement and the Purchase and Sale Agreement relating to
the transactions contemplated under the Permitted Receivables Transaction (and
all schedules, exhibits and attachments to either agreement), all of the
foregoing (including as to the expiration date, term, conditions and structure
(including the legal and organizational structure of Receivables Co. and the
restrictions imposed on its activities) of the Permitted Receivables
Transaction) in form and substance reasonably satisfactory to the Administrative
Agent and each of the Lenders.
SUBPART III.1.6. Opinions of Counsel. The Administrative Agent shall
-------------------
have received such opinions, each dated the Eighth Amendment Effective Date, in
form and substance and from counsel satisfactory to, and as may be required by,
the Administrative Agent and each of the Lenders.
SUBPART III.1.7. Reliance Letters. The Administrative Agent shall have
received reliance letters, dated the Eighth Amendment Effective Date and
addressed to the Administrative Agent and each of the Lenders in respect of each
of the legal opinions delivered in connection with the transactions contemplated
under the Permitted Receivables Transaction.
SUBPART III.1.8. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto shall be satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies of such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.
SUBPART III.2. The amendments, waivers and other modifications contained
herein relating to Sierra shall become effective on the date (the "Sierra
Acquisition Effective Date") when all of the following conditions have been
satisfied to the satisfaction of the Administrative Agent (which date shall be
no later than the date of the closing of the Sierra Stock Purchase Agreement).
SUBPART III.2.1. Resolutions, etc. The Administrative Agent shall have
received (i) a copy of a good standing certificate, dated a date reasonably
close to the Sierra Acquisition Effective Date, for Sierra and (ii) from Sierra
a certificate, dated a date reasonably close to the Sierra Acquisition Effective
Date, of its Secretary or Assistant Secretary as to:
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of each Loan
Document to be executed by Sierra;
(b) each Organic Document of Sierra; and
(c) the incumbency and signatures of the officers of Sierra
authorized to act with respect to each Loan Document as is to be
executed by it,
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of Sierra
canceling or amending such prior certificate.
SUBPART III.2.2. Security Documents Relating to Sierra Acquisition, etc.
The Administrative Agent shall have received fully executed copies of each of
the following documents: (a) a Supplement to the Borrower Pledge Agreement,
pursuant to which the Borrower shall pledge to the Administrative Agent for the
benefit of the Lender Parties, inter alia, the capital stock of Sierra, (b) a
Supplement to the Subsidiary Guaranty, pursuant to which Sierra shall become
party to the Subsidiary Guaranty, and (c) a Supplement to the Subsidiary
Security Agreement, pursuant to which Sierra shall become party to the
Subsidiary Security Agreement, and, as applicable, appropriate trademark,
copyright and patent security supplements executed by Sierra (in each case,
together with all schedules and annexes referenced therein) and (d) U.C.C.-1
Financing Statements naming Sierra as the debtor and the Administrative Agent as
the secured party, suitable for filing under the U.C.C. of all jurisdictions as
may be necessary or, in the reasonable opinion of the Administrative Agent,
desirable to perfect the first priority security interest of the Administrative
Agent. The Administrative Agent shall have also received certified copies of
Uniform Commercial Code Requests for Information or Copies (Form U.C.C.-11),
certified by the Borrower, dated a date reasonably near (but prior to) the
Sierra Acquisition Effective Date of Sierra, listing all effective financing
statements, tax liens and judgment liens which name Sierra as the debtor.
SUBPART III.2.3. Real Estate Documents Relating to Sierra Acquisition,
etc. The Administrative Agent shall have received fully executed copies of each
of the following documents, each in form and substance reasonably satisfactory
to the Administrative Agent, or shall have received evidence, satisfactory to
the Administrative Agent, of the Borrower's or any other Obligor's compliance
with each of the following conditions:
(a) a real estate mortgage (the "Sierra Mortgage"), substantially in
the form of Exhibit J to the Existing Credit Agreement, encumbering all of
Sierra's right, title and interest in and to that certain real property
owned by Sierra and located in Litchfield, Illinois (the "Illinois Fee
Property"; the Illinois Fee Property, the Illinois Leased Property (as
defined below) and the property leased by Sierra located in Clearwater,
Florida are sometimes hereinafter referred to as the "Real Property"),
together with (i) evidence of the completion of all recordings and filings
of the Sierra Mortgage (and related U.C.C. financing statements and
fixture filings) as may be necessary or, in the opinion of the
Administrative Agent, desirable to effectively create a valid first
priority mortgage Lien against the Illinois Fee Property and (ii) such
other approvals, opinions or documents in connection therewith as the
Administrative Agent may reasonably request;
(b) a First Amendment to the Sierra Mortgage (the "Mortgage
Amendment"), which Mortgage Amendment shall, upon its recordation, spread
the Lien of the Sierra Mortgage to encumber that certain parcel of land
and the improvements located thereon situated in Litchfield, Illinois (the
"Illinois Leased Property"), which Illinois Leased Property is presently
owned by The City of Litchfield Illinois and leased to Sierra pursuant to
that certain Lease Agreement, dated as of December 1, 1976 (the "Illinois
Lease") and forms a part of and is contiguous to the manufacturing and
warehouse facilities located on the Illinois Fee Property.
(c) a mortgagees' title insurance policy satisfactory to the
Administrative Agent and from an independent title insurer satisfactory to
the Administrative Agent (the "Title Insurer"), with respect to the
Illinois Fee Property, insuring that title to such Illinois Fee Property
is marketable and that the interests created by the Sierra Mortgage
constitute valid first priority Lien thereon free and clear of all defects
and encumbrances, and such other matters reasonably approved by the
Administrative Agent, and such policies shall also include a revolving
credit endorsement, comprehensive endorsement, variable rate endorsement,
zoning endorsements (with parking), access and utilities endorsements, a
mechanic's lien endorsement and such other endorsements as the
Administrative Agent shall reasonably request;
(d) an "as built" survey for each parcel of the Illinois Fee
Property and the Illinois Leased Property, certified to and satisfactory
to the Administrative Agent and the Title Insurer by a surveyor reasonably
satisfactory to the Administrative Agent and registered in the state of
Illinois, which survey shall (i) be of recent date, in the reasonable
judgment of the Administrative Agent, (ii) contain the minimum detail for
land surveys as most recently adopted by ALTA/ACSM, (iii) comply with the
Administrative Agent's survey requirements, (iv) show a "metes and bounds"
and/or "block and lot" legal description and (v) contain the
Administrative Agent's standard form certification to the Administrative
Agent and the Title Insurer;
(e) Phase One Environmental Site Assessments (the scope and
performance of which meets or exceeds the then most current ASTM Standard
Practice for Environmental Site Assessments: Phase One Environmental Site
Assessment Process, E 1527) of each parcel of Real Property and such other
reports and other information, in form, scope and substance satisfactory
to the Administrative Agent regarding environmental matters relating to
Sierra and each parcel of Real Property, which environmental site
assessments shall (by their terms or pursuant to a separate agreement)
expressly permit the Administrative Agent and the Lenders to rely thereon;
(f) copies of any lease or other rental or occupancy agreements (the
"Leases"), certified to the Administrative Agent, with respect to any Real
Property or any portion thereof under which Sierra, the Borrower or any
other Obligor is either the lessee or the lessor;
(g) Subordination, Non-Disturbance and Attornment Agreements, in
form and substance reasonably satisfactory to the Administrative Agent,
with respect to any Lease encumbering a parcel of Real Property under
which Sierra, the Borrower or any other Obligor is the lessor;
(h) Landlord Waiver and Consent Agreements, in form and substance
reasonably satisfactory to the Administrative Agent, with respect to any
Lease encumbering the Illinois Fee Property under which Sierra, the
Borrower or any other Obligor is the lessee;
(i) an opinion of counsel to the Borrower in the state of Illinois
as to the enforceability of the Sierra Mortgage and each other Loan
Document which creates or perfects a security interest and such other
matters as the Administrative Agent may require; and
(j) evidence of payment in full by the Borrower of all premiums,
title examination, survey, departmental violations, judgment and U.C.C.
search charges, mortgage recording taxes and fees, and other taxes,
charges and fees payable in connection with the issuance of any title
insurance policy, the recording of any Sierra Mortgage or the delivery of
any survey or environmental report required under this Subpart 3.1.5.
SUBPART III.2.4. Opinions of Counsel. The Administrative Agent shall
-------------------
have received such opinions, each dated the Sierra Acquisition Effective Date,
in form and substance and from counsel satisfactory to, and as may be required
by, the Administrative Agent and each of the Lenders.
SUBPART III.2.5. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto shall be satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies of such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.
PART IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Issuers to enter into this
Amendment, the Borrower and the Parent represent and warrant to the
Administrative Agent, each Issuer and each Lender as set forth in this Part.
SUBPART IV.1. Compliance with Warranties. After giving effect to the terms
of this Amendment, (a) the representations and warranties set forth herein, in
Article VI of the Credit Agreement and in each other Loan Document are true and
correct in all material respects with the same effect as if made on and as of
the date hereof (unless stated to relate solely to an earlier date, in which
case they were true and correct as of such earlier date) and (b) the Borrower
shall be in full compliance with Article 4 of the Subordinated Note Indenture.
SUBPART IV.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower and the Parent of this Amendment and
other documents delivered pursuant hereto are within the Borrower's and the
Parent's corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene either the Borrower's or the Parent's Organic
Documents, (ii) contravene or result in a default under any contractual
restriction, law or governmental regulation or court decree or order binding on
or affecting either the Borrower or the Parent, or (iii) result in, or require
the creation or imposition of, any Lien (except as contemplated in or created by
the Loan Documents).
SUBPART IV.3. Validity, etc. This Amendment has been duly executed and
delivered by the Borrower and the Parent and constitutes the legal, valid and
binding obligation of the Borrower and the Parent enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity.
SUBPART IV.4. Compliance With Existing Credit Agreement. As of the
-----------------------------------------
Eighth Amendment Effective Date, both before and after giving effect to the
terms of this Amendment, no Default has occurred and is continuing.
PART V
MISCELLANEOUS PROVISIONS
SUBPART V.1. Ratification of and Limited Amendment to the Credit
Agreement. The Existing Credit Agreement, as amended hereby, is hereby ratified,
approved and confirmed in each and every respect by the parties hereto. Except
as specifically amended or modified herein, the Existing Credit Agreement and
the other Loan Documents shall continue in full force and effect in accordance
with the provisions thereof and except as expressly set forth herein the
provisions hereof shall not operate as a waiver or amendment of any right, power
or privilege of the Administrative Agent and the Lenders nor shall the entering
into of this Amendment preclude the Lenders from refusing to enter into any
further or future amendments.
SECTION V.2. Consent and Acknowledgment of Guarantors, etc. By its
signature below, the Parent, in its capacity as a guarantor and as grantor of
collateral security under certain Loan Documents, hereby acknowledges, consents
and agrees to this Amendment and hereby ratifies and confirms its obligations
under its guaranty and each Loan Document executed and delivered by it in all
respects.
SUBPART V.3. Credit Agreement, References, etc. All references to the
Credit Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Existing Credit Agreement as amended hereby.
As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter",
"hereunder", "hereto" and words of similar import shall mean, from and after the
date hereof, the Existing Credit Agreement as amended by this Amendment.
SUBPART V.4. Expenses. The Borrower agrees to pay all out-of-pocket
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expenses incurred by the Administrative Agent (including fees and expenses of
counsel to the Administrative Agent) in connection with the preparation,
negotiation, execution and delivery of this Amendment.
SUBPART V.5. Headings; Counterparts. The various headings of this
Amendment are inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof. This Amendment may be
signed in any number of separate counterparts, each of which shall be an
original, and all of which taken together shall constitute one instrument.
SUBPART V.6. Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK. This Amendment constitutes the entire understanding among the parties
hereto with respect to the subject matter hereof and supersedes any prior
agreements, written or oral, with respect thereto.
SUBPART V.7. Loan Document Pursuant to Credit Agreement. This
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Amendment is a Loan Document executed pursuant to the Credit Agreement and shall
be construed, administered and applied in accordance with all of the terms and
provisions of the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
RECEIVABLES PURCHASE AGREEMENT
dated as of November 29, 1999
among
IMO FUNDING COMPANY, LLC
IMO INDUSTRIES INC.
LIBERTY STREET FUNDING CORP.
and
THE BANK OF NOVA SCOTIA
TABLE OF CONTENTS
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ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility 1
Section 1.2. Making Purchases 2
Section 1.3. Purchased Interest Computation 3
Section 1.4. Settlement Procedures 3
Section 1.5. Fees 9
Section 1.6. Payments and Computations, Etc 9
Section 1.7. Increased Costs 10
Section 1.8. Requirements of Law 11
Section 1.9. Inability to Determine Eurodollar Rate 12
ARTICLE II. REPRESENTATIONS AND WARRANTIES;
COVENANTS; TERMINATION EVENTS
Section 2.1. Representations and Warranties; Covenants 13
Section 2.2. Termination Events 13
ARTICLE III. INDEMNIFICATION
Section 3.1. Indemnities by the Seller 13
Section 3.2. Indemnities by the Servicer 16
ARTICLE IV. ADMINISTRATION AND COLLECTIONS
Section 4.1. Appointment of the Servicer 17
Section 4.2. Duties of the Servicer 18
Section 4.3. Establishment and Use of Certain Accounts 19
Section 4.4. Enforcement Rights 20
Section 4.5. Responsibilities of the Seller 21
Section 4.6. Servicing Fee 22
ARTICLE V. MISCELLANEOUS
Section 5.1. Amendments, Etc. 22
Section 5.2. Notices, Etc 23
Section 5.3. Assignability 23
Section 5.4. Costs, Expenses and Taxes 24
Section 5.5. No Proceedings; Limitation on Payments 25
Section 5.6. Confidentiality 25
Section 5.7. GOVERNING LAW AND JURISDICTION 26
Section 5.8. Execution in Counterparts 26
Section 5.9. Survival of Termination 26
Section 5.10. WAIVER OF JURY TRIAL 26
Section 5.11. Entire Agreement 27
Section 5.12. Headings 27
Section 5.13. Issuer's Liabilities 27
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 Monthly Report
ANNEX B Form of Purchase Notice
This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is entered into as of November 29,
1999, among IMO FUNDING COMPANY, LLC, a Delaware limited liability company, as
seller (the "Seller"), IMO INDUSTRIES INC., a Delaware corporation ("IMO"), as
initial servicer (in such capacity, together with its successors and permitted
assigns in such capacity, the "Servicer"), LIBERTY STREET FUNDING CORP., a
Delaware corporation (together with its successors and permitted assigns, the
"Issuer"), and THE BANK OF NOVA SCOTIA, a Canadian chartered bank acting through
its New York Agency ("BNS"), 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, reinvestments made by the
Issuer.
In consideration of the mutual agreements, provisions and covenants
contained herein, the parties hereto agree as follows:
I. ARTICLE
AMOUNTS AND TERMS OF THE PURCHASES
1. Section Purchase Facility. On the terms and conditions hereinafter set forth,
the Issuer hereby agrees subject to the next sentence to purchase, and make
reinvestments in, undivided percentage ownership interests up to the Purchase
Limit 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.
1. The Seller may, upon at least 30 days' written notice to the Administrator,
terminate in whole or reduce in part the unused portion of the Purchase Limit;
provided, that each partial reduction shall be in the amount of at least
$5,000,000, 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 $15,000,000.
1. Section Making Purchases. 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): at
least two Business Days before the requested purchase date, which notice shall
specify: (A) the amount requested to be paid to the Seller (such amount, which
shall not be less than $250,000, being the "Capital" relating to the undivided
percentage ownership interest then being purchased), and (B) the date of such
purchase (which shall be a Business Day).
1. 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 Bank of America, N.A.,
account number 3751450511, ABA 111000012, an amount equal to the Capital (as
specified by the Seller pursuant to Section 1.2(a) above) relating to the
undivided percentage ownership interest then being purchased.
1. 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, such Pool
Receivables and Related Security.
1. 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 the
Collection Account, and all amounts on deposit therein, and all certificates and
instruments, if any, from time to time evidencing such Lock-Box Accounts and the
Collection Account, and amounts on deposit therein, (v) all rights (but none of
the obligations) of the Seller under the Purchase and 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.
A. Section 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.
1. Section Settlement Procedures. 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.
1. The Servicer shall, on each Business Day on which Collections of Pool
Receivables are received by the Seller or Servicer or are deposited into the
Lock-Box Accounts, transfer such Collections therefrom and deposit such
Collections into the Collection Account. With respect to such Collections on
such day and with respect to any Collection transferred to the Collection
Account on such day pursuant to the last paragraph of Section 1.4(e), the
Servicer shall:
a) set aside and hold in the Collection Account for the benefit of the Issuer,
out of the percentage of such Collections represented by the Purchased Interest,
first an amount equal to the Discount accrued through such day for each Portion
of Capital and not previously transferred, second, an amount equal to the fees
set forth in the Fee Letter accrued through such day for the Purchased Interest
and not previously transferred, 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 transferred; and
a) 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 percentage of such
Collections, represented by the Purchased Interest, to the extent representing a
return on the Capital; such Collections shall be automatically reinvested in
Pool Receivables, and in the Related Security and Collections and other proceeds
with respect thereto, and the Purchased Interest shall be automatically
recomputed pursuant to Section 1.3; it being understood, that prior to remitting
to the Seller the remainder of such Collections by way of reinvestment in Pool
Receivables, the Servicer shall have calculated the Purchased Interest on such
day, and if such Purchased Interest shall exceed 100% on such day, such
Collections shall not be remitted to the Seller but shall be set aside and held
in the Collection Account for the benefit of the Issuer in accordance with
paragraph (iii) below;
a) if such day is a Termination Day (or if such day is a day on which the
Purchased Interest exceeds 100%), (A) set aside and hold in the Collection
Account for the benefit of the Issuer the entire remainder of the percentage of
the Collections represented by the Purchased Interest (or such amount set forth
in paragraph (ii) above); provided that so long as the Facility Termination Date
has not occurred if any amounts are so set aside on any Termination Day and
thereafter, the conditions set forth in Section 2 of Exhibit II are satisfied or
are waived by the Administrator, such previously set aside amounts shall, to the
extent representing a return on the Capital, be reinvested in accordance with
the preceding paragraph (ii) on the day of such subsequent satisfaction or
waiver of conditions, and (B) set aside and hold in the Collection Account for
the benefit of the Issuer the entire remainder of the Collections in the
Collection Account represented by the Seller's Share of the Collections, if any;
provided that so long as the Facility Termination Date has not occurred if any
amounts are so set aside on any Termination Day and thereafter, the conditions
set forth in Section 2 of Exhibit II are satisfied or are waived by the
Administrator, such previously set aside amounts shall be distributed to the
Seller on the day of such subsequent satisfaction or waiver of conditions; and
a) during the times when amounts are required to be reinvested in accordance
with the foregoing paragraph (ii) or the proviso to paragraph (iii), release to
the Seller (subject to Section 1.4(f)) for its own account any Collections in
excess of (x) such amounts, (y) the amounts that are required to be set aside in
the Collection Account pursuant to paragraph (i) above and (z) in the event the
Seller is not the Servicer, all reasonable and appropriate out-of-pocket costs
and expenses (including the Servicing Fee to the extent such Servicing Fee has
not already been paid) of such Servicer of servicing, collecting and
administering the Pool Receivables.
1. The Servicer shall deposit into the Administration Account
(or such other account designated by the Administrator), on each Settlement
Date:
a) Collections held on deposit in the Collection Account for
the benefit of the Issuer pursuant to Section 1.4(b)(i) in respect of accrued
Discount and accrued and unpaid Fees;
a) Collections held on deposit in the Collection Account for the
benefit of the Issuer pursuant to Section 1.4(f); and
a) the lesser of (x) the amount of Collections then held on deposit in the
Collection Account for the benefit of the Issuer pursuant to Section 1.4(b)(iii)
and (y) the aggregate amount of Capital on such date.
The Servicer shall deposit to its own account from Collections held on deposit
in the Collection Account pursuant to Section 1.4(b)(i) in respect of the
accrued Servicing Fee, an amount equal to such accrued Servicing Fee.
1. Upon receipt of funds deposited into the Administration Account pursuant to
clause (c), the Administrator shall cause such funds to be distributed as
follows:
a) 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 with respect to each Portion of Capital and accrued and
unpaid Fees, 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 Settlement
Date) in payment in full of the Issuer's Share of accrued Servicing Fees so set
aside, and
a) 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 and accrued and unpaid
Fees, 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 IMO or an Affiliate thereof is not the Servicer, to the
Servicer in payment in full of the Issuer's Share 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 IMO 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 under this
Agreement and, fifth, unless such amount has been retained by the Servicer
pursuant to clause (c), to the Servicer (if the Servicer is IMO or an Affiliate
thereof) in payment in full of the Issuer's Share of all accrued Servicing Fees.
After the Capital, Discount, and Fees with respect to the Purchased Interest,
Servicing Fees, 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.
1. For the purposes of this Section 1.4:
a) 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 any Originator, the Servicer, the Seller or any
Affiliate of the Seller, or any setoff or dispute between any Originator, 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;
a) if on any day any of the representations or warranties in Section 1(g)or (m)
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 (Collections deemed to have been received pursuant to clause (i) and (ii)
of this paragraph (e) are hereinafter sometimes referred to as "Deemed
Collections");
a) except 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
a) 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 pursuant to an Event of Bankruptcy) 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.
On or before the last day of each Reporting Period that contains one or more
days on which Seller is deemed to have received a Collection pursuant to this
Section 1.4(e), Seller shall transfer an amount equal to the aggregate amount of
such Deemed Collections to the Collection Account and the Servicer shall
distribute such transferred amount in the manner set forth in Section 1.4(c), as
if such transferred amount actually had been received by Seller or Servicer on
the date of such transfer from the Obligors of such Pool Receivables and as if
such transferred amount actually had been deposited into a Lockbox Account on
the date of such transfer.
1. If at any time the Seller shall wish to cause the reduction of Capital of the
Purchased Interest (but not to commence the liquidation, or reduction to zero,
of the entire Capital of the Purchased Interest), the Seller may do so as
follows:
a) the Seller shall give the Administrator and the Servicer at least two
Business Days' prior written notice thereof (including the amount of such
proposed reduction and the proposed date on which such reduction will commence);
a) 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
a) the Servicer shall hold such Collections in the Collection Account for the
benefit of the Issuer, for payment to the Administrator on the next Settlement
Date immediately following the current Settlement Period, and the Capital of the
Purchased Interest 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,
if not reduced to zero, shall be not less than $5,000,000 and shall be in
an integral multiple of $1,000,000; 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.
A. Section 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 the Servicer, the Seller and the Administrator (as such letter
agreement may be amended, supplemented or otherwise modified from time to
time, the "Fee Letter").
1. Section Payments and Computations, Etc. 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 noon (New
York City time) on the day when due in same day funds 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.
1. 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 1.0% per annum above the Base Rate, payable on demand.
1. 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.
1. Section Increased Costs. 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 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 written 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 reasonably sufficient to compensate such Affected
Person. A certificate describing in reasonable detail, such amounts and the
basis for such Affected Person's demand for such amounts submitted to the Seller
and the Administrator by such Affected Person shall be conclusive and binding
for all purposes, absent manifest error.
1. If, due to either: (i) the introduction of or any change in or in the
interpretation of any law or regulation occurring after the date hereof or (ii)
compliance with any guideline or request occurring after the date hereof 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 written 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 reasonably sufficient to compensate
such Affected Person for such increased costs. A certificate describing in
reasonable detail, such amounts and the basis for such Affected Person's demand
for 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) In determining the additional amounts necessary to compensate an
Affected Person pursuant to clause (a) or (b) above, such Affected Person may
use any reasonably method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
A. Section 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, 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, franchise taxes imposed on such Affected Person by the
jurisdiction under the laws of which such Affected Party 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 written demand by such
Affected Person, the Seller shall promptly pay to such Affected Person
additional amounts reasonably 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
describing in reasonable detail the amount and basis for the amount of such
additional costs or reduced amount receivable shall be conclusive and binding
for all purposes, absent manifest error.
A. Section 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 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, on the immediately
succeeding Settlement Date, 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.
I. ARTICLE
REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
A. Section Representations and Warranties; Covenants. Each of the
Seller 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.
A. Section 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 New York UCC and under other applicable law, which rights and remedies
shall be cumulative.
I. ARTICLE
INDEMNIFICATION
A. Section Indemnities by the Seller. Without limiting any other rights that the
Administrator, the Issuer, any Program Support Provider or any of their
respective Affiliates, employees, officers, directors, agents, counsel,
successors, transferees or assigns (each, an "Indemnified Party" and
collectively, the "Parties") 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 (including any successor Servicer appointed by the Administrator pursuant
to Section 4.1(a)) or counsel, (b) recourse (except as otherwise specifically
provided in this Agreement) for uncollectible 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 a
political subdivision thereof. Subject to the exclusions set forth in the
preceding sentence, but without otherwise limiting or being limited by the
foregoing, the Seller shall pay on demand 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:
a) 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 Monthly Report 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,
a) 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,
a) 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,
a) 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 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,
a) 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, b) any
dispute, claim, offset or defense (other than discharge in bankruptcy of the
Obligor) of an 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),
a) 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,
a) 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,
a) the commingling of Collections at any time with other funds,
a) the use of proceeds of purchases or reinvestments, or
a) 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.
A. Section Indemnities by the Servicer. Without limiting any other rights that
the Administrator, the Issuer or any other 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 a Monthly Report 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 in all respects as of the date made or deemed 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.
I. ARTICLE
ADMINISTRATION AND COLLECTIONS
1. Section Appointment of the Servicer. 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 IMO (in accordance with this Section) of
the designation of a new Servicer, IMO is hereby designated as, and hereby
agrees to perform the duties and obligations of, the Servicer pursuant to the
terms hereof. Upon the occurrence and during the continuation of a Termination
Event, the Administrator may designate as Servicer any Person (including itself)
to succeed IMO 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.
1. Upon the designation of a successor Servicer as set forth in clause (a), IMO
agrees that it will terminate its activities as Servicer hereunder in a manner
that the Administrator reasonably determines will facilitate the transition of
the performance of such activities to the new Servicer, and IMO shall cooperate
with and assist such new Servicer. Such cooperation shall include access to and
transfer of related records and, to the extent legally permissible, use by the
new Servicer of all licenses, hardware or software necessary or desirable to
collect the Pool Receivables and the Related Security.
1. IMO acknowledges that, in making their decisions to execute and deliver this
Agreement, the Administrator and the Issuer have relied on IMO's agreement to
act as Servicer hereunder. Accordingly, IMO agrees that it will not voluntarily
resign as Servicer.
1. The Servicer may with the prior written consent of the Administrator,
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).
1. Section Duties of the Servicer. 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 Policy. 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 Credit and Collection Policy, extend the maturity of
any Pool Receivable (but not beyond a total of 60 days from the invoice date)
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 IMO or an
Affiliate thereof is serving as the Servicer, IMO 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 (individually and for
the benefit of the Issuer), 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 (whether the Servicer is IMO or any other
Person) to commence or settle any legal action to enforce collection of any Pool
Receivable which is a Defaulted Receivable or to foreclose upon or repossess any
Related Security.
1. 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 IMO 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 IMO 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.
1. 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 IMO 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.
A. Section Establishment and Use of Certain Accounts. (a) Prior to
the initial purchase hereunder, the Seller shall enter into Lock-Box
Agreements establishing the Lock-Box Accounts listed on Schedule II with all
of the Lock-Box Banks, and deliver original counterparts thereof to the
Administrator.
(b) The Servicer agrees to establish the Collection Account on or
before the date of the first purchase hereunder. The Collection Account shall be
used to accept the transfer of Collections of Pool Receivables from the Lock-Box
Accounts pursuant to Section 1.4(b) and for such other purposes described in the
Transaction Documents.
(c) Any amounts in the Collection Account may be invested by the
Collection Account Bank at the Servicer's direction, in Permitted Investments,
so long as Issuer's interest in such Permitted Investments is perfected and such
Permitted Investments are subject to no Adverse Claims other than those of the
Issuer provided hereunder.
(d) Upon the occurrence and during the continuation of a Termination
Event, the Administrator may at any time thereafter give notice to each Lock-Box
Bank and the Collection Account Bank that the Administrator is exercising its
rights under the Lock-Box Agreements and the Collection Account Agreement, as
applicable, to do any or all of the following: (i) to have the exclusive
ownership and control of the Lock-Box Accounts and the Collection Account
transferred to the Administrator and to exercise exclusive dominion and control
over the funds deposited therein, (ii) to have the proceeds that are sent to the
respective Lock-Box Accounts redirected pursuant to the Administrator's
instructions, and (iii) to take any or all other actions permitted under the
applicable Lock-Box Agreement and the Collection Account Agreement. The 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.
1. Section Enforcement Rights. At any time following the
occurrence and during the continuation of a Termination Event:
a) 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,
a) the Administrator may 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
a) 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 to the extent legally
permissible 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.
1. 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 and during the continuation 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.
1. Section Responsibilities of the Seller. Anything herein to the contrary
notwithstanding, the Seller shall 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, Servicer or any Originator
thereunder.
1. IMO 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, IMO shall
conduct the data-processing functions of the administration of the Receivables
and the Collections thereon in substantially the same way that IMO conducted
such data-processing functions while it acted as the Servicer.
A. Section Servicing Fee. (a) Subject to clause (b), the Servicer
shall be paid a fee equal to 1.0% 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 IMO or an 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.
I. ARTICLE
MISCELLANEOUS
A. Section 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 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. The
Administrator shall provide each Rating Agency with a copy of each amendment to
or waiver or consent under this Agreement promptly following the effective date
thereof.
A. Section 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 express
mail or courier or 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 or sent by express mail or courier or if sent by certified
mail, when received, and (ii) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.
1. Section Assignability. 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 BNS, any Affiliate
of BNS, any Purchaser or other Program Support Provider or any Person that is:
(i) in the business of issuing Notes and (ii) associated with or administered by
BNS or any Affiliate of BNS.
1. 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 and except as otherwise provided
herein, Seller and Servicer shall continue to deal with Issuer as if Issuer had
not granted such participating interest. The Seller agrees that each Purchaser
or other Program Support Provider shall be entitled to the benefits of Sections
1.8 and 1.9.
1. 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 BNS, (ii) it becomes unlawful for BNS 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.
1. Except as provided in Section 4.1(d), none of the Seller, IMO or the Servicer
may assign its rights or delegate its obligations hereunder or any interest
herein without the prior written consent of the Administrator.
1. 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.
1. Section Costs, Expenses and Taxes. In addition to the rights of
indemnification granted under Section 3.1, the Seller agrees to pay on demand
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 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. Unless a
Termination Event or Unmatured Termination Event shall exist, the Seller shall
only be responsible for the cost of one periodic internal audit described above
in any twelve month period.
1. 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.
A. Section No Proceedings; Limitation on Payments. Each of the Seller, IMO, the
Servicer, the Administrator, each assignee of the Purchased Interest or any
interest 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.
A. Section Confidentiality. Unless otherwise required by applicable law, each of
the Seller and Servicer agrees to maintain the confidentiality of this Agreement
and the other Transaction Documents (and all drafts hereof and 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, (b) the Seller's legal counsel and
auditors if they agree to hold it confidential, (c) in filings made under
securities laws and (d) the parties to the Credit Agreement. Unless otherwise
required by applicable law, each of the Administrator and the Issuer agrees to
maintain the confidentiality of all information regarding IMO and its
Subsidiaries, this Agreement and the other Transaction Documents (and all drafts
hereof and thereof) in communications with third parties and otherwise; 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 IMO, (ii) legal counsel and auditors of
the Issuer or the Administrator if they 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 IMO (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 written consent of IMO (such consent not to be unreasonably
withheld), (v) any placement agent placing the Notes, and (vi) any regulatory
authorities having jurisdiction over BNS, the Issuer any Program Support
Provider or any Purchaser.
1. Section GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE DEEMED TO BE
A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK) EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF A SECURITY INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
1. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK; 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 NEW YORK LAW.
A. Section 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.
A. Section Survival of Termination. The provisions of Sections 1.8,
1.9, 3.1, 3.2, 5.4, 5.5, 5.6, 5.7, 5.8, 5.10 and 5.13 shall survive any
termination of this Agreement.
A. Section 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 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.
A. Section 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.
A. Section Headings. The captions and headings of this Agreement
and any Exhibit, Schedule or Annex hereto are for convenience of reference
only and shall not affect the interpretation hereof or thereof.
A. Section 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.
Receivables Purchase Agreement
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.
IMO FUNDING COMPANY,
LLC,
as Seller
By:
Name: John A. Young
Title: Vice President
Address:
9211 Forest Hill Avenue
Suite 109
Richmond, Virginia 23235
Attention: John A. Young
Telephone: (804) 327-5673
Facsimile: (804) 327-5688
IMO INDUSTRIES INC.
By:
Name: John A. Young
Title: Vice President
Address:
997 Lenox Drive
Suite 111
Lawrence, New Jersey 08648
Attention: Thomas M. O'Brien
Telephone: (609) 896-7627
Facsimile: (609) 896-7633
LIBERTY STREET FUNDING CORP.
as Issuer
By:
Name:
Title:
Address:
Liberty Street Funding Corp.
c/o Global Securitization
Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: Andrew L. Stidd
Telephone No.: (212) 302-8330
Facsimile No.: (212) 302-8767
With a copy to:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Dorothy
Poli
Telephone No.:
(212) 225-5000
Facsimile No.:
(212) 225-5090
THE BANK OF NOVA SCOTIA,
as Administrator
By:
Name:_______________________________
Title:______________________________
Address:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Dorothy Poli
Telephone No.: (212) 225-5000
Facsimile No.: (212) 225-5090
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.
"Accrued Customer Rebate" means the aggregate current accrued amount
recorded on the accounting ledgers of the Originators, which amount is owed to
the Obligors as a result of discounts.
"Accrued Customer Rebate Reserve" means an amount equal to (i) prior to
January 1, 2000, zero and (ii) on and after January 1, 2000, the Accrued
Customer Rebate.
"Administration Account" means the account, account number 2158-13 of the
Administrator maintained at the office of The Bank of Nova Scotia, 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 1.7 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.
"Alternate Rate" for any Settlement Period for any Portion of Capital of
the Purchased Interest means an interest rate per annum equal to: (a) the
Applicable Margin plus the Eurodollar Rate or, in the sole discretion of the
Administrator, (b) the Base Rate plus the Applicable Margin for such Settlement
Period; provided, however, that the "Alternate Rate" for any day while a
Termination Event exists shall be an interest rate equal to the greater (i) 1.0%
per annum above the Base Rate in effect on such day or (ii) the Applicable
Margin plus the Base Rate in effect on such day.
"Applicable Margin" has the meaning set forth in the Fee Letter.
"Attorney Costs" means and includes all reasonable fees and disbursements
of any law firm or other external counsel, the reasonable allocated cost of
internal legal services and all reasonable disbursements of internal counsel,
which fees, disbursements and costs shall be set forth in reasonably detailed
statements.
"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:
1. the rate of interest in effect for such day as publicly announced from time
to time by BNS in New York, New York as its "reference rate". Such "reference
rate" is set by BNS based upon various factors, including BNS'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
1. 0.75% 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, each Originator, IMO 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.
"BNS" has the meaning set forth in the preamble to the Agreement
"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, New York or
Chicago, Illinois 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 order to determine the Discount applicable to any portion of
Capital, 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.
"Change in Control" means that IMO ceases to own, directly or indirectly,
100% of the capital stock of the Seller free and clear of all Adverse Claims.
"Closing Date" means November 30, 1999.
"Collections" means, with respect to any Pool Receivable: (a) all funds
that are received by any Originator, 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 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
Deemed Collections and (c) all other proceeds of such Pool Receivable.
"Collection Account" means that certain bank account numbered 3751450511
maintained at Bank of America, N.A. which is (i) identified as the "Imo Funding
Company, LLC Collection Account," (ii) in the Seller's name, (iii) pledged, on a
first-priority basis, to the Issuer pursuant to Section 1.2(d), and (iv) is
governed by a Collection Account Agreement.
"Collection Account Agreement" means a letter agreement among the Seller,
the Agent and the Collection Account Bank, as the same may be amended,
supplemented, amended and restated, or otherwise modified from time to time in
accordance with the Agreement.
"Collection Account Bank" means the bank maintaining the Collection
Account.
"Company Note" has the meaning set forth in Section 3.2 of the Purchase
and Sale Agreement.
"Concentration Percentage" means: (a) for any Group A Obligor, 12%, (b)
for any Group B Obligor, 12%, (c) for any Group C Obligor, 6% and (d) for any
Group D Obligor, 3%; 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
"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 of the
Purchased Interest means, to the extent the Issuer funds such Portion of Capital
by issuing Notes, a rate per annum equal to the sum of (i) 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
during such Settlement Period to fund such Portion of Capital; provided, that if
the rate (or rates) is a discount rate (or rates), then such rate shall be the
rate (or if more than one rate, the weighted average of the rates) resulting
from converting such discount rate (or rates) to an interest-bearing equivalent
rate per annum, plus (ii) the commissions and charges charged by such placement
agent or commercial paper dealer with respect to such Notes, expressed as a
percentage of such face amount and converted to an interest-bearing equivalent
rate per annum.
"Credit Agreement" means the Credit Agreement, dated as of August 29,
1997, (as amended, supplemented or otherwise modified from time to time) among
IMO, Colfax Corporation (formerly known as II Acquisition Corp.), a Delaware
corporation, BNS, as the administrative agent and the documentation agent,
NationsBanc Capital Markets, Inc., as syndication agent and certain financial
institutions from time to time parties thereto.
"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.
"Days' Sales Outstanding" means, for any Reporting Period, an amount
computed as of the last day of such Reporting Period equal to: (a) the average
of the Outstanding Balance of all Pool Receivables as of the last day of each of
the three most recent Reporting Periods ended on the last day of such Reporting
Period, divided by (b) the aggregate amount of new Receivables generated by each
Originator during the three Reporting Periods ended on or before the last day of
such Reporting Period, multiplied by (c) 90.
"Debt" means, without duplication: (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).
"Deemed Collections" has the meaning set forth in Section 1.4(e)(ii) of
the Agreement.
"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 Reporting Period by dividing: (a) the sum of (i) the aggregate
Outstanding Balance (excluding credit balances) of all Pool Receivables as to
which any payment, or part thereof, remained unpaid for more than 90 to and
including 120 days from the original due date for such payment during such
Reporting Period plus (ii) the aggregate Outstanding Balance of all Pool
Receivables that remained unpaid for less than 91 days from the original due
date and were written off as uncollectible during such Reporting Period, by (b)
the aggregate credit sales made by each Originator during the Reporting Period
that is five Reporting Periods before such Reporting Period.
"Defaulted Receivable" means a Receivable:
(a) as to which any payment, or part thereof, remains unpaid for
more than 90 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) which has been, or, consistent with the Credit and Collection Policy
would be, written off the Seller's books as uncollectible.
"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 Reporting Period by dividing: (a) the aggregate Outstanding
Balance of all Pool Receivables that were Delinquent Receivables on such day by
(b) the Net Receivables Pool Balance 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 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 Reporting Period 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 (other than Accrued Customer Rebate) by (b)
the aggregate credit sales made by each Originator during the Reporting Period
that is two Reporting Periods before such Reporting Period.
"Dilution Reserve" means, on any day, an amount equal to: (a) the Capital
at the close of business of the Servicer on such date multiplied by (b) (i) the
Dilution Reserve Percentage, divided by (ii) 1 minus the Dilution Reserve
Percentage.
"Dilution Reserve Percentage" means (a) 2.5%,; provided, however, if the
Dilution Ratio is equal to or greater than 6% then (b) 5.0%.
"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 relevant Portion of Capital during such
Settlement Period,
CPR = the CP Rate for the Portion of Capital,
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, however, that during the occurrence and continuance of a Termination
Event, the CP Rate shall not be available and Discount for the Portion of
Capital shall be determined for each day in a Settlement Period using a rate
equal to the Base Rate in effect on such day plus 1.0%; provided, further, 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; provided,
however, if the Obligor of such Receivable is a resident of a jurisdiction
other than the United States, such Receivable shall satisfy the
requirements of this clause (a)(i) if the aggregate Outstanding Balance of
all Pool Receivables of such Obligor that are Eligible Receivables when
added to the aggregate Outstanding Balance of all other Eligible
Receivables of the Obligors that are not residents of the United States
shall not exceed 5% of the Net Receivables Pool Balance at such time, (ii)
not a government or a governmental subdivision, affiliate or agency;
provided, however, if the Obligor of such Receivable is a government or a
governmental subdivision, affiliate or agency, such Receivable shall
satisfy the requirements of this clause (a)(ii) if the aggregate
Outstanding Balance of all Pool Receivables of such Obligor that are
Eligible Receivables when added to the aggregate Outstanding Balance of
all other Eligible Receivables of the Obligors that are governments or
governmental subdivisions, affiliates or agencies shall not exceed 7.5% of
the Net Receivables Pool Balance at such time, (iii) not subject to any
action of the type described in paragraph (f) of Exhibit V to the
Agreement and (iv) not an Affiliate of IMO or any Affiliate of IMO,
(b) that is denominated and payable only in U.S. dollars in the
United States,
(c) that does not have a stated maturity which is more than 30 days
after the 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 each 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 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,
(m) that is not a Defaulted Receivable,
(n) for which none of the Originators, the Seller nor the
Servicer has established any offset arrangements with the related
Obligor,
(o) for which the sum of Delinquent Receivables and 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 any
Originator.
"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, Servicer or any Originator, (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, Servicer or any
Originator, or (c) a member of the same affiliated service group (within the
meaning of Section 414(m) of the Internal Revenue Code) as the Seller, Servicer,
any Originator, any corporation described in clause (a) or any trade or business
described in clause (b).
"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 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.
"Facility Termination Date" means the earliest to occur of: (a) November
30, 2004,(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 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.
"Fees" means the fees payable by the Seller to the Administrator pursuant
to the Fee Letter.
"GAAP" means the generally accepted United States accounting principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors and successors from time to time.
"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 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.
"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 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 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.
"IMO" has the meaning set forth in the preamble to the Agreement.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of Seller, Servicer, any Originator or any other Subsidiary or Affiliate of
Servicer, any qualification or exception to such opinion or certification:
(i) which is of a "going concern" or similar nature; or
(ii) which relates to the limited scope of examination of matters
relevant to such financial statement (other than any standard
qualification of such nature).
"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.
"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 the
Reference Bank as the rate of interest at which dollar deposits in the
approximate amount of the Portion of Capital to be 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 BNS in its capacity as the Liquidity Agent
pursuant to the Liquidity Agreement.
"Liquidity Agreement" means the Liquidity Asset Purchase Agreement, dated
as of November 29, 1999, among the purchasers from time to time party thereto,
the Issuer and BNS, 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 the form of
Annex C 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) 1 minus the Loss Reserve
Percentage on such date.
"Loss Reserve Percentage" means, on any date, the greater of: (a) 12.0%,
(b) 2 times the Delinquency Ratio and (c) (i) the product of (x) 2 times the
highest average of the Default Ratios for any three consecutive Reporting
Periods during the thirteen most recent Reporting Periods multiplied by (y) the
aggregate credit sales made during the five most recent Reporting Periods
divided by (ii) the Net Receivables Pool Balance on 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 and its consolidated Subsidiaries, taken as a whole,
(b) the ability of any 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 Report" means a report, in substantially the form of Annex A to
the Agreement, furnished to the Administrator pursuant to the Agreement.
"Moody's" means Moody's Investors Service, Inc.
"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 Purchase and Sale Agreement.
"Originator Assignment Certificate" means the assignment, in substantially
the form of Exhibit E to the Purchase and Sale Agreement, evidencing Seller's
ownership of the Receivables generated by each 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 1.4 of the Purchase
and Sale Agreement.
"Permitted Investments" means certificates of deposit that are not
represented by instruments, have a maturity of one week or less and are issued
by the Collection Account Bank (with respect to the investment of funds in the
Collection Account) or The Bank of Nova Scotia; provided, however, that the
Administrator on behalf of Issuer) may, from time to time, upon the later of (x)
three Business Days' prior written notice to Servicer and (y) the end of the
current maturity period with respect to certificates of deposits invested prior
to the Servicers receipt of such notice, remove from the scope of "Permitted
Investments" certificates of deposit of any such bank(s) and with the prior
consent of the Servicer (which consent shall not be unreasonably withheld)
specify to be within such scope, certificates of deposit of any other bank.
"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.
"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" means any separate portion of Capital being funded or
maintained by the Issuer (or its successors or permitted assigns) by reference
to a particular interest rate basis.
"Program Support Agreement" means and includes the Liquidity Agreement and
any other agreement entered into by any Program 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 Agreement" means the Purchase and Sale Agreement, dated
as of November 29, 1999 among the Seller, the Originators named therein and IMO,
as such agreement may be amended, amended and restated, supplement or otherwise
modified from time to time.
"Purchase and Sale Indemnified Amounts" has the meaning set forth in
Section 9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Indemnified Party" has the meaning set forth in Section
9.1 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Date" has the meaning set forth in Section
1.4 of the Purchase and Sale Agreement.
"Purchase and Sale Termination Event" has the meaning set forth in Section
8.1 of the Purchase and Sale Agreement.
"Purchase Facility" has the meaning set forth in Section 1.1 of the
Purchase and Sale Agreement.
"Purchase Limit" means $35,000,000, 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 Purchase
and Sale Agreement.
"Purchase Report" has the meaning set forth in Section 2.1 of the Purchase
and 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, (b) all Related Security with respect to such Pool
Receivables and (c) all Collections with respect to, and other proceeds of, 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.
"Rating Agencies" means Moody's and Standard & Poor's.
"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 as assignee of each Originator or such Originator by, or any right of the
Seller or such Originator to payment from or on behalf of, an 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 such
Originator, and includes the obligation to pay any finance charges, fees and
other charges with respect thereto.
"Receivables Pool" means, at any time, all of the then outstanding
Receivables purchased or purported to be purchased by the Seller pursuant to the
Purchase and Sale Agreement prior to the Facility Termination Date.
"Reference Bank" means BNS.
"Related Rights" has the meaning set forth in Section 1.1 of the Purchase
and Sale Agreement.
"Related Security" means, with respect to any Receivable:
(a) all of the Seller's, and each Originator'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 instruments and chattel paper that may evidence such
Receivable,
(c) 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
(d) all of the Seller's and each 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.
"Reporting Period" means each period commencing on the first day of
Seller's fiscal month and ending on the last day of such fiscal month.
"Seller" has the meaning set forth in the preamble to the Agreement.
"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 Section 4.6 of the
Agreement.
"Servicing Fee Reserve" at any time means the sum of (a) the then accrued
and unpaid Servicing Fee plus (b) the product of (i) the Outstanding Balance of
Pool Receivables at such time, times (ii) the product of (x) the Servicing Fee
Rate multiplied by (y) a fraction, the numerator of which is 1.5 times the Days'
Sales Outstanding (calculated on the last day of the most recent preceding
Reporting Period) and the denominator of which is 360.
"Settlement Date" means (a) prior to the Facility Termination Date, the
last day of each calendar month (or if such day is not a Business Day, then the
next following Business Day) and (b) on and after the Facility Termination Date,
each day selected from time to time by the Administrator (it being understood
that the Administrator may select such Settlement Date to occur as frequently as
daily), or, in the absence of any such selection, the day which would be the
Settlement Date for such Portion of Capital pursuant to clause (a) of this
definition.
"Settlement Period" means, with respect to each Portion of Capital of the
Purchased Interest: (a) with respect to any Portion of Capital funded by the
issuance of Notes, (i) initially the period commencing on (and including) the
date of the initial purchase or funding of such Portion of Capital and ending on
(and including) the last day of the current calendar month, and (ii) thereafter,
each period commencing on (and including) the first day after the last day of
the immediately preceding Settlement Period for such Portion of Capital and
ending on (and including) the last day of the current calendar month; and (b)
with respect to any Portion of Capital not funded by the issuance of Notes, (i)
initially the period commencing on (and including) the date of the initial
purchase or funding of such Portion of Capital and ending on (but excluding) the
next following Settlement Date, and (ii) thereafter, each period commencing on a
Settlement Date and ending on (but excluding) the next following Settlement
Date; provided, that
(i) any Settlement Period (other than of one day) which would
otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day; provided, however, if Discount
in respect of such Settlement Period is computed by reference to the
Eurodollar Rate, and such Settlement Period would otherwise end on a
day which is not a Business Day, and there is no subsequent Business
Day in the same calendar month as such day, such Settlement Period
shall end on the next preceding Business Day;
(ii) in the case of any Settlement Period for any Portion of
Capital of the Purchased Interest which commences before the
Facility Termination Date and would otherwise end on a date
occurring after the Facility Termination Date, such Settlement
Period shall end on such Facility Termination Date and the duration
of each Settlement Period which commences on or after the Facility
Termination Date shall be of such duration as shall be selected by
the Administrator; and
(iii) any Settlement Period in respect of which Discount is
computed by reference to the CP Rate may be terminated at the
election of, and upon notice thereof to the Seller, by the
Administrator any time, in which case the Portion of Capital
allocated to such terminated Settlement Period shall be allocated to
a new Settlement Period commencing on (and including) the date of
such termination and ending on (but excluding) the next following
Settlement Date, and shall accrue Discount at the Alternate Rate and
based on the Base Rate.
"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 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.
"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 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) Servicing Fee Reserve, plus (c) the Loss Reserve, plus (d) the Dilution
Reserve, plus (e) the Accrued Customer Rebate Reserve.
"Transaction Documents" means the Agreement, the Lock-Box Agreement(s) and
the Collection Account Agreement, the Fee Letter, the Purchase and 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.
"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.
"Yield Reserve" means, at any time:
( BR x 1.5(DSO) x Capital)
360
where:
BR = the Base Rate in effect at such time, and
DSO = Days' Sales Outstanding.
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 New York, 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.
EXHIBIT II
CONDITIONS OF PURCHASES
I. Conditions Precedent to Initial Purchase. The initial purchase
under this Agreement is subject to the following conditions precedent that
the Administrator shall have received on or before the date of such purchase,
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.
A. Certified copies of: (i) the resolutions of the Board of
Directors of each of the Seller, the Servicer and each Originator authorizing
the execution, delivery and performance by the Seller, the Servicer and such
Originator, 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 organizational or 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 or the limited liability
company agreement, as applicable, of the Seller, the Servicer and such
Originator.
A. A certificate of the Secretary or Assistant Secretary of the
Seller, the Servicer and each Originator 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, the Servicer and such Originator, as
the case may be, the Administrator shall be entitled to rely on the last such
certificate delivered to it by the Seller, the Servicer and such Originator,
as the case may be.
A. 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 and
the Issuer contemplated by the Agreement, the Purchase and Sale Agreement and
the Sale Agreement.
A. 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 any Originator or the Seller.
A. Completed UCC search reports, dated on or shortly before the
date of the initial purchase hereunder, listing the financing statements
filed in all applicable jurisdictions referred to in subsection (e) above that
name, any Originator 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 reasonably
request, showing no Adverse Claims on any Pool Assets.
A. copies of the executed (i) Lock-Box Agreement with the Lock-Box
Bank and (ii) Collection Account Agreement with the Collection Account Bank.
A. Favorable opinions, in form and substance reasonably
satisfactory to the Administrator, of Hogan & Hartson LLP, special counsel
for Seller, Servicer and each Originator.
A. 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.
A. A pro forma Monthly Report representing the performance of the
Receivables Pool for the Reporting Period before closing.
A. 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.
A. The Fee Letter duly executed by the Seller and the Servicer.
A. Good standing certificates with respect to each of the Seller,
each Originator and the Servicer issued by the Secretary of State (or similar
official) of the state of each such Person's organization and principal place
of business.
A. 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.
A. The Liquidity Agreement and all other Transaction Documents duly
executed by the parties thereto.
A. A file (computer generated or otherwise) containing all
information with respect to the Receivables as the Administrator or the
Issuer may reasonably request.
A. Such other approvals, opinions or documents as the Administrator
or the Issuer may reasonably request.
I. 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 Monthly Report to
reflect the level of Capital and related reserves after such subsequent
purchase; and
A. 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):
1. 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
1. 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.
EXHIBIT III
REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties of the Seller. The Seller represents
and warrants as follows:
A. The Seller is a limited liability company duly organized,
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 limited liability company 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.
A. 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 organizational powers; (ii) have been duly authorized by all
necessary organizational action; (iii) do not contravene or result in a
default under or conflict with: (A) its certificate of formation, limited
liability company agreement or any other organizational document of the
Seller, (B) any law, rule or regulation applicable to it, (C) 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, 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.
A. 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.
A. Each of the Agreement and the other Transaction Documents to
which the Seller is a party constitutes the legal, valid and binding
obligation of the Seller enforceable against the Seller in accordance with
its terms, except as 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.
B. 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.
A. No proceeds of any purchase or reinvestment will be used by the
Seller to acquire any equity security of a class that is registered pursuant
to Section 12 of the Securities Exchange Act of 1934.
A. 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 Purchase and Sale Agreement and the Issuer relating to the
Agreement.
A. Each Monthly Report (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 as of the
date so furnished,
A. 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.
A. 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.
A. The Seller is not in violation of any order of any court,
arbitrator or Governmental Authority.
B. 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.
A. Each Pool Receivable included as an Eligible Receivable in the
calculation of the Net Receivables Pool Balance is an Eligible Receivable.
A. 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.
A. 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.
A. 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.
A. The Seller's complete organizational name is set forth in the
preamble to the Agreement, and it does not use and has not during the last
five years used any other organizational 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(k)(iv) of
Exhibit IV to the Agreement.
A. 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 "subsidiary company" of a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(s) The Seller reasonably believes that all internal computer
operations that are material to its business operations will be able to
perform properly date sensitive functions for all dates before, on and after
January 1, 2000, except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
2. Representations and Warranties of IMO (including in its capacity as
the Servicer). IMO, individually and in its capacity as the Servicer,
represents and warrants as follows:
A. IMO 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.
A. The execution, delivery and performance by IMO 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 indenture, loan agreement, mortgage, deed of trust or
other material agreement or instrument to which it is a party or by which
it is bound, 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
IMO is a party have been duly executed and delivered by IMO.
A. 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 IMO 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.
A. Each of the Agreement and the other Transaction Documents to
which IMO is a party constitutes the legal, valid and binding obligation of
IMO enforceable against IMO 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.
A. The balance sheets of IMO and its consolidated Subsidiaries as
at December 31, 1998, and the related statements of income and retained
earnings for the fiscal year then ended, copies of which have been furnished to
the Administrator, fairly present the financial condition of IMO and its
consolidated Subsidiaries as at such date and the results of the operations
of IMO and its Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently
applied, and since December 31, 1998 there has been no event or
circumstances which have had a Material Adverse Effect.
A. Except as disclosed in the most recent audited financial
statements of IMO 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.
A. Each Monthly Report (if prepared by IMO or one of its
Affiliates, or to the extent that information contained therein is supplied
by IMO 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.
A. IMO is not in violation of any order of any court, arbitrator or
Governmental Authority, which could have a Material Adverse Effect.
A. 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.
(j) IMO reasonably believes that all internal computer operations that
are material to its business operations will be able to perform properly date
sensitive functions for all dates before, on and after January 1, 2000,
except to the extent that a failure to do so could not reasonably be expected
to have a Material Adverse Effect.
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 organizational 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.
A. 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 (k)(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
organizational 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).
A. Performance and Compliance with Contracts and Credit and
Collection Policy. The Seller shall (and shall cause the Servicer to) fully
comply in all material respects with the applicable Credit and Collection
Policies with regard to each Receivable and the related Contract.
A. 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.
A. 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.
A. 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.
A. Change in 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 the Credit and Collection Policy, or any change in the
Credit and Collection Policy that would adversely affect the collectibility
of the Receivables Pool or the enforceability of any related Contract or the
ability of the Seller or Servicer to perform its obligations under
any related Contract or under the Agreement.
A. 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 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 each Originator 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,
Servicer's or such Originator's performance under the Transaction Documents
or under the Contracts with any of the officers, employees, agents or
contractors of the Seller, Servicer or such Originator having knowledge of
such matters.
A. 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, any Originator, 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.
A. 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 (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 and
the Collection Account shall at all times be subject to a Lock-Box Agreement
and a Collection Account Agreement, respectively. 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.
A. Reporting Requirements. The Seller will provide to the
Administrator (in multiple copies, if requested by the Administrator) the
following:
1. as soon as available and in any event within 120 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;
1. as soon as possible and in any event within five days after the
Seller becomes aware of 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;
1. 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 an event or
condition that could, in the aggregate, result in the imposition of liability
on the Seller and/or any such Affiliate;
1. 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;
1. promptly after the Seller obtains knowledge thereof, notice of
any: (A) material litigation, investigation or proceeding that may exist at
any time between the Seller and any Person or (B) material litigation or
proceeding relating to any Transaction Document;
1. 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;
1. 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; and
(viii) as soon as available and in any event within 140 days
after the end of each fiscal year of Seller, the Seller shall, at the
Seller's expense, cause a firm of independent public accountants (who may
be the independent public accountants who verify the IMO's annual
audited financial statements), reasonably acceptable to the
Administrator, to furnish a report to the Administrator, to the effect
that such firm has (i) compared the information contained in the
Monthly Reports delivered during such fiscal year then ended with the
information contained in the Seller's records and computer systems for
such period, and that, on the basis of such examination and comparison,
such firm is of the opinion that the information contained in the
Monthly Reports reconciles with the information contained in the
Seller's records and computer systems and that the servicing of the
Receivables has been conducted in compliance with the Agreement, (ii)
confirmed the Net Receivables Pool Balance as of the end of each
Settlement Period during such fiscal year, (iii) verified that the
Receivables treated by the Seller as Eligible Receivables in fact
satisfied the requirements of the definition thereof contained in
Exhibit I to the Agreement, and (iv) conducted a "negative
confirmation" of a sample of Receivables and verified that the Seller's
records and computer systems used in servicing the Receivables
contained correct information with regard to due dates and outstanding
balances, except in each case for (a) such exceptions as such firm
shall believe to be immaterial (which exceptions need not be
enumerated) and (b) such other exceptions as shall be set forth in such
statement.
A. 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.
A. 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
Notes in accordance with its terms, and (B) if no amounts are then
outstanding under the Company Notes, 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 (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 $2,000,000, 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.
A. 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 Notes; 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.).
A. 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
Notes; (iii) the payment of principal of the Notes and (iv) other legal and
valid organizational purposes.
A. Tangible Net Worth. The Seller will not permit its tangible net
worth, at any time, to be less than $2,000,000.
2. Covenants of the Servicer and IMO. 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, IMO 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.
A. Records and Books of Account, Etc. The Servicer and, to the
extent that it ceases to be the Servicer, IMO, 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).
A. Change in Credit and Collection Policy. The Servicer and, to the
extent that it ceases to be the Servicer, IMO, shall not make (and shall not
permit any Originator to make) any material change in the character of its
business or in the Credit and Collection Policy, or any change in the Credit
and Collection Policy that would adversely affect the collectibility of the
Receivables Pool or the enforceability of any related Contract or the ability of
the Seller or Servicer to perform its obligations under any related
Contract or under the Agreement.
A. Audits. The Servicer and, to the extent that it ceases to be the
Servicer, IMO, 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.
A. 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
and the Collection Account shall at all times be subject to a Lock-Box
Agreement and a Collection Account Agreement, respectively. 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.
A. Reporting Requirements. IMO shall provide to the Administrator
(in multiple copies, if requested by the Administrator) the following:
1. As soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of IMO, (a)
copies of the unaudited consolidated balance sheet of IMO and its
consolidated Subsidiaries as at the end of such quarter, together with
unaudited statements of earnings, stockholders' equity and cash flows for such
quarter and the portion of the fiscal year through such quarter, prepared in
accordance with GAAP and certified by the chief financial
officer, treasurer or chief accounting officer of IMO, (b) a letter from the
chief financial officer, treasurer or chief accounting officer of IMO
certifying to the best knowledge of such officer, that neither a Termination
Event nor an Unmatured Termination Event has occurred and is continuing;
1. As soon as available and in any event within 120 days after the end of
each fiscal year of IMO, (a) a copy of the consolidated balance sheet of IMO
and its consolidated Subsidiaries as at the end of such fiscal year,
together with the related statements of earnings, stockholders' equity and
cash flows for such fiscal year, each prepared in accordance with GAAP
applied consistently throughout the periods reflected therein (such
consolidated balance sheet and such related statements to be certified
without any Impermissible Qualification by independent certified public
accountants of nationally recognized standing), and (b) a letter from the
chief financial officer, treasurer or chief accounting officer of IMO
certifying to the best knowledge of such officer, that neither a Termination
Event nor an Unmatured Termination Event has occurred and is continuing, in
each case as at the end of each such fiscal year and the date of delivery of
such letter;
1. as to the Servicer only, as soon as available and in any event
not later than 10 days after the last day of each Reporting Period a Monthly
Report as of the last day of such Reporting Period or, within 5 Business Days of
a request by the Administrator, a Monthly Report for such periods as is
specified by the Administrator (including on a semi-monthly, weekly or daily
basis);
1. promptly after the sending or filing thereof, copies of all
reports that IMO sends to any of its security holders, and copies of all
reports and registration statements that IMO or any Subsidiary files with the
Securities and Exchange Commission or any national securities exchange;
1. promptly after the filing or receiving thereof, copies of all
reports and notices that IMO 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 Affiliates
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 IMO and/or any such Affiliate;
1. promptly after IMO obtains knowledge thereof, notice of any: (A)
litigation, investigation or proceeding that may exist at any time between
IMO or any of its Subsidiaries and any Governmental Authority that, if not
cured could be reasonably expected to have a Material Adverse Effect; (B)
litigation or proceeding affecting IMO or any of its Subsidiaries, or any of
their respective properties, businesses, assets or revenues, which could be
reasonably expected to have a Material Adverse Effect on IMO and its
Subsidiaries as a whole; or (C) litigation or proceeding relating to any
Transaction Document; and
1.
such other information respecting the Receivables or the condition or
operations, financial or otherwise, of IMO or any of its Affiliates as the
Administrator may from time to time reasonably request.
A. Credit Agreement. IMO shall provide notice to the Administrator
of a Termination Event described in paragraph (l) or (m) of Exhibit V within
5 Business Days after the occurrence of such Termination Event (regardless of
whether the circumstances or events giving rise to such Termination Events
shall have been amended, modified or waived pursuant to the Credit
Agreement).
3. Separate Existence. Each of the Seller and IMO 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 IMO and its Affiliates. Therefore, from and after the date hereof, each
of the Seller and IMO shall take all steps specifically required by the
Agreement or reasonably required by the Administrator to continue the
Seller's identity as a separate legal entity and to make it apparent to third
Persons that the Seller is an entity with assets and liabilities distinct from
those of IMO and any other Person, and is not a division of IMO, 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 IMO shall take such
actions as shall be required in order that:
(a) The Seller will be a limited purpose entity whose primary
activities are restricted in its limited liability company agreement
to: (i) purchasing or otherwise acquiring from Originators, owning,
holding and 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 IMO or any of its
Affiliates. The limited liability company agreement 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, IMO 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,
whichservicer 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;
(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. Except as provided in the following sentence the
Seller will not incur any material indirect or overhead
expenses for items shared with IMO (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 IMO shall pay all expenses relating to the preparation,
negotiation, execution and delivery of the Transaction Documents,
including legal, rating agency and other fees;
(g) Except as provided in clause (f) above, the Seller's
operating expenses will not be paid by IMO or any other Affiliate
thereof;
(h) All of the Seller's business correspondence and other
communications shall be conducted in the Seller's own name and on its
own separate stationery;
(i) The Seller's books and records will be maintained separately
from those of IMO and any other Affiliate thereof;
(j) All financial statements of IMO or any Affiliate thereof that
are consolidated to include Seller will contain detailed notes clearly
stating that: (i) a special purpose entity exists as a Subsidiary of
IMO, and (ii) 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 IMO or
any Affiliate thereof;
(l) The Seller will strictly observe organizational formalities in
its dealings with IMO or any Affiliate thereof, and funds or other
assets of the Seller will not be commingled with those of IMO 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 IMO or any
Affiliate thereof (other than IMO in its capacity as the Servicer) has
independent access. The Seller is not named, and has not 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 IMO or any Subsidiary
or other Affiliate of IMO. 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 IMO
(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 IMO 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
IMO 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.
(n) IMO shall not pay the salaries of Seller's employees, if any.
EXHIBIT V
TERMINATION EVENTS
Each of the following shall be a "Termination Event":
A. (i) the Seller, any Originator or the Servicer (if IMO or any of
its Affiliates) 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 one
Business Day or (ii) the Seller, any Originator or the Servicer (if IMO or
any of its Affiliates) shall fail to perform or observe any other term,
covenant or agreement under the Agreement or any other Transaction Document
and such failure shall continue for 30 days after notice thereof from the
Issuer or the Administrator;
A. IMO (or any Affiliate thereof) shall fail to transfer to any
successor Servicer when required any rights pursuant to the Agreement that
IMO (or such Affiliate) then has as Servicer;
A. any representation or warranty made or deemed made by the
Seller, IMO, 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, IMO, 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;
A. the Seller or the Servicer shall fail to deliver the Monthly
Report pursuant to the Agreement, and such failure shall remain unremedied
for five days after notice thereof from the Issuer or the Administrator;
A. 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 the Pool Receivables, the Related Security and
Collections with respect thereto, free and clear of any Adverse Claim, or
(ii) cease to create, 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,
A. the Seller, IMO, or any Originator shall generally not pay its
debts as such debts become due, or shall 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,
IMO, 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, IMO or
any Originator shall take any organizational or corporate action, as
applicable to authorize any of the actions set forth above in this paragraph;
A. (i) the (A) Default Ratio shall exceed 3.5%, (B) the Delinquency
Ratio shall exceed 9.0% or (C) the Dilution Ratio shall exceed 8.0% or (ii)
the average for three consecutive Reporting Periods of: (A) the Default Ratio
shall exceed 2.5%, (B) the Delinquency Ratio shall exceed 8.0%(C) the
Dilution Ratio shall exceed 7.0%.
A. a Change in Control shall occur,
A. at any time (i) the sum of (A) the Capital plus (B) the Total
Reserves, exceeds (ii) the sum of (A) the Net Receivables Pool Balance at
such time plus (B) the Issuer's Share of the amount of Collections then on
deposit in the Lock-Box Accounts and the Collection Account (other than
amounts set aside therein representing Discount and Fees), and such
circumstance shall not have been cured within four Business Days,
(j) (i) IMO 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 $2,500,000 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 (ii) any other event (other than a Termination Event described in
paragraph (l) or (m) of Exhibit V) 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 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) the Internal Revenue Service shall file a notice of
lien asserting a claim pursuant to the Internal Revenue Code with regard to
any of the assets of Seller, any Originator, IMO or any ERISA Affiliate, or
(ii) the Pension Benefit Guaranty Corporation shall file a notice of lien
asserting a claim pursuant to ERISA with regard to any assets of the Seller,
any Originator, IMO or any ERISA Affiliate;
(l) IMO shall fail to perform and comply with each of the financial
covenants set forth in Section 7.2.4 of the Credit Agreement as in effect on
the date hereof, (regardless of whether such covenants may be amended,
modified or waived from time to time in accordance with the Credit
Agreement), each of which covenants and agreements, together with all related
definitions, exhibits and ancillary provisions, are hereby incorporated in
this Agreement by reference as through specifically set forth in this
paragraph (l) and shall survive the termination and/or expiration of the
Credit Agreement; or
(m) the occurrence of an event set forth in Section 8.1.5 of the Credit
Agreement as in effect on the date hereof, (regardless of whether such event
may be amended, modified or waived from time to time in accordance with the
Credit Agreement), each of which events and agreements, together with all
related definitions, exhibits and ancillary provisions, are hereby
incorporated in this Agreement by reference as through specifically set forth in
this paragraph (m) and shall survive the termination and/or expiration of
the Credit Agreement.
SCHEDULE I
CREDIT AND COLLECTION POLICY
SCHEDULE II
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
Lock-Box Bank Lock-Box Accounts Lock-Box Number
Bank of America, N.A. 3751450524 502932
Bank of America, N.A. 3751450540 502944
Bank of America, N.A. 3751450537 502924
Bank of America, N.A. 3751450553 502959
502910
502919
SCHEDULE III
TRADE NAMES
None
ANNEX A
to Receivables Purchase Agreement
FORM OF MONTHLY REPORT
ANNEX B
to Receivables Purchase Agreement
FORM OF PURCHASE NOTICE
PURCHASE AND SALE AGREEMENT
Dated as of November 29, 1999
among
THE ORIGINATORS NAMED HEREIN,
IMO INDUSTRIES INC.
and
IMO FUNDING COMPANY, LLC
TABLE OF CONTENTS
||
PAGE
ARTICLE IAGREEMENT TO PURCHASE AND SELL
1.1. Agreement to Purchase and Sell 2
1.2. Timing of Purchases 2
1.3. Consideration for Purchases 3
1.4. Purchase and Sale Termination Date 3
1.5. Intention of the Parties 3
ARTICLE IICALCULATION OF PURCHASE PRICE
2.1. Calculation of Purchase Price 3
ARTICLE IIIPAYMENT OF PURCHASE PRICE
3.1. Initial Purchase Price Payment 4
3.2. Subsequent Purchase Price Payments 4
3.3. Settlement as to Specific Receivables 5
3.4. Reconveyance of Receivables 6
ARTICLE IVCONDITIONS OF PURCHASES
4.1. Conditions Precedent to Initial Purchase 6
4.2. Certification as to Representations and Warranties 8
4.3. Addition of Originators. 8
ARTICLE VREPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS
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 9
5.5. No Violation 9
5.6. Proceedings 9
5.7. Bulk Sales Act 10
5.8. Government Approvals 10
5.9. Financial Condition 10
5.10. Margin Regulations 10
5.11. Quality of Title 10
5.12. Accuracy of Information 11
5.13. Offices 11
5.14. Trade Names 11
5.15. Taxes 11
5.16. Licenses and Labor Controversies 11
5.17. Compliance with Applicable Laws 12
5.18. Reliance on Separate Legal Identity 12
5.19. Purchase Price 12
5.20. Certain Definitions 12
ARTICLE VICOVENANTS OF THE ORIGINATORS
6.1. Affirmative Covenants 14
6.2. Reporting Requirements 16
6.3. Negative Covenants 16
ARTICLE VIIADDITIONAL RIGHTS AND OBLIGATIONS INRESPECT OF THE RECEIVABLES
7.1. Rights of the Company 17
7.2. Responsibilities of The Originator 17
7.3. Further Action Evidencing Purchases 18
7.4. Application of Collections 18
ARTICLE VIIIPURCHASE AND SALE TERMINATION EVENTS
8.1. Purchase and Sale Termination Events 19
8.2. Remedies 20
ARTICLE IXINDEMNIFICATION
9.1. Indemnities by the Originator 20
ARTICLE XMISCELLANEOUS
10.1. Amendments, etc 22
10.2. Notices, etc 22
10.3. No Waiver; Cumulative Remedies 22
10.4. Binding Effect; Assignability 22
10.5. Governing Law 23
10.6. Costs, Expenses and Taxes 23
10.7. Submission to Jurisdiction 23
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 24
||
SCHEDULES
SCHEDULE 5.13 Office Locations
SCHEDULE 5.14 Trade Names
EXHIBITS
EXHIBIT A Form of Purchase Report
EXHIBIT B Form of Company Note
EXHIBIT C Form of Opinion of Originators' Counsel
EXHIBIT D Form of Joinder Agreement
EXHIBIT E Form of Originator Assignment Certificate
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (as amended, supplemented or modified
from time to time, this "Agreement"), dated as of November 29, 1999, is among
IMO INDUSTRIES INC., a Delaware corporation ("IMO"), individually and as the
initial Servicer, WARREN PUMPS INC. ("Warren"), a Delaware corporation, (IMO and
Warren collectively referred to herein as the "Originators" and each
individually as an "Originator"), and IMO FUNDING COMPANY, LLC, a Delaware
limited liability company (the "Company"), as purchaser.
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 amended, supplemented or otherwise modified
from time to time, the "Receivables Purchase Agreement"), among the Company, as
Seller, IMO, as Servicer, LIBERTY STREET FUNDING CORP. (the "Issuer"), and THE
BANK OF NOVA SCOTIA, as Administrator (together with its successors and assigns,
the "Administrator").
Background
1. The Company is a special purpose limited liability company, all
of the membership interests of which are owned by IMO.
2. In order to finance their respective businesses, the Originators wish
to sell certain Receivables and Related Rights from time to time to the Company,
and the Company is willing, on the terms and subject to the conditions set forth
herein, to purchase such Receivables and Related Rights from such Originators.
3. The Company intends to sell, assign and transfer to Issuer, all of its
right, title and interest in and to all of the Receivables and Related Rights
pursuant to the Receivables Purchase Agreement in order to finance its purchases
of certain Receivables and Related Rights hereunder.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
I. ARTICLE
AGREEMENT TO PURCHASE AND SELL
A. Agreement to Purchase and Sell. On the terms and subject to the conditions
set forth in this Agreement (including Article IV), and in consideration of the
Purchase Price, each Originator agrees to sell to the Company, and does hereby
sell to the Company, and the Company agrees to purchase from such Originator,
and does hereby purchase from such Originator, without recourse and without
regard to collectibility, all of such Originator's right, title and interest in
and to:
1. each Receivable of such Originator that existed and was
owing to such Originator as of the close of such Originator's business on
November 30, 1999 (the "Closing Date");
1. each Receivable created or originated by such Originator
from the close of such Originator's business on the Closing Date to and
including the Purchase and Sale Termination Date;
1. all rights to, but not the obligations under, all Related
Security;
1. all monies due or to become due with respect to any of the
foregoing;
1. all books and records related to any of the foregoing; and
1. all proceeds thereof (as defined in the applicable UCC) received on or after
the date hereof including, without limitation, all funds which either are
received by such Originator, the Company or the Servicer from or on behalf of
the Obligors in payment of any amounts owed (including, without limitation,
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, if any, that such Originator or the Servicer (if other than
such Originator) applies in the ordinary course of its business to amounts owed
in respect of any Receivable).
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. The Company's foregoing commitment to purchase such Receivables and
the proceeds and rights described in subsections (c) through (f) of this Section
1.1 (collectively, the "Related Rights") is herein called the "Purchase
Facility."
A. Timing of Purchases.
1. Closing Date Purchases. Each Originator's entire right, title and interest in
(i) each Receivable that existed and was owing to such Originator as of the
close of such Originator's business on the Closing Date, and (ii) all Related
Rights with respect thereto shall be deemed to have been sold to the Company on
the Closing Date.
1. Regular Purchases. After the Closing Date, each Receivable
created or originated by each Originator and described in Section 1.1(b)
hereof and all Related Rights shall be purchased and owned by the Company
(without any further action) upon the creation or origination of such
Receivable.
A. Consideration for Purchases. On the terms and subject to
the conditions set forth in this Agreement, the Company agrees to make all
Purchase Price payments to the respective Originators, in accordance with
Article III.
A. Purchase and Sale Termination Date. The "Purchase and Sale Termination Date"
shall be the earlier 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 IMO shall have given notice to the Company that the Originators
desire to terminate this Agreement.
As used herein, "Payment Date" means (i) the Closing Date and (ii) each
Business Day thereafter that the Originators are open for business.
A. 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 loans secured by the Receivables and Related Rights. If, however,
notwithstanding the intent of the parties, such transfers are deemed to be
loans, such Originator hereby grants (effective as of the date hereof) 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.
I. ARTICLE
CALCULATION OF PURCHASE PRICE
A. Calculation of Purchase Price. Not later than ten days after the last day of
each Reporting Period (the "Servicer Report 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
1. that are to be made on the Closing Date (in the case of the
Purchase Report to be delivered on the Closing Date), or
1. that were made during the period commencing on the Servicer Report Date
immediately preceding such Servicer Report Date to (but not including) such
Servicer Report 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 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) LIBOR plus 1.5% on
such Payment Date, 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
Payment Date) and the denominator of which is 365.
I. ARTICLE
PAYMENT OF PURCHASE PRICE
A. 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 of Receivables to be made
on the Closing Date, partially in cash in an amount agreed to by the Company
and such Originator, in the case of IMO partially in consideration of all of
the membership interest of the Company, 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 (as such promissory note 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,
each a "Company Note").
A. Subsequent Purchase Price Payments. On each Business Day
falling after the Closing Date and on or prior to the Purchase and Sale
Termination 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 sold by such Originator to the Company on such Business
Day, in cash, to the extent the Company has received funds pursuant to the
Receivables Purchase Agreement or otherwise has available cash (to the extent
such other available cash may, in accordance with the Receivables Purchase
Agreement, be used to purchase Receivables), and to the extent any of such
Purchase Price remains unpaid, such remaining portion of such Purchase Price
shall be paid by means of an automatic increase to the outstanding principal
amount of the Company Note issued to such Originator.
Servicer shall make all appropriate record keeping entries with respect to
the Company Notes or otherwise to reflect the foregoing payments and to reflect
adjustments pursuant to Section 3.3, and Servicer's books and records shall
constitute rebuttable presumptive evidence of the principal 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, and all payments
under the Company Notes shall be made to the Servicer for the account of the
applicable payee thereof. 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.
A. Settlement as to Specific Receivables and Dilution.
1. If on the day of purchase of any Receivable from any Originator hereunder,
any of the representations or warranties of such Originator set forth in Section
5.4 or 5.11 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 5.4 or 5.11 is no longer true with respect to
such Receivable (other than a representation or warranty set forth in Section
5.11(c) which is no longer true as a result of an Obligor's payment obligation
being stayed or discharged in bankruptcy), then the Purchase Price with respect
to such Receivable shall be reduced by an amount equal to the Outstanding
Balance of such Receivable and shall be accounted to such 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 such Originator.
1. 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 any Originator, the
Company or the Servicer or any offset, 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.
1. 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 are 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
a) shall be paid in cash to the Company by the Originator in the manner and for
application as described in the following proviso, or b) 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 to the extent permitted under
Section 1(m) of Exhibit IV of the Receivables Purchase Agreement;
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 Collection 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.
1. 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 periods prior
to the Closing Date, the books of the Originator).
A. Reconveyance of Receivables. In the event that an Originator has paid or
credited 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 recourse and without representation or warranty, but free and clear of
all liens created by the Company.
I. ARTICLE
CONDITIONS OF PURCHASES
A. Conditions Precedent to Initial Purchase. The initial purchase hereunder is
subject to the condition precedent that the Company shall have received, on or
before the Closing Date, the following, each (unless otherwise indicated) dated
the Closing Date, and each in form, substance and date satisfactory to the
Company:
1. A copy of the resolutions of the Board of Directors of each
Originator approving the Transaction Documents to be delivered by it and the
transactions contemplated hereby and thereby, certified by the Secretary or
Assistant Secretary of such Originator;
1. 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;
1. A certificate of the Secretary or Assistant Secretary of each Originator
certifying the names and true signatures of the officers authorized on such
Originator's behalf to sign the Transaction Documents to be delivered by it (on
which certificate the Company and Servicer (if other than an Originator) may
conclusively rely until such time as the Company and the Servicer shall receive
from such Originator a revised certificate meeting the requirements of this
subsection (c));
1. The articles of incorporation 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;
1. Copies of the proper financing statements (Form UCC-1) that have been duly
executed and name each Originator as the seller/debtor and the Company as the
purchaser/secured party (and Issuer as assignee of the Company) of the
Receivables generated by such Originator and Related Rights or other, similar
instruments or documents, as may be necessary or, in Servicer's or the
Administrator's opinion, desirable under the UCC of all appropriate
jurisdictions or any comparable law of all appropriate jurisdictions to perfect
the Company's ownership interest in all Receivables and Related Rights in which
an ownership interest may be assigned to it hereunder;
1. A written search report from a Person satisfactory to Servicer and the
Administrator 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 (e), together with
copies of such financing statements (none of which, except for those described
in the foregoing subsection (e), shall cover any Receivable or any Related
Right), and tax and judgment lien search reports from a Person satisfactory to
Servicer and the Administrator showing no evidence of such liens filed against
any Originator;
1. Favorable opinions of counsel to the Originators, in the
forms of Exhibit C;
1. Evidence (i) of the execution and delivery by each of the parties thereto of
each of the other Transaction Documents to be executed and delivered in
connection herewith and (ii) that each of the conditions precedent to the
execution, delivery and effectiveness of such other Transaction Documents has
been satisfied to the Company's satisfaction; and
1. A certificate from an officer of each Originator to the effect that Servicer
and Originator have placed on the most recent, and have taken all steps
reasonably necessary to ensure that there shall be placed on subsequent, summary
master control data processing reports the following legend (or the substantive
equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO IMO
FUNDING COMPANY, LLC, PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF
NOVEMBER 29, 1999, AMONG IMO INDUSTRIES INC., THE ORIGINATORS NAMED THEREIN AND
IMO FUNDING COMPANY, LLC; AND AN INTEREST IN THE RECEIVABLES DESCRIBED HEREIN
HAS BEEN GRANTED TO LIBERTY STREET FUNDING CORP., PURSUANT TO A RECEIVABLES
PURCHASE AGREEMENT, DATED AS OF NOVEMBER 29, 1999, AMONG IMO INDUSTRIES INC.,
IMO FUNDING COMPANY, LLC, LIBERTY STREET FUNDING CORP., AND THE BANK OF NOVA
SCOTIA, AS ADMINISTRATOR."
A. Certification as to Representations and Warranties. Each Originator, by
accepting the Purchase Price related to each purchase of Receivables (and
Related Rights) 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.
A. Addition of Originators. Additional Persons may be added as
Originators hereunder, with the consent of the Company and the Administrator,
in its reasonable discretion, provided that the following conditions are
satisfied on or before the date of such addition:
a) IMO shall have given the Administrator and the Company at least thirty days
prior written notice of such proposed addition and the identity of the proposed
additional Originator and shall have provided such information with respect to
the receivables of such additional Originator as the Administrator shall have
reasonably requested;
a) such proposed additional Originator has executed and delivered to the Company
and the Administrator an agreement substantially in the form attached hereto as
Exhibit D (each, a "Joinder Agreement");
a) such proposed additional Originator has delivered to the
Company and the Administrator each of the documents with respect to such
Originator described in Section 4.1;
a) unless the Receivables intended to be sold by such Originator to the Company
hereunder are Receivables, the related underlying goods of which, are and will
continue to be generated by an already existing Originator, the Administrator
shall have received a written statement from each of Moody's and Standard &
Poors confirming that the addition of such Originator will not result in a
downgrade or withdrawal of the current ratings of the Notes; and
a) the Purchase and Sale Termination Date shall not have
occurred.
I. ARTICLE
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 the
representations and warranties set forth in this Article V.
A. 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 corporate power and authority to own its
properties and to conduct its business as such properties are presently owned
and such business is presently conducted.
A. 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 and principal place of business
are located and in all other jurisdictions in which the ownership or lease of
its property or the conduct of its business requires such licensing or
qualification, in either case, except where the failure to be so licensed or
qualified could not reasonably be expected to have a Material Adverse Effect.
A. Power and Authority; Due Authorization. Such Originator has (a) all necessary
corporate 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, contribute and assign Receivables and Related
Rights 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.
A. Valid Sale; Binding Obligations. Each sale, of Receivables
and Related Rights made by such Originator pursuant to this Agreement shall
constitute a valid sale, transfer, and assignment thereof 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 against
such Originator in accordance with its terms; except in each case 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.
A. 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 or both) a default under (i) such
Originator's 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 federal, state or foreign regulatory body, administrative
agency, or other governmental instrumentality having jurisdiction over it or
any of its properties.
A. Proceedings. There is no litigation or, to such
Originator's knowledge, any 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 sale of Receivables and
Related Rights to the Company or the consummation of any of the other
transactions contemplated by any Transaction Document, or (c) seeking any
determination or ruling that could reasonably be expected to have a Material
Adverse Effect.
A. Bulk Sales Act. No transaction contemplated hereby
requires compliance with any bulk sales act or similar law.
A. 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, as seller.
B. Financial Condition.
1. On the date hereof, and on the date of each sale of Receivables by each
Originator to the Company (both before and after giving effect to such sale),
such Originator is and shall be Solvent.
1. The consolidated balance sheets of IMO and its consolidated subsidiaries as
of December 31, 1998 and the related statements of income and shareholders'
equity of IMO and its consolidated subsidiaries for the fiscal year then ended
certified by IMO's independent accountants, copies of which have been furnished
to the Company, present fairly the consolidated financial position of IMO and
its consolidated subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles consistently applied;
and since such date no event has occurred that has had, or is reasonably likely
to have, a Material Adverse Effect.
A. Margin Regulations. No use of any funds acquired by such
Originator under this Agreement will conflict with or contravene any of
Regulations T, U and X promulgated by the Board of Governors of the Federal
Reserve System from time to time.
A. Quality of Title.
1. Each Receivable (together with the Related Rights) which is to be sold to the
Company hereunder is or shall be owned by such Originator, free and clear of any
Adverse Claim. Whenever the Company makes a purchase, hereunder, it shall have
acquired 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 other Related Rights with respect thereto.
1. No effective financing statement or other instrument similar in effect
covering any Receivable generated by such Originator or any right related to any
such Receivable 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.
2. Unless otherwise identified to the Company in the related
Purchase Report, each Receivable purchased hereunder is on the date of
purchase an Eligible Receivable.
A. Accuracy of Information. No factual written information furnished or to be
furnished in writing by such Originator, to the Company, the Issuer or the
Administrator for purposes of or in connection with any Transaction Document or
any transaction contemplated hereby or thereby is, and no other such factual
written information hereafter furnished (and prepared) by such Originator, to
the Company, the Issuer, or the Administrator pursuant to or in connection with
any Transaction Document, taken as a whole, will be inaccurate in any material
respect as of the date it was furnished or (except as otherwise disclosed to the
Company at or prior to such time) as of the date as of which such information is
dated or certified, or shall contain any material misstatement of fact or
omitted or will omit to state any material fact necessary to make such
information, in the light of the circumstances under which any statement therein
was made, not materially misleading on the date as of which such information is
dated or certified.
A. 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 the Receivables, the related
Contracts and all other agreements related to such Receivables are located at
the addresses specified on Schedule 5.13 (or at such other locations,
notified to the Servicer and the Administrator in accordance with Section
6.1(f), in jurisdictions where all action required by Section 7.3 has been
taken and completed).
A. Trade Names.
1. Except as disclosed on Schedule 5.14(a), such Originator
does not use any trade name other than its actual corporate name.
1. From and after the date that fell five (5) years before the date hereof, 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, except in each case as disclosed on Schedule
5.14(b).
A. Taxes. Such Originator has filed all material 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 and
charges which are not yet delinquent or are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with generally accepted accounting principles shall have been set
aside on its books.
A. Licenses and Labor Controversies.
1. 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; and
1. There are no labor controversies pending against such
Originator that have had (or are reasonably likely to have) a Material
Adverse Effect.
A. Compliance with Applicable Laws. Such Originator is in compliance, in all
material respects, with the requirements of (i) all applicable laws, rules,
regulations, and orders of all governmental authorities (including, without
limitation, Regulation Z, laws, rules and regulations relating to usury, truth
in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy and all other consumer
laws applicable to the Receivables and related Contracts) (excluding with
respect to environmental matters which are covered by clause (ii)), and (ii) to
the best of its knowledge, all applicable environmental laws, rules, regulations
and orders of all governmental authorities.
A. Reliance on Separate Legal Identity. Such Originator is
aware that the Issuer and the Administrator are entering into the Transaction
Documents to which they are parties in reliance upon the Company's identity
as a legal entity separate from such Originator.
A. Purchase Price. The purchase price payable by the Company
to such Originator hereunder is intended by such Originator (and such
Originator understands that it is intended by the Company) to be consistent
with the terms that would be obtained in an arm's length sale.
A. Certain Definitions. With respect to this Agreement, the
terms "Material Adverse Effect" and "Solvent" are defined as follows:
"Material Adverse Effect" means, with respect to any event or
circumstance, a material adverse effect on:
(i) the business, assets, or financial condition of any
Originator and its subsidiaries, taken as a whole;
(ii) the ability of any Originator or the Servicer (if it is an
Originator) to perform its respective obligations under the Receivables
Purchase Agreement or any other Transaction Document to which it is a
party or the performance of any such obligations;
(iii) the validity or enforceability of the Receivables Purchase
Agreement or any other Transaction Document;
(iv) with respect to this Agreement, the status, existence,
perfection, priority or enforceability of Company's interest in the
Receivables or Related Rights; or
(v) the validity or enforceability of the Receivables.
"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) such Person is and shall continue to be able to pay all of
its liabilities as such liabilities mature; and
(iii) 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 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.
5.21. Year 2000 Problem. Such Originator reasonably believes that all
internal computer operations that are material to its and each of its
Subsidiaries business operations will be able to perform properly date sensitive
functions for all dates before, on and after January 1, 2000, except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
I. ARTICLE
COVENANTS OF THE ORIGINATORS
A. Affirmative Covenants. From the date hereof until the
first day following the Purchase and Sale Termination Date, each Originator
(and IMO as to clause (h)) will, unless the Company and the Administrator
shall otherwise consent in writing:
1. Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders, including those with
respect to the Receivables generated by it and the related Contracts and
other agreements related thereto.
1. Preservation of Corporate Existence. Preserve and maintain its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified in good standing as a foreign
corporation in each jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualification could reasonably be
expected to have a Material Adverse Effect.
1. Receivables Review. At any time and from time to time during regular business
hours, upon reasonable prior notice (unless a Purchase and Sale Termination
Event or Unmatured Purchase and Sale Termination Event shall exist), (i) permit
the Company and/or the Administrator, or their respective agents or
representatives, (A) to examine, to audit and make copies of and abstracts from
all books, records and documents (including, without limitation, computer tapes
and disks) in the power, possession or under the control of such Originator
relating to the Receivables and Related Rights, including, without limitation,
the Contracts and other agreements related thereto, and (B) to visit such
Originator's offices and properties for the purpose of examining such materials
described in the foregoing clause (A) and discussing matters relating to the
Receivables and Related Rights or such Originator's performance hereunder with
any of the officers or employees of such Originator having knowledge of such
matters; and (ii) without limiting the provisions of clause (i) next above, from
time to time on request of the Administrator, permit certified public
accountants or other auditors acceptable to the Administrator to conduct a
review of its books and records with respect to the Receivables and Related
Rights. Unless a Purchase and Sale Termination Event or Unmatured Purchase and
Sale Termination Event shall exist, each Originator shall only be responsible
for the cost of one examination described in clause (i) or clause (ii) above in
any twelve-month period.
1. Keeping of Records and Books of Account. Maintain an
ability to recreate records evidencing the Receivables in the event of the
destruction of the originals thereof.
1. Performance and Compliance with Receivables and Contracts. At its expense
timely and fully perform and comply with all provisions, covenants and other
promises required to be observed by it under the related Contracts and all other
agreements related to the Receivables and Related Rights.
1. 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 and Related Rights, at the address(es) referred to in Section 5.13
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.
1. Credit and Collection Policies. Comply in all material
respects with its Credit and Collection Policy in connection with the
Receivables and the related Contracts.
2. Separate Corporate Existence of the Company. Take such
actions as shall be required in order that:
a) the Company's operating expenses (other than certain organization expenses
and expenses incurred in connection with the preparation, negotiation and
delivery of the Transaction Documents) will not be paid by IMO and such
Originator;
a) the Company's books and records will be maintained
separately from those of IMO and such Originator;
a) all financial statements of IMO and such Originator that are consolidated to
include the Company will contain detailed notes clearly stating that (A) all of
the Company's assets are owned by the Company, and (B) the Company is a separate
entity with creditors who have received interests in the Company's assets;
a) IMO and such Originator will strictly observe corporate
formalities in its dealing with the Company;
a) Except as otherwise provided in the Receivables Purchase Agreement in
connection with the servicing of Receivables, IMO and such Originator shall not
commingle its funds with any funds of the Company;
a) IMO and such Originator will maintain arm's length relationships with the
Company, and IMO and such Originator will be compensated at market rates for any
services it renders or otherwise furnishes to the Company; and
a) IMO and such Originator will not be, and will not hold itself out to be,
responsible for the debts of the Company or the decisions or actions in respect
of the daily business and affairs of the Company.
1. Post Office Boxes. Within 30 days after the date hereof, deliver to the
Administrator 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 the
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 Bank).
A. Reporting Requirements. From the date hereof until the
first day following the Purchase and Sale Termination Date, each Originator
shall, unless the Administrator and the Company shall otherwise consent in
writing, furnish to the Company and the Administrator:
1. Proceedings. Promptly after such Originator has knowledge thereof, written
notice to the Company and the Administrator of (i) all pending proceedings and
investigations of the type described in Section 5.6 not previously disclosed to
the Company and/or the Administrator and (ii) all material adverse developments
that have occurred with respect to any previously disclosed proceedings and
investigations.
1. Other. Promptly, from time to time, such other information, documents,
records or reports respecting the Receivables, the Related Rights or such
Originator's performance hereunder that the Company or the Administrator may
from time to time reasonably request in order to protect the interests of the
Company, the Issuer, the Administrator or any other Affected Person under or as
contemplated by the Transaction Documents.
A. Negative Covenants. From the date hereof until the date
following the Purchase and Sale Termination Date, each Originator agrees
that, unless the Administrator and the Company shall otherwise consent in
writing (which consent shall not be unreasonably withheld), it shall not:
1. 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, Collections or Related
Security, or any interest therein, or assign any right to receive income in
respect thereof.
1. Extension or Amendment of Receivables. Except as otherwise permitted in
Section 4.2(a) of the Receivables Purchase Agreement or in accordance with the
Credit and Collection Policy, extend, amend or otherwise modify the terms of any
Receivable in any material respect, 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).
1. 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.
1. 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) unless
such "instrument" or "chattel paper" shall be delivered to the Company (which in
turn shall deliver the same to the Issuer (or the Administrator on its behalf)).
1. Mergers, Acquisitions, Sales, etc. Merge or consolidate with another Person
(except pursuant to a merger or consolidation involving such Originator where
such Originator is the surviving corporation), or convey, transfer, lease or
otherwise dispose of (whether in one or in a series of transactions), all or
substantially all of its assets (whether now owned or hereafter acquired), other
than pursuant to this Agreement.
1. Lock-Box Banks. Make any changes in its instructions to any Obligor regarding
Collections or add or terminate any Lock-Box Bank unless the requirements of
Section 1(i) of Exhibit IV to the Receivables Purchase Agreement have been met.
1. 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 Security by
such Originator to the Company.
1. Transaction Documents. Enter into, execute, deliver or otherwise become bound
by any agreement, instrument, document or other arrangement (other than the
Credit Agreement) 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.
I. ARTICLE
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
A. Rights of the Company. Each Originator hereby authorizes the Company, the
Servicer and the Administrator 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 amounts due under any and all Receivables and
Related Rights, including, without limitation, endorsing such Originator's name
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.
A. Responsibilities of The Originator. Anything herein to the
contrary notwithstanding:
1. Each Originator agrees to (A) direct, and hereby grants to each of the
Company and the Administrator the authority to direct, all Obligors of
Receivables originated by such Originator to make payments of such Receivables
directly to a Lock-Box Account at a Lock-Box Bank, and (B) to transfer any
Collections that it receives directly, to the Servicer (for deposit to such a
Lock-Box Account) within one Business Day of receipt thereof, and agrees that
all such Collections shall be deemed to be received in trust for the Company.
1. 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.
1. None of the Company, the Servicer, the Issuer 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, the Servicer, the Issuer or the Administrator
be obligated to perform any of the obligations of any Originator thereunder.
1. Each Originator hereby grants to Administrator 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 or
Related Right.
A. 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 the Company or the
Servicer may reasonably request in order to perfect, protect or more fully
evidence the Receivables (and the Related Rights) purchased by, the Company
hereunder, or to enable the Company to exercise or enforce any of its rights
hereunder or under any other Transaction Document. Without limiting the
generality of the foregoing, upon the request of the Company, each Originator
will:
1. 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
1. mark the summary master control data processing records
with the legend set forth in Section 4.1(i).
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 the Related
Rights) now existing or hereafter generated by such Originator. If such
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.
A. 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 first, as a
Collection of any Receivables of such Obligor, in the order of the age of such
Receivables, starting with the oldest of such Receivables, and second, to any
other indebtedness of such Obligor.
I. ARTICLE
PURCHASE AND SALE TERMINATION EVENTS
A. 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":
1. The Facility Termination Date shall have occurred; or
1. 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 Business Days after written notice; or
1. 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 Document 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 (other than with respect to any Receivable for
which the Purchase Price has been reduced and accounted for pursuant to Section
3.3); or
1. Any Originator shall fail to perform or observe in any
material respect any material agreement contained in any of Sections 6.1(h)
or 6.3; or
1. Any Originator shall fail to perform or observe in any material respect 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 thirty (30)
days after written notice thereof shall have been given by the Servicer, the
Administrator or the Company to such Originator; or
a) Any Originator or any of its subsidiaries shall generally not pay its debts
as such debts become due, or shall 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 such Originator
or any of its subsidiaries 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, or other
similar official for it or for all or any substantial part of its property and,
in the case of any such proceeding instituted against it (but not instituted by
it), such proceeding shall remain undismissed or unstayed for a period of 60
days; or any Originator or any of its subsidiaries shall take any corporate
action to authorize any of the actions set forth in clause (i) above in this
Section 8.1(f); or
1. The Internal Revenue Service shall, or shall indicate its intention in
writing to any Originator to, file notice of a lien asserting a claim or claims
pursuant to the Code with regard to any of the assets of any Originator, or the
Pension Benefit Guaranty Corporation shall, or shall indicate its intention in
writing to such Originator or an ERISA Affiliate to, either file notice of a
lien asserting a claim pursuant to ERISA with regard to any assets of such
Originator or an ERISA Affiliate or terminate any benefit plan that has unfunded
benefit liabilities.
A. Remedies.
a) Optional Termination. Upon the occurrence of a Purchase and Sale Termination
Event, the Company 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.
a) Remedies Cumulative. Upon any termination of the Purchase Facility pursuant
to this Section 8.2, 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.
I. ARTICLE
INDEMNIFICATION
A. Indemnities by the Originators. Without limiting any other rights which the
Company may have hereunder or under applicable law, each Originator, severally
and itself alone, and IMO jointly and severally with each Originator hereby
agrees to indemnify the Company and each of its assigns, officers, directors,
employees and agents (each of 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
following:
1. the transfer by such Originator of an interest in any
Receivable or Related Right to any Person other than the Company;
1. the breach of any representation or warranty made by such Originator 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 respect when made or deemed
made;
1. the failure by such Originator to comply with any
applicable law, rule or regulation with respect to any Receivable or the
related Contract, or the nonconformity of any Receivable or the related
Contract with any such applicable law, rule or regulation;
1. the failure to vest and maintain vested in the Company an
ownership interest in the Receivables generated by such Originator and the
Related Rights free and clear of any Adverse Claim;
1. the failure of such Originator to file with respect to itself, or any delay
by such Originator 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 or purported Receivables generated by such
Originator or any Related Rights, whether at the time of any purchase or at any
subsequent time;
1. any dispute, claim, offset or defense (other than discharge or stay 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 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 goods or
services related to any such Receivable or the furnishing of or failure to
furnish such goods or services;
1. any product liability claim arising out of or in connection
with goods or services that are the subject of any Receivable;
1. any litigation, proceeding or investigation against such
Originator;
1. any tax or governmental fee or charge (other than any tax excluded pursuant
to the proviso below), 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 or any Related Right connected
with any such Receivables; and
1. any failure of such Originator to perform its duties or
obligations in accordance with the provisions of this Agreement or any other
Transaction Document;
excluding, however, (i) Purchase and Sale Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of a Purchase
and Sale Indemnified Party, (ii) any indemnification which has the effect of
recourse for non-payment or late payment of the Receivables to any indemnitor
due to credit reasons, (iii) any tax based upon or measured by net income or
gross receipts, and (iv) any withholding taxes imposed as a result of amounts
paid or payable to such Purchase and Sale Indemnified Party pursuant to this
Agreement.
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 IMO, jointly and severally with
each Originator, shall contribute (subject to the provisions in this Section
9.1) to the amount paid or payable by such Purchase and Sale Indemnified Party
as a result of such loss, claim, damage or liability to the maximum extent
permitted under applicable law.
I. ARTICLE
MISCELLANEOUS
A. Amendments, etc.
1. 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, IMO the Administrator and the Originators (with respect to an
amendment) or by the Company (with respect to a waiver or consent by it).
1. 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, the
Servicer, 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 the
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.
A. 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 express mail or
courier or 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 or sent by express mail or courier or if sent by certified
mail, when received, and (ii) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.
A. No Waiver; Cumulative Remedies. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
A. Binding Effect; Assignability. This Agreement shall be binding upon and inure
to the benefit of the Company and each Originator and their respective
successors and permitted assigns; provided, however, that no Originator may
assign its rights hereunder or any interest herein or delegate its duties
hereunder without the prior written consent of the Company and the
Administrator. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until the date after the Purchase and Sale Termination
Date on which the Originators have received payment in full for all Receivables
and Related Rights purchased pursuant to Section 1.1 hereof. 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.
A. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS, AND NOT THE CONFLICT OF LAW
PRINCIPLES, OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF A SECURITY INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN
THE STATE OF NEW YORK.
A. Costs, Expenses and Taxes. In addition to the obligations
of the Originators under Article IX, each Originator agrees to pay on demand:
1. all reasonable costs and expenses in connection with the
enforcement of this Agreement and the other Transaction Documents; and
1. all stamp and other similar 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, 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.
A. Submission to Jurisdiction. EACH PARTY HERETO HEREBY IRREVOCABLY (a) SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, 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) WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; (d) 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) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A NONAPPEALABLE
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 THE ORIGINATOR OR ITS RESPECTIVE PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTIONS.
A. Waiver of Jury Trial. EACH PARTY HERETO EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR UNDER ANY AMENDMENT, INSTRUMENT OR
DOCUMENT 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 ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
A. 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. The Exhibits hereto are hereby incorporated by
reference into and made a part of this Agreement.
A. 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.
A. Acknowledgment and Agreement. By execution below, each Originator expressly
acknowledges and agrees that all of the Company's rights, title, and interests
in, to, and under this Agreement shall be assigned by the Company to the Issuer
pursuant to the Receivables Purchase Agreement, and such Originator consents to
all such assignments. Each of the parties hereto acknowledges and agrees that
the Administrator and the Issuer are third party beneficiaries of the rights of
the Company arising hereunder and under the other Transaction Documents to which
such Originator is a party.
Purchase and Sale Agreement
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.
IMO FUNDING COMPANY, LLC
By: ___________________________________
Name: John A. Young
Title: Vice President
9211 Forest Hill Avenue
Suite 109
Richmond, Virginia 23235
Attention: John A. Young
Telephone: (804) 327-5673
Facsimile: (804) 327-5688
IMO INDUSTRIES INC., as initial Servicer
By: ____________________________________
Name: John A. Young
Title: Vice President
997 Lenox Drive
Suite 111
Lawrenceville, New Jersey 08648
Attention: Thomas M. O'Brien
Telephone: (609) 896-7627
Facsimile: (609) 896-7633
ORIGINATORS:
IMO INDUSTRIES INC., as an Originator
By: ___________________________________
Name: _________________________________
Title: __________________________________
997 Lenox Drive
Suite 111
Lawrenceville, New Jersey 08648
Attention: Thomas M. O'Brien
Telephone: (609) 896-7627
Facsimile: (609) 896-7633
WARREN PUMPS INC., as an Originator
By: ___________________________________
Name: _________________________________
Title: __________________________________
82 Bridges Avenue
Warren, Massachusetts 01083-0959
Attention: Gary A. Young
Telephone: (413) 436-7711 (x200)
Facsimile: (413) 436-5605
SCHEDULE 5.13
OFFICE LOCATIONS
Imo Industries Inc.
Principal Place of Business and Chief Executive Office:
997 Lenox Drive
Suite 111
Lawrenceville, New Jersey 08648
Additional Offices:
3900 Westinghouse Boulevard
Charlotte, NC 28373
Mecklenburg County
506 South Bickett Boulevard
Louisburg, NC 27549
Franklin County
7970 U.S. 24 Dixie Highway
Florence, KY 41042
13517 Pumice Street
Norwalk, CA
3750 East Market St.
York, PA 17402
York County
1710 Airport Road
Monroe, NC 28111-5020
Union County
479 Industrial Park Road
Columbia, KY 42728
Adair County
21 Clinton Street
Hudson, OH 44236-2899
Summit County
1579 Barber Road
Sarasota, FL 34240
Sarasota County
500 B. Edwards Avenue
New Orleans, LA 23279
9211 Forest Hill Avenue
Suite 109
Richmond, Virginia 23235
12600 SE 38th Street
Suite 230
Bellevue, Washington 98006
Warren Pumps Inc.
Principal Place of Business and Chief Executive Office:
82 Bridges Avenue
Warren, Massachusetts 01083-0959
Additional Offices:
1710 Airport Road
Monroe, NC 28111-5020
Union County
SCHEDULE 5.14(a)
TRADE NAMES
Imo Industries Inc.
Boston Gear
Morse Controls
Imo Pump
Fincor
Colfax Pump Group
Colfax Power Transmission
Warren Pumps Inc.
Warren
Colfax Pump Group
SCHEDULE 5.14(b)
PREVIOUS NAMES, MERGERS OR CORPORATE REORGANIZATION
Imo Industries Inc.
None
Warren Pumps Inc.
None
EXHIBIT A
FORM OF PURCHASE REPORT
EXHIBIT B
FORM OF COMPANY NOTE
EXHIBIT C
FORM OF OPINION OF ORIGINATOR'S COUNSEL
EXHIBIT D
FORM OF JOINDER AGREEMENT
EXHIBIT E
FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE
STOCK PURCHASE AGREEMENT
by and between
Echlin Inc.
and
Imo Industries Inc.
Dated as of October 13, 1999
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
ARTICLE II SALE AND PURCHASE OF SHARES 1
2.1 Sale and Purchase of Shares 1
2.2 Purchase Price 2
2.3 Purchase Price Adjustment 2
ARTICLE III
CLOSING AND DELIVERIES 4
3.1 Closing 4
3.2. Deliveries by Seller 4
3.3 Deliveries by Buyer 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER 6
4.1 Organization and Standing 6
4.2 Authorization, Validity and Effect 6
4.3 Capitalization 6
4.4 Title 7
4.5 No Conflict; Required Filings and Consents 7
4.6 Financial Statements 7
4.7 Taxes 8
4.8 Properties, Assets and Leases 8
4.9 Employee Benefit Plans 9
4.10 Company Contracts 10
4.11 Legal Proceedings 11
4.12 Year 2000 Compliance 11
4.13 Compliance with Laws 11
4.14 Environmental Matters 11
4.15 Intellectual Property 12
4.16 No Brokers 12
4.17 Company Employees 12
4.18 Bank Accounts 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER 13
5.1 Investment Intent 13
5.2 Organization and Standing 13
5.3 Authorization, Validity and Effect 13
5.4 No Conflict; Required Filings and Consents 13
5.5 Legal Proceedings 14
5.6 No Brokers 14
5.7 Buyer's Financing 14
5.8 Financial Information 14
5.9 No Reliance 14
ARTICLE VI
COVENANTS AND AGREEMENTS 15
6.1 Interim Operations of the Company 15
6.2 Reasonable Access; Confidentiality 16
6.3 Filings; Other Action 16
6.4 Publicity 16
6.5 Records 17
6.6 Tax Matters 17
6.7 Allocation Matters 18
6.8 NAPA Business Practices 19
6.9 Non-Competition 19
6.10 Accounts Receivable 20
ARTICLE VII
CONDITIONS TO CLOSING 20
7.1 Conditions to Obligations of Seller and Buyer 20
7.2 Conditions to Obligation of Seller 20
7.3 Conditions to Obligation of Buyer 21
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION 22
8.1 Survival Periods 22
8.2 Indemnification 22
8.3 Indemnification Amounts 23
8.4 Claims 23
8.5 Exclusive Remedy 24
8.6 Tax and Insurance 24
ARTICLE IX
EMPLOYEE BENEFIT MATTERS 25
9.1 Employment 25
9.2 Compensation and Employee Benefits 25
9.3 WARN Act and Severance 26
ARTICLE X
TERMINATION OF AGREEMENT 27
10.1 Termination 27
10.2 Effect of Termination 27
ARTICLE XI
MISCELLANEOUS AND GENERAL 28
11.1 Expenses 28
11.2 Successors and Assigns 28
11.3 No Third Party Beneficiaries 28
11.4 Notices 28
11.5 Complete Agreement 30
11.6 Captions; References 30
11.7 Amendment 30
11.8 Waiver 30
11.9 Governing Law 30
11.10 Severability 30
11.11 Further Assurances 30
11.12 Disclosure Schedule Supplements 31
11.13 Mutual Drafting 31
11.14 Counterparts 31
Exhibits
Exhibit A Current Competitors
Exhibit B Current Customers
Exhibit C Employee Retention Incentive Agreements
Exhibit D Freight Agreement
Exhibit E Litchfield Facility Lease
Exhibit F Specified Accounting Principles
Exhibit G Supply Agreement
Exhibit H Transitional Services Agreement
Exhibit I Trucking Agreement
Schedules
Schedule 4.5 Conflicts, Filings and Liens; Approvals
Schedule 4.6 Financial Statements
Schedule 4.7 Taxes
Schedule 4.8(a) Liens
Schedule 4.8(b) Real Property
Schedule 4.8(c) Personal Property Leases
Schedule 4.8(d) Material Equipment
Schedule 4.9 Company Benefit Arrangements
Schedule 4.10 Company Contracts
Schedule 4.11 Legal Proceedings
Schedule 4.13 Compliance with Laws
Schedule 4.14 Environmental Matters
Schedule 4.15 Intellectual Property
Schedule 4.17 Employees
Schedule 4.18 Bank Accounts
Schedule 5.4(b) Buyer's Conflicts; Filings and Consents; Approvals
Schedule 5.5 Legal Proceedings
Schedule 6.1 Interim Operations of the Company
Schedule 9.1 List of Certain Continuing Employees
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
October 13. 1999, by and between Echlin Inc., a Connecticut corporation
("Seller"), and IMO Industries, Inc., a Delaware corporation ("Buyer").
RECITALS:
A. Automotive Controls Corp., a wholly owned subsidiary of
Seller (the "Shareholder"), is the beneficial and record owner of all the
issued and outstanding shares (the "Shares") of common stock, par value
of $1.00 per share, of Sierra International Inc., an Illinois corporation
(the "Company").
B. Seller desires Shareholder to sell to Buyer, and
Buyer desires to purchase from Shareholder, all of the Shares upon the
terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
subject to the terms and conditions set forth herein, Seller and Buyer
hereby agree as follows:
ARTICLE I
DEFINITIONS
See Appendix A for a list of the definitions used in this Agreement.
ARTICLE II
DATE AND PURCHASE OF SHARES
2.1 Sale and Purchase of Shares. Subject to the terms and conditions
of this Agreement, at the Closing (a) Seller shall cause the Shareholder to
sell, assign and transfer all of the Shares to Buyer free and clear of any
and all Liens except any created by or through Buyer, (b) Buyer shall
purchase all of the Shares, (c) Seller shall deliver to Buyer one or more
stock certificates representing the Shares with duly executed stock powers
attached in proper form for transfer to Buyer or its designee, and (d) Buyer
shall pay and deliver to Seller the Purchase Price as provided in Section
2.2 below.
2.2 Purchase Price. In full consideration for the Shares and subject
to adjustment pursuant to Section 2.3 below, Buyer shall (a) pay to Seller
at the Closing by wire transfer of immediately available funds to an account
designated by Seller prior to the Closing an aggregate amount of cash equal
to $34,000,000 (the "Purchase Price") and (b) assume those obligations of
Dana Corporation, a Virginia corporation ("Dana") under the Employee
Retention Incentive Agreements to be assumed pursuant to Section 7.2(d).
2.3 Purchase Price Adjustment
(a) As used herein, the term "Closing Net Working Assets" means
the aggregate of the sum of the value of the net trade accounts receivable
and the value of the net inventory less the value of the net trade accounts
payable of the Company as of the close of business on the date immediately
preceding the Closing Date and as such values are determined in accordance
with the Specified Accounting Principles and reflected in the Final Net
Working Assets Statement.
(b) Within forty five (45) days after the Closing Date, Seller
shall prepare and deliver to Buyer a statement of the Closing Net Working
Assets of the Company, together with footnotes (collectively, the "Closing
Net Working Assets Statement"). Seller shall prepare the Closing Net Working
Assets Statement in accordance with the Specified Accounting Principles and
the net inventory value to be reflected on the Closing Net Working Assets
Statement is to be based on a physical inventory to be commenced by Buyer on
the Closing Date and to be conducted by Buyer in the presence and under the
supervision of Seller's Accountants. Buyer shall promptly deliver to Seller
the results of the inventory count and shall grant Seller's Accountants such
access to the Company's facilities and the results of the physical count as
Seller reasonably requires to prepare the Closing Net Working Assets
Statement.
(c) Buyer shall allow Seller and Seller's independent
accountants ("Seller's Accountants") access to the business, books, records
and personnel of the Company and the work papers, if any, of Buyer's
independent accountants ("Buyer's Accountants"), prepared subsequent to the
date hereof which are relevant to the Closing Net Working Assets Statement,
and shall cooperate and direct its personnel and Buyer's Accountants to
cooperate with Seller and Seller's Accountants to facilitate preparation and
delivery of the Closing Net Working Assets Statement and in connection with
the resolution of any disputes with respect thereto and the determination of
the Final Net Working Assets Statement. Buyer and its representatives,
including Buyer's Accountants, will be entitled to review all work papers,
if any, of Seller's Accountants prepared subsequent to the date hereof, and
to obtain access to the books and records of Seller or its Affiliates to the
extent necessary for Buyer to review the Closing Net Working Assets
Statement and to resolve any disputes concerning the same.
(d) The Closing Net Working Assets Statement delivered by Seller
to Buyer will be the Final Net Working Assets Statement and will be
conclusive and binding on the parties unless Buyer, within the thirty (30)
day period after the delivery to Buyer of the Closing Net Working Assets
Statement, notifies Seller in writing that Buyer disputes any of the amounts
set forth therein, specifying the nature of each dispute and the basis
therefor (the "Dispute Notice"); provided, that Buyer may deliver a Dispute
Notice only if Buyer reasonably believes the Closing Net Working Assets
Statement contains mathematical errors or has not been prepared in
accordance with the Specific Accounting Policies. Failure by Buyer to
dispute the amounts reflected in the Closing Net Working Assets Statement
within such thirty (30) day period will be deemed an acquiescence thereto by
Buyer. The parties shall attempt in good faith to reach agreement resolving
all of the disputes set forth in the Dispute Notice within thirty (30) days
alter the Dispute Notice is delivered by Buyer to Seller, in which event the
Closing Net Working Assets Statement, as amended to the extent necessary to
reflect the resolution of all such disputes, will be the Final Net Working
Assets Statement and will be conclusive and binding on the parties. If the
parties are unable to resolve any or all of such disputes within the
aforesaid thirty (30) day period, the parties will, promptly after the
expiration of such time period, submit for resolution all unresolved
disputes to Ernst & Young, as an arbiter (the "Designated Accounting
Arbitrator") for resolution. Promptly, but no later than thirty (30) days
after its acceptance of its appointment as Designated Accounting Arbitrator,
the Designated Accounting Arbitrator shall determine, based solely on
presentation by Buyer and Seller, and not by independent review, those items
in dispute on the Closing Net Working Assets Statement and shall render a
written report as to the resolution of each dispute and the resulting
calculation of the Final Net Working Assets Statement and the Closing Net
Working Assets. In resolving any disputed item, the Designated Accounting
Arbitrator may not assign a value to such item greater than the greatest
value for such item claimed by either party or less than the smallest value
for such item claimed by either party. The Designated Accounting Arbitrator
will have exclusive jurisdiction over, and resort to the Designated
Accounting Arbitrator as provided in this paragraph (d) will be the sole
recourse and remedy of, the parties against one another or any other person
(including Seller's Accountants or Buyer's Accountants) with respect to, any
disputes arising out of or relating to the Closing Net Working Assets
Statement and/or the Final Net Working Assets Statement; and the Designated
Accounting Arbitrator's determination will be conclusive and binding on the
parties and will be enforceable in a court of law.
(e) Seller shall pay the fees and expenses of Seller's
Accountants. Buyer shall pay the fees and expenses of Buyer's Accountants.
Buyer and Seller shall share equally the fees and expenses of the Designated
Accounting Arbitrator.
(f) As used herein, the term "Final Net Working Assets
Statement" means (i) the Closing Net Working Assets Statement if no Dispute
Notice is given by Buyer within the time period set forth in Section 2.3(d)
or (ii) if the Dispute Notice is timely given and all of the disputed items
are resolved by mutual agreement of the parties, the Closing Net Working
Assets Statement, as amended, if necessary, to reflect such resolution of
all disputes, or (iii) if any or all of the disputed items are submitted to
the Designated Accounting Arbitrator for resolution, the Closing Net Working
Assets Statement, as amended, if necessary, to reflect any resolution of any
disputes by mutual agreement of the parties and the resolution of all other
disputes by the Designated Accounting Arbitrator.
(g) If the Closing Net Working Assets exceeds $18,871,000, Buyer
shall pay to Seller the amount of such excess. If the Closing Net Working
Assets is less than $18,871,000, Seller shall pay Buyer the amount of such
difference. Any payments made by Buyer or Seller, as the case may be,
pursuant to this Section 2.3(g) will be made together with interest thereon
from the Closing Date to the date of payment at a rate of eight percent (8%)
per annum within thirty (30) Business Days of the date on which the Final
Net Working Assets Statement is determined by wire transfer of immediately
available funds to the account designated by the payee; provided, however,
that, if payment is not made within such thirty Business Day period, the
applicable rate of interest is to be eleven percent (11%) per annum for the
period from the day following such date through the date such payment is
made.
ARTICLE III
CLOSING AND DELIVERIES
3.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") is to take place at the offices of Jones, Day, Reavis & Pogue,
North Point, 901 Lakeside Avenue, Cleveland, Ohio 44114, at 10:00 a.m.,
local time on the first Business Day following the satisfaction or waiver of
each of the conditions set forth in Article VII (other than those conditions
that are to be satisfied at the Closing), or on such other date or at such
other time and place as the parties mutually agree in writing (the "Closing
Date"). All proceedings to be taken and all documents to be executed and
delivered by all parties at the Closing will be deemed to have been taken
and executed simultaneously and no proceedings will be deemed to have been
taken nor documents executed or delivered until all have been taken,
executed and delivered.
3.2 Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Buyer the following items:
(a) One or more certificates representing the Shares,
accompanied by duly executed stock powers in proper form for transfer;
(b) The Articles of Incorporation of the Company, certified
as of the most recent practicable date by the Secretary of State of the
State of Illinois;
(c) A Certificate of the Secretary of State of the State of
Illinois as to the good standing as of the most recent practicable date of
the Company in Illinois and a certificate of good standing as of the most
recent practicable date from the appropriate Governmental Authority in each
state where the Company is qualified to do business;
(d) A certificate of the Secretary of Seller certifying as
to the resolutions authorizing this Agreement and the transactions
contemplated hereby;
(e) The Supply Agreement duly executed by Seller and the
Company;
(f) The Freight Agreement duly executed by Echlin Freight
Group and the Company;
(g) The Trucking Agreement duly executed by DTF Trucking,
Inc. and the Company;
(h) The Transitional Services Agreement duly executed by
Seller and the Company;
(j) The original corporate record books and stock record
book of the Company;
(k) The certificate from Seller referred to in Section
7.3(c); and
(l) Written resignations of each director of the Company.
Notwithstanding the foregoing, Seller shall have an obligation to deliver at
Closing only those agreements referred to in clauses (e) - (h) above which Buyer
has advised Seller in writing prior to October 27, 1999 that Buyer desires to
have Seller deliver.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver or
cause to be delivered to Seller the following items:
(a) The Purchase Price, paid by wire transfer of immediately
available funds in accordance with Section 2.2(a);
(b) The certificate of an officer of Buyer referred to in
Section 7.2(c); and
(c) A certificate of the Secretary of Buyer certifying as to the
By-laws of Buyer and the resolutions authorizing this Agreement and the
transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date of this
Agreement as follows:
4.1 Organization and Standing. The Company is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company is duly qualified to do business and in good
standing in the jurisdictions in which the character of the properties owned
or leased by it or in which the conduct of its business requires it to be so
qualified.
4.2 Authorization, Validity and Effect. Seller has all requisite power
and authority to enter into and perform its obligations under this Agreement
and all agreements and documents contemplated hereby and to consummate the;
transactions contemplated hereby and thereby, and this Agreement and such
other agreements and documents have been, or will be, duly executed and
delivered by Seller pursuant to all necessary authorization and are, or
will, when delivered, be the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as limited
by (a) applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
from time to time in effect and (b) the availability of equitable remedies
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
4.3 Capitalization. The authorized capital stock of the Company
consists of 10,000 shares of common stock, par value of $1.00 per share, of
which, only the Shares are issued and outstanding. All of the Shares are
duly and validly issued and outstanding and are fully paid and
nonassessable. There are no authorized or outstanding Options or other
agreements under which the Company may be obligated to issue or sell any
shares of capital stock or any other securities of the Company.
4.4 Title. The Shareholder (a) is the record and beneficial owner of
all of the Shares and (b) has valid title to all of the Shares free and
clear of all Liens. Upon the consummation of the transactions contemplated
by this Agreement in accordance with the terms hereof, Buyer will acquire
valid title to the Shares, free and clear of all Liens except those created
by or through Buyer.
4.5 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement by
Seller, nor the consummation by Seller of the transactions contemplated
herein, nor compliance by Seller with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of the Company's
Articles of Incorporation or By-laws, (ii) except as set forth in Schedule 4
5, constitute or result in the breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation or
imposition of any Lien upon any property or assets of the Company, pursuant
to any note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which the Company is a party or by which any of
its properties or assets may be subject, or (iii) subject to receipt of the
requisite approvals referred to in Schedule 4 5 violate any Order or Law
applicable to the Company or any of its properties or assets.
(b) Other than (i) those required under the HSR. Act and (ii) as
set forth in Schedule 4.5, no notice to, filing with, authorization of,
exemption by or Consent of any Person or Governmental Authority is necessary
for the consummation by Seller of the transactions contemplated in this
Agreement.
4.6 Financial Statements.
(a) The Company has prepared and furnished to Buyer and included
in Schedule 4.6, the unaudited balance sheets of the Company as of the end
of the fiscal years ending August 31, 1997 and 1998, the end of the calendar
year ending December 31, 1998, and the unaudited consolidated statements of
income for such periods. The Company has furnished to Buyer and included in
Schedule 4.6 the unaudited balance sheet of the Company for the six months
ended June 30, 1999 (the "June Balance Sheet), and the unaudited statements
of income for such period. All of the financial statements (i) are in
accordance with the books and records of the Company, (ii) present fairly in
all material respects the financial position of the Company as of the
respective dates and the results of operations for the respective periods
indicated, and (iii) have been prepared in all material respects in
accordance with GAAP applied on a basis consistent with prior accounting
periods except they contain none of the footnotes required by GAAP and the
June Balance Sheet reflects no year-end adjustments.
(b) Except as reflected in the June Balance Sheet, as of June
30, 1999, there existed no liabilities (whether contingent or absolute,
matured or unmatured, known or unknown) of the Company. Except as described
in Schedule 4.6, since June 30, 1999, (i) the Company has not incurred any
liabilities (whether contingent or absolute, matured or unmatured, known or
unknown) other than in the ordinary course of business consistent with past
practice and (ii) no change or event has occurred which has had a Material
Adverse Effect on the Company.
(c) The projected unaudited balance sheet of the Company as of
November 30, 1999 has been delivered to Buyer solely to provide Buyer with
an understanding of the cyclical nature of the Business and the basis for
the adjustment to the Purchase Price under Section 2.3(g).
4.7 Taxes.
(a) The Company has filed all Tax Returns required to be filed
by it, paid or made in the June Balance Sheet adequate provision for the
payment of all Taxes shown on such returns to be owed by it, and no claims
for additional Taxes for any prior fiscal years are pending except as
disclosed in Schedule 4.7. The Company is not a party to any pending Action,
nor, to Seller's Knowledge, is any such Action threatened, by any
Governmental Authority for the assessment or collection of Taxes.
(b) The Company is a member of the Selling Consolidated
group as defined in Treasury Reg.ss. 1.338(h)(10)-1(c)(3) and Seller is
eligible to make an election under IRCss.338(h)(10).
4.8 Properties, Assets and Leases.
(a) Except as disclosed on Schedule 4 8(a) the Company has good
and valid title to all of the properties and assets reflected in the June
Balance Sheet, free and clear of all Liens except for (i) those properties
and assets which have been sold in the ordinary course since the date hereof
and (ii) such imperfections or irregularities of title, Liens or defaults
that do not affect the use thereof and statutory Liens securing payments not
yet due.
(b) Schedule 4.8(b) contains a complete and accurate description
in all material respects of all the Real Property and the Company's interest
therein. The Real Property listed on Schedule 4.8(b) comprises all real
property interests used in the conduct of the business and operations of the
Company as conducted as of the date hereof. The Company has delivered to
Buyer true and complete copies of all leases pertaining to the Real
Property. Subject to the terms of the Litchfleld Facility Lease, all Real
Property (including the improvements thereon) (i) is available and is
adequate for immediate use in the conduct of the business and operations of
the Company as currently conducted and (ii) complies in all material
respects with all applicable building or zoning codes and regulations of any
Governmental Authority having jurisdiction.
(c) Schedule 4.8(c) contains a complete list of all vehicle
leases and subleases and all leases and subleases pursuant to which the
Company leases personal property that require the payment of $5,000 or more
per year. Except as set forth in Schedule 4 8(c),( i) all leases listed on
Schedule 4.8(c) and (ii) all leases pertaining to Real Property are valid,
binding and enforceable in accordance with their terms, except as limited by
any applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity (whether or not considered in a court of law or
equity), and are in full force and effect. There are no existing defaults by
the Company under such leases. The Company has not received notice of the
occurrence of, nor to Seller's Knowledge has there occurred, any event which
(whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default under such leases
by any party thereto.
(d) Schedule 4 8(d) is an accurate list of all machinery,
equipment and other tangible personal property, including motor vehicles,
which are owned by the Company, used in the conduct of its business and
having a net book value in excess of $10,000 as of August 31, 1999
(collectively, the "Material Equipment"'). Except as otherwise specified in
Schedule 4.8(d), to Seller's Knowledge, all Material Equipment: is, in all
material respects, in good repair and working order and is adequate for the
conduct of the Company's business as currently conducted. Except as set
forth in Schedule 4 8(d) hereto, no Person, other than the Company, owns any
equipment or other tangible property or assets on the premises of the
Company that is necessary to the operation of the business of the Company.
4.9 Employee Benefit Plans. Each "employee benefit plan", as defined
in Section 3(3) of ERISA, maintained, contributed to or required to be
contributed to by the Company for the benefit of current, former and retired
employees (the "Company ERISA Plans") and each other plan, contract, program
or arrangement maintained, contributed to or required to be contributed to
by the Company for the benefit of current, former and retired employees (the
"Company Benefit Arrangements") complies in all material respects with its
terms and all applicable Laws, including ERISA, and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) or termination
has occurred with respect to any Company ERISA Plan under circumstances that
present a risk of any material liability to the Company. The Company ERISA
Plans and the Company Benefit Arrangements are listed on Schedule 4.9.
Copies or descriptions of each Company ERISA Plan and Company Benefit
Arrangement have been made available to Buyer for review prior to the date
hereof. The Company has no obligation to provide medical or life insurance
coverage to retired employees under the Company ERISA Plans, the Company
Benefit Arrangements or any other plan or agreement. No Company ERISA Plan
is a "multi-employer plan" as defined in Section 3(37) of ERISA, and no
Company ERISA Plan promises or provides post-retirement medical benefit.
4.10 Company Contracts. Set forth in Schedule 4.10 is a list, as
of the date hereof, of the following agreements (the "Company Contracts"):
(a) Each agreement to which the Company is a party requiring
payment in excess of $50,000 per year except those that are terminable at
the option of the Company upon less than thirty (30) days notice;
(b) Each agreement covering the lease, purchase or service of
tangible personal property to which the Company is a party requiring
payments in excess of $l0,000 per year;
(c) Each agreement to which the Company is a party with respect
to indebtedness for money borrowed, including letters of credit, guaranties,
indentures, swaps and similar agreements;
(d) Each management, consulting, employment, severance,
collective bargaining or similar agreement, and each employment, to which
the Company is a party;
(e) Each agreement with any manufacturer's representative,
distributor or sales agent; and
(f) Each agreement between the Company and Seller or its
Affiliates.
Each of the Company Contracts is valid, binding and enforceable in
accordance with its terms, except as limited by any applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and to general principles of
equity (whether or not considered in a court of law or equity), and are in
full force and effect. There are no existing material defaults by the
Company under any of the Company Contracts. No event has occurred which
(whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a material default under any
of the Company Contracts by any party thereto.
4.11 Legal Proceedings. Except as set forth in Schedule 4 11, there
are no Actions instituted or pending, or, to Seller's Knowledge threatened
or anticipated, against the Company or to which the Company is a party, or
against any property, asset, interest or right of the Company. Except as
disclosed on Schedule 4 11, the Company is not subject to any Order that
would have a Material Adverse Effect on the Company.
4.12 Year 2000 Compliance. The Company has adopted and implemented
commercially reasonably measures to investigate and correct any "year 2000
problems" associated with the operation of the Company's business.
4.13 Compliance with Laws. Except as set forth in Schedule 4.13, the
Company: (a) is in compliance with all Laws and Orders applicable to it and
(b) since January 1, 1997, has received no written notification or
communication from any Governmental Authority (i) asserting that the Company
is not in compliance with any Law or (ii) threatening to revoke any Permit
of any Governmental Authority.
4.14 Environmental Matters. Except as set forth in Schedule 4.14:
(a) The Company has complied with all of the terms and
conditions of all Permits which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables which are contained in,
all federal, state and local Laws relating to pollution or protection of the
environment, including Laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or any other materials or
wastes including "hazardous substances" as defined in 42 U.S.C. ss. 9601,
petroleum or any constituent thereof and any hazardous or solid waste as
defined in 42 U.S.C. ss. 6903 ("Hazardous Substances"") into the environment
(including ambient air, surface water, ground water or lands) or otherwise
regulating the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances
(Environmental Laws").
(b) Since October 1, 1989, the Company has not received any
written notice of a charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand or notice alleging any liability of the Company
or any failure by the Company to comply with any Environmental Law
("Environmental Claim") and any disputes resulting from any notice received
prior to such date have been resolved.
4.15 Intellectual Property.
(a) Schedule 4.15 sets forth a complete and correct list of all
patented or registered Intellectual Property and pending patent applications
or other applications for registrations of Intellectual Property owned or
filed by or on behalf of the Company and any other Intellectual Property the
Company currently uses in connection with its business.
(b) Except as set forth on Schedule 4.15 (i) the Company owns
and possesses all right, title and interest in and to, or, to Seller's
Knowledge, has a valid and enforceable license to use, the Intellectual
Property currently used in the operation of the Company's business and (ii)
since January 1, 1997, the Company has not received any notices of any
infringement or misappropriation by, or conflict with, any third party with
respect to the Intellectual Property or any third party's intellectual
property rights and any disputes resulting from any notice received prior to
such date have been resolved.
(c) "Intellectual Property" means all patents, patent
applications, patent licenses, software licenses, know-how, licenses,
trademarks, copyrights, service marks, trademark registrations and
applications, copyright registrations and applications, service mark
registrations and applications and all other intangible property rights or
technology owned or used by the Company in the operation of its businesses.
4.16 No Brokers. Except for the compensation payable to W. Y.
Campbell & Company ("Campbell") in connection with the transactions
contemplated by this Agreement, which is to be paid by Seller, no broker,
finder or similar agent has been employed by or on behalf of Seller or
the Company, and no Person with which Seller or the Company have had any
dealings or communications of any kind other than Campbell is entitled to
any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
4.17 Company Employees. Schedule 4.17 sets forth a complete list of
all current employees of the Company and their annualized rates of pay as of
September 1, 1999 and since that date there have been no changes in the
annual rates of pay of any employees. To Seller's Knowledge and except for
those efforts made in 1998 in connection with the tender offer for Seller,
there has not been since January 1, 1997 any effort by any labor
organization to organize into a collective bargaining unit any employees of
the Company.
4.18 Bank Accounts. Schedule 4.18 is an accurate list of all
bank accounts maintained by the Company and the authorized signatories
therefor.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date of this
Agreement as follows:
5.1 Investment Intent. The Shares are being purchased for
its own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of
the Securities Act of 1933.
5.2 Organization and Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as presently
being conducted.
5.3 Authorization, Validity and Effect Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by
it, and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and such other agreements and
documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of Buyer. This Agreement and all
agreements and documents contemplated hereby has been duly and validly
executed and delivered by Buyer and represents the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms
except as limited by (a) applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally from time to time in effect and (b) the availability of
equitable remedies (regardless of whether enforceability is considered in a
proceeding at law or in equity).
5.4 No Conflict; Required Filings and Consents.
(a) Neither the execution and delivery of this Agreement by
Buyer, nor the consummation by Buyer of the transactions contemplated
herein, nor compliance by Buyer with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or By-laws or equivalent organizational documents of Buyer,
(ii) constitute or result in the breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation or
imposition of any Lien upon, any property or assets of Buyer or, pursuant to
any note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which it is a party or by which it or any of its
properties or assets may be subject, and that would, in any such event, have
a Material Adverse Effect on Buyer, or (iii) subject to receipt of the
requisite approvals referred to in Schedule 5.4(b), to the actual knowledge
of the executive officers of Buyer ("Buyer's Knowledge"), violate any Order
or Law applicable to Buyer or any of its properties or assets,
(b) Other than (i) notices under the HSR Act, (ii) as set forth
in Schedule 5.4(b) and (iii) where the failure to give such notice, make
such filing, or receive such authorization, exemption or Consent would not
have a Material Adverse Effect on Buyer, no notice to, filing with,
authorization of, or exemption by, or Consent of any Person or Governmental
Authority is necessary for the consummation by Buyer of the transactions
contemplated in this Agreement.
5.5 Legal Proceedings. Except as set forth in Schedule 5.5, there are
no Actions instituted or pending, or to Buyer's Knowledge, threatened,
against Buyer, or against any of its properties, assets, interests or
rights, that would interfere with or delay the consummation of the
transactions contemplated by this Agreement. Buyer is not subject to any
Order that would have a Material Adverse Effect on Buyer.
5.6 No Brokers. No broker, finder or similar agent has been employed
by or on behalf of Buyer, and no Person with which Buyer has had any
dealings or communications of any kind is entitled to any brokerage
commission, finder's fee or any similar compensation in connection with this
Agreement or the transactions contemplated hereby.
5.7 Buyer's Financing. Buyer has sufficient funds available to
consummate the transactions contemplated hereby and pay all related fees
and expenses.
5.8 Financial Information. Buyer has made available to Seller copies
of the audited consolidated financial statements of Buyer and its
Subsidiaries as of and for the period ended December 31, 1997 and 1998
accompanied by the reports thereon of Buyer's independent public accountants
(the "Buyer Financials"). Since December 31, 1998, no Material Adverse
Effect has occurred with respect to Buyer.
5.9 No Reliance. The purchase of the Shares by Buyer and the
consummation of the transactions contemplated hereunder by Buyer are not
done in reliance upon any warranty or representation by, or information
from, Seller or the Company of any sort, oral or written, except the
warranties and representations specifically set forth in this Agreement
(including the schedules and exhibits hereto) and in any certificates
required to be delivered to Buyer by Seller hereunder and thereunder.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 Interim Operation of the Company. From the date hereof until the
Closing Date, except as contemplated by any other provision of this
Agreement or as set forth in Schedule 6.1, unless Buyer has previously
consented in writing thereto, Seller shall cause the Company to operate in
the ordinary course of business and Seller shall cause the Company not to:
(a) incur any indebtedness or issue any debt securities or
assume, guarantee or endorse the obligations of any other Persons,:
except for indebtedness incurred in the ordinary course of business
consistent with past practice;
(b) except in the ordinary course of business consistent
with past practice, acquire or dispose of any material assets;
(c) enter into any agreements, commitments or contracts, except
agreements, commitments or contracts made in the ordinary course of business
consistent with past practice;
(d) except in the ordinary course of business consistent with
past practice, engage in any transactions with, or enter into any contracts
or agreements with any Affiliates of the Company;
(e) enter into, adopt, amend or terminate any agreement relating
to the compensation or severance of any employee associated with the
Company, except to the extent required by Law, any existing agreements and
for the agreement with John Bender in the form delivered to Buyer on October
12, 1999;
(f) make any material change to its accounting (including
tax accounting) methods, principles or practices, except as may be
required by GAAP;
(g) make any amendment to its Articles of Incorporation or
By-laws;
(h) issue or sell any capital stock of the Company or split,
combine or subdivide the capital stock of the Company; or
(i) agree to take any of the actions described in
sub-clauses (a) through (h) above.
6.2 Reasonable Access; Confidentiality
(a) From the date hereof until the Closing, Seller shall cause
the Company to give Buyer and its representatives (including its attorneys,
agents and lenders or other sources of financing), upon reasonable notice to
the Company, reasonable access to the assets, properties, books, records,
agreements, employees and commitments of the Company and shall cause the
Company to permit Buyer to make such inspections as it may reasonably
require and to furnish Buyer during such period with all such information
relating to the Company as Buyer may from time to time reasonably request.
(b) Any information provided to or obtained by Buyer pursuant to
paragraph (a) above is "Information" as defined under the Confidentiality
Agreement, dated July 16, 1999, between the Company and Buyer (the
"Confidentiality Agreement'),, and is to be held by Buyer in accordance with
and be subject to the terms of the Confidentiality Agreement.
(c) Buyer agrees to be bound by and comply with the provisions
set forth in the Confidentiality Agreement as if such provisions were set
forth herein, and such provisions are hereby incorporated herein by
reference.
6.3 Filings; Other Action. Subject to the terms and conditions
provided herein, Seller and Buyer shall (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR
Act; (b) use their reasonable best efforts to cooperate with each other in
(i) determining which filings are required to be made prior to the Closing
Date with, and which Consents are required to be obtained prior to the
Closing Date from, Governmental Authorities in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely
seeking all such Consents; and (c) use their reasonable best efforts to
cause the conditions to each of Seller's and Buyer's obligations hereunder
to be fulfilled.
6.4 Publicity. Seller and Buyer shall make a joint press release
announcing the execution of this Agreement and the transactions contemplated
hereby, which is to be acceptable to each of Seller and Buyer; provided,
however, that such press release and any other public disclosure by Seller
or Buyer of this Agreement or the transactions contemplated hereby is not to
disclose the Purchase Price unless such disclosure is required by Law. No
other publicity release or announcement concerning the transactions
contemplated hereby is to be issued by either party without the advance
written consent of such other party, except any such release or announcement
as may be required by applicable Law.
6.5 Records. With respect to the financial books and records (other
than Tax records which are provided for in Section 6.6) and minute books of
the Company relating to matters on or prior to the Closing Date, for a
period of ten years after the Closing Date, neither Seller nor Buyer shall
cause or permit their destruction or disposal without first offering to
surrender them to Buyer or Seller as appropriate, and Seller and Buyer shall
allow Buyer and Seller and his representatives, as appropriate, access to
such books and records during regular business hours.
6.6 Tax Matters. From and after the Closing:
(a) Seller and Buyer shall (i) each provide the other and shall
cause their respective accountants to provide the other party's accountant,
and Buyer shall cause the Company to provide Seller, with such assistance as
may reasonably be requested by any of them in connection with the
preparation of any Tax Return, or the conduct of any audit or other
examination by any taxing authority or judicial or administrative
proceedings relating to liability for Taxes; (ii) each retain and provide
the other and shall cause their respective accountants to provide the other
party's accountant, and Buyer shall cause the Company to retain and provide
Seller with, any records or other information that may be relevant to such
Tax Return, audit or examination, proceeding or determination; and (iii)
each provide the other with any final determination of any such audit or
examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. Without limiting the
generality of the foregoing, Buyer shall retain, and shall cause the Company
to retain, and Seller shall retain, until the applicable statute of
limitations (including any extensions) have expired, copies of all Tax
Returns, supporting work schedules, and other records or information that
may be relevant to such returns for all Tax periods or portions thereof
ending before or including the Closing and shall not destroy or otherwise
dispose of any such records without first providing the other party with a
reasonable opportunity to review and copy same at the cost of such other
party.
(b) Seller shall prepare and file income Tax Returns with
respect to the Company for all periods commencing prior to and ending on or
before the Closing Date. Seller shall pay all Taxes described in Section
8.2(a)(vi). Buyer shall pay all Taxes of the Company for all periods that
begin after the Closing Date, and shall prepare and file all Tax Returns
with respect to the Company for all periods commencing after the Closing
Date and ending thereafter.
(c) Seller and Buyer shall each pay fifty percent (50%) of any
state and local sales and stock transfer taxes and all recording costs and
fees however styled or designated that are required to be paid in connection
with the transfer of the Shares contemplated by this Agreement.
(d) Seller and Buyer shall provide to each other prompt notice
of, and as requested by the other party reasonable cooperation in respect
of, any audit or similar investigation or proceeding in which the Internal
Revenue Service or any other Governmental Authority makes or proposes to
make a Tax adjustment to any Tax period of the Company ending on or before
the Closing Date.
(e) Buyer and Seller shall make a timely, effective, and
irrevocable election under Section 338(h)(10) of the Code and under any
comparable statutes in any other jurisdiction with respect to the purchase
of the Shares of the Company (collectively, the "Section 338(h)(10)
Election"), and to file that election in accordance with applicable
regulations. The Section 338(h)(10) Election will allocate the modified ADSP
(as that term is defined in Treasury Regulations Section 1.338(h)(10)-1(f))
of the assets of the Company in accordance with the Treasury regulations
promulgated under Section 338(h)(l0). Neither Buyer nor Seller nor any of
their respective Affiliates shall take any action inconsistent with, or fail
to take any action necessary for the validity of the ss. 338(h)(10)
Election, and shall utilize the asset values determined from the Allocation
Agreement (as defined in Section 6.7) for the purpose of all tax returns
filed and shall not take any action inconsistent therewith upon examination
of any tax return, in any refund claim, in any litigation, or otherwise in
respect to such returns.
6.7 Allocation Matters. The parties shall use their best efforts to
enter into an agreement (the "Allocation Agreement") as soon as possible
after the final determination of the purchase price allocating the Purchase
Price among the assets and liabilities of the Company. Buyer shall deliver
to Seller a proposed Allocation Agreement within sixty (60) days after the
signing of this agreement. If Seller has not objected to the proposed
Allocation Agreement within thirty (30) days after receipt, such agreement
shall be accepted and shall be the Allocation Agreement.
If Seller objects to Buyer's proposed Allocation Agreement.
Seller shall give Buyer written notice of the objections and Seller and
Buyer shall use reasonable efforts to resolve the differences. If within
thirty (30) days after the date on which Seller has given Buyer notice of
its objections, the parties have not adopted the Allocation Agreement, any
dispute related thereto shall be referred to an independent accounting firm
selected by the parties and resolved thirty (30) days after such referral.
The independent accounting firm's determination shall be conclusive and
binding upon Buyer and Seller and its Affiliates except as provided below.
The costs, expenses, and fees of the independent accounting firm shall be
borne equally by the parties.
The value assigned to the building and land located at 625 W.
Columbian Blvd. (a.k.a. 1 Sierra Place), Litchfield, IL shall be $912,000.
Buyer will prepare IRS Form 8023 and deliver the form to Seller
no later than sixty (60) days prior to its due date. Seller will review and
complete Section F ("Seller's Statement") of Form 8023, sign and return to
Buyer no later than thirty (30) days prior to Form 8023's due date.
6.8 NAPA Business Practices. For one year following the Closing, Buyer
shall cause the Company to continue the business practices (the "NAPA
Business Practices") formerly employed by the Company as a supplier of
products to NAPA, including, without limitation, the following practices:
(a) the Company shall continue to supply NAPA products requested by NAPA
within forty eight (48) hours after the order has been received, (b) the
Company shall accept returns of products supplied by the Company to NAPA in
an amount not more than two percentage points above the average amount
expressed as a percentage accepted by the Company in the fiscal years 1996,
1997 and 1998, and (c) for all invoices paid by NAPA within sixty (60) days
of shipment, NAPA will be entitled to take a 2% discount off the invoice
price. Notwithstanding the foregoing, if NAPA amends any of the above
described practices or any other NAPA Business Practice, Buyer shall cause
the Company to negotiate in good faith with NAPA regarding such changes.
6.9 Non-Competition.
(a) For a period of two (2) years from the Closing Date, Seller
shall not and shall cause its Affiliates not to (i) acquire or invest in any
business that competes with the Business within the Restricted Territory; or
(ii) sell any Current Products to any Current Customers or to any Current
Competitors within the Restricted Territory.
(b) The provisions of Section 6.9(a) do not prohibit Seller or
its Affiliates from (i) acquiring another Person engaged in activities
prohibited by Section 6.9(a) if at the time of the acquisition the business
of the Person acquired otherwise prohibited by Section 6.9(a) represents
less than 20% of such Person's consolidated sales for its most recently
completed fiscal year, (ii) acquiring up to five percent (5%) of the
securities of any Person which is engaged in activities prohibited by
Section 6.9(a) if the securities of such Person are listed on a national
securities exchange or the NASDAQ Automated Quotation System, (iii)
performing the obligations set forth in the Transitional Services Agreement,
or (iv) engaging in any business activity in which Seller or its Affiliates
(other than the Company) are currently engaged with any Person, whether or
not such Person is a Current Customer or a Current Competitor.
(c) Seller acknowledges that its failure to comply with this
Section 6.9 will irreparably harm Buyer and Buyer will not have an adequate
remedy at law in the event of such non-compliance. Therefore, Seller
acknowledges that Buyer will be entitled to injunctive relief and/or
specific performance, in addition to whatever other remedies it may have, at
law or in equity, against any acts of non-compliance by Seller under this
Section 6.9.
6.10 Accounts Receivable. If, following the Closing Date, Seller or
any of its Affiliates (other than the Company) receive any payments of
accounts receivable relating to the Company, such payments will be the
property of, and will be immediately forwarded and remitted to, the Company.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Seller and Buyer. The respective
obligations of Seller and Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction or waiver at or prior
to the Closing of each of the following conditions:
(a) The waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
(b) None of the parties hereto shall be subject to any Order of
a court of competent jurisdiction that prohibits the consummation of the
transactions contemplated by this Agreement. In the event any such Order
shall have been issued, each party agrees to use its reasonable best efforts
to have any such Order overturned or lifted.
7.2 Conditions to Obligation of Seller. The obligation of Seller to
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction or waiver at or prior to the Closing of each of the
following additional conditions:
(a) The representations, warranties and any certification or
instrument delivered pursuant to this Agreement of Buyer set forth in this
Agreement shall be true and correct in all respects as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier date).
(b) Each of the agreements and covenants of Buyer to be
performed and complied with by Buyer pursuant to this Agreement prior to the
Closing Date shall have been duly performed and complied with in all
material respects.
(c) Buyer shall have delivered to Seller a certificate, dated as
of the Closing Date and signed on its behalf by its chief executive officer
and its chief financial officer, as to the satisfaction by it of the
conditions set forth in Sections 7.2(a) and 7.2(b).
(d) Buyer shall have assumed all obligations of Dana under the
Employee Retention Incentive Agreements other than those relating to the
payment of the Retention Incentive Payments and the Divestiture Payments as
defined in the Employee Retention Incentive Agreements.
(e) The Company shall have assumed all obligations under the
Clearwater Lease.
(f) The Company shall have entered into a lease agreement with
Hewlett Packard Company as described in Schedule 4.8(d)(ii).
(g) Buyer shall have delivered the Purchase Price and the
documents required to be delivered by Buyer pursuant to Section 3.3.
7.3 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction or waiver at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all respects as of the Closing
Date as though made on and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier date).
(b) Each of the agreements and covenants of Seller to be
performed and complied with by Seller pursuant to this Agreement prior to
the Closing Date shall have been duly performed and complied with in all
material respects.
(c) Seller shall have assigned its rights under the Clearwater Lease to the
Company.
(d) Seller shall have delivered to Buyer a certificate, dated as
of the Closing Date, as to the satisfaction by Seller of the conditions set
forth in subsections 7.3(a) and 7.3(b).
(e) Between the date of this Agreement and the Closing Date, no
change or event shall have occurred which has had a Material Adverse Effect
on the Company.
(f) Seller shall have delivered to Buyer the documents required
to be delivered by Seller pursuant to Section 3.2.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 Survival Periods. The representations and warranties of the
parties contained in this Agreement will survive the Closing until 18 months
from the Closing Date (the "Expiration Date"); provided, however, that (i)
the Expiration Date for any claims for indemnification relating to a breach
of the representations and warranties set forth in Section 4.7 (Taxes) and
Section 4.9 (Employee Benefit Plans) will be the expiration of all
applicable periods prescribed under statutes of limitation and (ii) there
will be no Expiration Date (other than the applicable statute of limitation)
for the representations and warranties contained in Section 4.3 and Section
4.4. The covenants and agreements of the parties hereto shall survive the
Closing in accordance with their terms. No party providing indemnification
pursuant to this Article VIII (an "Indemnifying Party") is obligated to
provide such indemnification with respect to the representations and
warranties to the other party (the "Indemnified Party") unless the
Indemnified Party has delivered written notice of its claim for
indemnification prior to the Expiration Date; provided, however, that any
claim for indemnification for which a notice has been given on or before the
Expiration Date may continue to be asserted and indemnified against until
finally resolved.
8.2 Indemnification, Subject to the other provisions of this
Article VIII, from and after the Closing,
(a) Seller shall indemnify and hold Buyer harmless from and
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims and damages (collectively, "Damages")
resulting from (i) any breach of any representation or warranty made by
Seller in this Agreement; (ii) the failure to perform or breach of any
covenant or agreement made by Seller under this Agreement; (iii) liabilities
associated with Company ERISA Plans or Company Benefit Plans; (iv) personal
injury or property damage claims arising from or related to any products
distributed by the Company to the extent that the injury or damage to which
such claims relate occurred prior to the Closing Date and resulted from or
is alleged to have resulted from products sold or services performed by the
Company prior to the Closing Date; (v) the failure of Dana to pay the
employees of the Company who are party to the Employee Retention Incentive
Agreements the Retention Incentive Payments and the Divestiture Payments as
defined in the Employee Retention Incentive Agreements, or (vi) Taxes
(including income Taxes payable as a result of the application of Treasury
Regulation ss. 1.1502-6) attributable to the Company (and its Affiliates
included with the Company in the filing of a Consolidated Tax Return) for
tax periods ending on or prior to the Closing Date including any gain
recognized as a result of the Section 338(h)( 10) Election provided for in
Section 6.6(e).
(b) Buyer shall indemnify and hold Seller harmless from and
against all Damages to the extent they are the result from (i) any breach of
any representation or warranty made by Buyer in this Agreement (ii) the
failure to perform or breach of any covenant or agreement made by Buyer
under this Agreement or (iii) any Taxes for tax periods beginning after the
Closing Date.
(c) For the avoidance of doubt, the Expiration Date, the
Deductible and the Cap will not apply to Seller's indemnification
obligations under Section 8.2(a)(ii), (iii), (iv), (v) or (vi) even if
claims for indemnification under those sections might also be made under
Section 8.2(a)(i).
8.3 Indemnification Amounts. Notwithstanding any provision to the
contrary contained in this Agreement, Seller will not be obligated to
indemnify Buyer for any Damages resulting from a breach of a representation
or warranty (other than Damages resulting from a breach of the
representations or warranties contained in Section 4.3 and Section 4.4) made
by Seller (a) unless and until the amount of all such Damages exceeds
$500,000 (the "Deductible"), in which event, Buyer may assert its right to
indemnification only for the amount of the Damages in excess of the
Deductible (subject to clause (b) below), and (b) to the extent that the
aggregate amount of all such payments for Damages to Buyer does not exceed
$17,000,000 ("Cap").
8.4 Claims.
(a) If an Indemnified Party intends to seek indemnification
pursuant to this Article VIII, such Indemnified Party shall promptly notify
the Indemnifying Party in writing of such claim describing such claim in
reasonable detail; provided, that the failure to provide such notice will
not affect the obligations of the Indemnifying Party unless it is actually
prejudiced thereby, subject, however, to the time periods specified in
Section 8.1 hereof. If such claim involves a claim by a third party against
the Indemnified Party, the Indemnifying Party will have thirty (30) days
after receipt of such notice to decide whether it will undertake, conduct
and control, through counsel of its own choosing and at its own expense, the
settlement or defense thereof, and if it so decides, the Indemnified Party
shall cooperate with it in connection therewith; provided, that the
Indemnified Party may participate in such settlement or defense through
counsel chosen by it; and provided further, that the fees and expenses of
such counsel are to be borne by the Indemnified Party. The Indemnifying
Party shall not, without the written consent of the Indemnified Party,
settle or compromise any action in any manner that would materially and
adversely affect the Indemnified Party. If the Indemnifying Party does not
notify the Indemnified Party within thirty (30) days after the receipt of
the Indemnified Party's notice of a claim of indemnity hereunder that it
elects to undertake the defense thereof, the Indemnified Party will have the
right to contest, settle or compromise the claim but shall not thereby waive
any right to indemnity therefor pursuant to this Agreement. As long as the
Indemnifying Party is contesting any such claim in good faith, the
Indemnified Party shall not pay or settle any such claim. Notwithstanding
the foregoing, the Indemnified Party has the right to pay or settle any such
claim; provided, that the Indemnified Party has delivered the Indemnifying
Party reasonable advance notice of any proposed settlement or payment.
(b) The Indemnified Party shall cooperate fully in all aspects
of any investigation, defense, pretrial activities, trial, compromise,
settlement or discharge of any claim in respect of which indemnity is sought
pursuant to Article VIII, including, but not limited to, by providing the
other party with reasonable access to employees and officers (including as
witnesses) and other information.
8.5 Exclusive Remedy. The indemnification provisions of this Article
VIII are the exclusive remedy following the Closing for any breaches or
alleged breaches of any representation, warranty or other provision of this
Agreement or the transactions contemplated hereby and, without limitation on
the foregoing, Buyer hereby waives any and all rights that are or may
otherwise be available to it at law or equity in respect of the purchase and
sale of the Shares. Buyer has no right to set-off against any payments to be
made by Buyer pursuant to this Agreement or otherwise. Each of the parties
hereto, on behalf of itself and its officers, directors, employees,
shareholders, partners, affiliates, agents or representatives (collectively,
such party's "Representatives") agrees not to bring any actions or
proceedings, at law, equity or otherwise, against any other party or its
Representatives, in respect of any breaches or alleged breaches of any
representation, warranty or other provision of this Agreement, except
pursuant to the express provisions of this Article VIII. The parties hereby
acknowledge that no party has made any representations and warranties,
express or implied, with respect to this Agreement or the matters
contemplated hereby, except as explicitly set forth in this Agreement.
8.6 Tax and Insurance. The amount of any Damages suffered by an
Indemnified Party is to be reduced by any net tax, insurance or: other
benefits that such party receives in respect of or as a result of such
Damages or the facts or circumstances relating thereto, If any Damages for
which indemnification is provided hereunder are subsequently reduced by any
net tax benefit, insurance payment or other recovery from a third party, the
amount of such reduction is to be remitted to the Indemnifying Party.
ARTICLE IX
EMPLOYEE AND BENEFIT MATTERS
9.1 Employment. Buyer shall cause the Company to continue to employ,
on the terms required by this Article IX, for a period of six (6) months
after the Closing Date all individuals who are employed by the Company
immediately prior to the Closing Date, including those who are on lay-off,
leave of absence, or short-term disability as set forth on Schedule 9 1
(collectively "Continuing Employees"), provided that the foregoing, except
as otherwise required by the Employee Retention Incentive Agreements, does
not require Buyer to cause the Company to continue to employ any Continuing
Employee who resigns or otherwise voluntarily terminates his or her
employment with the Company or who is terminated by the Company for cause.
9.2 Compensation and Employee Benefits.
(a) In General. Subject to the provisions of Section 9.2(c), for
a period of six (6) months after the Closing Date, Buyer shall cause the
Company to provide each Continuing Employee compensation and employee
benefits which, in the aggregate, are substantially equivalent to those
provided by Buyer to similarly situated employees immediately prior to the
Closing Date. Subject to the foregoing and the other provisions of this
Article IX and the provisions of the Employee Retention Incentive
Agreements, Buyer has the right to determine the compensation and employee
benefits of the Continuing Employees.
(b) Service Credit. For purposes of any employee benefit plan,
program or arrangement established for or made available to Continuing
Employees by the Company or Buyer (the "Buyer Plans"), Buyer shall, or shall
cause the Company to, credit such Continuing Employees with service for all
periods of service prior to the Closing Date with Seller, the Company or any
Affiliate of either Seller or the Company except that Buyer shall have no
obligation to give such credit to John Bender for purposes of Buyer's
severance plan. Such service will be credited for purposes of determining
eligibility for, vesting in, and the amount of benefits under all of the
Buyer Plans and for all other purposes for which service is either taken
into account or recognized; provided, however, such service need not be
credited to the extent that it would result in duplication of coverage or
benefits.
(c) Welfare Benefit Plans. Until the later of the Closing Date
or December 31, 1999 ("Cut-Off Date"), Seller shall take such steps as are
reasonably required in order to provide coverage for all Continuing
Employees and their respective dependents under the Company ERISA Plans and
Company Benefit Arrangements which are welfare benefit plans within the
meaning of Section 3(1) of ERISA (the "Seller Welfare Plans"). Promptly on
receipt of invoices therefor in such detail as Seller is able reasonably to
provide, Buyer shall reimburse Seller for all expenses incurred by Seller
and its Affiliates in order for Seller and its Affiliates to perform their
obligations under the preceding sentence. Coverage for Continuing Employees
and their respective dependents under the Seller Welfare Plans will
terminate as of the Cut-Off Date. The Buyer Plans which are welfare benefit
plans within the meaning of Section 3(1) of ERISA (the "Buyer's Welfare
Plans") shall provide coverage and benefits to Continuing Employees (and the
eligible dependents of the Continuing Employees) beginning on the Cut-off
Date. In addition, no pre-existing condition, limitation, exclusion or
waiting period applicable with respect to any Buyer Welfare Plan will apply
to any Continuing Employee to the extent that such limitations, exclusions
or waiting periods exceed those in effect under the Seller Welfare Plans.
(d) Savings and Pension Plans.
(i) Effective as of the Closing Date, Seller will, at its
expense, cause all Continuing Employees to become fully vested in
their account balances under the Echlin Incentive and Savings
Investment Plan (the "Savings Plan") and their accrued benefits under
the Pension Plan for Echlin Inc. Employees (the "Pension Plan").
(ii) With respect to each Continuing Employee who has an
outstanding loan under the Savings Plan, Buyer shall lend to such
Continuing Employee, upon execution of a promissory note acceptable to
Buyer, an amount sufficient to repay such outstanding loan.
9.3 WARN Act and Severance. Buyer shall not engage in a "mass layoff'
or "plant closing" as defined in the United States Worker Adjustment and
Retraining Notification Act (the "WARN Act") without furnishing the notice
required by Section 3 of the WARN Act. Buyer shall defend, indemnify and
hold harmless Seller and its Affiliates from any claims, charges, suits,
demands, damage, or liability arising out of or relating to noncompliance
with the WARN Act from and after the Closing Date.
ARTICLE X
TERMINATION OF AGREEMENT
10.1 Termination. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller, upon written notice to the other party,
if the transactions contemplated by this Agreement have not been consummated
on or prior to a date 3 months from the date of this Agreement (the "Outside
Date"), unless such failure of consummation is due to the failure of the
party seeking such termination to perform or observe in all material
respects the covenants and agreements hereof to be performed or observed by
such party;
(c) by Buyer or Seller, upon written notice to the other party,
if a Governmental Authority of competent jurisdiction has issued an Order
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and such Order has become final and
non-appealable; provided, however, that the party seeking to terminate this
Agreement pursuant to this clause (c) has used its reasonable best efforts
to remove such Order;
(d) by Buyer or Seller, if any condition to such party's
obligation to consummate the transactions contemplated hereby has not been
satisfied as of the Closing Date or if satisfaction of such condition
becomes impossible (other than through the failure of such party to comply
with its or his obligations under this Agreement) and the other party has
not waived such condition on or before the Closing Date; or
(e) by Seller prior to October 21, 1999 if Dana's Board of
Directors does not approve this Agreement.
10.2 Effect of Termination. The termination of this Agreement is to be
effected by delivery of written notice of such termination by the party
terminating the Agreement to the other party. In the event of termination of
this Agreement pursuant to Section 10,1, no party will have any liability or
any further obligation to any other party, except as provided in this
Section 10,2 and except that nothing herein shall release, or be construed
as releasing, any party hereto from any liability or damage to any other
party hereto arising out of the breaching party's willful and material
breach in the performance of any of its covenants, agreements, duties or
obligations arising under this Agreement. The obligations of the parties to
this Agreement under Sections 4.16, 5,6, 6,2 and 11.1 shall survive any
termination of this Agreement. If Seller terminates this Agreement pursuant
to Section 10.1(e) and within one year after such termination Seller or any
of its Affiliates enters into any agreement intended to result in a Control
Transaction with any Person other than Buyer, Dana or their respective
Affiliates, then promptly upon the closing of such Control Transaction
Seller shall pay Buyer a fee of $3,000,000.
ARTICLE XI
MISCELLANEOUS AND GENERAL
11.1 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, all costs and expenses (including all legal,
accounting, broker, finder or investment banker fees) incurred in connection
with this Agreement and the transactions contemplated hereby are to be paid
by the party incurring such expenses except as expressly provided herein and
except that the filing fee in connection with the HSR Act filing is to be
shared equally by Seller and Buyer.
11.2 Successors and Assigns This Agreement is to be binding upon and
inures to the benefit of the parties hereto and their respective successors
and permitted assigns, but is not assignable by any party hereto without the
prior written consent of the other parties hereto except that Buyer may,
upon written notice to Seller, assign its rights hereunder to an Affiliate
of Buyer, but no such assignment shall relieve Buyer of any of its
obligations hereunder.
11.3 No Third Party Beneficiaries. Each party hereto intends that this
Agreement does not benefit or create any legal or equitable right, remedy or
claim in or on behalf of any Person other than the parties hereto, and as a
result this Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
11.4 Notices. Any notice or other communication provided for herein or
given hereunder to a party hereto will be sufficient if in writing, and sent
by facsimile transmission (electronically confirmed), delivered in person,
mailed by first class registered or certified mail, postage prepaid, or sent
by Federal Express or other overnight courier of national reputation.
addressed as follows:
If to Buyer:
John Young
Colfax Corporation
9211 Forest hill Avenue
Suite 109
Richmond, Virginia 23235
Fax: (804) 560-4076
with a copy to:
Thomas O'Brien
Colfax Corporation
997 Lenox Drive
Suite 111
Lawrenceville, New Jersey 08648
Fax: (609) 896-7633
and to:
Walter G. Lohr, Jr.
Hogan & Hartson L.L.P.
111 South Calvert Street
Suite 1600
Baltimore, Maryland 21202
Fax: (410) 539-6981
If to Seller:
Echlin Inc.
c/o Dana Corporation
4500 Dorr Street
Toledo, Ohio 43697
Attn: General Counsel
Fax: (419) 535-4790
with a copy to:
Jones, Day. Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: John P. Dunn, Esq.
Fax: (216)579-0212
or to such other address with respect to a party as such party notifies the
other in writing as above provided.
11.5 Complete Agreement. This Agreement and the exhibits and schedules
hereto, and the other documents delivered by the parties in connection
herewith, together with the Confidentiality Agreement, contain the complete
and exclusive statement of the terms of the agreement between the parties
hereto with respect to the transactions contemplated hereby and thereby and
supersede all prior agreements and understandings between the parties hereto
with respect thereto.
11.6 Captions; References. The captions contained in this Agreement
are for convenience of reference only and do not form a part of this
Agreement. When a reference is made in this Agreement to a clause, a Section
or an Article, such reference will be to a clause, a Section or Article of
this Agreement unless otherwise indicated.
11.7 Amendment. This Agreement may be amended or modified only by a
written agreement duly executed by the parties to this Agreement.
11.8 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or
other acts of the parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable Law. Any
agreement on the part of a party hereto to any such extension or waiver will
be valid only if set forth in a writing signed on behalf of such party.
11.9 Governing Law. This Agreement is to be governed by, and
construed and enforced in accordance with, the laws of the State of Ohio,
without regard to its rules of conflict of laws.
11.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction will, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision is to be interpreted to be only so broad as is enforceable.
11.11 Further Assurances. Seller shall, at the written request and
expense of Buyer, at any time and from time to time following the Closing,
execute and deliver to Buyer all such further instruments and take all such
further action as may be reasonably necessary or appropriate in order to
more effectively sell, assign, transfer and convey to Buyer the Shares or
otherwise to confirm or carry out the provisions of this Agreement. Buyer
shall, and shall cause the Company to, at any time and from time to time
following the Closing hereunder, execute and deliver to Seller all such
further instruments and take all such further action as may be reasonably
necessary or appropriate in order to confirm or carry out the provisions of
this Agreement.
11.12 Disclosure Schedule Supplements. From time to time prior to the
Closing, Seller shall promptly supplement or amend the Schedules to this
Agreement (the "Disclosure Schedules") with respect to any matter which, if
existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in the Disclosure Schedules. The
Disclosure Schedules will be deemed amended by all such supplements and
amendments for all purposes except for purposes of determining whether the
conditions set forth in Section 7.3(a) have been satisfied. Notwithstanding
the foregoing, no such supplement or amendment will be effective for any
purpose, including for purposes of modifying, altering, limiting or
otherwise affecting the representations, warranties and indemnities
contained herein to the extent that Seller had knowledge of the matters
stated therein as of the date hereof.
11.13 Mutual Drafting. This Agreement is the result of the joint
efforts of Buyer and Seller, and each provision hereof has been subject to
the mutual consultation, negotiation and agreement of the parties and there
is to be no construction against either party based on any presumption of
that party's involvement in the drafting thereof.
11.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which is to be deemed an original but all of which is
to constitute but one instrument.
APPENDIX A
"Actions" means any action, suit or legal, administrative or arbitral
proceeding or investigation before any Governmental Authority.
"Affiliate" means with respect to any Person, any Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Business" means the business of distributing the Current Products to
the global marine and power equipment aftermarkets.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banks in Illinois are authorized or obligated by Law or executive
order to close.
"Buyer" has the meaning set forth in the preamble to this Agreement.
"Buyer Financials" has the meaning set forth in Section 5.8. "Buyer
Plans" has the meaning set forth in Section 9.2(b). "Buyer Reports"
has the meaning set forth in Section 5.8. "Buyer's Accountants" has
the meaning set forth in Section 2.3(c). "Buyer's Welfare Plans" has
the meaning set forth in Section 9.2(c). "Buyer's Knowledge" has the
meaning set forth in Section 5.4(a). "Campbell" has the meaning set
forth in Section 4.16. "Cap" has the meaning set forth in 8.3(b).
"Clearwater Lease" means the lease agreement, dated November 20, 1995,
by and between New England Mutual Life Insurance Company and Seller.
"Closing" has the meaning set forth in Section 3.1.
"Closing Net Working Assets Statement" has the meaning set forth in
Section 2.3(b).
"Closing Date" has the meaning set forth in Section 3.1.
"Closing Net Working Assets" has the meaning set forth in Section
2.3(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the recitals of this Agreement.
"Company Benefit Arrangements" has the meaning set forth in Section
4.9. "Company Contracts" has the meaning set forth in Section 4.10.
"Company ERISA Plans" has the meaning set forth in Section 4.9.
"Confidentiality Agreement" has the meaning set forth in Section
6.2(b).
"Consents" means any consent, approval, authorization, qualification,
waiver or notification of a Governmental Authority or any other
Person.
"Continuing Employees" has the moaning set forth in Section 9.1.
"Control Transaction" means any transaction or series of related
transactions as a result of which any Person acquires from Seller or any of
its Affiliates the Shares, substantially all the assets of the Company or
other assets or securities of the Company sufficient to give such Person
control over the business of the Company.
"Current Competitors" means those competitors of the Company set forth
on Exhibit A.
"Current Customers" means any Person which Seller can reasonably
demonstrate was a customer of the Company in the six-(6) months prior to
Closing.
"Current Products" means those products of the Company listed in the
most recently updated product catalogue of the Company as of the Closing
Date.
" Cut-off Date" has the meaning set forth in Section 9.2(c). "Damages"
has the meaning set forth in Section 8.2. "Dana" has the meaning set
forth in Section 2.2. "Deductible" has the meaning set forth in
Section 8.3.
"Designated Accounting Arbitrator" has the meaning set forth in
Section 2.3(d).
"Disclosure Schedules" has the meaning set forth in Section 11.12.
"Dispute Notice" has the meaning set forth in Section 2.3(d).
"Employee Retention Incentive Agreements" means the Employee Retention
Incentive Agreements by and between Dana and certain management members of
the Company set forth at Exhibit C.
"Environmental Claim" has the meaning set forth in Section 4.14(a).
"Expiration Date" has the meaning set forth in Section 8.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Final Net Working Assets Statement' has the meaning set forth in
Section 2.3(f).
"Freight Agreement" means the Echlin Freight Group Membership
Contract, by and between Echlin Freight Group and the Company, in the form
set forth at Exhibit D.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any government or political
subdivision, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any
federal, state, local or foreign court or arbitrator.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnifying Party" and "Indemnified Party" have the meanings set
forth in Section 8.1.
"Intellectual Property" has the meaning set forth in Section 4.15(c).
"June Balance Sheet" has the meaning set forth in Section 4.6.
"Laws" means any law, statute, code, ordinance, regulation or other
legally enforceable requirement of any Governmental Authority.
"Liens" means any mortgage, lien, Option, encumbrance, restriction,
pledge, adverse claim, interest, charge or other similar encumbrance.
"Litchfield Facility Lease" means the Lease by and between Brake
Parts Inc., as lessee, and the Company, as lessor, in the form of Exhibit
E.
"Material Adverse Effect" means, with respect to the Company or Buyer,
a material adverse effect on the business, assets, liabilities or financial
condition of such party and its Subsidiaries, if any, taken as a whole
(other than effects which result from changes in general economic
conditions).
"Material Equipment" has the meaning set forth in Section 4.8(d).
"NAPA Business Practices" has the meaning set forth in Section 6.8.
"Option" means any option, warrant, call, convertible or exchangeable
security, subscription, preemptive right or voting trust, or agreement, any
agreement restricting sale or transfer, or other agreement or right of a
similar nature.
"Orders" means any order, judgment, ruling, injunction, award, decree
or writ of any Governmental Authority.
"Outside Date" has the meaning set forth in Section 10.1(b). "Pension
Plan" has the meaning set forth in Section 9.2(d)(i).
"Permits" means any license, permit, authorization, grant, approval,
franchise, waiver, Consent, qualification or similar document: or authority
issued or granted by any Governmental Authority.
"Person" means any individual, sole proprietorship, partnership,
corporation, limited liability company, joint venture, unincorporated
society or association, trust or other entity or Governmental Authority.
"Purchase Price" has the meaning set forth in Section 2.2.
"Real Property" means all of the Company's real property and interests
in real property, leaseholds and subleaseholds, purchase options, easements,
licenses, rights to access, rights of way, all buildings and other
improvements thereon, and other real property interests used in the business
or operations of the Company together with any additions thereto between the
date of this Agreement and the Closing Date.
"Representatives" has the meaning set forth in Section 8.5.
"Restricted Territory" means the geographic area within a 100 mile
radius of any and all of the Company locations where the Company maintains
an office or a facility during the two year period following the date of
this Agreement.
"Savings Plan" has the meaning set forth in Section 9.2(d)(i).
"SEC' has the meaning set forth in Section 5.8.
"Section 338(h)(10) Election" has the meaning set forth in Section
6.6(e).
"Seller" has the meaning set forth in the preamble to this Agreement.
"Seller Welfare Plans" has the meaning set forth in Section 9.2 (c).
"Seller's Accountants" has the meaning set forth in Section 2.3(c).
"Seller's Knowledge" means the actual knowledge of Ira Davis, Robert
Tobey or Ed Zak.
"Shares" has the meaning set forth in the recitals of this Agreement.
"Specified Accounting Principles" means the Specified Accounting
Principles set forth in Exhibit E.
"Subsidiaries" means any Person of which at least a majority of the
outstanding shares or other equity interests having ordinary voting power
for the election of directors or comparable managers of such Person are at
the time owned, directly or indirectly, by such Person, by one or more of
its Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Supply Agreement" means the Supply Agreement, by and between Seller
and the Company, in the form set forth at Exhibit G.
"Tax or Taxes" means any domestic or foreign federal, state or local
income, franchise, business, occupation, sales/use, manufacturer's excise,
payroll, withholding, Federal Insurance Contributions Act and employment and
unemployment taxes, personal and real property taxes and all other taxes or
charges (including all interest and penalties) measured, assessed, levied,
imposed or collected by any Governmental Authority.
"Tax Returns" means all Tax returns (including information returns)
and reports that are or were required to be filed by, or with respect to,
the Company or its income, properties or operations.
"Transitional Services Agreement" means the Transitional Services
Agreement, by and between Seller and the Company, in the form set forth at
Exhibit H.
"Trucking Agreement" means the DTF Trucking Agreement, by and between
DTF Trucking, Inc. and the Company, in the form set forth at Exhibit I.
"WARN Act" has the meaning set forth in Section 9.3.
SUBSIDIARIES AND AFFILIATES OF IMO INDUSTRIES INC.
Date: 12/31/99 STATE OR
COUNTRY OF
INCORPORATION
NAME OR ORGANIZATION
- --------------------------------------------------------------------------------
IMO INDUSTRIES (UK) LIMITED . . . . . . . . . . . . . . . . ENGLAND
BAIRD ATOMIC LTD. . . . . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS LIMITED . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS AB . . . . . . . . . . . SWEDEN
RMH CONTROLS LIMITED . . . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS PTY. LTD. . . . . . . . NEW SOUTH WALES
MORSE CONTROLS (NZ) LIMITED . . . . . . . . NEW ZEALAND
TELEFLEX-MORSE (N.Z.) LTD. . . . . . . . . NEW ZEALAND
IMO INDUSTRIES PENSION TRUSTEE LIMITED . . . . . . . ENGLAND
BOSTON GEAR COMPANY LIMITED . . . . . . ENGLAND
TELEFLEX LIMITED . . . . . . . . . . . . . . . . . . ENGLAND
TELEFLEX MORSE LTD. . . . . . . . . . . . . . . . . ENGLAND
IMO INDUSTRIES LIMITED . . . . . . . . . . . . . . . . ENGLAND
IMO INDUSTRIES GmbH . . . . . . . . . . . . . . . . . . . . GERMANY
MORSE CONTROLS SARL . . . . . . . . . . . . . . . . . . . . FRANCE
MORSE CONTROLS S.L. . . . . . . . . . . . . . . . . . . . . SPAIN
IMO INDUSTRIES PTE LTD . . . . . . . . . . . . . . . . . . SINGAPORE
NHK MORSE CO., LTD. . . . . . . . . . . . . . . . . . . . . JAPAN (1)
NHK JABSCO CO., LTD. . . . . . . . . . . JAPAN (2)
IMO AB . . . . . . . . . . . . . . . . . . . . . . . . . . SWEDEN
IMO-PUMPEN AG . . . . . . . . . . . . . . SWITZERLAND
IMO GRESHAM PUMPS (INDIA) LTD. . . . . . . INDIA (3)
IMO POMPES S.A. . . . . . . . . . . . . . . FRANCE
IMO-PUMPEN GmbH . . . . . . . . . . . . . . . . . . . . . . GERMANY
IMO INDUSTRIES (CANADA) INC . . . . . . . . . . . . . . . CANADA
DELSALESCO, INC. . . . . . . . . . . . . . . . . . . . . . U.S. VIRGIN
ISLANDS
IMOVEST INC. . . . . . . . . . . . . . . . . . . . . . . . DELAWARE
BAIRD CORPORATION . . . . . . . . . . . . . . . . . . . . . MASSACHUSETTS
LABTEST EQUIPMENT COMPANY . . . . . . . . . . . . . CALIFORNIA
INCOM TRANSPORTATION, INC. . . . . . . . . . . . . . . . . DELAWARE
BOSTON GEAR INDUSTRIES OF CANADA INC. . . . . . . . . . . . CANADA
VHC INC. . . . . . . . . . . . . . . . . . . . . . . . . . TEXAS
VARO TECHNOLOGY CENTER, INC. . . . . . . . . . . . . TEXAS
VARO TECHNOLOGY CENTER JOINT VENTURE. . . . . . . . . TEXAS(4)
TURBODEL INC. . . . . . . . . . . . . . . . . . . . TEXAS
TRIPOWER VENTURE . . . . . . . . . . . . . . . TEXAS(5)
APPLIED OPTICS CENTER CORPORATION . . . . . . . . . . MASSACHUSETTS
ITT AND VARO, A JOINT VENTURE . . . . . . . . . . . TEXAS(6)
KEI LASER, INC. . . . . . . . . . . . . . . . . . . MARYLAND
OPTIC-ELECTRONIC INTERNATIONAL, INC. . . . . . . . . TEXAS
WARREN PUMPS INC. . . . . . . . . . . . . . . . . . . . . . DELAWARE
SHANGHAI DONG FENG MORSE CONTROL CABLE CO., LTD. . . . . . CHINA (1)
BOMBAS IMO DE VENEZUELA C.V. . . . . . . . . . . . . . . . . VENEZUELA
SIERRA INTERNATIONAL INC. . . . . . . . . . . . . . . . . . ILLINOIS
- -------------------------------
(1) 50% owned by Imo Industries Inc.
(2) 50% owned by NHK Morse Co., Ltd.
(3) 40% owned by IMO AB
(4) 50% owned by Varo Technology Center, Inc. and 50% owned by VHC Inc.
(5) 50% owned by Turbodel Inc.
(6) 50% owned by VHC Inc.
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<ARTICLE>
5
<MULTIPLIER>
1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,898
<SECURITIES> 0
<RECEIVABLES> 31,423
<ALLOWANCES> (1,348)
<INVENTORY> 57,844
<CURRENT-ASSETS> 105,840
<PP&E> 74,495
<DEPRECIATION> (12,911)
<TOTAL-ASSETS> 376,721
<CURRENT-LIABILITIES> 67,083
<BONDS> 159,624
0
0
<COMMON> 1
<OTHER-SE> 117,589
<TOTAL-LIABILITY-AND-EQUITY> 376,721
<SALES> 287,507
<TOTAL-REVENUES> 287,507
<CGS> 194,936
<TOTAL-COSTS> 194,936
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 16,668
<INCOME-PRETAX> 24,154
<INCOME-TAX> 8,840
<INCOME-CONTINUING> 15,314
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<EXTRAORDINARY> (216)
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