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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997. COMMISSION FILE NUMBER 1-11804
THE GEON COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 34-1730488
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Geon Center, Avon Lake, Ohio 44012-0122
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (440) 930-1000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
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Common Stock, par value New York Stock Exchange
$.10 per share
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, and (2) has been subject to such filing requirements
for the last 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock, consisting solely of common
stock, held by non-affiliates of the registrant as of March 16, 1998 was
approximately $466,746,000. On such date, 22,978,258 of such shares of the
registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1997 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement dated March 20,1998 are incorporated by
reference into Part III.
The Exhibit Index is located herein beginning at sequential page I-1.
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PART I
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ITEM 1. BUSINESS.
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GENERAL
The Geon Company, together with its subsidiaries (the Company), is the
world's largest manufacturer and marketer of polyvinyl chloride (PVC) compounds
and a leading North American producer of PVC resins. PVC is the world's second
most widely used plastic. It is an attractive alternative to traditional
materials such as glass, metal and wood and other plastic materials because of
its versatility, durability and cost competitiveness. PVC's largest applications
are associated with infrastructure development, building products and consumer
durable goods. The Company also produces and markets vinyl chloride monomer
(VCM), an intermediate precursor to PVC. The Company operates in one business
segment with operations primarily located in the United States and Canada. On
October 31, 1997, the Company acquired Synergistics Industries Limited
(Synergistics), a manufacturer of a broad line of plastic compounds and liquid
plasticizers (see "Products" below). Synergistics has approximately 500
employees and six manufacturing sites in the United States and Canada. The
Company sells its PVC resins to third parties who produce their own compounds
for use primarily in larger volume construction applications, such as pipe and
pipe fittings, vinyl house siding, flooring, wall coverings and window
components. The Company also manufactures its own PVC compounds for sale to
third parties who use such compounds in a variety of applications, such as
electrical conduits and wire insulation, packaging (including film, bottle and
specialty packaging), residential windows and higher-performance applications,
such as business machine housings, application components and medical devices.
As of December 31, 1997 the Company's North American nameplate PVC capacity was
approximately 2.8 billion pounds, or approximately 18% of total U.S. and
Canadian PVC capacity.
PRODUCTS
The Company's products include PVC compounds, PVC suspension and mass
resins, specialty dispersion resins, and vinyl chloride monomer (VCM), an
intermediate pre-curser to PVC. In addition, the Company offers its analytical,
testing and problem-solving capabilities to customers and suppliers through
Polymer Diagnostics Inc., a newly formed business venture. The Company also
produces chlorine for use in its production processes through a joint venture
arrangement. Chlorine is an essential raw material in the production of VCM and
PVC.
Compounds are made by combining vinyl resin with additives. Depending
upon the additives used, the compound can be either rigid and impact-resistant
or soft and flexible. Compounds are fabricated by customers of the Company by
extrusion, calendaring, injection-molding or blow-molding. Flexible compounds
are used for wire and cable insulation, automotive interior and exterior trim,
packaging and medical devices. Rigid extrusion PVC compounds are commonly used
in window frames, vertical blinds and construction applications. Injection-
molding PVC compounds are used in specialty parts like business machine
components, application parts and bottles. The Company's development of
compounds that can be injection-molded into thin-walled complex parts or that
have other unique characteristics has opened new applications and markets for
PVC products. With the acquisition of Synergistics, the Company added
plasticizers and additives that give flexibility to PVC, to its list of
products. These are produced for both internal use and for sale to third
parties. In addition, Synergistics produces non-PVC compounds including
thermoplastic elastomers and cross-linked polyethylene.
The Company supports its compound products by providing service to
customers through enhanced customer support. The Company's sales force works
with engineering and marketing experts of original equipment manufacturers
in addition to purchasing agents to create new uses for PVC products and to
replace more costly plastics and other traditional materials such as wood,
glass or aluminum through the development of cost-effective solutions that meet
specific customer needs. In addition, the Company uses a combination of
material science, computer-aided design and prototype part production
capabilities to assist customers in the development and application of new uses
for higher-performance PVC compounds.
PVC suspension and mass resins, named for the different processes
used to produce them, are powders that cannot be used without the addition of
ingredients to form a vinyl compound. Suspension/mass resins can be further
categorized as general purpose and special purpose resins. General purpose
resins comprise the largest segment of resins by volume and are typically used
in rigid applications such as pipe and exterior siding. Special purpose resins
are a broad category of resins possessing unique characteristics such as color
and clarity and are used in a wide variety of applications such as film,
medical and automotive products. Geon's PVC resin production supplies the
Company's compounding operations. In addition, the Company sells PVC resin to
third party trade customers. Similarly, VCM is used primarily internally for
the production of PVC resin. The Company supplies approximately one-third of
its chlorine requirements through a joint venture arrangement with Olin
Corporation. Specialty dispersion resins are much finer in particle size than
suspension resins. Compounded with plasticizers they take on soft, flexible
characteristics. They are used primarily in wire and metal coatings, vinyl
flooring, vinyl wall coverings and automotive interiors, as well as in consumer
products such as toys.
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In 1997, 40% of the Company's total revenues were
attributable to compound sales, 44% to suspension and mass resins, 9% to
specialty and dispersion resins and the remaining 7% to VCM sales and other
revenues. Approximately 66% of the Company's PVC shipments (in pounds) in 1997
were sold as suspension and mass PVC resins, with 25% sold as PVC compounds and
9% as specialty dispersion resins.
COMPETITION
The Company competes with major U.S. chemical manufacturers and
diversified companies, some of which have greater financial resources than the
Company. Competition in the industry is based upon factors, the importance of
which vary depending on the specific characteristics of the product and the
applicable market, ranging from price and availability to product performance
and customer and technical support.
With respect to PVC resins, the Company competes primarily with seven
major North American PVC producers: Borden Chemicals and Plastics Limited
Partnership; CONDEA Vista Chemical Company (a subsidiary of RWE-DEA Hamburg,
Germany); Formosa Plastics Corporation U.S.A. (a subsidiary of Formosa Plastic
Group, Taipei, Taiwan); Georgia Gulf Corporation; Occidental Chemical
Corporation (a subsidiary of Occidental Petroleum Corporation), Shintech, Inc.
(a subsidiary of Shin Etsu Chemical Co., Ltd., Tokyo, Japan) and The Westlake
Group. The key competitive factors are price, product availability and
performance. In 1997, the eight largest resin producers (one of which is the
Company) accounted for approximately 92% of the total estimated resin capacity.
None of the producers had more than 20% of total resin capacity. With respect to
PVC compounds, the Company competes with certain of the foregoing entities along
with many independent custom compounders.
Because there is no single PVC compound market, the manner in which the
Company competes varies from market to market, although in each market the
Company competes primarily on the basis of product consistency and customer
service in addition to price. In certain PVC compound markets, such as pipe
fittings, wire and cable, and bottles, the Company competes with other PVC resin
manufacturers. In the markets for higher performance PVC compounds, such as
extrusion and injection molding compounds for business equipment, appliances,
telecommunications and construction, the Company competes less with traditional
PVC manufacturers and more with other non-PVC plastic manufacturers, such as
General Electric Company, Bayer AG and The Dow Chemical Company. Manufacturing
margins and prices in these markets tend to be higher and more stable than PVC
resin and other compound markets, although such areas have higher support costs
comprised of sales, marketing, technical service, customer support and research
and development. In the other PVC compound markets (rigid extrusion compounds
for custom profiles, window lineals and vertical blinds), the Company competes
with other PVC manufacturers and custom compounders.
RAW MATERIALS
The Company produces the majority of the VCM it requires for the
manufacture of PVC at its plant in LaPorte, Texas. In April 1996, the Company
expanded the capacity of the LaPorte facility by 800 million pounds, bringing
its capacity to 2.4 billion pounds. In addition, the Company has a long-term
Canadian VCM supply contract providing substantially all VCM requirements for
the Company's Canadian PVC resin production located in Scotford, Alberta. The
Canadian supply contract remains effective through 2000.
The two principal raw materials used by the Company to manufacture VCM
are ethylene and chlorine. The majority of the Company's ethylene requirements
are provided under three long-term supply agreements with the largest having an
initial term through December 31, 2000, and continuing thereafter unless two
years prior notice of termination is given by either party. The other
significant long-term supply agreements expire at the end of 1998 and early in
2001. The Company has over 90% of its anticipated ethylene requirements
under contract for 1998. With the expiration of one supply agreement at the end
of 1998, approximately 65% of the projected 1999 ethylene requirement will be
under contract. Supplies of ethylene are expected to be readily available at
competitive pricing over the next few years following recent industry capacity
expansions. The Company continues to explore alternatives which would provide
ethylene at or near producer economics.
The Company sources its chlorine requirements three ways: (1)
chlor-alkali joint venture participation; (2) agreement with Bayer Corporation
for hydrogen chloride; and (3) third party purchases. Late in 1998 each of these
sources will provide approximately one-third of the Company's requirements.
The Company has a 50% participation in a chlor-alkali plant under a
joint venture agreement with Olin Corporation. The plant, which began operations
in the fourth quarter of 1997, has a capacity of 250,000 tons. A future plant
expansion to a capacity of 400,000 tons can be accommodated.
The Company has an agreement with Bayer Corporation under which Bayer
will build and operate a pipeline to transport by-product anhydrous hydrogen
chloride from its plant to Geon's nearby LaPorte, Texas plant. Geon is building
an oxychlorination facility that will convert the hydrogen chloride to chlorine
for use in the VCM production process. Completion of this project is expected
in the third quarter of 1998.
The remainder of the Company's chlorine requirements are purchased from
third parties through long-term supply agreements (other than those discussed
above) and on the spot-market. The Company's primary long-term chlorine supply
agreements are with three different domestic suppliers which expire through
2005. All projected third
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party purchases are contracted through 1999. These supply agreements generally
contain volume commitments and various pricing mechanisms which management
believes provide a cost-effective sourcing of chlorine.
Historically, chlorine and ethylene have been produced in the United
States at a lower cost than elsewhere in the world. This cost advantage has
resulted in U.S. producers of PVC having lower raw materials costs than their
counterparts in many other parts of the world. In addition to the raw materials
for VCM, the Company purchases a variety of additives to manufacture its
compound products. These materials generally have adequate alternative sources
of supply and are not purchased under multi-year contracts.
RESEARCH AND DEVELOPMENT
The Company has developed substantial research and development
capability. The Company's efforts are devoted to (i) providing support to its
manufacturing plants for cost reduction, productivity and quality improvement
programs, (ii) providing quality technical services to assure the continued
success of its products for its customers' applications, (iii) providing
technology for improvements to its products, processes and applications, and
(iv) developing new products to satisfy defined market needs. The Company
operates a research and development center in Avon Lake, Ohio. The laboratory is
equipped with modern analytical, synthesis, polymer characterization and testing
equipment and pilot plants and polymer compounding operations which simulate the
production facilities for rapid translation of new technology into new products.
Expenditures for Company sponsored product research and product
development in 1997, 1996 and 1995 were $17.1 million, $17.5 million and $18.0
million, respectively. Expenditures in 1998 are projected to remain at
approximately the same level as in 1997.
EMPLOYEES
As of December 31, 1997, the Company had approximately 2000 full-time
employees of whom approximately 180 employees are covered by collective
bargaining agreements which expire in November 1998, July 2000 and July 2001.
The bargaining unit employees are employed at the Company's plant in Kentucky
and the acquired Synergistics plants located in Canada. The Company considers
its employee relations to be good.
ENVIRONMENTAL, HEALTH AND SAFETY
The Company is subject to various federal, state and local
environmental laws and regulations concerning emissions to the air, discharges
to waterways, the release of materials into the environment, the generation,
handling, storage, transportation, treatment and disposal of waste materials or
otherwise relating to the protection of the environment. The Company endeavors
to ensure the safe and lawful operation of its facilities in manufacturing and
distribution of products and believes it is in compliance in all material
respects with applicable laws and regulations.
The Company maintains a disciplined environmental and occupational
safety and health compliance program and conducts internal and external
regulatory audits at its plants in order to identify and categorize potential
environmental exposures and to ensure compliance with applicable environmental,
health and safety laws and regulations. This is an effort which has required and
may continue to require process or operational modifications and the
installation of pollution control devices and cleanups.
The Company's capital expenditures related to the limiting and
monitoring of hazardous and non-hazardous wastes totaled $4 million, $3 million
and $7 million in 1997, 1996, and 1995, respectively. In addition, the Company
estimates capital expenditures for future environmental improvement programs to
approximate $3 million to $5 million in 1998. The projected future capital
expenditures are associated with a wide variety of environmental projects such
as compliance with anticipated new regulations, achievement of internal company
programs and improved operating efficiencies, and expenditures to remediate the
Synergistics facilities to the historical environmental operating practices of
Geon. The primary areas for future environmental capital expenditures can be
broadly categorized as solid waste, air quality, waste water and ground water
improvements. Expenditures for remediating various sites were $5.0 million, $6.1
million and $3.0 million in 1997, 1996 and 1995, respectively. 1998 expenditures
for remediation of these sites are projected to be $5 million to $7 million.
The Company has been notified by the United States Environmental
Protection Agency (EPA), a state agency, or a private party that it may be a
potentially responsible party (PRP) in connection with seven active and inactive
non-Company owned sites. The Company believes that it has potential continuing
liability with respect to only four such sites. In addition, the Company
initiates corrective and preventive environmental projects of its own to ensure
safe and lawful activities at its operations. The Company believes that
compliance with current governmental regulations will not have a material
adverse effect on its capital expenditures, earnings, cash flow or liquidity.
The Company has accrued $51 million to cover these future environmental
remediation expenditures which are projected to be $25 to $30 million over the
next five years. Of this amount, approximately $18.2 million is attributable to
future remediation expenditures at the Calvert Facilities and less than $.1
million is attributable to offsite environmental liabilities, including the four
sites mentioned above. An additional $25 million is attributable to the
properties acquired as part of the Synergistics acquisition and is related to
estimated future costs to remediate these facilities to Geon's historical
environmental operating practices. The remaining balance is primarily other
environmental remediation projects at Company-owned facilities. Pursuant to
consent orders signed with both the EPA and the Commonwealth of Kentucky
Department of Environmental
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Protection and the terms of a Resource Conservation and Recovery Act (RCRA)
post-closure permit, the Company is required to provide for a site-wide
remediation program at the Calvert Facilities, the cost of which is included in
the $51 million accrual as of December 31, 1997.
The Company participates in the EPA Compliance Audit Program (CAP)
under Section 8(e) of the Toxic Substances Control Act. That section requires
reporting of information indicating a substantial risk of injury to health or
the environment from a chemical substance or mixture. Under the CAP, the Company
conducts an audit of its files and reports any information that should have been
reported previously. The total potential maximum liability of the Company and
its subsidiaries under the CAP is $1 million. The first part of the CAP required
reporting of substantial risk information concerning health effects. The
remaining part of the CAP involves substantial risk information concerning the
environment. The Company will perform its obligations under this portion of the
CAP after the EPA issues guidance concerning the kinds of environmental
information that it believes are reportable. The Company does not believe that
its portion of any civil penalties arising from this portion of the CAP will
exceed $.2 million.
The risk of additional costs and liabilities is inherent in certain
plant operations and certain products produced at the Company's plants, as is
the case with other companies involved in the PVC industry. There can be no
assurance that additional costs and liabilities will not be incurred by the
Company in the future. It is also possible that other developments, such as
increasingly strict environmental, safety and health laws, regulations and
enforcement policies thereunder and claims for damages to property or persons
resulting from plant emissions or products, could result in additional costs
and liabilities to the Company.
A number of foreign countries and domestic local communities have
enacted, or have under consideration, laws and regulations relating to the use
and disposal of plastic materials. Widespread adoption of such laws and
regulations, or public perception, may have an adverse impact on plastic
materials. Although many of the Company's major markets are in durable,
longer-life applications which could reduce the impact of any such
environmental regulation, there is no assurance that possible future
legislation or regulation would not have an adverse effect on the Company's
business.
In previous years there have been efforts by environmental groups to
ban chlorine - one of the Company's key raw materials. Proposed legislation to
ban chlorine has garnered little support in Congress. Research does not support
categorizing all uses of chlorine as harmful to the environment. Although the
Company believes that PVC is not harmful to the consumer or the environment due
to the stability of its chemical structure, PVC could not be produced if
chlorine and chlorine-based products were prohibited. Another issue being
addressed is the presence of dioxins in the environment. Dioxins are produced by
many types of combustion and the EPA has cited municipal, medical and industrial
incinerators as major sources of dioxin. Data generated to date by the American
Society of Mechanical Engineers and The Vinyl Institute indicate that vinyl and
vinyl production processes are at most minor contributors to overall dioxin
emissions.
The Company does not believe that there are any new laws which will
have a material impact on the industry or the Company's capital expenditures,
cash flow or liquidity.
The Company conducts a comprehensive occupational safety and health
program. Industry data shows that the Company's safety record is among the best
in the chemical industry.
Cautionary Note Regarding Forward-Looking Statements
This report contains statements concerning trends and other
forward-looking information affecting or relating to the Company and its
industry that are intended to qualify for the protections afforded
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Actual results could differ materially from such statements based
on a variety of factors which are discussed on page 37 of the Company's 1997
Annual Report to Stockholders under the caption "Cautionary Note on
Forward-Looking Statements" and such factors are incorporated herein by
reference thereto.
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ITEM 2. PROPERTIES.
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The information required by this item appears on page 38 of the
Company's 1997 Annual Report to Stockholders and is incorporated herein by
reference thereto.
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ITEM 3. LEGAL PROCEEDINGS.
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In addition to the matters regarding the environment described above
under the heading "Business Environmental, Health and Safety", there are pending
or threatened against the Company various claims, lawsuits and administrative
proceedings, all arising from the ordinary course of business with respect to
commercial, product liability and environmental matters, which seek remedies or
damages. The Company believes that any liability that may be finally determined
should not have a material effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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EXECUTIVE OFFICERS OF THE COMPANY. (INCLUDED PURSUANT TO INSTRUCTION 3 TO
PARAGRAPH (B) OF ITEM 401 OF REGULATION S-K)
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. Except as otherwise noted in biographies
below, the executive officers of the Company were elected to their respective
positions immediately following the formation of the Company. Their ages and
positions are as follows:
Name Age Position with Company
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William F. Patient 63 Chairman of the Board and Chief Executive
Officer
Thomas A. Waltermire 48 President and Chief Operating Officer
Donald P. Knechtges 56 Senior Vice President, Business and Technology
Development
Louis M. Maresca 47 Vice President and General Manager, Resins
V. Lance Mitchell 38 Vice President and General Manager, Compounds
Clarence J. Nosal 60 Vice President and General Manager, Intermediates
Gregory L. Rutman 55 Vice President, General Counsel and Secretary
W. David Wilson 44 Vice President and Chief Financial Officer
William F. Patient
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Mr. Patient received a degree in Chemical Engineering from Washington
University, St. Louis. Prior to the April 1993 Geon Initial Public Offering
(IPO) by BFG, Mr. Patient served as Senior Vice President of BFG and as
President of BFG's Geon Vinyl Division since May 1989. Prior to joining BFG,
Mr. Patient had been associated with Borg-Warner Chemicals since 1962, most
recently as Vice President.
Thomas A. Waltermire
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Mr. Waltermire received a B.S. in Biology from Ohio State University in
1971 and an M.B.A. from Harvard University in 1974. Mr. Waltermire joined BFG in
June 1974. In April 1993, he became Senior Vice President and Treasurer of the
Company, and in October 1993 became Chief Financial Officer. In May 1997, he was
appointed Chief Operating Officer, and in February 1998 Mr. Waltermire was named
President and Chief Operating Officer.
Donald P. Knechtges
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Mr. Knechtges received a B.A. in Chemistry from Marietta College in
1963 and a B.S. in Chemical Engineering from Case Institute of Technology in
1965. Mr. Knechtges joined BFG as an engineer in June 1965 and became Senior
Vice President, Commercial in December 1991. In August 1995, Mr. Knechtges was
named Senior Vice President, Business and Technology Development.
Louis M. Maresca
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Dr. Maresca received a B.S. in Chemistry from Brooklyn College in 1972,
a Ph.D. in Physical/Organic Chemistry from Columbia University in 1976 and an
M.B.A. from the Weatherhead School at Case Western Reserve University in 1995.
Dr. Maresca joined BFG as Vice President, Research and Development for the Geon
Vinyl Division in April 1991. In August 1995 he became Vice President,
Operations, and in 1997 Vice President and General Manager, Resins. Prior to
joining BFG, Dr. Maresca served General Electric Company in several capacities,
most recently General Manager, America's Product Technology.
V. Lance Mitchell
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Mr. Mitchell received a B.S. in Marketing in 1982 from Bowling Green
State University. Mr. Mitchell joined BFG as a Product Manager in 1989. Since
then he has served as a Market Development Manager, Regional Sales Manager,
Extrusion Business Director and Compound Business Director. In May 1997, he was
named Vice President and General Manager, Compounds.
Clarence J. Nosal
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Mr. Nosal received a B.S. in Mechanical Engineering from the United
States Naval Academy in 1961 and an MBA from Golden Gate University in 1967. Mr.
Nosal joined BFG in 1979 as a Plant Manager. In 1988 he was named Vice President
of Operations for the Geon Vinyl Division of BFG, and after the IPO in April
1993, he became Vice President and General Manager, Intermediates.
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Gregory L. Rutman
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Mr. Rutman received a B.A. in Business Management from Baldwin-Wallace
College in 1964 and a J.D. degree from Cleveland Marshall College of Law in
1969. In 1987, he completed the Executive Program at the Darden Graduate School
of Business Administration, University of Virginia. Mr. Rutman joined BFG in
October 1974. From 1985 until the IPO, he functioned as Staff Vice President
of BFG and Counsel to the BFG Geon Vinyl Division. Since the IPO, he has served
as Vice President, General Counsel, Secretary and Assistant Treasurer of the
Company.
W. David Wilson
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Mr. Wilson received an A.B. in history from DePauw University in 1975,
and a Masters Degree in International Management from The American Graduate
School of International Management (Thunderbird) in 1977. Mr. Wilson joined BFG
in 1978 and served in a variety of financial management positions within the
Chemical Group. He was named controller of the Geon Vinyl Division in 1985 and
later became Director of Marketing. He served as General Manager for Auseon
Limited, Geon's wholly-owned Australian subsidiary and Director of Business
Management for Geon's Resin Division before being named Vice President and Chief
Financial Officer in May 1997.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Company's common stock, $.10 par value per share, is reported on
the New York Stock Exchange. The information appearing in the table on page 35
of the Company's 1997 Annual Report to Stockholders is incorporated herein by
reference thereto. At March 20, 1998, the Company had approximately 7,000
stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
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The information required by this item appears on page 36 of the
Company's 1997 Annual Report to Stockholders and is incorporated herein by
reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The information appearing under the caption "Management's Analysis" on
pages 20, 22 and 24 of the Company's 1997 Annual Report to Stockholders is
incorporated herein by reference thereto. This report contains statements
concerning trends and other forward-looking information affecting or relating to
the Company and its industry that are intended to qualify for the protections
afforded "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially from such statements
based on a variety of factors which are discussed on page 37 of the Company's
1997 Annual Report to Stockholders under the caption "Cautionary Note On
Forward-Looking Statements" and such factors are incorporated herein by
reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The information required by this item appears on pages 21, 23 and 25
through 35 of the Company's 1997 Annual Report to Stockholders and is
incorporated herein by reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
The information regarding the Directors of the Company appearing
under the heading "Election of Directors" on pages 2 through 5 of the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders is incorporated
herein by reference thereto. Information concerning executive officers of the
Company is contained in Part I of this Report under the heading "Executive
Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
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The information regarding executive compensation appearing under
the heading "Executive Compensation" on pages 11 through 20 of the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
The information regarding security ownership of certain beneficial
owners and management appearing under the heading "Ownership of Common Stock" on
pages 7 through 10 of the Company's Proxy Statement for the 1998 Annual Meeting
of Stockholders is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
The information regarding certain relationships and related
transactions appearing under the heading "Compensation Committee Interlocks and
Insider Participation; Certain Other Relationships" on page 21 of the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders is incorporated
herein by reference thereto.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- -------- ----------------------------------------------------------------
(a)(1) and (2) and (d) - The response to these portions of Item 14 are
submitted as a separate section of this Report beginning on page F-1 of this
Report.
(a)(3) and (c) - An index of Exhibits filed as part of this Report is
located beginning on page I-1 of this Report.
(b) Reports on Form 8-K Filed in the Fourth Quarter of 1997:
- Forms 8-K filed on October 6, 1997; October 9, 1997; November 14, 1997;
and November 19, 1997, relating to the tender offer, lock-up agreement,
and completion of the acquisition of substantially all of the outstanding
shares of Synergistics Industries Limited by The Geon Company.
- Form 8-K filed on December 10, 1997, announcing the retirement of Ed
Martinelli, Senior Vice President for Corporate Development, effective
January 31, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 1998.
THE GEON COMPANY
By: /s/GREGORY L. RUTMAN
---------------------------
Gregory L. Rutman
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
on March 24, 1998.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C> <C>
/S/WILLIAM F. PATIENT Chairman of the Board, Chief Executive Officer
- ------------------------------ and Director (Principal Executive Officer)
William F. Patient
/S/THOMAS A. WALTERMIRE President and Chief Operating Officer
- ------------------------------
Thomas A. Waltermire
/S/W. DAVID WILSON Vice President and Chief Financial Officer
- ------------------------------ (Principal Financial Officer)
W. David Wilson
/S/GREGORY P. SMITH Corporate Controller (Principal Accounting Officer)
- ------------------------------
Gregory P. Smith
/s/JAMES K. BAKER Director /s/ HARRY A. HAMMERLY Director
- ------------------------------ -----------------------
James K. Baker Harry A. Hammerly
/s/GAIL DUFF-BLOOM Director /S/D. LARRY MOORE Director
- ------------------------------ -----------------------
Gale Duff-Bloom D. Larry Moore
/s/JOHN A BROTHERS Director /S/JOHN D. ONG Director
- ------------------------------ -----------------------
John A. Brothers John D. Ong
/s/J. DOUGLAS CAMPBELL Director /S/R. GEOFFREY P. STYLES Director
- ------------------------------ -----------------------
J. Douglas Campbell R. Geoffrey P. Styles
</TABLE>
7
<PAGE> 11
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
THE GEON COMPANY
<PAGE> 12
ITEM 14(a)(1) AND (2) AND (d).
------------------------------
THE GEON COMPANY AND SUBSIDIARIES
- ---------------------------------
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of The Geon Company and
subsidiaries, included in the Annual Report of the Registrant to its
Stockholders for the year ended December 31, 1997, are incorporated by reference
in Item 8.
Consolidated balance sheets - December 31, 1997 and 1996.
Consolidated statements of income - Years ended December 31, 1997, 1996 and
1995.
Consolidated statements of stockholders' equity - Years ended December
31, 1997, 1996 and 1995.
Consolidated statements of cash flows - Years ended
December 31, 1997, 1996 and 1995.
Notes to consolidated financial statements - December 31, 1997.
Quarterly data (unaudited) - Years ended December 31, 1997 and 1996.
The following consolidated financial statement schedule of the Registrant and
its subsidiaries is included in Item 14(d)
Schedule II Page F-3 Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-2
<PAGE> 13
SCHEDULE II
THE GEON COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Charged
Balance at to Costs Charged Other Balance
Beginning and to Other Other Additions at End of
of Period Expenses Accounts(C) Decuctions (D) Period
------------ -------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Reserves for doubtful accounts $ 2.7 $ (.7) $ -- $(.1) (A) $ 1.0 $ 2.9
Accrued liabilities for environmental matters 27.2 2.4 -- (3.6) (B) 25.0 51.0
Year Ended December 31, 1996
Reserves for doubtful accounts $ 2.1 $ .7 $ -- $(.1) (A) $ -- $ 2.7
Accrued liabilities for environmental matters 29.1 4.2 -- (6.1) (B) -- 27.2
Year Ended December 31, 1995
Reserves for doubtful accounts $ 1.7 $ .5 $ -- $(.1) (A) $ -- $ 2.1
Accrued liabilities for environmental matters 28.7 2.7 .7 (3.0) (B) -- 29.1
</TABLE>
Notes:
------
(A) - Accounts charged off
(B) - Represents cash payments during the year
(C) - Translation adjustments and other accrued expenses
(D) - Represents the additional reserves related to Synergistics Industries
Limited on the date of acquisition.
F - 3
<PAGE> 14
THE GEON COMPANY
INDEX TO EXHIBITS
(Item 14(a)(3))
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
3(i) Restated Certificate of Incorporation (c)
3(ii) Amended and Restated By-Laws (a)
4 Instruments defining rights of security holders,
including indentures: (c)
4.1 Specimen Common Stock Certificate (c)
4.2 Rights Agreement, dated May 28, 1993, between the Company and
Bank of New York, as Rights Agent (c)
4.3 Indenture dated as of December 1, 1995 between the Company and
NBD Bank, Trustee (c)
10 Material Contracts:
10.1 Incentive Stock Plan (1) (c)
10.2 1995 Incentive Stock Plan (1) (c)
10.3 Benefit Restoration Plan (Section 415) (1) (c)
10.4 Benefit Restoration Plan (Section 401(a)(17)) (1) (c)
10.5 Senior Executive Management Incentive Plan (1) (c)
10.6 Non-Employee Directors Deferred Compensation Plan effective
December 9, 1993 (1) (c)
10.7 Form of Management Continuity Agreement (1) (c)
10.8 U.S. $130 million Credit Agreement dated as of August 16, 1994
among the Company and Citibank, N.A. as Agent and NationsBank
of North Carolina, N.A. as Co-Agent (c)
10.8a Amendment to the aforesaid Credit Agreement (c)
10.8b Amendment Number 2 to the aforesaid Credit Agreement (c)
10.8c Amendment Number 3 to the aforesaid Credit Agreement (c)
10.9 U.S. $85 million Third Amended and Restated Trade Receivables --
Purchase and Sale Agreement among the Company, CIESCO, L.P.,
Corporate Receivables Corporation and Citicorp N.A., Inc. as
Agent, dated July 31, 1997
10.10 Second Amended and Restated Lease Dated December 19, 1996
between 1994 VCM Inc. and the Company (c)
10.11 Second Amended and Restated Participation Agreement Dated
December 19, 1996 among the Company, 1994 VCM Inc., State
Street Bank and Trust Company of Connecticut, National
Association and Citibank, N.A. as Agent. (c)
10.12 Amended and Restated Instrument Guaranty dated as of
December 19, 1996 (c)
</TABLE>
I-1
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
10.13 Amended and Restated Plant Services Agreement between the Company and
The B.F. Goodrich Company (c)
10.14 Amended and Restated Assumption of Liabilities and Indemnification
Agreement dated March 1, 1993, as amended and restated on April 27, 1993 (c)
10.15 CDN $135 Million Credit Agreement Between 1250828 Ontario Inc. and --
Canadian Imperial Bank of Commerce, dated October 27, 1997
10.15a Guaranty related to aforesaid Credit Agreement, dated October 27, 1997 --
10.15b Guaranty related to aforesaid Credit Agreement, dated October 30, 1997 --
10.16 Partnership Agreement by and between 1997 Chloralkali Venture Inc.
and Olin Sunbelt, Inc. (b)
10.16a Amendment to aforesaid Partnership Agreement (Section 5.03 of --
Article 5)
10.16b Amendment to aforesaid Partnership Agreement (Addition of Section 1.12) --
10.17 Chlorine Sales Agreement by and between Sunbelt Chlor Alkali
Partnership and the Company (b)
10.18 Intercompany Guarantee Agreement between the Company on the one hand
and Olin Corporation and Sunbelt Chlor Alkali Partnership on the (b)
other hand
10.19 Rate Swap Transaction as amended between the Company and NationsBank,
N.A. (b)
10.20 Guarantee by the Company of the Series G Sunbelt Chlor Alkali
Partnership Guaranteed Secured Senior Notes Due 2017, dated December
22, 1997 --
11 Statement re computation of per share earnings --
13 Annual Report to Stockholders for the Year Ended December 31, 1997 --
21 Subsidiaries of the Registrant --
23 Consent of Independent Auditors --
27 Financial Data Schedule --
----------------------------------------------------------------------
(1) Indicates management contract or compensatory plan, contract
or arrangement in which one or more directors or executive
officers of the Registrant may be participants.
(a) Incorporated by reference to the corresponding Exhibit filed
with the Registrant's Form 10-Q for the Quarter Ended June
30, 1996.
(b) Incorporated by reference to the corresponding Exhibit filed
with the Registrant's Form 10-Q for the Quarter Ended
September 30, 1996.
(c) Incorporated by reference to the corresponding Exhibit filed
with the Registrant's Form 10-K for the Year Ended December 31,
1996.
</TABLE>
I - 2
===============================================================================
<PAGE> 1
Exhibit 10.9
CONFORMED COPY
U.S. $85,000,000
THIRD AMENDED AND RESTATED
TRADE RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of July 31, 1997
Among
THE GEON COMPANY
as Seller,
CIESCO, L.P.
and
CORPORATE RECEIVABLES CORPORATION
as Investors
and
CITICORP NORTH AMERICA, INC.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
PRELIMINARY STATEMENTS ......................................................... 1
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms ........................................... 2
SECTION 1.02. Other Terms ..................................................... 21
SECTION 1.03. Computation of Time Periods ..................................... 21
SECTION 1.04. Accounting Terms ................................................ 21
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Facility ........................................................ 21
SECTION 2.02. Making Purchases ................................................ 21
SECTION 2.03. Termination of Facility or Reduction of the Purchase Limit ...... 22
SECTION 2.04. Eligible Asset .................................................. 22
SECTION 2.05. Non-Liquidation Settlement Procedures ........................... 23
SECTION 2.06. Liquidation Settlement Procedures ............................... 24
SECTION 2.07. General Settlement Procedures ................................... 24
SECTION 2.08. Payments and Computations, Etc .................................. 25
SECTION 2.09. Dividing or Combining of Eligible Assets ........................ 25
SECTION 2.10. Fees and Payments ............................................... 26
SECTION 2.11. Increased Costs ................................................. 26
SECTION 2.12. Additional Yield on Eligible Assets Bearing a Eurodollar Rate ... 27
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Amendment and Restatement and to the
Initial Purchase After the Effective Date ....................... 28
SECTION 3.02. Conditions Precedent to All Purchases and Reinvestments ......... 29
SECTION 3.03. Conditions Precedent to Purchases and Reinvestments by Ciesco.... 30
SECTION 3.04. Conditions Precedent to Purchases and Reinvestments by CRC ...... 30
</TABLE>
<PAGE> 3
4
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller .................. 31
ARTICLE V
GENERAL COVENANTS OF THE SELLER
SECTION 5.01. Affirmative Covenants of the Seller ........................... 34
SECTION 5.02. Reporting Requirements of the Seller .......................... 35
SECTION 5.03. Negative Covenants of the Seller .............................. 37
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent ............................... 38
SECTION 6.02. Duties of Collection Agent .................................... 38
SECTION 6.03. Rights of the Agent ........................................... 40
SECTION 6.04. Responsibilities of the Seller ................................ 40
SECTION 6.05. Further Action Evidencing Purchases ........................... 41
ARTICLE VII
EVENTS OF INVESTMENT INELIGIBILITY
SECTION 7.01. Events of Investment Ineligibility ............................ 41
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action ...................................... 44
SECTION 8.02. Agent's Reliance, Etc ......................................... 44
SECTION 8.03. CNAI and Affiliates ........................................... 45
SECTION 8.04. Investors' Purchase Decision .................................. 45
</TABLE>
<PAGE> 4
5
<TABLE>
<S> <C>
ARTICLE IX
ASSIGNMENT
SECTION 9.01. Assignment .................................................... 45
SECTION 9.02. Annotation of Certificate ..................................... 46
ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller .................................... 47
SECTION 10.02. Additional Indemnities ....................................... 48
SECTION 10.03. Limited Recourse ............................................. 49
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc .............................................. 50
SECTION 11.02. Notices, Etc ................................................. 50
SECTION 11.03. No Waiver; Remedies .......................................... 50
SECTION 11.04. Restatement Effective Date; Restatement of the Original
Agreement; Binding Effect .................................... 50
SECTION 11.05. Governing Law ................................................ 51
SECTION 11.06. Costs, Expenses and Taxes .................................... 51
SECTION 11.07. No Proceedings ............................................... 52
SECTION 11.08. Confidentiality .............................................. 53
SECTION 11.09. Execution in Counterparts; Severability ...................... 53
SECTION 11.10. Grant of a Security Interest ................................. 54
</TABLE>
<PAGE> 5
SCHEDULES
SCHEDULE I List of Lock-Box Banks
SCHEDULE II Description of Credit and Collection Policy
SCHEDULE III Form of Contracts
SCHEDULE IV List of Offices of Seller where Records Relating to the
Receivables are Kept
EXHIBITS
EXHIBIT A Form of Assignment
EXHIBIT B Form of Certificate
EXHIBIT C Seller Report
EXHIBIT D Form of Letter to Lock-Box Account Banks
EXHIBIT E-1 Form Of Opinion of Seller's In-house Counsel
EXHIBIT E-2 Form of Opinion of Seller's Counsel
<PAGE> 6
THIRD AMENDED AND RESTATED
TRADE RECEIVABLES PURCHASE AND SALE AGREEMENT
Dated as of July 31, 1997
THE GEON COMPANY, a Delaware corporation (the "Seller"), CORPORATE
RECEIVABLES CORPORATION ("CRC"), a California corporation, CIESCO, L.P., a New
York limited partnership ("Ciesco", and together with CRC, the "Investors"; each
of Ciesco and CRC being individually an "Investor"), and CITICORP NORTH AMERICA,
INC., a Delaware corporation ("CNAI"), as agent for the Owners (as defined in
Section 1.01 hereof) (the "Agent"), agree as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and
used throughout this Agreement (in addition to those defined above) are defined
in Article I of this Agreement.
(2) The Seller, the Investors and the Agent entered into a Trade
Receivables Purchase and Sale Agreement dated as of April 1, 1993, as amended
and restated on May 10, 1993 and as further amended and restated on August 16,
1994 (such agreement, as amended, supplemented or otherwise modified from time
to time, collectively being the "Original Agreement"), pursuant to which the
Seller had from time to time sold to the Investors, and the Investors had from
time to time purchased from the Seller, "Eligible Assets" (as defined in the
Original Agreement).
(3) The Seller intends to sell to the Investors, and the Investors
desire to purchase from the Seller, additional interests in Eligible Assets
hereunder.
(4) The parties hereto have agreed to further amend and restate the
Original Agreement on the terms and conditions hereinafter set forth.
(5) CNAI has been requested and is willing to act as Agent.
NOW THEREFORE, the parties hereby agree that, effective as of the
Restatement Effective Date the Original Agreement is hereby amended and restated
in its entirety to read as follows:
<PAGE> 7
2
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, 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):
"Adverse Claim" means a lien, security interest, charge or
encumbrance, or other right or claim of any Person.
"Affiliate" when used with respect to a Person means any other
Person controlling, controlled by or under common control with such
Person.
"Affiliated Obligor" means any Obligor which is an Affiliate of
another Obligor.
"Agent's Account" means the special account (account number
4060-5071) of the Agent maintained at the office of Citibank at 399
Park Avenue, New York, New York.
"Alternate Base Rate" means a fluctuating interest rate per annum
in effect from time to time, which rate per annum shall at all times
be equal to the highest of:
(a) the rate of interest announced publicly by Citibank in
New York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1 % or, if there
is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2
of 1% per annum, plus (ii) the rate obtained by dividing (A) the
latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates
of deposit of major United States money market banks, such
three-week moving average (adjusted to the basis of a year of
365/366 days) being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day)
for the three-week period ending on the previous Friday by
Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of
New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit dealers of
recognized standing selected by the Agent, by (B) a percentage
equal to 100% minus the average of the daily percentages
specified during such three-week period by the Board of Governors
of the
<PAGE> 8
3
Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-month U.S. dollar
non-personal time deposits in the United States, plus (iii) the
average during such three-week period of the annual assessment
rates estimated by Citibank for determining the then current
annual assessment payable by Citibank to the Federal Deposit
Insurance Corporation (or any successor) for insuring U.S. dollar
deposits of Citibank in the United States; and
(c) 1/2 of 1% per annum above the Federal Funds Rate.
"Applicable Margin" means, as of any date, a percentage per annum
determined by reference to the Public Debt Rating in effect on such
date and the Usage on such date as set forth below:
<TABLE>
<CAPTION>
===================================================================
Public Debt Rating Usage Applicable Margin
S&P/Moody's
===================================================================
<S> <C> <C>
Level 1 < 50% 0.150%
A-/A3 or above -------------------------------------------
> 50% 0.200%
- -------------------------------------------------------------------
Level 2 < 50% 0.175%
BBB + /Baal -------------------------------------------
> 50% 0.225%
- -------------------------------------------------------------------
Level 3 < 50% 0.225%
BBB/Baa2 -------------------------------------------
> 50% 0.300%
- -------------------------------------------------------------------
Level 4 < 50% 0.2175%
BBB - /Baa3 -------------------------------------------
> 50% 0.2875%
- -------------------------------------------------------------------
Level 5 < 50% 0.375%
BB + /Ba1 -------------------------------------------
> 50% 0.500%
- -------------------------------------------------------------------
Level 6 < 50% 0.625%
BB/Ba2 -------------------------------------------
> 50% 0.750%
===================================================================
</TABLE>
<PAGE> 9
4
"Assignee" means Citibank, CNAI or each Investor or any of their
respective Affiliates or any other Person acceptable to the Agent as
the assignee of an Eligible Asset pursuant to Section 9.01.
"Assignee Rate" for any Fixed Period for any Eligible Asset means
an interest rate per annum equal to the Eurodollar Rate for such Fixed
Period plus the Applicable Margin in effect from time to time,
provided, however, that in the case of
(i) any Fixed Period on or prior to the first day of which
the Owner shall have notified the Agent that, after reasonable
efforts by such Owner (consistent with its internal policy and
legal and regulatory restrictions) to designate a lending office
that would allow such Owner to fund an Eligible Asset at the
Assignee Rate set forth above and which would not, in the
judgment of such Owner, be otherwise disadvantageous to such
Owner, the introduction of or any change occurring on or after
the effective date of this Agreement or in the interpretation of
any law or regulation makes it unlawful, or any central bank or
other governmental authority asserts that it is unlawful, for the
Owner to fund such Eligible Asset at the Assignee Rate set forth
above (and the Owner shall not have subsequently notified the
Agent that such circumstances no longer exist),
(ii) any Fixed Period of 1 to (and including) 29 days,
(iii) any Fixed Period as to which the Agent does not
receive notice, by no later than 12:00 noon (New York City time)
on the third Business Day preceding the first day of such Fixed
Period, that the related Eligible Asset will not be funded by
issuance of commercial paper, or
(iv) any Fixed Period for an Eligible Asset the Capital of
which allocated to the Owner is less than $500,000,
the "Assignee Rate" for such Fixed Period for such Eligible Asset shall be
an interest rate per annum equal to the Alternate Base Rate in effect on
the first day of such Fixed Period; provided further, however, that the
Agent and the Seller may agree in writing from time to time upon a
different "Assignee Rate."
"Assignment" means an assignment, in substantially the form of Exhibit
A hereto, by which an Eligible Asset may be assigned pursuant to Section
9.01 dated as of the date of this Agreement.
"Average Maturity" means, on any day, that period (expressed in days)
equal to the average maturity of the Pool Receivables as shall be
calculated by the
<PAGE> 10
5
Collection Agent as set forth in the most recent Seller Report in
accordance with the provisions thereof; provided, however, that, if the
Agent shall disagree with any such calculation, the Agent may recalculate
the Average Maturity for such day.
"Borrowed Debt" shall have the meaning set forth in the Credit
Agreement in effect on the date hereof.
"Business Day" means any day on which (i) banks are not authorized or
required to close in New York City and (ii) if this definition of "Business
Day" is utilized in connection with the Eurodollar Rate, dealings are
carried out in the London interbank market.
"Capital" of any Eligible Asset means the original amount paid to the
Seller for such Eligible Asset at the time of its acquisition by an
Investor pursuant to Sections 2.01 and 2.02, or such amount divided or
combined by any dividing or combining of such Eligible Asset pursuant to
Section 2.09, in each case reduced from time to time by Collections
received and distributed on account of such Capital pursuant to Section
2.06; provided, however, that such Capital of such Eligible Asset shall not
be reduced by any distribution of any portion of Collections if at any time
such distribution is rescinded or must otherwise be returned for any
reason.
"Cash Interest Expense" means, for any period, interest expense on all
Debt of the Seller and its Subsidiaries, net of interest income, in
accordance with GAAP and including, without limitation, to the extent not
otherwise included in accordance with GAAP, (a) interest expense in respect
of Debt resulting from "Advances" under the Credit Agreement, (b) the
interest component of obligations under leases that have or should have
been or should be, in accordance with GAAP, recorded as capital leases, (c)
commissions, discounts and other fees and charges payable in connection
with letters of credit issued for the account of the Seller or any of its
Subsidiaries, (d) the net payment, if any, payable by the Seller or any of
its Subsidiaries in connection with Hedge Agreements and (e) fees paid
pursuant to Section 2.04(a) of the Credit Agreement, but excluding, in each
case, (w) any amounts accrued or payable in connection with the LaPorte
Financing or this Agreement or the Parallel Purchase Commitment, (x)
amortization of original issue discount, (y) the interest portion of any
deferred payment obligation and (z) other interest not payable in cash.
"Certificate" means a certificate of assignment by the Seller to the
Agent in the form of Exhibit B hereto, evidencing each Eligible Asset.
"Citibank" means Citibank, N.A., a national banking association.
<PAGE> 11
6
"Collection Agent" means at any time the Person (including the Agent)
then authorized pursuant to Article VI to service, administer and collect
Pool Receivables.
"Collection Agent Fee" has the meaning assigned to that term in
Section 2.10.
"Collection Agent Fee Reserve" for any Eligible Asset at any time
means the unpaid Collection Agent Fee relating to such Eligible Asset
accrued to such time.
"Collections" means, with respect to any Pool Receivable, all cash
collections and other cash proceeds of such Pool Receivable, including,
without limitation, all cash proceeds of Related Security with respect to
such Pool Receivable, and any Collection of such Pool Receivable deemed to
have been received pursuant to Section 2.07.
"Concentration Limit" for any Obligor means at any time 3-1/3%, or
such other percentage ("Special Concentration Limit") for any Obligor
designated by the Agent in a writing delivered to the Seller; provided,
that (i) in the case of an Obligor with any Affiliated Obligor, the
Concentration Limit shall be calculated as if such Obligor and such
Affiliated Obligor are one Obligor (ii) the Agent may cancel any Special
Concentration Limit upon three Business Days' notice to the Seller (iii) a
Special Concentration Limit of 5% is established for each of BF Goodrich
and Ashland Chemical Company.
"Confidential Information" shall have the meaning set forth in the
Credit Agreement in effect on the date hereof.
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Contract" means an agreement between the Seller and an Obligor, in
substantially the form of one of the forms of written contract set forth in
Schedule III hereto or otherwise approved by the Agent, or in the case of
an open account agreement, as evidenced by one of the forms of invoices set
forth in Schedule III hereto or otherwise approved by the Agent, pursuant
to or under which such Obligor shall be obligated to pay for merchandise,
insurance or services from time to time.
"CP Fixed Period Date" means, for any Eligible Asset, the date of
Purchase of such Eligible Asset and thereafter the second Business day of
each calendar month or any other day as shall have been agreed to in
writing by the Agent and the Seller prior to the first day of the preceding
Fixed Period for such Eligible Asset, or, if there is no preceding Fixed
Period, prior to the first day of such Fixed Period.
<PAGE> 12
7
"Credit Agreement" means the Credit Agreement, dated as of August 16,
1994, among the Seller, the Banks party thereto and Citibank, as Agent, as
the same may be amended from time to time in accordance with its terms.
"Credit and Collection Policy" means those credit and collection
policies and practices in effect on the date hereof relating to Contracts
and Receivables described in Schedule II hereto, as modified in compliance
with Section 5.03(c).
"Debt" shall have the meaning set forth in the Credit Agreement in
effect on the date hereof; any capitalized terms used in the definition of
Debt set forth in the Credit Agreement shall have the meanings given to
such terms in the Credit Agreement as of such date and are hereby
incorporated herein by reference.
"Default Ratio" means the ratio (expressed as a percentage) computed
as of the last day of each calendar month by dividing (i) the aggregate
Outstanding Balance of all Pool Receivables that were Defaulted Receivables
on such date or would have been Defaulted Receivables on such date had they
not been written off the books of the Seller during such month by (ii) the
aggregate Outstanding Balance of all Pool Receivables on such date.
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid for
91 days or more from the original due date for such payment,
(ii) as to which the Obligor thereof has taken any action, or
suffered any event to occur, of the type described in Section 7.01(g),
(iii) which is subject to any dispute, offset, counterclaim or
defense whatsoever (except the discharge in bankruptcy of the Obligor
thereof) or
(iv) which, 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)
computed as of the last day of each calendar month by dividing (i) the
aggregate Outstanding Balance of all Pool Receivables that were
Delinquent Receivables at the end of such month by (ii) the aggregate
Outstanding Balance of all Pool Receivables on such date.
"Delinquent Receivable" means a Receivable that is not a
Defaulted Receivable and:
<PAGE> 13
8
(i) as to which any payment, or part thereof, remains unpaid
for 61 to 90 days from the original due date for such payment; or
(ii) which, consistent with the Credit and Collection
Policy, would be classified as delinquent by the Seller.
"Designated Obligor" means, at any time, all Obligors; provided,
however, that any Obligor shall cease to be a Designated Obligor upon
three Business Days' notice by the Agent to the Seller or pursuant to
Section 10.03.
"Determination Date" has the meaning assigned to that term in
Section 10.03.
"Dilution Horizon" means, as of any date, a ratio computed by
dividing (i) the aggregate Outstanding Balance of all Pool Receivables
acquired by the Seller during the most recently ended prior calendar
month or during such other period as the Agent shall, in its sole
discretion, determine by (ii) the Outstanding Balance of Pool
Receivables as at the last day of the most recently ended calendar
month.
"Dilution Percentage" means, as of any date, the sum of (a) 1.5
times the product of (i) the average of the Dilution Ratios for each
of the twelve most recently ended calendar months and (ii) the
Dilution Horizon as at the last day of the most recently ended
calendar month plus (b) Dilution Volatility as of such date; provided,
however, that the "Dilution Percentage" shall be modified if, prior to
such modification, (i) the Agent shall have (a) requested the approval
of Moody's and S&P or both and (b) set forth, in a written notice
delivered to the Seller, the proposed modification, together with
written evidence of the approval of Moody's or S&P or both for such
modification, and (ii) the Seller shall have delivered to the Agent
its written consent to the proposed modification. Notwithstanding
anything to the contrary contained in this definition of "Dilution
Percentage," so long as the Seller's long-term senior debt securities,
if rated, are rated at least BBB- by S&P and Baa3 by Moody's, or, if
not rated, such securities are deemed to merit a BBB rating in the
sole discretion of the Agent, the "Dilution Percentage" shall be zero.
"Dilution Ratio" means the ratio (expressed as a percentage)
computed as of the last day of each calendar month by dividing (i) the
aggregate amount of credits, rebates, discounts, disputes,
chargebacks, returned inventory or equipment credits, allowances and
other reductions of the Receivables Pool the effect of which in each
case is to reduce the Outstanding Balance of any Pool Receivable
(other than any dilution factor resulting solely from any write-off of
any Pool Receivable by the Collection Agent and not from any of the
other factors specified above) provided to Obligors during such
calendar month in respect of the principal balance of any Pool
Receivable by (ii) the aggregate Outstanding Balance of all Pool
Receivables acquired
<PAGE> 14
9
by the Seller during the most recently ended prior calendar month or
during such other period as the Agent shall, in its sole discretion,
determine.
"Dilution Reserve" means, for any Eligible Asset at any date, an
amount equal to
DP x C
where:
DP = the Dilution Percentage of such Eligible Asset at the
close of business of the Collection Agent on such date.
C = the Capital of such Eligible Asset at the close of
business of the Collection Agent on such date.
"Dilution Volatility" means, as of any date, a ratio (expressed
as a percentage) equal to the product of (a) the highest of the
Dilution Ratios calculated for each of the twelve most recently ended
calendar months minus the average of the Dilution Ratios for each of
the twelve most recently ended calendar months and (b) a ratio
calculated by dividing the highest of the Dilution Ratios calculated
for each of the twelve most recently ended calendar months by the
average of the Dilution Ratios for each of the twelve most recently
ended calendar months.
"EBITDA" means, for any period, net income (or net loss) plus the
sum of (a) interest expense, (b) income tax expense, (c) depreciation
expense and (d) amortization expense, in each case determined in
accordance with GAAP for such period.
"Effective Date" shall have the meaning set forth in Section
11.04.
"Eligible Asset" means, at any time, an undivided percentage
ownership interest at such time in (i) all then outstanding Pool
Receivables arising prior to the time of the most recent computation
or recomputation of such undivided percentage interest pursuant to
Section 2.04, (ii) all Related Security with respect to such Pool
Receivables and (iii) all Collections with respect to, and other
proceeds of, such Pool Receivables. Such undivided percentage interest
for such Eligible Asset shall be computed as
C + LR + DR + YR + CAFR
-----------------------
NRPB
<PAGE> 15
10
where:
C = the Capital of such Eligible Asset at the time of such
computation.
LR = the Loss Reserve of such Eligible Asset at the time of such
computation.
DR = the Dilution Reserve of such Eligible Asset at the time
of such computation.
YR = the Yield Reserve of such Eligible Asset at the time of
such computation.
CAFR = the Collection Agent Fee Reserve of such Eligible Asset at
the time of such computation.
NRPB = the Net Receivables Pool Balance at the time of such
computation.
Each Eligible Asset shall be determined from time to time pursuant to
the provisions of Section 2.04.
"Eligible Receivable" means, at any time and with respect to any Eligible
Asset, a Receivable:
(i) the Obligor of which is a United States resident, is not an
Affiliate of any of the parties hereto, and is not a government or a
governmental subdivision or agency;
(ii) the Obligor of which at the time of the initial creation of an
interest therein hereunder is a Designated Obligor;
(iii) the Obligor of which at the time of the initial creation of an
interest therein hereunder is not the Obligor of any Defaulted Receivables
in the aggregate amount of 5% or more of the aggregate Outstanding Balance
of all Pool Receivables of such Obligor;
(iv) which at the time of the initial creation of an interest therein
hereunder is not a Defaulted Receivable or a Delinquent Receivable;
<PAGE> 16
11
(v) which, according to the Contract related thereto, is required to
be paid in full within 30 days (or, in the case of Receivables having an
Outstanding Balance not exceeding 25% of the Outstanding Balance of all
Pool Receivables, 90 days) of the original billing date therefor;
(vi) which is an account receivable representing all or part of the
sales price of merchandise, insurance and services within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended;
(vii) a purchase of which with the proceeds of notes would constitute
a "current transaction" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended;
(viii) which is an "account" within the meaning of Section 9-106 of
the UCC of the State of Ohio;
(ix) which is denominated and payable only in United States dollars in
the United States;
(x) which arises under a Contract which has been duly authorized and
which, together with such Receivable, is in full force and effect and
constitutes the legal, valid and binding obligation of the Obligor of such
Receivable enforceable against such Obligor in accordance with its terms
and is not subject to any dispute, offset, counterclaim or defense
whatsoever (except the discharge in bankruptcy of such Obligor);
(xi) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices and
privacy) and with respect to which no party to the Contract related thereto
is in violation of any such law, rule or regulation in any material
respect;
(xii) which (A) satisfies all applicable requirements of the Credit
and Collection Policy and (B) complies with such other criteria and
requirements (other than those relating to the collectibility of such
Receivable) as the Agent may from time to time specify to the Seller upon
30 days notice; and
(xiii) as to which, at or prior to the time of the initial creation of
an interest therein through a Purchase, the Agent has not notified the
Seller that the Agent has determined, in its sole discretion, that such
Receivable (or class
<PAGE> 17
12
of Receivables) is not acceptable for purchase by the Investor hereunder.
"ERISA" means the U.S. Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations promulgated and
rulings issued thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Fixed Period, an interest rate per
annum at which deposits in U.S. dollars are offered by the principal office
of Citibank in London, England to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before the first day
of such Fixed Period in an amount substantially equal to the Capital
associated with such Fixed Period on such first day and for a period equal
to such Fixed Period.
"Eurodollar Rate Reserve Percentage" of any Owner for any Fixed Period
in respect of which Yield is computed by reference to the Eurodollar Rate
means the reserve percentage applicable during such Fixed Period (or, if
more than one such percentage shall be so applicable, the daily average of
such percentages for those days in such Fixed Period during which any such
percentage shall be so applicable) under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for such Owner with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities (or with respect to any
other category of liabilities that includes deposits by reference to which
the interest rate on Eurocurrency Liabilities is determined) having a term
equal to such Fixed Period.
"Event of Investment Ineligibility" has the meaning assigned to that
term in Section 7.01.
"Excluded Obligors" has the meaning assigned to that term in Section
10.03.
"Excluded Receivables" has the meaning assigned to that term in
Section 10.03.
"Facility" means the willingness of the Investor to consider, in its
sole discretion pursuant to Article II, the purchase from the Seller of
undivided percentage interests in Pool Receivables by making Purchases of
Eligible Assets from time to time.
<PAGE> 18
13
"Facility Termination Date" means the earlier of December 19, 2002 or
the date of termination of the Facility pursuant to Section 2.03 or Section
7.01.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the
average of the quotations for such day for such transactions received by
the Agent from three federal funds brokers of recognized standing selected
by it.
"Fixed Period" means with respect to any Eligible Asset:
(a) in the case of any Fixed Period in respect of which Yield is
computed by reference to the Investor Rate each successive period
commencing on each CP Fixed Period Date for such Eligible Asset and
ending on the next succeeding CP Fixed Period Date for such Eligible
Asset;
(b) in the case of any Fixed Period in respect of which Yield is
computed by reference to the Assignee Rate, each successive period of
from one to and including 29 days, or a period of one, two, three or
six months as the Seller shall select and the Agent shall approve on
notice by the Seller received by the Agent (including notice by
telephone, confirmed in writing) not later than 11:00 A.M. (New York
City time) on such last day, each such Fixed Period for any Eligible
Asset to commence on the last day of the immediately preceding Fixed
Period for such Eligible Asset (or, if there is no such Fixed Period,
on the date of Purchase of such Eligible Asset), except that if the
Agent shall not have received such notice or the Agent and the Seller
shall not have so mutually agreed before 11:00 A.M. (New York City
time) on such last day, such period shall be one day;
provided, however, that:
(i) any such Fixed 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 Yield in
respect of such Fixed Period is computed by reference to the
Eurodollar Rate, and such Fixed 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 Fixed Period shall end on
the next preceding Business Day);
<PAGE> 19
14
(ii) in the case of Fixed Periods of one day for any Eligible
Asset, (A) if such Fixed Period is such Eligible Asset's initial Fixed
Period, such Fixed Period shall be the day of the related Purchase;
(B) any subsequently occurring Fixed Period which is one day shall, if
the immediately preceding Fixed Period is more than one day, be the
last day of such immediately preceding Fixed Period, and, if the
immediately preceding Fixed Period is one day, be the day next
following such immediately preceding Fixed Period; and (C) which
occurs on a day immediately preceding a day which is not a Business
Day shall be extended to the next succeeding Business Day; and
(iii) in the case of any Fixed Period for any Eligible Asset
which commences before the Termination Date for such Eligible Asset
and would otherwise end on a date occurring after such Termination
Date, such Fixed Period shall end on such Termination Date and the
duration of each Fixed Period which commences on or after the
Termination Date for such Eligible Asset shall be of such duration as
shall be selected by the Agent.
"GAAP" has the meaning specified in Section 1.04.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and other similar agreements.
"Interest Coverage Ratio" means, with respect to any fiscal quarter,
the ratio of EBITDA for the Seller and its Subsidiaries to Cash Interest
Expense, in each case in the aggregate for the period of four consecutive
fiscal quarters ended at the end of such fiscal quarter.
"Investor" means Corporate Receivables Corporation, a California
corporation, Ciesco, L.P., a New York limited partnership, and any of their
respective successors or assigns that is a receivables investment company
which in the ordinary course of its business issues commercial paper or
other securities to fund its acquisition and maintenance of receivables.
"Investor Rate" for any Fixed Period for any Eligible Asset means, to
the extent an Owner funds such Eligible Asset for such Fixed Period by
issuing commercial paper, the per annum rate equivalent to the weighted
average of the per annum rates paid or payable by such Owner from time to
time as interest on or otherwise (by means of interest rate hedges or
otherwise) in respect of those promissory notes issued by such Owner that
are allocated, in whole or in part, by CNAI (on behalf of the Owner) to
fund the Purchase or maintenance of such Eligible Asset during such Fixed
Period, as determined by CNAI (on behalf of the Owner)
<PAGE> 20
15
and reported to the Seller and, if the Collection Agent is not the Seller,
the Collection Agent, which rates shall reflect and give effect to the
commissions of placement agents and dealers in respect of such promissory
notes, to the extent such commissions are allocated, in whole or in part,
to such promissory notes by CNAI (on behalf of the Owner); provided,
however, if the rate (or rates) as agreed between any such agent or dealer
and the Agent with regard to any Fixed Period for any Eligible Asset is a
discount rate (or rates), the "Investor Rate" for such Fixed Period 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.
"LaPorte Financing" shall have the meaning set forth in the Credit
Agreement in effect on the date hereof.
"Level I" means, as of any date of determination, that the Seller
maintained for the most recent fiscal quarter included in a period for
which financial statements have been delivered to the Agent (i) an Interest
Coverage Ratio greater than or equal to 10.0:1.0 and (ii) a Leverage
Percentage of less than or equal to 47.0%.
"Level II" means, as of any date of determination, that the Seller
does not meet the requirements of Level I.
"Leverage Percentage" means, for any period, the ratio (expressed as a
percentage) computed by dividing (a) Consolidated Borrowed Debt of the
Seller and its Subsidiaries by (ii) the sum of such Consolidated Borrowed
Debt plus shareholder's equity of the Seller, calculated in each case as of
the last day of such period.
"Liquidation Day" for any Eligible Asset means either (i) each day
during any Settlement Period for such Eligible Asset on which the
conditions set forth in Section 3.02 are not satisfied (or such failure of
conditions is not waived by the Agent), or (ii) each day which occurs on or
after the Termination Date for such Eligible Asset.
"Liquidation Fee" means, for any Fixed Period during which a
Liquidation Day occurs, the amount, if any, by which (i) the additional
Yield (calculated without taking into account any Liquidation Fee or any
shortened duration of such Fixed Period pursuant to clause (iv) of the
definition thereof) which would have accrued during such Fixed Period on
the reductions of Capital of the Eligible Asset relating to such Fixed
Period had such reductions remained as Capital, exceeds (ii) the income, if
any, received by the Owner's investing the proceeds of such reductions of
Capital.
<PAGE> 21
16
"Liquidation Yield" means, for any Eligible Asset at any date, an
amount equal to the product of (i) the Capital of such Eligible Asset as at
such date and (ii) the product of (a) the Assignee Rate for such Eligible
Asset for a Fixed Period deemed to commence at such time for a period of 30
days and (b) a fraction having as its numerator the number of days in the
period equal to the Average Maturity (as in effect at such date) and 360 as
its denominator.
"Loan Documents" shall have the meaning set forth in the Credit
Agreement.
"Lock-Box Account" means an account maintained at a Lock-Box Bank for
the purpose of receiving Collections.
"Lock-Box Agreement" means an agreement, in substantially the form of
Exhibit D hereto, from the Seller to any Lock-Box Bank with such
modifications as may be acceptable to the Agent.
"Lock-Box Bank" means any of the banks holding one or more Lock-Box
Accounts.
"Loss Percentage" means, for any Eligible Asset at any date, the
greatest of (i) three times the highest Default Ratio as of the last day of
the 12 months ended immediately preceding such date, (ii) three times the
Concentration Limit and (iii) 10%.
"Loss Reserve" means, for any Eligible Asset at any date, an amount
equal to
LP x (C + YR)
where:
LP = the Loss Percentage for such Eligible Asset at the close of
business of the Collection Agent on such date.
C = the Capital of such Eligible Asset at the close of business of
the Collection Agent on such date.
YR = the Yield Reserve for such Eligible Asset at the close of
business of the Collection Agent on such date.
"Moody's" means Moody's Investors Service, Inc.
<PAGE> 22
17
"Net Receivables Pool Balance" means, at any tune, the Outstanding
Balance of the Eligible Receivables in the Receivables Pool at such time
reduced by the sum of (i) the aggregate Outstanding Balance of the
Defaulted Receivables in the Receivables Pool at such time and (ii) the
aggregate amount by which the Outstanding Balance of Eligible Receivables
(other than Defaulted Receivables) of each Obligor then in the Receivables
Pool exceeds the product of (a) the Concentration Limit for such Obligor
multiplied by (b) the Outstanding Balance of the Eligible Receivables then
in the Receivables Pool.
"Obligor" means a Person obligated to make payments pursuant to a
Contract.
"Original Agreement" shall have the meaning set forth in the
Preliminary Statements.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Owner" means, for each Eligible Asset, upon its Purchase, the
Investor which made such Purchase and all other owners by assignment or
otherwise of an Eligible Asset and, to the extent of the undivided
interests so purchased, shall include any participants.
"Parallel Purchase Commitment" means the Second Amended and Restated
Parallel Purchase Commitment, dated as of July 31, 1997 among the Seller,
the financial institutions party thereto and CNAI, as Agent, as the same
may be amended from time to time in accordance with its terms.
"Performance Level" means, as of any date, Level I or Level II, in
each case determined by reference to the most recent financial statements
delivered to the Agent pursuant to Section 5.02(a) or (b).
"Person" means an individual, partnership, corporation (including a;
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision
or agency thereof.
"Pool Receivable" means a Receivable in the Receivables Pool.
"Public Debt Rating" means for purposes of determining the Applicable
Margin, as of any date, the rating most recently announced by S&P and
Moody's, as the case may be, for any class of long-term senior unsecured
debt issued by the Seller. For purposes of the foregoing, (a) if only one
of S&P and Moody's shall have in effect a Public Debt Rating, the
Applicable Margin shall be determined by
<PAGE> 23
18
reference to the available rating; (b) if neither S&P nor Moody's shall
have in effect a Public Debt Rating, the Public Debt Rating for determining
the Applicable Margin will be deemed to be below BB by S&P and below Ba2 by
Moody's; (c) if the ratings established by S&P and Moody's shall fall
within different levels, the Applicable Margin shall be based upon the
higher rating; (d) if any rating established by S&P or Moody's shall be
changed, such change shall be effective as of the date on which such change
is first announced publicly by the rating agency making such change; and
(e) if S&P or Moody's shall change the basis on which ratings are
established, each reference to the Public Debt Rating announced by S&P or
Moody's, as the case may be, shall refer to the then equivalent rating by
S&P or Moody's, as the case may be.
"Purchase" means a purchase by the Investor of an Eligible Asset from
the Seller pursuant to Article II.
"Purchase Limit" means $85,000,000, as such amount may be reduced
pursuant to Section 2.03.
"Receivable" means the indebtedness of any Obligor under a Contract
arising from a sale by Seller, and includes the right to payment of any
interest or finance charges and other obligations of such Obligor with
respect thereto.
"Receivables Pool" means at any time the aggregation of each then
outstanding Receivable in respect of which the Obligor is a Designated
Obligor or, as to any Receivable in existence on such date, was a
Designated Obligor on the date of any Purchase or reinvestment pursuant to
Section 2.05, and which is not excluded from the Receivables Pool pursuant
to Section 10.03.
"Reinvestment Termination Date" for any Eligible Asset means that
Business Day which the Seller designates, or, if the conditions precedent
in Section 3.02 and, for each Eligible Asset owned by Ciesco, Section 3.03
and, for each Eligible Asset owned by CRC, Section 3.04, are not satisfied,
such Business Day which the Agent designates, as the Reinvestment
Termination Date for such Eligible Asset by notice to the Agent (if the
Seller so designates) or to the Seller (if the Agent so designates) at
least one Business Day prior to such Business Day.
"Related Security" means with respect to any Receivable:
(i) all of the Seller's interest in the merchandise (including
returned merchandise), if any, relating to the sale which gave rise to
such Receivable;
(ii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such
Receivable, whether
<PAGE> 24
19
pursuant to the Contract related to such Receivable or otherwise,
together with all financing statements signed by an Obligor describing
any collateral securing such Receivable; and
(iii) all guarantees, insurance and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of such Receivable whether pursuant to the Contract
related to such Receivable or otherwise.
"Responsible Officer" means the chief financial officer,
controller or chief accounting officer of the Seller.
"Restatement Effective Date" shall have the meaning set forth in
Section 11.04.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill companies.
"Seller Report" means a report, in substantially the form of
Exhibit C hereto, furnished by the Collection Agent to the Agent for
each Owner pursuant to Section 2.07.
"Settlement Period" for any Eligible Asset means each period
commencing on the first day of each Fixed Period for such Eligible
Asset and ending on the last day of such Fixed Period, and, on and
after the Termination Date for such Eligible Asset, such period
(including, without limitation, a daily period) as shall be selected
from time to time by the Agent or, in the absence of any such
selection, each period of thirty days from the last day of the
immediately preceding Settlement Period.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, trust or estate of which (or in which) more than 50% of
(a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the
capital or profits of such partnership or joint venture or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one
or more of its other Subsidiaries or by one or more of such Person's
other Subsidiaries.
"Termination Date" for any Eligible Asset means the earlier of
(i) the Reinvestment Termination Date for such Eligible Asset and (ii)
the Facility
<PAGE> 25
20
Termination Date.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the specified jurisdiction.
"Usage" means, as of any date of determination, the ratio
(expressed as a percentage) computed by dividing the aggregate
principal amount of the Outstanding Balance of the Receivables Pool by
the Purchase Limit, calculated in each case as of the close of
business of the Collection Agent on such date.
"Yield" means:
(i) for each Eligible Asset for any Fixed Period to the
extent an Investor will be funding such Eligible Asset on the
first day of such Fixed Period through the issuance of commercial
paper,
IR x C x ED + LF
---
360
(ii) for each Eligible Asset for any Fixed Period to the
extent the Owner will not be funding such Eligible Asset on the
first day of such Fixed Period through the issuance of commercial
paper,
AR x C x ED + LF
---
360
where:
AR = the Assignee Rate for such Eligible Asset for such
Fixed Period.
C = the Capital of such Eligible Asset during such Fixed
Period.
IR = the Investor Rate for such Eligible Asset for such
Fixed Period.
ED = the actual number of days elapsed during such Fixed
Period.
LF = the Liquidation Fee, if any, for such Eligible Asset
for such Fixed Period.
provided, however, that no provision of this Agreement or the Certificate
shall require the payment or permit the collection of Yield in excess of
the maximum permitted by applicable law; and provided, further, that Yield
for any Eligible Asset shall not be
<PAGE> 26
21
considered paid by any distribution if at any time such distribution
is rescinded or must otherwise be returned for any reason.
"Yield Reserve" for any Eligible Asset at any time means the sum of
(i) the Liquidation Yield at such time for such Eligible Asset, and (ii)
the accrued and unpaid Yield for such Eligible Asset.
SECTION 1.02. Other Terms. 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.
SECTION 1.03. Computation of Time Periods. Unless otherwise stated in
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each mean "to but excluding."
SECTION 1.04. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Facility. On the terms and conditions hereinafter set
forth, each Investor may, in its sole discretion, make Purchases from time to
time during the period from the date hereof to the Facility Termination Date.
Under no circumstances shall any Investor make any Purchase if, after giving
effect to such Purchase, the aggregate outstanding Capital of Eligible Assets,
together with the aggregate outstanding "Capital" of "Eligible Assets" under the
Parallel Purchase Commitment would exceed the Purchase Limit. The Owner of each
Eligible Asset shall, with the proceeds of Collections attributable to such
Eligible Asset, reinvest, pursuant to Section 2.05, in additional undivided
percentage interests in the Pool Receivables by making an appropriate
readjustment of such Eligible Asset. Nothing in this Agreement shall be deemed
to be or construed as a commitment by any Investor (or CNAI or Citibank) to
purchase any Eligible Asset at any time.
SECTION 2.02. Making Purchases. (a) Each Purchase shall be made on at
least one Business Days' notice from the Seller to the Agent or on such other
notice period as the Seller and the Agent shall agree. Each such notice of a
proposed Purchase shall specify the desired amount (which shall not be less than
$1,000,000), date and duration of
<PAGE> 27
22
the initial Fixed Period for the Eligible Asset to be purchased. The Agent shall
promptly notify the Seller whether such terms are acceptable to any Investor.
(b) On the date of each Purchase, each Investor making a Purchase
shall, upon satisfaction of the applicable conditions set forth in Article III,
make available to the Agent the amount of its Purchase by deposit of such amount
in same day funds to the Agent's Account, and, after receipt by the Agent of
such funds, the Agent will cause such funds to be made immediately available to
the Seller at Citibank's office at 399 Park Avenue, New York, New York. The
Agent shall notify the Seller and if the Seller's not the Collection Agent, the
Collection Agent, of the Investor Rate or Assignee Rate, as applicable, for each
Fixed Period for each Eligible Asset on the last day of such Fixed Period in the
case of the Investor Rate and on the first day of such Fixed Period in the case
of the Assignee Rate.
SECTION 2.03. Termination of Facility or Reduction of the Purchase
Limit. (a) Optional. The Seller may, upon at least five Business Days' notice
to the Agent, terminate the Facility in whole or reduce in part the unused
portion of the Purchase Limit; provided, however, that for purposes of this
Section 2.03(a), the unused portion of the Purchase Limit shall be computed as
the excess of (A) the Purchase Limit immediately prior to giving effect to such
termination or reduction over (B) the sum of (i) the aggregate Capital of
Eligible Assets outstanding at the time of such computation and (ii) the
aggregate "Capital" of "Eligible Assets" outstanding under the Parallel Purchase
Commitment at such time; provided further that each partial reduction shall be
in an amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess
thereof.
(b) Mandatory. On each day on which the Seller shall, pursuant to
Section 2.03(a) of the Parallel Purchase Commitment, reduce in part the unused
portion of the Commitment (as defined in the Parallel Purchase Commitment), the
Purchase Limit shall automatically reduce by an equal amount. The Purchase Limit
shall automatically terminate in whole on any day on which the Seller shall
terminate in whole the Commitment pursuant to Section 2.03(a) of the Parallel
Purchase Commitment.
SECTION 2.04. Eligible Asset. (a) Each Eligible Asset shall be
initially computed as of the opening of business of the Collection Agent on the
date of Purchase of such Eligible Asset. Thereafter until the Termination Date
for such Eligible Asset, such Eligible Asset shall be automatically recomputed
as of the close of business of the Collection Agent on each day (other than a
Liquidation Day). Such Eligible Asset shall remain constant from the time as of
which any such computation or recomputation is made until the time as of which
the next such recomputation, if any, shall be made. Any Eligible Asset, as
computed as of the day immediately preceding the Termination Date for such
Eligible Asset, shall remain constant at all times on and after such Termination
Date. Such Eligible Asset shall become zero at such time as the Owner of such
Eligible Asset shall have
<PAGE> 28
23
received the accrued Yield for such Eligible Asset and shall have recovered the
Capital of such Eligible Asset, and the Collection Agent shall have received the
accrued Collection Agent Fee for such Eligible Asset.
(b) If any Eligible Asset would otherwise be reduced on any day on
account of Receivables arising as or becoming Pool Receivables, the Owner of
such Eligible Asset may prevent such reduction by giving notice to the
Collection Agent, before the close of business of the Collection Agent on such
day, that such Eligible Asset's interest in such Receivables is to be limited so
as to prevent such reduction. If such notice is given for any day for any
Eligible Asset, the Receivables Pool for such Eligible Asset, and the Net
Receivables Pool Balance for such Eligible Asset, will include, with respect to
Receivables arising as or becoming Pool Receivables on such day, only such
number of such Receivables or such portion of such Receivables as shall cause
such Eligible Asset to remain constant, such Receivables or portion thereof
being included in the Receivables Pool for such Eligible Asset in the order of
the Seller's account numbers for such Receivables up to an aggregate amount so
as to cause such Eligible Asset to remain constant, and the remainder of such
Receivables or portion thereof shall be treated as Receivables arising on the
next succeeding Business Day.
SECTION 2.05. Non-Liquidation Settlement Procedures. On each day (other
than a Liquidation Day) during each Settlement Period for each Eligible Asset,
the Collection Agent shall: (i) out of Collections of Pool Receivables
attributable to such Eligible Asset received on such day, set aside (and
segregate if instructed by the Agent to do so under Section 6.02(a)) and hold in
trust for the Owner of such Eligible Asset an amount equal to the Yield and
Collection Agent Fee accrued through such day for such Eligible Asset and not so
previously set aside and (ii) reinvest the remainder of such Collections, for
the benefit of such Owner, by recomputation of such Eligible Asset pursuant to
Section 2.04 as of the end of such day and the payment of such remainder to the
Seller; provided, however, that, to the extent that the Agent or any Owner shall
be required for any reason to pay over any amount of Collections which shall
have been previously reinvested for the account of such Owner pursuant hereto,
such amount shall be deemed not to have been so applied but rather to have been
retained by the Seller and paid over for the account of such Owner and,
notwithstanding any provision hereof to the contrary, such Owner shall have a
claim for such amount. On the second Business Day following the last day of each
Settlement Period for such Eligible Asset in the case of any Eligible Asset for
which Yield shall be determined for such Settlement Period with reference to the
Investor Rate, and on the last day of each Settlement Period for each other
Eligible Asset, the Collection Agent shall deposit to the Agent's Account for
the account of the Owner of such Eligible Asset the amounts set aside as
described in clause (i) of the first sentence of this Section 2.05. Upon receipt
of such funds by the Agent, the Agent shall distribute them to the Owner of such
Eligible Asset in payment of the accrued Yield for such Eligible Asset and to
the Collection Agent in payment of the accrued Collection Agent Fee payable with
respect to such Eligible Asset. If there shall be
<PAGE> 29
24
insufficient funds on deposit for the Agent to distribute funds in payment in
full of the aforementioned amounts, the Agent shall distribute funds, first, in
payment of the accrued Yield for such Eligible Asset, and second, in payment of
the accrued Collection Agent Fee payable with respect to such Eligible Asset.
SECTION 2.06. Liquidation Settlement Procedures. On each Liquidation
Day during each Settlement Period for each Eligible Asset, the Collection Agent
shall set aside (and segregate if instructed by the Agent to do so under Section
6.02(a)) and hold in trust for the Owner of such Eligible Asset the Collections
of Pool Receivables attributable to such Eligible Asset received on such day. On
the second Business Day following the last day of each Settlement Period for
such Eligible Asset in the case of any Eligible Asset for which Yield shall be
determined for such Settlement Period with reference to the Investor Rate, and
on the last day of each Settlement Period for each other Eligible Asset, the
Collection Agent shall deposit to the Agent's Account for the account of the
Owner of such Eligible Asset the amounts set aside pursuant to the preceding
sentence but not to exceed the sum of (i) the accrued Yield for such Eligible
Asset, (ii) the Capital of such Eligible Asset, (iii) the accrued Collection
Agent Fee payable with respect to such Eligible Asset and (iv) the aggregate
amount of other amounts owed hereunder by the Seller to the Owner of such
Eligible Asset. Any amounts set aside pursuant to the first sentence of this
Section 2.06 and not required to be deposited to the Agent's Account pursuant to
the preceding sentence shall be paid to the Seller by the Collection Agent;
provided, however, that, if amounts are set aside during such Settlement Period
pursuant to the first sentence of this Section 2.06 on any Liquidation Day and
thereafter during such Settlement Period the conditions set forth in Section
3.02 are satisfied or are waived by the Agent, such previously set aside amounts
shall, to the extent representing a return of Capital, be applied pursuant to
clause (ii) of the first sentence of Section 2.05 on the day of such subsequent
satisfaction or waiver of conditions. Upon receipt of funds deposited to the
Agent's Account pursuant to the preceding sentence or Section 7.07 of the Credit
Agreement, the Agent shall distribute them (i) to the Owner of such Eligible
Asset (a) in payment of the accrued Yield for such Eligible Asset, (b) in
reduction (to zero) of the Capital of such Eligible Asset and (c) in payment of
any other amounts owed by the Seller hereunder to such Owner and (ii) to the
Collection Agent in payment of the accrued Collection Agent Fee payable with
respect to such Eligible Asset. If there shall be insufficient funds on deposit
for the Agent to distribute funds in payment in full of the aforementioned
amounts, the Agent shall distribute funds, first, in payment of the accrued
Yield for such Eligible Asset, second, in reduction of Capital of such Eligible
Asset, third, in payment of other amounts payable to such Owner, and fourth, in
payment of the accrued Collection Agent Fee payable with respect to such
Eligible Asset.
SECTION 2.07. General Settlement Procedures. If on any day the
Outstanding Balance of a Pool Receivable is either (a) reduced as a result of
any defective, rejected or returned merchandise, insurance or services, any cash
discount, or any adjustment by the Seller, or (b) reduced or cancelled as a
result of a setoff in respect of any claim by the
<PAGE> 30
25
Obligor thereof against the Seller (whether such claim arises out of the same or
a related transaction or an unrelated transaction), the Seller shall be deemed
to have received on such day a Collection of such Receivable in the amount of
such reduction or cancellation. If on any day any of the representations or
warranties in Section 4.01(h) is no longer true with respect to a Pool
Receivable, the Seller shall be deemed to have received on such day a Collection
in full of such Pool Receivable. Except as stated in the preceding sentences of
this Section 2.07 or as otherwise required by law or the underlying Contract,
all Collections received from an Obligor of any Receivable shall be applied to
Receivables then outstanding of such Obligor in the order of the age of such
Receivables, starting with the oldest such Receivable, except if payment is
designated by such Obligor for application to specific Receivables. Prior to the
tenth Business Day of each month, the Collection Agent shall prepare and forward
to the Agent for each Owner of an Eligible Asset (i) a Seller Report, relating
to each Eligible Asset, as of the close of business of the Collection Agent on
the last day of the immediately preceding month, and (ii) at the request of the
Agent, a listing by Obligor of all Pool Receivables, together with an analysis
as to the aging of such Receivables. On or prior to the day the Collection Agent
is required to make a deposit with respect to a Settlement Period pursuant to
Section 2.05 or 2.06, the Seller will advise the Agent of each Liquidation Day
occurring during such Settlement Period and of the allocation of the amount of
such deposit to each outstanding Eligible Asset; provided, however, that, if the
Seller is not the Collection Agent, the Seller shall also advise the Collection
Agent of the occurrence of each such Liquidation Day occurring during such
Settlement Period on or prior to such day.
SECTION 2.08. Payments and Computations, Etc. All amounts to be paid or
deposited by the Seller hereunder shall be paid or deposited in accordance with
the terms hereof no later than 11:00 A.M. (New York City time) on the day when
due in lawful money of the United States of America in same day funds to the
Agent's Account. The Seller shall, to the extent permitted by law, pay to the
Agent interest on all amounts not paid or deposited when due hereunder at 2% per
annum above the Alternate Base Rate, payable on demand, provided, however, that
such interest rate shall not at any time exceed the maximum rate permitted by
applicable law. Such interest shall be retained by the Agent except to the
extent that such failure to make a timely payment or deposit has continued
beyond the date for distribution by the Agent of such overdue amount to an Owner
of an Eligible Asset, in which case such interest accruing after such date shall
be for the account of, and distributed by the Agent to the Owners ratably in
accordance with their respective interests in such overdue amount. All
computations of interest and all computations of Yield, Liquidation Yield and
fees hereunder shall be made on the basis of a year of 360 days for the actual
number of days (including the first but excluding the last day) elapsed.
SECTION 2.09. Dividing or Combining of Eligible Assets. The Seller may,
on notice received by the Agent not later than 11:00 A.M. (New York City time)
three Business Days before the last day of any Fixed Period for any then
existing Eligible Asset
<PAGE> 31
26
(an "Existing Eligible Asset"), divide such Existing Eligible Asset on such last
day into two or more new Eligible Assets, each such new Eligible Asset having
Capital as designated in such notice and all such new Eligible Assets
collectively having aggregate Capital equal to the Capital of such Existing
Eligible Asset. The Seller may, on notice received by the Agent not later than
11:00 A.M. (New York City time) three Business Days before the last day of any
Fixed Periods ending on the same day for two or more Existing Eligible Assets
owned by the same Owner or the date of any proposed Purchase (if the last day of
such Fixed Period is the date of such proposed Purchase), either (i) combine
such Existing Eligible Assets or (ii) combine such Existing Eligible Asset or
Eligible Assets, if owned by an Investor, and such proposed Eligible Asset to be
purchased, on such last day into one new Eligible Asset, such new Eligible Asset
having Capital equal to the aggregate Capital of such Existing Eligible Assets,
or such Existing Eligible Asset or Eligible Assets and such proposed Eligible
Asset, as the case may be. On and after any division or combination of Eligible
Assets as described above, each of the new Eligible Assets resulting from such
division, or the new Eligible Asset resulting from such combination, as the case
may be, shall be a separate Eligible Asset having Capital as set forth above,
and shall take the place of such Existing Eligible Asset or Eligible Assets or
proposed Eligible Asset, as the case may be, in each case under and for all
purposes of this Agreement, and the Agent shall annotate the Certificate
accordingly.
SECTION 2.10. Fees and Payments. (a) The Seller shall pay certain fees
to the Agent as more fully set forth in a letter agreement of even date
herewith.
(b) Each Owner shall pay to the Collection Agent a collection fee (the
"Collection Agent Fee") of 1/4 of 1% per annum on the average daily amount of
Capital of each Eligible Asset owned by such Owner, from the date thereof until
the later of the Facility Termination Date or the date on which such Capital is
reduced to zero, payable on the last day of each Settlement Period for such
Eligible Asset; provided, however, that, upon three Business Days' notice to the
Agent, the Collection Agent may (if not the Seller) elect to be paid, as such
fee, another percentage per annum on the average daily amount of Capital of each
such Eligible Asset, but in no event in excess of 110% of the costs and expenses
referred to in Section 6.02(b); and provided further that such fee shall be
payable only from Collections pursuant to, and subject to the priority of
payment set forth in, Sections 2.05 and 2.06.
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation occurring on or after the effective date of this Agreement or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) issued on or
after the effective date of this Agreement, there shall be any increase in the
amount of capital required or expected to be maintained by CNAI, an Owner, any
entity which enters into a commitment to purchase Eligible Assets or interests
therein, or any of
<PAGE> 32
27
their respective Affiliates (each an "Affected Person") or any corporation
controlling such Affected Person, as a result of or based upon the existence of
any commitment to make purchases of or otherwise to maintain the investment in
Pool Receivables or interests therein related to this Agreement or to the
funding thereof and other commitments of the same type relating to this
Agreement, then, within five Business Days after receipt of a written demand by
such Affected Person, (with a copy to the Agent), the Seller shall immediately
pay to the Agent, for the account of such Affected Person (as a third-party
beneficiary), from time to time as specified by such Affected Person, additional
amounts sufficient to compensate such Affected Person in the light of such
circumstances, to the extent that such Affected Person reasonably determines
such increase in capital to be allocable to the existence of any of such
commitments. A certificate as to such amounts setting forth in reasonable detail
the calculations used in determining, and the basis of the requirements for,
such amounts, submitted to the Seller and the Agent by such Affected Person,
shall be conclusive and binding for all purposes, absent evidence of error.
Notwithstanding anything to the contrary contained in this subsection (a), an
Owner shall only be entitled to receive reimbursement for such additional
amounts pursuant to this subsection (a) to the extent (i) incurred within 60
days prior to, and at any time after, the date on which such Owner gives to the
Seller a notice that an event has occurred as a result of which such additional
amounts will arise or a notice that the Seller is obligated to pay such
additional amounts, whichever first occurs and (ii) such Owner shall not have
been reimbursed for such additional amounts under a separate Section of this
Agreement.
(b) If, due to either (i) the introduction of or any change occurring
on or after the effective date of this Agreement (other than any change by way
of imposition or increase of reserve requirements referred to in Section 2.12)
in or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) issued on or after the effective date
of this Agreement, there shall be any increase in the cost to an Owner of
agreeing to purchase or purchasing, or maintaining the ownership of Eligible
Assets in respect of which Yield is computed by reference to the Eurodollar
Rate, then, within five Business Days after receipt of a written demand by such
Owner (with a copy to the Agent), the Seller shall pay to the Agent, for the
account of such Owner (as a third-party beneficiary), from time to time as
specified, additional amounts sufficient to compensate such Owner for such
increased costs. A certificate as to the amount of such increased cost setting
forth in reasonable detail the calculations used for determining, and the basis
of the requirements for, such increased costs, submitted to the Seller and the
Agent by such Owner shall be conclusive and binding for all purposes, absent
evidence of error. Notwithstanding anything to the contrary contained in this
subsection (b), an Owner shall only be entitled to receive reimbursement for
such increased costs to the extent (i) incurred within 60 days prior to, and at
any time after, the date on which such Owner gives to the Seller a notice that
an event has occurred as a result of which such increased costs will arise or a
notice that the Seller is obligated to pay increased costs, whichever first
occurs and (ii) such Owner shall
<PAGE> 33
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not have been reimbursed for such increased cost under a separate Section of
this Agreement.
SECTION 2.12. Additional Yield on Eligible Assets Bearing a Eurodollar
Rate. The Seller shall pay to an Owner, so long as such Owner shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional Yield on the unpaid Capital of
each Eligible Asset of such Owner during each Fixed Period in respect of which
Yield is computed by reference to the Eurodollar Rate, for such Fixed Period, at
a rate per annum equal at all times during such Fixed Period to the remainder
obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii)
the rate obtained by dividing such Eurodollar Rate referred to in clause (i)
above by that percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage of such Owner for such Fixed Period, payable on each date on which
Yield is payable on such Eligible Asset. A certificate as to such additional
Yield submitted to the Seller and the Agent by such Owner shall be conclusive
and binding for all purposes, absent evidence of error.
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Amendment and Restatement and to
the Initial Purchase After the Effective Date. The amendment and restatement of
the Original Agreement and the initial Purchase hereunder after the Effective
Date are subject to the condition precedent that the Agent shall have received
on or before the Effective Date the following, each of which (unless otherwise
indicated) shall be dated such date, in form and substance satisfactory to the
Agent:
(a) The Certificate;
(b) A copy of the resolutions adopted by the Board of Directors of the
Seller approving this Agreement, the Certificate and the other documents to
be delivered by it thereunder and the transactions contemplated thereby,
certified by its Secretary or Assistant Secretary;
(c) A certificate of the Secretary or Assistant Secretary of the
Seller certifying the names and true signatures of the officers authorized
on its behalf to sign this Agreement, the Certificate and the other
documents to be delivered by it hereunder (on which certificate the Agent
and each Owner shall be entitled to conclusively rely until such time as
the Agent shall have received from the Seller a revised certificate meeting
the requirements of this subsection (c));
<PAGE> 34
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(d) Acknowledgment copies of proper Financing Statements (Form UCC-1),
dated a date reasonably near to the date of the initial Purchase, naming
the Seller as the assignor of Receivables and CNAI, as Agent, as assignee,
or other similar instruments or documents, as shall be necessary or, in the
opinion of the Agent, desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the ownership interests in
all Receivables in which an interest could have been assigned thereunder;
(e) Certified copies of Requests for Information or Copies (Form UCC-1
1) (or a similar search report certified by a party acceptable to the
Agent), dated a date reasonably near to the date of the initial Purchase,
listing all effective financing statements (including those referred to
above in subsection (d)) which name the Seller (under its then present name
and any previous name) as debtor and which were used in the jurisdictions
in which filings were made pursuant to subsection (d) above, together with
copies of any such financing statements (none of which (other than the
financing statements filed pursuant to the Original Agreement), after
giving effect to the financing statements filed pursuant to clause (e)
above, shall cover any Receivables, Contracts or Related Security);
(f) Acknowledgment copies of proper Financing Statements (Form UCC-3),
if any, necessary to release all security interests and other rights of any
Person other than the Agent in the Receivables, Contracts or Related
Security previously granted by the Seller;
(g) Executed copies of Lock-Box Agreements duly executed by the Seller
and each Lock-Box Bank;
(h) Favorable opinions of counsel for the Seller, substantially in the
forms of Exhibits E-1 and E-2 hereto and as to such other matters as the
Agent may reasonably request;
(i) A favorable opinion of counsel for the Agent, as the Agent may
reasonably request; and
(j) Letters and certificates, in form and substance satisfactory to
the Agent, attesting to the solvency of the Seller after giving effect to
this Agreement and the transactions contemplated hereby, from the Seller's
treasurer or chief accounting officer.
SECTION 3.02. Conditions Precedent to All Purchases and Reinvestments.
Each Purchase (including the initial Purchase) hereunder and the right of the
Collection Agent to reinvest in Pool Receivables those Collections attributable
to an Eligible Asset pursuant to Section 2.05 or 2.06 shall be subject to the
further conditions precedent that:
<PAGE> 35
30
(a) With respect to any such Purchase, on or prior to the date of such
Purchase, the Collection Agent shall have delivered to the Agent, in form
and substance satisfactory to the Agent, a completed Seller Report, dated
within 35 days prior to the date of such Purchase, together with a listing
by Obligor of all Pool Receivables and such additional information as may
be reasonably requested by the Agent;
(b) On the date of such Purchase or reinvestment the following
statements shall be true (and the Seller by accepting proceeds of such
Purchase or by receiving the proceeds of such reinvestment shall be deemed
to have certified on the date of such purchase or reinvestment that):
(i) The representations and warranties contained in Section 4.01
hereof and contained in each other Loan Document are correct on and as
of such date as though made on and as of such date before and after
giving effect to such Purchase or reinvestment and to the application
of proceeds therefrom other than representations or warranties that,
by their terms, refer to a date other than the date of such Purchase,
(ii) No event has occurred and is continuing, or would result
from such Purchase or reinvestment or from the application of proceeds
therefrom, which constitutes an Event of Investment Ineligibility or
would constitute an Event of Investment Ineligibility but for the
requirement that notice be given or time elapse or both,
(iii) The Agent shall not have delivered to the Seller a notice
that no Investor shall not make any further Purchases hereunder and/or
that the Collection Agent shall not reinvest in any Pool Receivables
on behalf of the Owner of an Eligible Asset, and
(iv) On such date, the fee agreement noted in Section 2.10 of
this Agreement shall be effective; and
(c) The Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Purchases and Reinvestments by
Ciesco. Each Purchase (including the initial Purchase) hereunder by Ciesco and
the right of the Collection Agent, pursuant to Section 2.05 or 2.06, to reinvest
in Pool Receivables those Collections attributable to an Eligible Asset owned by
Ciesco shall be subject to the further condition precedent that on such date,
all of the Seller's long-term public senior debt securities, if rated, are rated
at least BBB- by S&P and Baa3 by Moody's or, if not rated,
<PAGE> 36
31
such securities are deemed to merit a BBB rating in the sole discretion of the
Agent.
SECTION 3.04. Conditions Precedent to Purchases and Reinvestments by
CRC. Each Purchase (including the initial Purchase) hereunder by CRC and the
right of the Collection Agent, pursuant to Section 2.05 or 2.06, to reinvest in
Pool Receivables those Collections attributable to an Eligible Asset owned by
CRC shall be subject to the further condition precedent that on such date, all
of the Seller's long-term public senior debt securities, if rated, are rated at
least BB- (but lower than BBB-) by S&P and Ba3 (but lower than Baa3) by Moody's
or, if not rated, such securities are deemed to merit at least a BB (but lower
than a BBB) rating in the sole discretion of the Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Seller. The Seller
represents and warrants as follows:
(a) The Seller is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to do business, and is in good standing, in every jurisdiction
where the nature of its business requires it to be so qualified, except
where the failure to so qualify would not have a material adverse effect on
the Seller.
(b) The execution, delivery and performance by the Seller of this
Agreement and all other instruments and documents to be delivered
hereunder, the transactions contemplated hereby and thereby, and the
Seller's use of the proceeds of Purchases, are within the Seller's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) the Seller's charter or by-laws or (ii) law
or any contractual restriction binding on or affecting the Seller and do
not result in or require the creation of any lien, security interest or
other charge or encumbrance upon or with respect to any of its material
properties, other than as a result of the transactions contemplated by this
Agreement; and no transaction contemplated hereby requires compliance with
any bulk sales act or similar law.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery and performance by the Seller of this
Agreement or any other document or instrument to be delivered hereunder
except for the filing of the UCC Financing Statements referred to in
Article III, all of which, at the time required in Article III, shall have
been duly made and shall be in full force and effect.
<PAGE> 37
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(d) This Agreement is, and the Certificate when delivered hereunder
will be, the legal, valid and binding obligation of the Seller enforceable
against the Seller in accordance with its terms except to the extent that
the enforceability thereof is limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
(e) (i) The Consolidated balance sheet of the Seller and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of the Seller and its Subsidiaries for
the fiscal year then ended, accompanied by an opinion of Ernst & Young,
independent public accountants, copies of which have been furnished to the
Agent, fairly present, the Consolidated financial condition of the Seller
and its Subsidiaries as at such dates and the Consolidated results of the
operations of the Seller and its Subsidiaries for the periods ended on such
dates, all in accordance with generally accepted accounting principles
applied on a consistent basis, and (ii) since December 31, 1996, there has
been no material adverse change in any such condition or operations.
(f) There is no pending or overtly threatened action, suit,
investigation, litigation or proceeding against or affecting the Seller or
any of its Subsidiaries, or the property of the Seller or of any of its
Subsidiaries, in any court, or before any arbitrator of any kind, or before
or by any governmental body, which, taking into account its probability of
success, may materially adversely affect the financial condition of the
Seller or the Seller and its Consolidated Subsidiaries taken as a whole or
materially adversely affect the ability of the Seller to perform its
obligations under this Agreement; neither the Seller nor any of its
Subsidiaries is in default with respect to any order of any court,
arbitrator or governmental body except for defaults with respect to orders
of governmental agencies which defaults are not material to the business or
operations of the Seller or any of its Subsidiaries.
(g) No proceeds of any Purchase or reinvestment will be used by the
Seller to acquire any equity security (other than the Common Stock of the
Seller to the extent permitted under the Credit Agreement) of a class that
is registered pursuant to Section 12 of the Securities Exchange Act of
1934.
(h) Each Pool Receivable is (i) together with the Contract related
thereto owned by the Seller free and clear of any Adverse Claim except as
provided for herein and (ii) an Eligible Receivable; upon each Purchase or
reinvestment, the Owner making such Purchase or reinvestment will acquire
a valid and perfected first priority undivided percentage ownership
interest to the extent of the pertinent Eligible Asset in each Pool
Receivable then existing or thereafter arising and in the Related Security
and Collections with respect thereto free and clear of any Adverse Claim
except as
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33
provided hereunder; and no effective financing statement (other than the
financing statements filed pursuant to the Original Agreement) or other
instrument similar in effect covering any Contract or any Pool Receivable
or the Related Security or Collections with respect thereto is on file in
any recording office except such as may be filed in favor of CNAI, as
Agent, in accordance with this Agreement.
(j) Each Seller Report (if prepared by the Seller, or to the extent
that information contained therein is supplied by the Seller), information,
exhibit, financial statement, document, book, record or report furnished at
any time by the Seller to the Agent or any Owner in connection with this
Agreement is accurate in all material respects as of its date or (except as
otherwise disclosed to the Agent or such Owner, as the case may be, at such
time) as of the date so furnished, and no such document contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not
materially-misleading.
(j) The chief executive office of the Seller is located at the address
of the Seller set forth under its name on the signature pages hereof and
the chief place of business and the offices where the Seller keeps all its
books, records and documents evidencing Pool Receivables or the related
Contracts are located at the address specified in Schedule IV hereto (or at
such other locations, notified to the Agent in accordance with Section
5.01(f), in jurisdictions where all action required by Section 6.05 has
been taken and completed).
(k) The names and addresses of all the Lock-Box Banks, together with
the account numbers of the Lock-Box Accounts of the Seller at such Lock-Box
Banks, are specified in Schedule I hereto (or at such other Lock-Box Banks
and/or with such other Lock-Box Accounts as have been notified to the Agent
in accordance with Section 5.03(d)).
(1) Neither the Seller nor any Affiliate of the Seller has any direct
or indirect ownership or other financial interest in the Investor, the
Agent or any "Original Bank" (as such term is defined in the Parallel
Purchase Commitment).
(m) Each purchase of an Eligible Asset hereunder, and each
reinvestment of Collections in Pool Receivables made hereunder, will
constitute (i) a "current transaction" within the meaning of Section
3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase or
other acquisition of notes, drafts, acceptances, open accounts receivable
or other obligations representing part or all of the sales price of
merchandise, insurance or services within the meaning of Section 3(c)(5) of
the Investment Company Act of 1940, as amended.
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34
ARTICLE V
GENERAL COVENANTS OF THE SELLER
SECTION 5.01. Affirmative Covenants of the Seller. Until the later of
the Facility Termination Date and the date upon which no Capital for any
Eligible Asset shall be existing, the Seller will, unless the Agent shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to it, its
business and properties and all Pool Receivables and related Contracts,
Related Security and Collections with respect thereto.
(b) 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 would materially adversely affect the interests of the Owners
or the Agent hereunder or in the Pool Receivables and the Related Security,
or the ability of the Seller or the Collection Agent to perform their
respective obligations hereunder or the ability of the Seller to perform
its obligations under the Contracts.
(c) Audits. At any time and from time to time during regular business
hours and upon reasonable prior notice, permit the Agent, or its agents or
representatives, (i) to examine and make copies of and abstracts from all
books, records and documents (including, without limitation, computer tapes
and disks) in the possession or under the control of the Seller relating to
Pool Receivables and the Related Security, including, without limitation,
the related Contracts, and (ii) to visit the offices and properties of the
Seller for the purpose of examining such materials described in clause (i)
above, and to discuss matters relating to Pool Receivables and the Related
Security or the Seller's performance hereunder or under the Contracts with
any of the officers or employees of the Seller having knowledge of such
matters.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Pool Receivables in the event of the
destruction of the originals thereof), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for
the collection of all Pool Receivables (including, without limitation,
records adequate to permit the daily identification of each new Pool
Receivable and all Collections of and adjustments to each existing Pool
Receivable).
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35
(e) Performance and Compliance with Receivables and Contracts. At its
expense, timely and fully (i) perform and comply with all material
provisions, covenants and other promises required to be observed by it
under the Contracts related to the Pool Receivables and, (ii) as
beneficiary of any Related Security, enforce such Related Security as
reasonably requested by the Agent.
(f) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning the
Pool Receivables and all Contracts related thereto (and all original
documents relating thereto), at the address(es) of the Seller referred to
in Section 4.01(j) or, upon 30 days' prior written notice to the Agent, at
such other locations in a jurisdiction where all action required by Section
6.05 shall have been taken and completed.
(g) Credit and Collection Policies. Comply in all material respects
with its Credit and Collection Policy in regard to each Pool Receivable and
the related Contract.
(h) Collections. Instruct substantially all Obligors to remit all
Collections directly to a Lock-Box Account and cause all Collections
received by the Seller to be deposited directly to a Lock-Box Account.
(i) Deposits to Lock-Box Accounts. Upon the request of the Agent, the
Seller shall instruct each Person that is not an Obligor to stop making
deposits to Lock Box Accounts.
SECTION 5.02. Reporting Requirements of the Seller. Until the later of
the Facility Termination Date and the date upon which no Capital for any
Eligible Asset shall be existing, the Seller will, unless the Agent shall
otherwise consent in writing, furnish to the Agent:
(a) 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 the Seller, a
Consolidated balance sheet of the Seller and its Subsidiaries as of the end
of such quarter and Consolidated statements of income and cash flow of the
Seller and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth
in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, all in reasonable
detail, duly certified (subject to year-end audit adjustments) by a
Responsible Officer of the Seller as having been prepared in accordance
with GAAP, it being agreed that delivery of the Seller's Quarterly Report
on Form l0-Q will satisfy this requirement, together with (i) a certificate
of said officer stating that, to his knowledge after reasonable
investigation, no Event of Investment Ineligibility has occurred and is
continuing or, if an Event of
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36
Investment Ineligibility has occurred and is continuing, a statement as to the
nature thereof and the action that the Seller has taken and proposes to take
with respect thereto and (ii) a certificate of said officer stating the Interest
Coverage Ratio and the Leverage Percentage as of the end of such quarter;
(b) 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 and its Subsidiaries, containing a Consolidated balance
sheet of the Seller and its Subsidiaries as of the end of such fiscal year
and Consolidated statements of income and cash flows of the Seller and its
Subsidiaries for such fiscal year, in each case accompanied by an opinion
without qualification of independent public accountants of recognized
standing acceptable to the Agent, it being agreed that delivery of the
Seller's Annual Report on Form 10-K will satisfy this requirement, together
with (i) a certificate of such accounting firm to the Agent stating that in
the course of the regular audit of the business of the Seller and its
Subsidiaries, which audit was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting firm
has obtained no knowledge that an Event of Investment Ineligibility has
occurred insofar as such Event of Investment Ineligibility relates to
accounting matters and is continuing, or if an Event of Investment
Ineligibility has occurred and is continuing, a statement as to the nature
thereof, (ii) a certificate of a Responsible Officer of the Seller stating
the Interest Coverage Ratio and the Leverage Percentage as of the end of
such fiscal year and (iii) a certificate of a Responsible Officer of the
Seller stating that, to his knowledge after reasonable investigation, no
Event of Investment Ineligibility has occurred and is continuing or, if a
Event of Investment Ineligibility has occurred and is continuing, a
statement as to the nature thereof and the action that the Seller has taken
and proposes to take with respect thereto;
(c) promptly after the sending or filing thereof, copies of all
reports which the Seller sends to any of its securityholders, and copies of
all reports and registration statements which the Seller or any of its
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange;
(d) promptly after the filing or receiving thereof, copies of all
reports and notices relating to the Seller and its significant domestic
subsidiaries with respect to any Reportable Event defined in Article IV of
ERISA which the Seller or any such subsidiary files under ERISA with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor or which the Seller or any subsidiary receives
from such corporation;
(e) as soon as possible and in any event within five days after the
occurrence of each Event of Investment Ineligibility or each event which,
with the giving of notice or lapse of time or both, would constitute an
Event of Investment Ineligibility, the
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37
statement of the chief accounting officer, treasurer or assistant treasurer of
the Seller setting forth details of such Event of Investment Ineligibility or
event and the action which the Seller proposes to take with respect thereto; and
(f) promptly, from time to time, such other information, documents,
records or reports respecting the Receivables or the conditions or
operations, financial or otherwise, of the Seller, or any subsidiary, as
the Agent may from time to time request in order to protect any Owner's or
the Agent's interests under or contemplated by this Agreement.
SECTION 5.03. Negative Covenants of the Seller. Until the later of the
Facility Termination Date and the date upon which no Capital for any Eligible
Asset shall be existing, the Seller will not, without the written consent of the
Agent:
(a) Sales, Liens, Etc. Except as otherwise provided herein, or
pursuant to the Parallel Purchase Commitment, sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect
to or create or suffer to exist any Adverse Claim upon or with respect to,
the Seller's undivided interest in any Pool Receivable or Related Security
or Collections in respect thereof, or upon or with respect to any related
Contract, or upon or with respect to any lock-box account to which any
Collections of any Pool Receivable are sent, or assign any right to receive
income in respect thereof.
(b) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 6.02(a), extend, amend or otherwise modify the terms
of any Pool Receivable, or amend, modify or waive any term or condition of
any Contract related thereto.
(c) Change in Business or Credit and Collection Policy. Make any
change in the character of its business or in the Credit and Collection
Policy, which change would, in either case, impair the collectibility of
any Pool Receivable.
(d) Change in Payment Instructions to Obligors. Add or terminate any
bank as a Lock-Box Bank from those listed in Schedule I hereto or make any
change in its instructions to Obligors regarding payments to be made to the
Seller or payments to be made to any Lock-Box Bank, unless the Agent shall
have received notice of such addition, termination or change and executed
copies of Lock-Box Agreements with each new Lock-Box Bank.
(e) Change in Corporate Name, Etc. Make any change to its name or
structure, or use any tradenames, fictitious names, assumed names or "doing
business as" names, unless, in the case of such name change or use and
prior to the effective
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38
date thereof, the Seller delivers to the Agent such financing statements or
amendments to financing statements (Form UCC-1 and UCC-3) executed by the
Seller which the Agent may request to reflect such name change or use,
together with such other documents and instruments that the Agent may
reasonably request in connection therewith.
(f) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions), all or substantially all of its assets (whether
now owned or hereafter acquired) to, any Person, or permit any of its
Subsidiaries to do so, except that any Subsidiary of the Seller may merge
or consolidate with or into, or dispose of assets to, any other Subsidiary
of the Seller, and except that any Subsidiary of the Seller may merge into
or dispose of assets to the Seller and the Seller may merge with any other
Person so long as the Seller is the surviving corporation, provided, in
each case; that no "Default" as defined in the Credit Agreement, and no
Event of Investment Ineligibility or event which would, with notice or the
lapse of time or both, constitute an Event of Investment Ineligibility
shall have occurred and be continuing at the time of such proposed
transaction or would result therefrom.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. The servicing,
administering and collection of the Pool Receivables shall be conducted by such
Person (the "Collection Agent ") so designated from time to time in accordance
with this Section 6.01. Until the Agent gives three Business Days' notice to the
Seller of a designation of a new Collection Agent, the Seller is hereby
designated as, and hereby agrees to perform the duties and obligations of, the
Collection Agent pursuant to the terms hereof. The Agent may at any time
designate as Collection Agent any Person (including itself) to succeed the
Seller or any successor Collection Agent if the Agent shall determine in its
reasonable discretion that such action is necessary to protect the interest of
any Owner in the Receivables, on the condition in each case that any such Person
so designated shall agree to perform the duties and obligations of the
Collection Agent pursuant to the terms hereof. The Collection Agent may, with
the prior consent of the Agent, subcontract with any other Person for servicing,
administering or collecting the Pool Receivables, provided that the Collection
Agent shall remain liable for the performance of the duties and obligations of
the Collection Agent pursuant to the terms hereof.
SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent shall
take or cause to be taken all such actions as may be necessary or advisable to
collect each
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39
Pool Receivable from time to time, all in accordance with applicable laws, rules
and regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy, including, without limitation, the billing of Pool
Receivables as soon as possible under the Contracts related thereto, the
preparation and mailing of collection letters to any Obligor whose payment is
past due, the investigation and resolution of customer inquiries and complaints,
and the employment of one or more agents. Each of the Seller, each Owner and the
Agent hereby appoints as its agent the Collection Agent, from time to time
designated pursuant to Section 6.01, to enforce its respective rights and
interests in and under the Pool Receivables, the Related Security and the
Contracts. The Collection Agent shall set aside and hold in trust for the
account of the Seller and each Owner their respective allocable shares of the
Collections of Pool Receivables in accordance with Sections 2.05 and 2.06 but
shall not be required (unless otherwise requested by the Agent) to segregate the
funds constituting such portion of such Collections prior to the remittance
thereof in accordance with said Sections. If instructed by the Agent, the
Collection Agent shall segregate and deposit with a bank (which may be Citibank)
designated by the Agent such allocable share of Collections of Pool Receivables,
set aside for each Owner, on the first Business Day following receipt by the
Collection Agent of such Collections. Provided no Event of Investment
Ineligibility shall have occurred and be continuing, the Seller, while it is
Collection Agent, may, in accordance with the Credit and Collection Policy,
extend the maturity or adjust the Outstanding Balance of any Defaulted
Receivable as the Seller may determine to be appropriate to maximize Collections
thereof. The Seller shall deliver to the Collection Agent, and the Collection
Agent shall hold in trust for the Seller and each Owner in accordance with their
respective interests, all documents, instruments and records (including, without
limitation, computer tapes or disks) which evidence or relate to Pool
Receivables.
(b) The Collection Agent shall as soon as practicable following receipt
turn over to the Seller (i) that portion of Collections of Pool Receivables
representing its undivided interest therein, less, in the event the Seller is
not the Collection Agent, all reasonable and appropriate out-of-pocket costs and
expenses of such Collection Agent of servicing, collecting and administering the
Pool Receivables to the extent not covered by the Collection Agent Fee received
by it and (ii) the Collections of any Receivable which is not a Pool Receivable.
The Collection Agent, if other than the Seller, shall as soon as practicable
upon demand deliver to the Seller all documents, instruments and records in its
possession which evidence or relate to Receivables of the Seller other than Pool
Receivables, and copies of documents, instruments and records in its possession
which evidence or relate to Pool Receivables. The Collection Agent's
authorization under this Agreement shall terminate, after the Facility
Termination Date, upon receipt by each Owner of an Eligible Asset of an amount
equal to the Capital plus accrued Yield for such Eligible Asset plus all other
amounts owed to the Agent, each Owner and the Seller and (unless otherwise
agreed by the Agent and the Collection Agent) the Collection Agent under this
Agreement.
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SECTION 6.03. Rights of the Agent. (a) The Agent may notify, at any time
upon three Business Days' notice to the Seller if the Agent shall determine in
its sole discretion that such action is necessary to protect the interest of any
Owner in the Receivables, or at any time after the designation of a Collection
Agent other than the Seller and at the Seller's expense, the Obligors of Pool
Receivables, or any of them, of the ownership of Eligible Assets by the Owners.
(b) At any time following the designation of a Collection Agent other
than the Seller pursuant to Section 6.01:
(i) The Agent may direct the Obligors of Pool Receivables, or any of
them, that payment of all amounts payable under any Pool Receivable be made
directly to the Agent or its designee.
(ii) The Seller shall, at the Agent's request and at the Seller's
expense, give notice of such ownership to each said Obligor and direct that
payments be made directly to the Agent or its designee.
(iii) Seller shall, at the Agent's request, (A) assemble all of the
documents, instruments and other records (including, without limitation,
computer tapes and disks) which evidence the Pool Receivables, and the
related Contracts and Related Security, or which are otherwise necessary or
desirable to collect such Pool Receivables, and shall make the same
available to the Agent at a place selected by the Agent or its designee and
(B) segregate all cash, checks and other instruments received by it from
time to time constituting Collections of Pool Receivables in a manner
acceptable to the Agent and shall, promptly upon receipt, remit all such
cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Agent or its designee.
(iv) Each of the Seller and each Investor hereby authorizes the Agent
to take any and all steps in the Seller's name and on behalf of the Seller
and the Owners necessary or desirable, in the determination of the Agent,
to collect all amounts due under any and all Pool Receivables, including,
without limitation, endorsing the Seller's name on checks and other
instruments representing Collections and enforcing such Pool Receivables
and the related Contracts.
SECTION 6.04. Responsibilities of the Seller. Anything herein to the
contrary notwithstanding:
(a) The Seller shall perform all of its obligations under the
Contracts related to the Pool Receivables to the same extent as if Eligible
Assets had not been sold hereunder and the exercise by the Agent of its
rights hereunder shall not relieve the
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Seller from such obligations or its obligations with respect to Pool
Receivables; and
(b) Neither the Agent nor the Owners shall have any obligation or
liability with respect to any Pool Receivables or related Contracts, nor
shall any of them be obligated to perform any of the obligations of the
Seller thereunder.
SECTION 6.05. Further Action Evidencing Purchases. The Seller 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 Agent
may reasonably request in order to perfect, protect or more fully evidence the
Eligible Assets purchased by the Owners hereunder, or to enable any of them or
the Agent to exercise and enforce any of their respective rights and remedies
hereunder. Without limiting the generality of the foregoing, the Seller will,
upon the request of the Agent: (i) 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; (ii) if the
Agent shall determine in its sole discretion that such action is necessary to
protect its interest in the Receivables, mark conspicuously each invoice
evidencing each Pool Receivable and the related Contract with a legend,
acceptable to the Agent, evidencing that such Eligible Assets have been sold in
accordance with this Agreement; and (iii) mark its master data processing
records evidencing such Pool Receivables and related Contracts with such legend.
The Seller hereby authorizes the Agent to file one or more financing or
continuation statements, and amendments thereto and assignments thereof,
relative to all or any of the Pool Receivables and the Related Security now
existing or hereafter arising without the signature of the Seller where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering all or any of the Contracts, or Pool Receivables
and the Related Security and Collections with respect thereto shall be
sufficient as a financing statement where permitted by law. If the Seller fails
to perform any of its agreements or obligations under this Agreement, the Agent
may (but shall not be required to) itself perform, or cause performance of, such
agreement or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Seller as provided in Section 10.01.
ARTICLE VII
EVENTS OF INVESTMENT INELIGIBILITY
SECTION 7.01. Events of Investment Ineligibility. If any of the
following events ("Events of Investment Ineligibility") shall occur and be
continuing:
(a) (i) The Collection Agent (if other than the Agent or Citibank) (i)
shall fail to perform or observe any term, covenant or agreement hereunder
(other than as referred to in clause (ii) of this Section 7.01(a)) and such
failure shall remain
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42
unremedied for three Business Days or (ii) the Seller or the Collection
Agent (if other than the Agent or Citibank) shall fail to make any payment
or deposit to be made by it hereunder or under the letter agreement
described in Section 2.10(a) when due; or
(b) The Seller shall fail to perform or observe any term, covenant or
agreement contained in Section 5.03(e) or Section 6.03(a); or
(c) Any representation or warranty made or deemed to be made by the
Seller (or any of its officers) under or in connection with this Agreement,
the other Loan Documents or any Seller Report or other information or
report delivered pursuant hereto shall prove to have been false or
incorrect in any material respect when made; or
(d) The Seller shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for
seven Business Days after written notice thereof shall have been given by
the Agent to the Seller; or
(e) The Seller shall fail to pay any Debt in excess of $10,OOO,OOO or
any interest or premium thereon, when due (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 or instrument relating to such Debt; or any other default under
any agreement or instrument relating to any such Debt, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or 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 prepay,
redeem, purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; or
(f) Any Purchase or any reinvestment pursuant to Section 2.05 shall
for any reason, except to the extent permitted by the terms hereof, cease
to create, or any Eligible Asset shall for any reason cease to be, a valid
and perfected first priority undivided percentage ownership interest to the
extent of the pertinent Eligible Asset in each applicable Pool Receivable
and the Related Security and Collections with respect thereto; or
(g) (i) The Seller 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 seeking to
adjudicate it a bankrupt or insolvent, or seeking
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43
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 any substantial part of
its property and, if instituted against the Seller, either such proceeding
shall not be stayed or dismissed for 30 days or any of the actions sought
in such preceding (including, without limitation, the entry of an order for
relief against it 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 (ii) the Seller shall take any corporate action to
authorize any of the actions set forth in clause (i) above in this
subsection (g); or
(h) The Default Ratio as at the last day of any calendar month shall
exceed 6% or the Delinquency Ratio as at the last day of any calendar month
shall exceed 4% and a repurchase, if required pursuant to Section 10.03, is
not made when due; or
(i) There shall have been any material adverse change in the financial
condition or operations of the Seller since December 31, 1996, or there
shall have occurred any event which materially adversely affects the
collectibility of the Pool Receivables, or there shall have occurred any
other event which materially adversely affects the ability of the Seller to
collect Pool Receivables or the ability of the Seller to perform hereunder;
or
(j) Any "Event of Default" shall have occurred and be continuing under
the Credit Agreement; or
(k) The aggregate undivided percentage interest for all Eligible
Assets and the "Eligible Assets" under the Parallel Purchase Commitment
shall exceed 100% for five consecutive days; or
(1) The Seller shall have failed to deliver to the Agent its written
consent to a proposed modification to the definition of Dilution Percentage
in accordance with the terms of such definition set forth in Section 1.01
within 5 days after receipt by the Seller of written notice from the Agent
setting forth such proposed modification, together with written evidence of
the approval of S&P or Moody's or both for such modification;
then, and in any such event, the Agent may, by notice to the Seller, declare the
Facility Termination Date to have occurred, whereupon the Facility Termination
Date shall forthwith occur, without demand, protest or further notice of any
kind, all without any further actions on its part, which are hereby expressly
waived by the Seller; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Seller under the
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Federal Bankruptcy Code or the occurrence of any event described above in
subsection (f), the Facility Termination Date shall automatically occur, without
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Seller. Upon any such termination of the Facility, the Agent and
the Owners 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
the applicable jurisdiction and other applicable laws, which rights shall be
cumulative. Without limiting the foregoing or the general applicability of
Article IX hereof, any Owner may elect to assign pursuant to Article IX hereof
any Eligible Asset owned by such Owner to an Assignee following the occurrence
of any Event of Investment Ineligibility.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Owner hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them as Agent under or in connection with this
Agreement (including, without limitation, the Agent's servicing, administering
or collecting Pool Receivables as Collection Agent pursuant to Section 6.01),
except for its or their own gross negligence or willful misconduct. Without
limiting the foregoing, the Agent:
(i) may consult with legal counsel (including counsel for the Seller),
independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts;
(ii) makes no warranty or representation to any Owner and shall not be
responsible to any Owner for any statements, warranties or representations
made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of the Seller or to inspect the property
(including the books and records) of the Seller;
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45
(iv) shall not be responsible to any Owner for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of
this Agreement, the Certificate or any other instrument or document
furnished pursuant hereto; and
(v) shall incur no liability under or in respect of this Agreement by
acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by facsimile)
believed by it to be genuine and signed or sent by the proper party or
parties.
SECTION 8.03. CNAI and Affiliates. With respect to any Eligible Asset
owned by CNAI, CNAI shall have the same rights and powers under this Agreement
as would any Owner and may exercise the same as though it were not the Agent.
CNAI and its Affiliates may generally engage in any kind of business with the
Seller or any Obligor, any of their respective Affiliates and any Person who may
do business with or own securities of the Seller or any Obligor or any of their
respective Affiliates, all as if CNAI were not the Agent and without any duty to
account therefor to the Owners.
SECTION 8.04. Investors' Purchase Decision. Each Investor acknowledges
that it has, independently and without reliance upon the Agent, any of its
Affiliates or any other Owner and based on such documents and information as it
has deemed appropriate, made its own evaluation and decision to enter into this
Agreement and, if it so determines, to purchase an undivided ownership interest
in Pool Receivables hereunder.
ARTICLE IX
ASSIGNMENT
SECTION 9.01. Assignment. (a) Each Investor may assign to any other
Assignee, and any such Assignee may assign to any other Assignee, any Eligible
Asset. Upon any such assignment, (i) the Assignee shall become the Owner of such
Eligible Asset for all purposes of this Agreement and (ii) the Owner assignor
thereof shall relin4uish its rights with respect to such Eligible Asset for all
purposes of this Agreement. Such assignments shall be upon such terms and
conditions as the assignor and the Assignee of such Eligible Asset may mutually
agree, the parties thereto shall deliver to the Agent an Assignment, duly
executed by such parties, and such assignor shall promptly execute and deliver
all further instruments and documents, and take all further action, that the
Assignee may reasonably request in order to perfect, protect or more fully
evidence the Assignee's right, title and interest in and to such Eligible Asset,
and to enable the Assignee to exercise or enforce any rights hereunder or under
the Certificate. The Agent shall provide notice to the Seller of any assignment
of an Eligible Asset hereunder.
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46
(b) By executing and delivering an Assignment, the Owner assignor
thereunder and the Assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than as provided in such
Assignment, such assigning Owner makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or Value of this Agreement,
the Certificate or any other instrument or document furnished pursuant hereto;
(ii) such assigning Owner makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Seller or the
performance or observance by the Seller of any of its obligations under, or the
perfection or priority of any ownership or security interest created or
purported to be created under or in connection with, this Agreement, the
Certificate or any other instrument or document furnished pursuant hereto; (iii)
such Assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and to purchase such
Eligible Asset; (iv) such Assignee will, independently and without reliance upon
the Agent, any of its Affiliates, such assigning Owner or any other Owner and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such Assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; (vi) such Assignee appoints as its
agent the Collection Agent from time to time designated pursuant to Section 6.01
to enforce its respective rights and interests in and under the Pool
Receivables, the Related Security and the related Contracts; and (vii) such
Assignee agrees that it will not institute against any Investor any proceeding
of the type referred to in Section 7.01(g) so long as any commercial paper
issued by such Investor shall be outstanding or there shall not have elapsed one
year plus one day since the last day on which any such commercial paper shall
have been outstanding.
(c) The Seller may not assign its rights or obligations hereunder or any
interest herein without the prior written consent of the Agent.
SECTION 9.02. Annotation of Certificate. The Agent shall annotate the
Certificate to reflect any assignments made pursuant to Section 9.01 or
otherwise.
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ARTICLE X
INDEMNIFICATION
SECTION 10.01. Indemnities by the Seller. Without limiting any other
rights which the Agent, any Owner or any of their respective Affiliates (each an
"Indemnified Party") may have hereunder or under applicable law, the Seller
hereby agrees to indemnify each Indemnified Party from and against any and all
damages, losses, claims, liabilities and related costs and expenses, including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or incurred
by any of them arising out of or as a result of this Agreement or the use of
proceeds of Purchases or the ownership of Eligible Assets or in respect of any
Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of such
Indemnified Party or (b) recourse (except as otherwise specifically provided in
this Agreement) for uncollectible Receivables. Without 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 for Indemnified
Amounts relating to or resulting from:
(i) the creation of an undivided percentage ownership interest in any
Receivable which is not at the date of the creation of such interest an
Eligible Receivable or which thereafter ceases to be an Eligible
Receivable;
(ii) reliance on any representation or warranty made by the Seller (or
any of its officers) under or in connection with this Agreement, any Seller
Report or any other information or report delivered by the Seller pursuant
hereto, which shall have been false or incorrect in any material respect
when made or deemed made;
(iii) the failure by the Seller to comply with any applicable law,
rule or regulation with respect to any Pool Receivable or the related
Contract, or the nonconformity of any Pool Receivable or the related
Contract with any such applicable law, rule or regulation;
(iv) the failure to vest in the Owner of an Eligible Asset an
undivided percentage ownership interest, to the extent of such Eligible
Asset, in the Receivables in, or purporting to be in, the Receivables Pool
and the Related Security and Collections in respect thereof, free and clear
of any Adverse Claim;
(v) the failure to file, 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 Related Security and
Collections in respect thereof, whether
<PAGE> 53
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at the time of any Purchase or reinvestment or at any subsequent time;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
in, or purporting to be in, the Receivables Pool (including, 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 sale of the merchandise or services related to such Receivable or the
furnishing or failure to furnish such merchandise or services;
(vii) any failure of the Seller, as Collection Agent or otherwise, to
perform its duties or obligations hereunder or to perform its duties or
obligations under the Contracts;
(viii) any products liability claim arising out of or in connection
with merchandise, insurance or services which are the subject of any
Contract; or
(ix) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or the ownership of Eligible
Assets or in respect of any Receivable or any Contract; or
(x) the commingling of Collections of Pool Receivables at any time
with other funds provided, that without in any way limiting the scope of
the foregoing indemnity, such indemnity is not intended to restrict the
Seller from servicing Receivables as the Collection Agent pursuant to
Article 6 of this Agreement.
SECTION 10.02. Additional Indemnities. Section 8.04(b) of the Credit
Agreement is incorporated in this Agreement by reference, with the same force
and effect as if the same was set out in this Agreement in full; provided that
references to the "Borrower" and any "Lender" therein shall mean the Seller and
any Owner, respectively, and, without limitation, all references in such
incorporated provision to "Indemnified Party" and "Loan Documents" shall mean
and refer to Indemnified Party and Loan Documents under this Agreement,
respectively; likewise, to the extent any word or phrase is defined in this
Agreement, any such word or phrase appearing in the provision so incorporated by
reference from the Credit Agreement shall have the meaning given to it in this
Agreement; and provided further words or phrases used in such incorporated
provision and not otherwise defined in this Agreement shall be also incorporated
herein by reference; and provided further, that notwithstanding the foregoing,
such incorporated provision shall exclude recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables. The
incorporation by reference into this Agreement from the Credit Agreement is for
convenience only and this Agreement and the Credit Agreement shall at all times
be, and be deemed to be and treated as, separate and distinct facilities.
Incorporations by
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49
reference in this Agreement from the Credit Agreement shall not be affected or
impaired by any subsequent expiration or termination of the Credit Agreement,
nor by any amendment thereof or waiver thereunder unless the Agent, as Agent for
the Owners, shall have consented to such amendment or waiver in writing.
SECTION 10.03. Limited Recourse. On the first day (the "Determination
Date") on which (a) the Default Ratio or the Delinquency Ratio exceeds the
percentage therefor set forth in Section 7.01(h) and (b) such percentage would
not be exceeded if such ratio were calculated by excluding from the numerator
and denominator thereof all the Pool Receivables of either (i) the Obligor with
the largest, (ii) the Obligors with the two largest or (iii) the Obligors with
the three largest Outstanding Balances of Pool Receivables that on the
Determination Date are either Defaulted Receivables or Delinquent Receivables,
as the case may be (the amount of such Outstanding Balances of the minimum
number of such Obligors required so that such percentage would not be exceeded
being called the "Excluded Receivables", and the one, two or three Obligors
owing such Excluded Receivables being the "Excluded Obligors"), then the Seller
shall repurchase a portion of Eligible Assets ratably from each Owner by paying
to the Agent for the benefit of the Owners on the first Business Day after the
Determination Date:
(i) an amount of Capital equal to the product obtained by multiplying
all Capital outstanding as of the Determination Date by a fraction the
numerator of which shall be the Outstanding Balances of the Excluded
Receivables and the denominator of which shall be the Outstanding Balances
of all Pool Receivables, in each case as of the Determination Date, plus
(ii) all Yield accrued thereon through the date of such repurchase
plus
(iii) the amount, if any, by which (A) the additional Yield which
would have accrued on the portion of the Eligible Assets so repurchased
during the Fixed Period (computed without regard to clause (iv) of the
definition of "Fixed Period") during which such repurchase occurs if such
portion of such Eligible Assets had remained outstanding in its entirety
exceeds (B) the income, if any, received by the Owner by investing the
proceeds of such repurchase attributable to the portion of the Eligible
Assets so repurchased.
On and after the date on which such payment is made in full, each Excluded
Obligor shall automatically and immediately cease to be a Designated Obligor,
and the Receivables of such Obligor shall automatically and immediately be
excluded from the Receivables Pool. Upon receipt of funds paid to the Agent
pursuant to this Section 10.03, the Agent shall distribute such funds to the
Owners ratably (i) in payment of the accrued Yield for such portion of each
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Eligible Asset repurchased, (ii) in reduction of the Capital of such portion of
each Eligible Asset repurchased and (iii) in payment of any other amounts owed
by the Seller hereunder to such Owner.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Seller
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, as Agent for the Owners, and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 11.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing and
mailed, faxed or delivered, as to each party hereto, to its address set forth
under its name on the signature pages hereof or at such other address as shall
be designated by such party in a written notice to the other parties hereto.
Notices and communications by facsimile shall be effective when sent, and
notices and communications sent by other means shall be effective when received,
in each case addressed as aforesaid.
SECTION 11.03. No Waiver; Remedies. No failure on the part of the Agent,
Citibank or an Owner 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 remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 11.04. Restatement Effective Date; Restatement of the Original
Agreement; Binding Effect. The Original Agreement became effective when it was
executed by the Seller, each Investor and the Agent and the conditions precedent
set forth in Section 3.01 were satisfied or waived (the date on which all such
events shall have occurred being the "Effective Date"). This Agreement shall
become effective when it shall have been executed by the Seller, each Investor
and the Agent (such date being the "Restatement Effective Date"). Any Eligible
Asset outstanding on the Restatement Effective Date shall continue to be
calculated at the "Investor Rate" and for the selected "Interest Period" under
the Original Agreement until the earlier of the expiration of the "Interest
Period" or August 21, 1997 (each as defined under the Original Agreement). For
purposes of the foregoing sentence only, the provisions in the Original Credit
Agreement dealing with the "Investor Rate" and the calculation and payment
thereof shall survive until August 21, 1997. After August 21, 1997 all
calculations and payments with respect to the Investor Rate shall be
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51
governed by the provisions of this Agreement. On the Restatement Effective Date,
the Original Agreement and the Certificate issued thereunder shall each
automatically and without further action be amended and restated to read in its
entirety as set forth in this Agreement (other than as provided for above).
Thereafter each reference in the Original Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference to
the Original Agreement in any Certificate or other document delivered and to be
delivered in connection with the Original Agreement shall mean and be a
reference to the Original Agreement as amended and restated pursuant to this
Agreement and each reference to the Certificate in the Original Agreement and in
any document delivered and to be delivered in connection with the Original
Agreement shall mean and be a reference to the Certificate issued under this
Agreement. Except as so amended and restated, the Original Agreement shall
remain in full force and effect and is hereby ratified and confirmed. The
execution, delivery and effectiveness of this Agreement shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Owner or the Agent under the Original Agreement, nor constitute a waiver of
any provision of the Original Agreement. The Original Agreement as so amended
and restated shall be binding upon and inure to the benefit of the Seller, the
Agent, the Owners and their respective successors and assigns. This Agreement
shall create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until such
time, after the Facility Termination Date, as no Capital of any Eligible Asset
shall be outstanding; provided, however, that rights and remedies with respect
to any breach of any representation and warranty made by the Seller pursuant to
Article IV, the indemnification provisions of Article X and the provisions of
Sections 11.06, 11.07 and 11.08 shall be continuing and shall survive any
termination of this Agreement for a period of three years.
SECTION 11.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE OWNERS IN THE
RECEIVABLES, OR REMEDIES HEREUNDER, IN RESPECT THEREOF ARE GOVERNED BY THE LAWS
OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 11.06. Costs. Expenses and Taxes. (a) In addition to the rights
of indemnification granted to the Indemnified Parties under Article X hereof,
the Seller agrees to pay on demand all costs and expenses in connection with the
preparation, execution, delivery, administration, modification and amendment
(including periodic auditing) of this Agreement, the Certificate and the other
documents to be delivered hereunder, including, without limitation, the
reasonable fees and expenses of counsel for the Agent, each Investor, Citibank,
CNAI and their respective Affiliates with respect thereto and with respect to
advising the Agent, each Investor, Citibank, CNAI and their respective
Affiliates as to their respective rights and remedies under this Agreement. The
Seller further agrees to pay on demand all costs and expenses, if any (including
reasonable counsel fees and expenses), of the Agent, CNAI, the Owners and their
respective Affiliates, in connection with the
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enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Certificate and the other documents to be delivered
hereunder, including, without limitation, reasonable fees and expenses of
counsel for the Agent, CNAI, the Owners and their respective Affiliates in
connection with the enforcement of rights under this Section 11.06(a). A
certificate as to the amount of such costs and expenses setting forth the basis
thereof in reasonable detail and submitted to the Seller shall be conclusive and
binding for all purposes, absent manifest error.
(b) In addition, the Seller shall pay any and all commissions of
placement agents and commercial paper dealers in respect of commercial paper
notes of each Investor issued to fund the Purchase or maintenance of any
Eligible Asset and any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing and
recording of this Agreement or the other documents to be delivered hereunder,
and agrees to indemnify the Agent, each Investor, Citibank; CNAI and their
respective Affiliates against any liabilities with respect to or resulting from
any delay in paying or omission to pay such taxes and fees.
(c) In addition, the Seller shall pay on demand all other costs,
expenses and taxes (excluding income taxes) incurred by each Investor or any
general or limited partner of each Investor ("Other Costs"), including, without
limitation, the cost of auditing each Investor's books by certified public
accountants, the cost of rating each Investor's commercial paper by independent
financial rating agencies, the taxes (excluding income taxes) resulting from
each Investor's operations, and the reasonable fees and out-of-pocket expenses
of counsel for each Investor or any counsel for any general or limited partner
of each Investor with respect to (i) advising such Investor or such general or
limited partner as to its rights and remedies under this Agreement, (ii) the
enforcement of this Agreement and the other documents to be delivered hereunder,
or (iii) advising such Investor or such general or limited partner as to matters
relating to such Investor's operations; provided, however that, if any Investor
enters into agreements for the purchase of interests in receivables from one or
more other Persons ("Other Sellers"), the Seller and such Other Sellers shall
each be liable for such Other Costs ratably in accordance with the usage under
the respective facilities of such Investor to purchase receivables or interests
therein from the Seller and each Other Seller; and provided further that if such
Other Costs are attributable to the Seller and not attributable to any Other
Seller, the Seller shall be solely liable for such Other Costs. A certificate as
to the amount of such costs and expenses setting forth the basis thereof in
reasonable detail and submitted to the Seller shall be conclusive and binding
for all purposes, absent manifest error.
SECTION 11.07. No Proceedings. Each of the Seller, the Agent, each
Owner, each assignee of an Eligible Asset or any interest therein and each
entity which enters into a commitment to purchase Eligible Assets or interests
therein hereby agrees that it will not institute against any Investor any
proceeding of the type referred to in clause (i) of Section
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7.01(g) 50 long as any commercial paper issued by such Investor shall be
outstanding or there shall not have elapsed one year plus one day since the last
day on which any such commercial paper shall have been outstanding.
SECTION 11.08. Confidentiality. (a) Except to the extent otherwise
required by applicable law, rule, regulation or judicial process, the Seller
agrees to maintain the confidentiality of this Agreement (and all drafts
thereof) in communications with third parties and otherwise; provided, however,
that the Agreement may be disclosed to third parties to the extent such
disclosure is (i) required in connection with a sale of securities of the
Seller, (ii) made solely to persons who are legal counsel for the purchaser or
underwriter of such securities, (iii) limited in scope to the provisions of
Articles V, VII, X and, to the extent defined terms are used in Articles V, VII
and X, such terms defined in Article I of this Agreement and (iv) made pursuant
to a written agreement of confidentiality in form and substance reasonably
satisfactory to the Agent; provided further, however, that the Agreement may be
disclosed to the Seller's legal counsel pursuant to an agreement of the type
referred to in clause (iv), above; and provided further, however, that the
Seller shall have no obligation of confidentiality in respect of any information
which may be generally available to the public or becomes available to the
public through no fault of the Seller.
(b) Each Owner understands that this Agreement is a confidential
document and no Owner will disclose it to any other Person without the Agent's
prior written consent other than (i) to such Owner's Affiliates and their and
their Affiliates' officers, directors, employees, agents, rating agencies,
counsel, auditors and advisors and then only on a confidential basis, (ii) to
actual or prospective Assignees and participants, and then only if such Assignee
has agreed in writing to maintain such information on a confidential basis,
(iii) as required by any law, rule or regulation or judicial process or (iv) as
requested or required by any state, federal or foreign authority or examiner
regulating banks or banking.
(c) Neither the Agent nor any Owner shall disclose any Confidential
Information to any Person without the consent of the Seller, other than (i) to
the Agent's or such Owner's Affiliates and their and their Affiliates' officers,
directors, employees, agents, rating agencies, counsel, auditors and advisors
and then only on a confidential basis, (ii) to actual or prospective Assignees
and participants, and then only if such Assignee has agreed in writing to
maintain such Confidential Information on a confidential basis, (iii) as
required by any law, rule or regulation or judicial process and (iv) as
requested or required by any state, federal or foreign authority or examiner
regulating banks or banking.
SECTION 11.09. Execution in Counterparts; Severability. 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. Delivery of an executed counterpart of a signature page to this
Agreement by telefax shall be effective as
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delivery of a manually executed counterpart of this Agreement. In case any
provision in or obligation under this Agreement should be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 11.10. Grant of a Security Interest. (a) The Seller hereby
assigns and pledges to the Agent for the benefit of itself, the Owners and each
other Indemnified Party from time to time, and hereby grants to the Agent for
the benefit of itself, the Owners and each other Indemnified Party from time to
time, a security interest in and to all of the Seller's right, title and
interest in and to all of the Pool Receivables, the Related Security with
respect thereto and the Collections and all proceeds of any and all of the
foregoing Collateral (including, without limitation, proceeds which constitute
property of the types described above in this clause (a)) (collectively the
"Collateral").
(b) The assignment, pledge and security interest granted under this
Section 11.10 secures the payment of all obligations of the Seller now or
hereafter existing from time to time under this Agreement, any other instruments
and documents furnished by the Seller pursuant hereto and otherwise in
connection with this Agreement, whether for Collections received or deemed to
have been received or otherwise payable by the Seller, either individually or as
Collection Agent, repurchases of interests in Pool Receivables, interest,
capital, yield, fees (including but not limited to any Collection Agent Fees),
costs, expenses, taxes, indemnification or otherwise (all such obligations being
the "Obligations").
(c) The Seller agrees that from time to time, at the expense of the
Seller, the Seller will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Agent may reasonably request, in order to perfect and protect the
assignment and security interest granted or purported to be granted hereby or to
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing, the
Seller will execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or reasonably desirable, or as the Agent may reasonably request, in order to
perfect and preserve the assignment and security interest granted or purported
to be granted hereby. The Seller hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Seller where permitted
by law, and the Agent shall notify the Seller of each such filing. A photocopy
or other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(d) The Seller hereby irrevocably appoints the Agent as the Seller's
attorney-in-fact, with full authority in the place and stead of the Seller and
in the name of the
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Seller or otherwise, from time to time in the Agent's discretion following the
occurrence and during the continuance of an Event of Investment Ineligibility,
to take any action and to execute any instrument which the Agent may deem
necessary or advisable to accomplish the purposes of the assignment, grant and
security interest granted hereunder, including, without limitation:
(i) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(ii) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, if any, in connection therewith, and
(iii) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral.
(e) If the Seller fails to perform any agreement contained herein, the
Agent may itself perform, or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by the
Seller under Section 11.06.
(f) The powers conferred on the Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any Collateral in its possession
and the accounting for moneys actually received by it hereunder, the Agent shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Collateral. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which it accords its own
property.
(g) If any Event of Investment Ineligibility shall have occurred and be
continuing:
(i) The Agent may exercise any and all rights and remedies of the
Seller in respect of the Collateral.
(ii) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the UCC
in effect in the State of New York (whether or not such UCC applies to the
affected Collateral).
<PAGE> 61
56
(iii) All payments received by the Seller in respect of the Collateral
shall be received in trust for the benefit of the Agent, shall (upon
request by the Agent) be segregated from other funds of the Seller and
shall be forthwith paid over to the Agent in the same form as so received
(with any necessary endorsement).
(iv) All payments made in respect of the Collateral, and all cash
proceeds in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, received by the Agent may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or
then or at any tune thereafter applied (after payment of any amounts
payable to the Agent pursuant to Section 11.06) in whole or in part by the
Agent for the Owners or the applicable Indemnified Parties against, all or
any part of the Obligations in such order as the Agent shall elect. Any
surplus of such payments or cash proceeds held by the Agent and remaining
after payment in full of all the Obligations shall be paid over to the
Seller or to whomsoever may be lawfully entitled to receive such surplus.
(h) Anything herein to the contrary notwithstanding, (i) the Seller
shall remain liable under each Contract to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by the Agent of any of the rights hereunder shall
not release the Seller from any of its duties or obligations under any Contract
and (iii) neither the Agent nor any Investor nor any other Indemnified Party
shall have any obligation or liability under any Contract by reason of this
Section 11.10, nor shall the Agent or any Investor or any other Indemnified
Party be obligated to perform any of the obligations or duties of the Seller
thereunder.
[The remainder of this page has been intentionally left blank.]
<PAGE> 62
57
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.
THE GEON COMPANY
By: /s/ JEAN M. MIKLOSKO
--------------------------------
Jean M. Miklosko
Treasurer
One Geon Center
Avon Lake, Ohio 44012
(Lorain County)
Attention: Treasurer
Facsimile No. (216) 930-3727
CORPORATE RECEIVABLES CORPORATION
By: Citicorp North America, Inc.
as Attorney-in-Fact
By:
--------------------------------
Title:
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: CRC
Facsimile No. (914) 899-7890
<PAGE> 63
58
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.
THE GEON COMPANY
By:
--------------------------------
Title:
One Geon Center
Avon Lake, Ohio 44012
(Lorain County)
Attention: Treasurer
Facsimile No. (216) 930-3727
CORPORATE RECEIVABLES CORPORATION
By: Citicorp North America, Inc.
as Attorney-in-Fact
By:
--------------------------------
Title V.P.
450 Mamaroneck Avenue
Harrison New York 10528
Attention: CRC
Facsimile No. (914) 899-7890
<PAGE> 64
59
CIESCO, L.P.
By: Citicorp North America, Inc.
as Attorney-in-Fact
By:
--------------------------------
Title:
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Ciesco
Facsimile No. (914) 899-7890
CITICORP NORTH AMBRICA, INC.,
as Agent
By:
--------------------------------
Title: V.P.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: Corporate Asset Funding
Department
Facsimile No. (914) 899-7890
<PAGE> 65
EXHIBIT A
ASSIGNMENT
Dated as of _____________, 19_
Reference is made to the Trade Receivables Purchase and Sale Agreement
dated as of April 1, 1993 (the "Agreement") among The Geon Company (the
"Seller"), Corporate Receivables Corporation, Ciesco, L.P. and Citicorp North
America, Inc., as Agent. Terms defined in the Agreement are used herein as
therein defined.
____________(the "Assignor") and ____________ (the "Assignee") agree as
follows:
1. In consideration of the payment of $________, being the existing
[aggregate] Capital of the Eligible Asset[s] referred to below, and of $____,
being the [aggregate] unpaid accrued Yield for such Eligible Asset[s], receipt
of which payment is hereby acknowledged, the Assignor hereby assigns to the
Agent for the account of the Assignee, and the Assignee hereby purchases from
the Assignor, all of the Assignor's right, title and interest in and to the
Eligible Asset[s] purchased by the undersigned in [a] Purchase[s] on ________,
19_; _________, 19_, [etc.]] under the Agreement.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the Eligible Asset[s] being assigned by it hereunder and
that such Eligible Asset[s] are free and clear of any Adverse Claim; (ii) makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement, the Certificate or any other instrument
or document furnished pursuant thereto; and (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Seller or the performance or observance by the Seller of any of its
obligations under the Agreement, the Certificate or any other instrument or
document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and purchase such Eligible Asset[s]; (ii) agrees that it will,
independently and without reliance upon the Agent, any of its Affiliates, the
Assignor or any other Owner and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking
<PAGE> 66
2
action under the Agreement; (iii) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Agreement as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (v) appoints as its agent the Collection
Agent from time to time designated pursuant to Section 6.01 to enforce its
respective rights and interests in and under the Pool Receivables, the Related
Security and the related Contracts; and (vi) agrees that it will not institute
against any Investor any proceeding of the type referred to in Section 7.01(g)
50 long as any commercial paper issued by such Investor shall be outstanding or
there shall not have elapsed one year plus one day since the last day on which
any such commercial paper shall have been outstanding.
4. Following the execution of this Assignment by the Assignor and the
Assignee, it will be delivered to the Agent. The effective date of this
Assignment shall be the date above specified (the "Effective Date").
5. As of the Effective Date, (i) the Assignee shall be and become the
Owner of the Eligible Asset[s] referred to herein for all purposes of the
Agreement and (ii) the Assignor shall relinquish its rights with respect to such
Eligible Asset[s] for all purposes of the Agreement.
6. This Assignment shall be governed by, and construed in accordance
with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
duly executed and delivered by their respective duly authorized officers or
agents as of the date first written above.
[NAME OF ASSIGNOR]
By
Title:
[NAME OF ASSIGNEE]
By
Title:
<PAGE> 67
EXHIBIT B
CERTIFICATE OF ASSIGNMENT
Dated as of __________, 1994
Reference is made to the Trade Receivables Purchase and Sale Agreement
dated as of April 1, 1993 (the "Agreement") among The Geon Company (the
"Seller"), Corporate Receivables Corporation, Ciesco, L.P. and Citicorp North
America, Inc., as Agent. Terms defined in the Agreement are used herein as
therein defined.
The Seller hereby sells and assigns to the Agent for the account of the
Owner thereof each Eligible Asset purchased under the Agreement.
Each Purchase of an Eligible Asset made by each Investor from the
Seller, each assignment of such Eligible Asset by its Owner to an Assignee and
each reduction in Capital in respect of each Eligible Asset evidenced hereby
shall be endorsed by the Agent on the grid attached hereto which is part of this
Certificate of Assignment. Such endorsement shall evidence the ownership of such
Eligible Asset initially by each Investor and upon any assignment, if any,
thereof by the Assignee thereof and the amount of Capital from time to time.
This Certificate of Assignment is made without recourse except as
otherwise provided in the Agreement.
This Certificate of Assignment shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Assignment to be duly executed and delivered by its duly authorized officer as
of the date first above written.
THE GEON COMPANY
By
Title:
<PAGE> 68
\
GRID(1)
<TABLE>
<CAPTION>
Number of Capital Owner
Eligible (Giving Effect (Giving Effect
Asset Transaction(2) to Transaction) to Transaction)
----- -------------- --------------- ---------------
<S> <C> <C> <C>
</TABLE>
- ----------
(1) Eligible Assets will be numbered sequentially based upon date of Purchase.
(2) Transactions are Purchases, Reductions in Capital, Assignments, Divisions
of Eligible Assets and Combinations of Eligible Assets.
<PAGE> 69
EXHIBIT C
SELLER REPORT
<PAGE> 70
EXHIBIT D
FORM OF LOCK-BOX AGREEMENT
[DATE]
[Name and Address of Lock-Box Bank]
The Geon Companv
Ladies and Gentlemen:
The Geon Company (the "Company") hereby notifies you that the Company
has transferred exclusive ownership and control of its depository [lock-box]
account number [____________] maintained with you (the "Lock-Box Account") to
Citicorp North America, Inc., 450 Mamaroneck Avenue, Harrison, New York 10528
(the "Agent").
The Company hereby irrevocably instructs you to make all payments to be
made by you out of or in connection with the Lock-Box Account pursuant only to
such written instructions as an officer of the Agent shall give you from time to
time.
The Company also hereby notifies you that the Agent shall be irrevocably
entitled to exercise any and all rights in respect of or in connection with the
Lock-Box Account.
By its signature below, the Agent hereby instructs you initially to make
all payments to be made by you out of or in connection with the Lock-Box Account
pursuant to such written instructions as an officer of the Company shall give
you from time to time.
Upon your receipt of further instructions from the Agent, you shall make
all payments to be made by you out of or in connection with the Lock-Box Account
directly to the account or accounts specified in those instructions. Those
accounts may include, but need not be limited to: Citibank, N.A., account no.
[_________ ] in the name of the Agent, at 450 Mamaroneck Avenue, Harrison, New
York 10528, Attention of U.S. Securitization, for the account of the Agent.
Notwithstanding anything to the contrary in any other agreement relating
to the Lock-Box Account, the Lock-Box Account is and will be maintained solely
for the benefit of the Agent, and will be entitled "Citicorp North America,
Inc., as Agent, re: The Geon Company." You will maintain a record of all checks
and other remittance items received in
<PAGE> 71
2
the Lock-Box Account. In addition to providing the Agent and the Company with
the reports and other documents provided in the past, you will furnish to the
Agent and the Company for the Lock-Box Account (i) a monthly statement and (ii)
such other information as the Agent may request from time to time, to be
transmitted to the Agent at 450 Mamaroneck Avenue, Harrison, New York 10528 and
to the Company at [Address]. Given the Agent's interest in the Lock-Box Account,
all transfers from the Lock-Box Account shall be made by you irrespective of,
and without deduction for, any counterclaim, defense, recoupment or set-off with
respect to the Company or any of its affiliates and shall be final, and you
shall not seek to recover from the Agent for any reason any such payment once
made.
Notwithstanding the foregoing, all service charges and fees with respect
to the Lock-Box Account shall be payable by the Company.
Please agree to the terms of, and acknowledge receipt of, this notice by
signing in the space provided below on a counterpart hereof. This letter may be
executed in any number of counterparts and by difference 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. Delivery of an executed counterpart of a signature page to this
letter by telefax shall be effective as delivery of a manually executed
counterpart of this letter. Your signing will also be a confirmation to the
Agent that the description of the Lock-Box Account above is correct and that you
have no notice of any other person or entity having any interest in, or pledge
or assignment of, the Lock-Box Account. Please send two signed copies of this
letter to the Agent at its address at 399 Park Avenue, New York, New York 10043,
Attention: ______________________________. A third copy is enclosed for your
records.
Very truly yours,
THE GEON COMPANY
By:
--------------------------------
Title:
<PAGE> 72
3
CITICORP NORTH AMERICA, INC.
By:
--------------------------------
Title:
Agreed and acknowledged:
[NAME OF LOCK-BOX BANK]
By:
------------------------------------
Title:
<PAGE> 73
SCHEDULE I
LOCK-BOX BANKS
National City Bank, Cleveland
Lock-Box 73603-N The Geon Company
P.O. Box 73603-N
Cleveland, Ohio 44193
Harris Trust and Savings Bank, Chicago
Lock-Box 71151 The Geon Company
P.O. Box 71151
Chicago, Illinois 60694
<PAGE> 74
_
SCHEDULE II
DESCRIPTION OF
CREDIT AND COLLECTION POLICY
<PAGE> 75
SCHEDULE III
FORM OF CONTRACTS
<PAGE> 76
SCHEDULE IV
LIST OF OFFICES OF SELLER WHERE RECORDS
RELATING TO THE RECEIVABLES ARE KEPT
One Geon Center
Avon Lake, Ohio
(Loraine County)
<PAGE> 1
Exhibit 10.15
1250828 ONTARIO INC.
-AND-
CANADIAN IMPERIAL BANK OF COMMERCE
CREDIT AGREEMENT
DATED AS OF OCTOBER 27, 1997
<PAGE> 2
- 2 -
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PARTIES
RECITALS
ARTICLE ONE
INTERPRETATION
<S> <C> <C>
Section 1.01 Definitions.................................................................... 1
Section 1.02 Currency....................................................................... 10
Section 1.03 Words and Phrases.............................................................. 10
Section 1.04 Headings and Table of Contents................................................. 10
Section 1.05 Accounting Terms............................................................... 10
Section 1.06 Schedules...................................................................... 10
Section 1.07 Computation of Time Periods.................................................... 10
Section 1.08 Extended Meaning............................................................... 10
Section 1.09 Statutory References........................................................... 10
Section 1.10 Certificates and Opinions, etc................................................. 11
Section 1.11 Knowledge of the Borrower...................................................... 11
ARTICLE TWO
THE CREDIT
Section 2.01 The Credit..................................................................... 11
Section 2.02 Drawdown Options............................................................... 11
Section 2.03 Non-revolving Nature of the Credit............................................. 11
Section 2.04 Evidence of Indebtedness....................................................... 11
Section 2.05 Drawdown Notice................................................................ 12
Section 2.06 Rollovers...................................................................... 12
Section 2.07 Place of Advance............................................................... 13
Section 2.08 Bankers' Acceptances........................................................... 13
ARTICLE THREE
TERMINATION AND REDUCTION OF CREDIT, REPAYMENT AND MATURITY
Section 3.01 Mandatory Repayment............................................................ 15
Section 3.02 Voluntary Prepayment and Cancellation.......................................... 15
Section 3.03 Time and Place of Payment by Borrower.......................................... 15
Section 3.04 Payments to be Made on Banking Days............................................ 16
Section 3.05 Manner of Payment; No Set-Off.................................................. 16
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE FOUR
INTEREST RATES, FEES AND CHARGES
<S> <C> <C>
Section 4.01 Interest Rate - Prime Rate Borrowings.......................................... 17
Section 4.02 Interest Rate - Base Rate Borrowings........................................... 17
Section 4.03 Interest Rate - LIBOR Borrowings............................................... 17
Section 4.04 Overdue Interest............................................................... 17
Section 4.05 General Interest Provisions.................................................... 17
Section 4.06 LIBOR Borrowings............................................................... 18
Section 4.07 Selection of Interest Periods.................................................. 18
Section 4.08 Bankers' Acceptance Fee........................................................ 18
Section 4.09 Commitment Fee................................................................. 19
Section 4.10 Expenses and Legal Fees........................................................ 19
ARTICLE FIVE
CONDITIONS PRECEDENT
Section 5.01 Conditions to the Initial Advance.............................................. 19
Section 5.02 Conditions Precedent to All Drawdowns.......................................... 20
Section 5.03 Discretion of Lender........................................................... 21
Section 5.04 Conditions Solely for the Lender's Benefit..................................... 21
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties................................................. 21
Section 6.02 Survival of Representations and Warranties..................................... 23
ARTICLE SEVEN
COVENANTS OF THE BORROWER
Section 7.01 Affirmative Covenants.......................................................... 23
Section 7.02 Negative Covenants............................................................. 25
ARTICLE EIGHT
DEFAULT
Section 8.01 Events of Default.............................................................. 25
Section 8.02 Remedies....................................................................... 27
Section 8.03 Remedies Cumulative............................................................ 27
Section 8.04 Set-Off........................................................................ 28
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE NINE
CHANGE IN CIRCUMSTANCES AND INDEMNITIES
<S> <C> <C>
Section 9.01 Increased Costs................................................................ 28
Section 9.02 Losses......................................................................... 29
Section 9.03 Currency Indemnity............................................................. 29
Section 9.04 Environmental Indemnity........................................................ 30
Section 9.05 Lack of LIBOR Rate............................................................. 31
Section 9.06 Unlawful Borrowings............................................................ 32
ARTICLE TEN
ASSIGNMENT AND PARTICIPATION
Section 10.01 Benefit of Agreement........................................................... 33
Section 10.02 Assignment by Borrower......................................................... 33
Section 10.03 Assignment by Lender........................................................... 33
Section 10.04 Participation.................................................................. 33
Section 10.05 Limitation on Assignment and Participation..................................... 34
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01 Rights and Waivers............................................................. 35
Section 11.02 Non-Merger..................................................................... 35
Section 11.03 Debiting of Account............................................................ 35
Section 11.04 Notices........................................................................ 35
Section 11.05 Statements and Reports......................................................... 35
Section 11.06 Severability................................................................... 35
Section 11.07 Governing Law.................................................................. 35
Section 11.08 Time of Essence................................................................ 35
Section 11.09 Further Assurances............................................................. 36
Section 11.10 Entire Agreement............................................................... 36
Section 11.11 Conflict....................................................................... 36
Section 11.12 No Third Party Beneficiaries................................................... 36
Section 11.13 Counterparts................................................................... 36
Section 11.14 Relationship of Parties........................................................ 36
EXECUTION
SCHEDULES
</TABLE>
<PAGE> 5
THIS CREDIT AGREEMENT dated as of the 27th day of October,
1997.
B E T W E E N:
1250828 ONTARIO INC., a corporation incorporated
pursuant to the laws of the Province of Ontario
(hereinafter called the "Borrower")
- and -
CANADIAN IMPERIAL BANK OF COMMERCE, a bank chartered
under the laws of Canada
(hereinafter called the "Lender")
WHEREAS the Guarantor (as hereinafter defined) owns all of the
issued and outstanding shares of the Borrower;
AND WHEREAS the Borrower has requested that the Lender enter
into this Agreement with the Borrower to provide the Borrower with a bridge
credit in the maximum principal amount of Cdn. $135,000,000 which will be used
in accordance with Section 2.01 hereof;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration
of the covenants and agreements contained herein and for other good and valuable
consideration, the parties hereto agree as follows:
ARTICLE ONE
INTERPRETATION
SECTION 1.01 DEFINITIONS: In this Agreement, unless the context otherwise
requires, the following terms shall have the meaning set out below:
"ACCOMMODATION" means Prime Rate Borrowings, Base Rate Borrowings,
Bankers' Acceptances or LIBOR Borrowings and refers to any one or more
of such types of Accommodation where the context requires;
<PAGE> 6
- 2 -
"ADVANCE" means any amount advanced by the Lender to the Borrower under
the Credit and includes a Prime Rate Borrowing, a Base Rate Borrowing,
a LIBOR Borrowing, or the face amount of any Bankers' Acceptance;
"AFFILIATE" means with respect to any person, any person which,
directly or indirectly, controls or is controlled by or is under common
control with such person and for the purposes of this definition,
"control" (including with correlative meanings the terms "controlled
by" and "under common control with") means the power to direct or cause
the direction of the management and policies of any person, whether
through the ownership of shares or equity or by contract or otherwise;
"AGREEMENT" means this Agreement and all schedules attached hereto and
includes all written amendments, modifications, supplements and
replacements hereto and thereto from time to time;
"AMALGAMATION" means an amalgamation of the Borrower and Synergistics;
"ANTITRUST LEGISLATION" means the Hart-Scott-Rodino Antitrust
Improvements Act (United States) and the Competition Act (Canada);
"APPLICABLE MARGIN" means as of any date, a percentage per annum
determined by reference to the Public Debt Rating of the Guarantor in
effect on such date as set forth below:
PUBLIC DEBT RATING APPLICABLE MARGIN
S&P/MOODY'S/ FOR BANKERS' ACCEPTANCES
DUFF & PHELPS AND LIBOR BORROWINGS
------------------- -------------------------
A-/A3/A-or above 0.30%
BBB+/Baa1/BBB+ 0.35%
BBB/Baa2/BBB 0.45%
BBB-/Baa3/BBB- 0.5125%
BB+/Bal/BB+ 0.875%
"APPLICABLE PERCENTAGE" means as of any date, a percentage per annum
determined by reference to the Public Debt Rating of the Guarantor in
effect on such date as set forth below:
PUBLIC DEBT RATING
S&P/MOODY'S/DUFF & PHELPS COMMITMENT FEE
------------------------- ----------------
A-/A3/A-or above 0.10%
BBB+/Baa1/BBB+ 0.125%
<PAGE> 7
-3-
BBB/Baa2/BBB 0.15%
BBB-/Baa3/BBB- 0.225%
BB+/Bal/BB+ 0.375%
"BA DISCOUNT RATE" means, with respect to any Bankers' Acceptance, the
annual rate of interest determined by the Lender at or about 10:00 a.m.
on the applicable Borrowing Date as being equivalent to the rate that
appears on the Reuters Screen CDOR page at or about 10:00 a.m. on such
Borrowing Date as the discount rate applicable to bankers' acceptances
quoted by the Lender on such date, based upon a year of 365 days and
having a comparable face value and an identical maturity date to the
face value and maturity date of such Bankers' Acceptance;
"BANKERS' ACCEPTANCE FEE" means the fee payable on the amount of each
Bankers' Acceptance calculated and payable in the manner provided for
in Section 4.08;
"BANKERS' ACCEPTANCES" means bills of exchange denominated in Canadian
Dollars drawn by the Borrower and accepted by the Lender as permitted
pursuant to the Credit;
"BANKING DAY" means a day other than Saturday or Sunday, on which the
offices of the Lender are open for commercial banking business in the
Municipality of Metropolitan Toronto, Ontario and, in respect of a
LIBOR Borrowing or Base Rate Borrowing, a day on which the offices of
the Lender are also open for commercial banking business in London,
England or New York, New York, respectively;
"BASE RATE" means the greater of (i) the variable annual rate of
interest which is declared by the Lender from time to time as being its
base rate for US Dollar commercial loans made in Canada based on a year
of 365 days and (ii) the Federal Funds Effective Rate plus one half of
one percent (1/2%) per annum, any change in such rate to be effective
automatically on the date such change is established by the Lender
without the necessity of any notice being given to the Borrower. If for
any reason the Lender shall have determined (which determination shall
be conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate for any reason, including without
limitation, the inability or failure of the Lender to obtain sufficient
bids or publications in accordance with the terms hereof, the rate
announced by the Lender in Canada as its "Base Rate" shall be the Base
Rate until circumstances giving rise to such inability no longer exist;
"BASE RATE BORROWING" means an advance to the Borrower in U.S. Dollars
on which interest is calculated with reference to the Base Rate;
"BORROWER" means 1250828 Ontario Inc., and subsequent to the
Amalgamation, the entity resulting therefrom;
<PAGE> 8
-4-
"BORROWER'S ACCOUNT" means the operating accounts of the Borrower with
the Lender at the Branch maintained for the sole purpose of making
payments pursuant to this Agreement;
"BORROWER'S COUNSEL" means Fasken Campbell Godfrey, Toronto or such
other firm or firms as the Borrower may designate;
"BORROWING" means a Drawdown or a Rollover (as the context requires);
"BORROWING DAY" means a Drawdown Day or a Rollover Day (as the context
requires);
"BORROWING NOTICE" means a Drawdown Notice or a Rollover Notice (as the
context requires);
"BRANCH" means the branch of the Lender located at Commerce Court West,
7th Floor, Toronto, Ontario M5L 1A2, or such other branch in the City
of Toronto as the Lender may designate in writing and which is
reasonably satisfactory to the Borrower;
"CANADIAN DOLLARS", "CDN. DOLLARS", "DOLLARS", "$", and "CDN. $" mean
lawful currency of Canada;
"CHANGE IN CONTROL" means, (i) with respect to the Borrower, any
change, direct or indirect, in the ownership or control of the issued
and outstanding voting equity of the Borrower such that the Guarantor
does not legally and beneficially own all of the outstanding voting
equity of the Borrower on a fully diluted basis; or (ii) with respect
to Synergistics, any change, direct or indirect, after the Initial
Drawdown Date, but before the Amalgamation takes place, in the
ownership or control of the issued and outstanding voting equity of
Synergistics such that the Borrower does not legally and beneficially
own at least 66 2/3% of the outstanding voting equity of Synergistics
on a fully diluted basis;
"CLOSING DATE" means October 27, 1997;
"COUNSEL" means Smith Lyons, Toronto, or such other firm or firms as
the Lender may designate;
"CREDIT" means the facility established by the Lender in favour of the
Borrower as set forth in Section 2.01;
"DEBT", with respect to any Person means, at the date of determination,
the aggregate, without duplication, of all indebtedness, obligations
and liabilities of such Person which, in accordance with GAAP, would be
included in short-term bank debt, the current portion of long-term debt
or long-term debt as shown in the liabilities section of the balance
sheet of such Person;
<PAGE> 9
-5-
"DEFAULT" means an event or condition the occurrence of which is an
Event of Default or would, with the lapse of time or the giving of
notice, or both, become an Event of Default;
"DOCUMENTS" means this Agreement, the Guarantee and all certificates
and other documents delivered or to be delivered to the Lender pursuant
hereto or thereto and, when used in relation to any Person, the term
"Documents" shall mean and refer to those Documents executed and
delivered by such Person;
"DRAWDOWN" means the availment by the Borrower of the Credit by way of
a fresh Advance in a form permitted by Section 2.02 and, for certainty,
excludes any Rollover;
"DRAWDOWN DAY" means a Banking Day on which a Drawdown pursuant to the
Credit is permitted to be obtained by the Borrower from the Lender;
"DRAWDOWN NOTICE" means a notice in the form of Schedule A delivered
pursuant to Section 2.06;
"DUFF & PHELPS" means Duff & Phelps, Inc., and any successor of it;
"ENVIRONMENTAL ACTION" means any administrative, regulatory or judicial
action, suit, demand, demand letter, claim, notice of non-compliance or
violation, notice of liability or potential liability, investigation,
proceeding, consent order or consent agreement arising under any
Environmental Law or Environmental Permit or relating to Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment, including, without limitation, (i) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (ii) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief;
"ENVIRONMENTAL LAW" means any and all applicable federal, provincial,
state, municipal, local or foreign laws, statutes, rules, codes,
regulations, orders, judgments, decrees, ordinances, official
directives, authorizations or judicial or agency interpretation, policy
or guidance, relating to the environment or Hazardous Materials;
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law;
"EVENT OF DEFAULT" means an event of default as defined in Section 8.01
hereof;
"EXCHANGE EQUIVALENT" means, in respect of any amount (the "original
amount") expressed in Canadian Dollars or U.S. Dollars, as the case may
be, (the "original currency"), the amount expressed in U.S. Dollars or
Canadian Dollars, as the case may be, (the "new
<PAGE> 10
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currency"), which the Lender would be required to pay in Toronto on the
date specified (or, if no date is specified, on the date on which such
amount is being determined), in order to purchase the original amount
of the original currency in the new currency, in accordance with the
Lender's usual foreign exchange practice;
"FEDERAL FUNDS EFFECTIVE RATE" means for any period, a fluctuating
interest rate per annum equal, for each day during such period, to the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by Federal Funds
brokers as published for such day (or, if such day is not a New York
banking day, for the immediately preceding New York banking day) by the
Federal Reserve Bank of New York or, for any New York banking day on
which such rate is not so published for such day by the Federal Reserve
Bank of New York, the average of the quotations for such day for such
transactions received by the Lender from three Federal Funds brokers of
recognized standing selected in good faith by the Lender;
"GAAP" means generally accepted accounting principles in the United
States consistent with those applied in the preparation of the
financial statements of the Guarantor dated as of December 31, 1996;
"GOVERNMENTAL AUTHORITY" means any nation, federal government,
province, state, municipality or other political subdivision of any of
the foregoing, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled
(through stock or capital ownership or otherwise) by any of the
foregoing;
"GUARANTEE" means the guarantee of the Guarantor in the form attached
hereto as Exhibit 1;
"GUARANTOR" means The Geon Company, a corporation incorporated under
the laws of the State of Delaware;
"GUARANTOR'S COUNSEL" means an in-house counsel of the Guarantor;
"HAZARDOUS MATERIAL" means petroleum and petroleum products,
by-products or breakdown products, radioactive materials,
asbestos-containing materials, radon gas and any other chemicals,
materials, or substances designated, classified or regulated as being
"hazardous" or "toxic", or words of similar import, under any
applicable Environmental Law;
"INDEBTEDNESS" means indebtedness arising pursuant to this Agreement
whether present or future, direct or indirect, matured or not, absolute
or contingent;
"INTEREST PAYMENT DATE" means the last day of an Interest Period and
also, in the case of an
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Interest Period which is longer than three (3) months, the last Banking
Day of each three (3) month period during such Interest Period;
"INTEREST PERIOD" means, in relation to a LIBOR Borrowing, the period
selected by the Borrower in accordance with Section 4.07 for computing
interest on such LIBOR Borrowing;
"LIBOR BORROWING" means an Advance on which interest is calculated by
reference to the LIBOR Rate;
"LIBOR RATE" means, in relation to a LIBOR Borrowing, the rate of
interest per annum (expressed on the basis of a year of three hundred
and sixty (360) days) determined by the Lender on the second Banking
Day prior to the commencement of the Interest Period during which such
LIBOR Borrowing is to be outstanding, at which deposits in U.S. Dollars
in amounts comparable to the amount of such LIBOR Borrowing, for value
on the first day of such Interest Period and for a term equal to the
requested Interest Period, are offered to the Lender in accordance with
its normal practice in the London inter-bank market at or about 11:00
a.m. (London time) on such second day;
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance
or properties of the Guarantor or the Guarantor and its Subsidiaries
taken as a whole;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, condition (financial or otherwise), operations, performance
or properties of the Guarantor or the Guarantor and its Subsidiaries
taken as a whole, (ii) the rights and remedies of the Lender under this
Agreement or the Guarantee or (iii) the ability of the Guarantor to
perform its obligations under the Guarantee;
"MATURITY DATE" means the date which is eight (8) months after the date
of the initial Drawdown under the Credit;
"MOODY'S" means Moody's Investors Service, Inc., and any successor of
it;
"OFFERING CIRCULAR" means the offer to purchase and circular dated
October 8, 1997 prepared by the Borrower in respect of its offer to
purchase the Synergistics Shares, as amended, modified, supplemented or
restated from time to time;
"PERSON" or "PERSON" includes an individual, a partnership, a
corporation, a trust, an unincorporated organization, a government or
any department or agency thereof or any other entity whatsoever and the
heirs, executors, administrators or other legal representatives of an
individual;
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"PRIME RATE" means the annual rate of interest established by the
Lender from time to time as the interest rate it will charge for demand
loans in Canadian Dollars to its customers in Canada and which it
designates as its prime rate, based upon a year of 365 days, any change
in such rate to be effective automatically on the date such change is
established by the Lender, without the necessity of any notice being
given to the Borrower;
"PRIME RATE BORROWING" means an Advance to the Borrower on which
interest is calculated by reference to the Prime Rate;
"PUBLIC DEBT RATING" means, as of any date, the rating most recently
announced by each of S&P, Moody's or Duff & Phelps, as the case may be,
for any class of long-term senior unsecured debt issued by the
Guarantor. For purposes of the foregoing, (i) if only one of S&P,
Moody's and Duff & Phelps shall have in effect a Public Debt Rating,
the Applicable Margin and the Applicable Percentage shall be determined
by reference to the available rating or, if only two ratings are then
in effect, the lower rating; (ii) if none of S&P, Moody's or Duff &
Phelps shall have in effect a Public Debt Rating, the Applicable Margin
and the Applicable Percentage will be set in accordance with the
provisions provided for in the definition of "Public Debt Rating" in
the U.S. Credit Agreement; (iii) if the ratings established by S&P,
Moody's and Duff & Phelps shall fall within different levels, the
Applicable Margin and the Applicable Percentage shall be established by
the rating remaining after disregarding the highest and the lowest of
the three available ratings; (iv) if any ratings established by S&P,
Moody's or Duff & Phelps shall be changed, such change shall be
effective as of the date on which such change is first announced
publicly by the rating agency making such change; and (v) if S&P,
Moody's or Duff & Phelps shall change the basis on which ratings are
established, each reference to the Public Debt Rating announced by S&P,
Moody's or Duff & Phelps, as the case may be, shall refer to the then
equivalent rating by S&P, Moody's or Duff & Phelps, as the case may be;
"ROLLOVER" has the meaning given in Section 2.06 hereof;
"ROLLOVER DAY" means a Banking Day on which a Rollover pursuant to the
Credit is permitted to be obtained by the Borrower from the Lender;
"ROLLOVER NOTICE" means a notice in the form of Schedule B delivered
pursuant to Section 2.06;
"S&P" means Standard & Poor's Rating Group, and any successor of it;
"SECOND STEP TRANSACTION" means an amalgamation or another transaction
or series of transactions, including, without limitation, an
amalgamation, continuance, arrangement, consolidation, reclassification
or other transaction involving, without limitation, the Borrower and
Synergistics designed or intended to enable the Borrower to acquire all
of the issued share capital of Synergistics;
<PAGE> 13
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"SUBSIDIARY" of any person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in
which) more than 50% of (a) the issued and outstanding capital stock or
the equivalent ownership or controlling interest, in either case having
ordinary voting power to elect a majority of the board of directors,
managers or trustees thereof (irrespective of whether at the time
capital stock (or other evidence of ownership) of any other class or
classes of such entity shall or might have the voting power upon the
occurrence of any contingency) or (b) the beneficial interest in such
trust or estate, is at the time owned or controlled, directly or
indirectly, by such person, by such person and one or more of its other
Subsidiaries or by one or more of such person's other Subsidiaries;
"SYNERGISTICS" means, Synergistics Industries Limited Les Industries
Synergistics Limitee, a corporation amalgamated pursuant to the laws of
Canada, and any entity resulting from a Second Step Transaction;
"SYNERGISTICS SHARES" means common shares and Class A non-voting shares
of Synergistics;
"TAXES" means, with respect to any Person, for any particular period,
all taxes, rates, levies, imposts, assessments, government fees, dues,
stamp taxes, duties, ad valorem taxes or levies charges to tax, fees,
deductions, withholdings and similar impositions paid or payable,
levied, collected, withheld or assessed by any Governmental Authority;
"UNUTILIZED PORTION" means, with respect to the Credit, at the date of
determination thereof, the maximum principal amount of the Credit
available at such date, less the Utilized Portion of such Credit at
such date;
"UTILIZED PORTION" means, in respect of the Credit, at the date of
determination, the aggregate of: (i) all Advances outstanding under the
Credit in Canadian Dollars at such date and (ii) the Exchange
Equivalent in Canadian Dollars of all Advances outstanding under the
Credit in U.S. Dollars as of such date;
"U.S. CREDIT AGREEMENT" means the credit agreement dated as of August
16, 1994, among the Guarantor, Citibank, N.A. as administrative agent,
Nationsbank of North Carolina, N.A. as co-agent, and the other
institutions noted therein. For greater certainty, the term "U.S.
Credit Agreement" as used in this Agreement shall include any
amendments, modifications, supplements, waivers or restatements to such
agreement only until such date as CIBC Inc. remains a lender to the
Guarantor pursuant to such agreement; and
"U.S. DOLLARS" or "U.S.$" means lawful currency of the United States of
America.
SECTION 1.02 CURRENCY: Unless otherwise expressly stated, all monetary amounts
set out herein refer to the lawful money of Canada.
<PAGE> 14
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SECTION 1.03 WORDS AND PHRASES: Where the context so requires, words importing
the singular include the plural, and vice versa, and words importing gender
include the masculine, feminine and neuter genders.
SECTION 1.04 HEADINGS AND TABLE OF CONTENTS: The table of contents and the
headings of all articles, sections and paragraphs herein are inserted for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
SECTION 1.05 ACCOUNTING TERMS: All accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP. Where the character
or amount of any asset or liability or item of revenue or expense is required to
be determined, or any consolidation or other accounting computation is required
to be made for the purpose of this Agreement, such determination or calculation
shall, to the extent applicable and except as otherwise specified herein or
therein or as otherwise agreed in writing by the parties, be made in accordance
with GAAP.
SECTION 1.06 SCHEDULES: The following are the schedules annexed hereto which
form an integral part of this Agreement:
Schedule A Drawdown Notice
Schedule B Rollover Notice
SECTION 1.07 COMPUTATION OF TIME PERIODS: The computation of any time period
referred to herein which is not a defined term shall exclude the day of the
occurrence of the event to which the period relates and shall include the last
day of such period. Unless otherwise specifically provided herein in the event
that any time period referred to herein ends on a day which is not a Banking
Day, such time period shall be deemed to end on the next following Banking Day.
SECTION 1.08 EXTENDED MEANING: A reference to any one or more of the parties to
this Agreement shall, to the extent the context so admits, include reference to
the respective successors and permitted assigns of such party, as the case may
be.
SECTION 1.09 STATUTORY REFERENCES: References herein to any statute or any
provision thereof includes such statute or provision thereof as amended,
revised, re-enacted and/or consolidated from time to time and any successor
statute thereto or other legislation in PARI MATERIA therewith.
SECTION 1.10 CERTIFICATES AND OPINIONS, ETC.: Whenever the delivery of a
certificate or opinion is a condition precedent to the taking of any action by
the Lender under this Agreement, the truth and accuracy of the facts and
opinions stated in such certificate or opinion shall in each case be conditions
precedent to the right of the Borrower to have such action taken. Whenever any
certificate is to be delivered by the Borrower, such certificate shall be signed
on behalf of the Borrower by a senior officer of the Borrower.
<PAGE> 15
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SECTION 1.11 KNOWLEDGE OF THE BORROWER: All provisions contained herein
requiring the Borrower to make a determination or assessment of any event or
circumstance or other matter to the best of its knowledge shall be construed to
represent the actual knowledge of the President, Assistant Treasurer or
Assistant Secretary of the Borrower, after such individuals have made all
inquiries and investigations as may be reasonably necessary in the circumstances
before making any such determination or assessment.
ARTICLE TWO
THE CREDIT
SECTION 2.01 THE CREDIT: Subject to the terms and conditions hereof and relying
on the representations and warranties contained in Article Six hereof, the
Lender shall make available to the Borrower a non-revolving credit in the
maximum principal amount of One Hundred and Thirty-Five Million Dollars
($135,000,000) to finance the acquisition by the Borrower of the Synergistics
Shares and the interest, fees and transaction costs relating to such acquisition
or this Agreement.
SECTION 2.02 DRAWDOWN OPTIONS: On the terms and subject to the conditions hereof
on and after the Closing Date the Borrower may from time to time obtain
Accommodation under the Credit by way of:
(i) Prime Rate Borrowings;
(ii) Base Rate Borrowings;
(iii) Bankers' Acceptances; or
(iv) LIBOR Borrowings.
SECTION 2.03 NON-REVOLVING NATURE OF THE CREDIT: The Credit shall be
non-revolving, and the Borrower shall not be entitled to any Drawdown thereunder
with respect to any Advance that has been repaid or prepaid by the Borrower
pursuant to Sections 3.01 or 3.02 hereof.
SECTION 2.04 EVIDENCE OF INDEBTEDNESS: The Indebtedness outstanding from time to
time of the Borrower to the Lender under the Credit shall be evidenced by the
accounts kept by the Lender. The accounts kept by the Lender shall, absent
manifest error, constitute prima facie evidence of the Indebtedness of the
Borrower to the Lender hereunder, the date any Advance was made or deemed to be
made to the Borrower, the amounts from time to time which may be prepaid by the
Borrower on account of such Indebtedness, the amount of such Indebtedness repaid
by the Borrower and the dates of such prepayments and repayment, provided that
the failure of the Lender to record any such amount or date shall not affect the
obligation of the Borrower to pay amounts due hereunder in accordance with this
Agreement.
<PAGE> 16
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SECTION 2.05 DRAWDOWN NOTICE:
(a) If the Borrower wishes to obtain a Drawdown by way of Prime
Rate Borrowings or Base Rate Borrowings it shall deliver to
the Lender a Drawdown Notice not later than 10:00 a.m.
(Toronto time) on the day on which the Borrower requests such
Drawdown to be made, specifying, among other things, the
amount and type of Drawdown requested by the Borrower and the
Drawdown Day. If the Borrower wishes to obtain a Drawdown by
way of LIBOR Borrowing it shall deliver to the Lender a
Drawdown Notice not later than 10:00 a.m. (Toronto time) on
the second Banking Day prior to the day on which the Borrower
requests such Drawdown to be made, specifying, among other
things, the amount and type of Accommodation requested by the
Borrower and the Drawdown Day. Any Drawdown Notice given by
the Borrower shall be irrevocable, and the Borrower shall be
obligated to borrow the stated amount on the stated date in
accordance with the Drawdown Notice.
(b) Unless the Borrower delivers a Drawdown Notice in respect
thereof pursuant to subsection (a), the Borrower shall be
deemed to have given the Lender (i) a proper Drawdown Notice
requesting a Prime Rate Borrowing to fund the payment of each
amount denominated in Canadian Dollars which is due and
payable hereunder prior to the Maturity Date and (ii) a proper
Drawdown Notice requesting a Base Rate Borrowing to fund the
payment of each amount denominated in U.S. Dollars which is
due and payable hereunder prior to the Maturity Date.
SECTION 2.06 ROLLOVERS: The Borrower may at any time deliver a Rollover Notice
to the Lender requesting one or more Accommodations (a "Rollover"), the proceeds
of which will be used to rollover or convert one or more outstanding Advances,
provided that:
(a) the notice identifies the outstanding Accommodation to be
rolled over or converted (the "Refinanced Advance");
(b) the Rollover would otherwise be a permitted form of
Accommodation hereunder and the Borrower complies with each
notice provision hereof relative to the obtaining of
Accommodation in the form requested;
(c) the aggregate principal amount of the Rollover then requested
is not greater than the aggregate principal amount of the
Refinanced Advance;
(d) a Rollover of or conversion from a LIBOR Borrowing may only
occur on the last day of the relevant Interest Period for such
LIBOR Borrowing;
(e) the entire proceeds of the Rollover are used by the Lender to
rollover or
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convert in full the Refinanced Advance;
(f) each Rollover is made contemporaneously with the rollover or
conversion of the Refinanced Advance;
(g) a rollover of or conversion from Bankers' Acceptances may only
occur on the maturity of such Bankers' Acceptance; and
(h) in the case of any rollover of or conversion to Bankers'
Acceptances, the Borrower shall pay to the Lender the amount
by which the face amount of the Rollover exceeds the amount of
the proceeds of the Rollover.
In the event that the Borrower fails to give a proper Rollover Notice to the
Lender by 10:00 a.m. (Toronto time) on the second Banking Day prior to the last
day of any Interest Period of a LIBOR Borrowing, the Borrower shall be deemed to
have given a proper Rollover Notice at such time requesting that such LIBOR
Borrowing be rolled over on the last day of such Interest Period for a further
Interest Period of 30 days.
SECTION 2.07 PLACE OF ADVANCE: The proceeds of all Borrowings under the Credit
shall be credited directly to the Borrower's Account.
SECTION 2.08 BANKERS' ACCEPTANCES: The following provisions shall, in addition
to the other provisions contained herein, apply to all Bankers' Acceptances
accepted pursuant to the Credit:
(a) Subject as hereinafter provided, the Borrower shall, not later
than 10:00 a.m. (Toronto time) on the Borrowing Day (or on the
Banking Day preceding the Borrowing Day in the event the face
amount of the draft to be tendered by the Borrower for
acceptance is equal to or exceeds Cdn. $10,000,000), give the
Lender a Borrowing Notice stating its intention to tender
drafts for acceptance as, or a Rollover into, Bankers'
Acceptances.
(b) Each draft tendered by the Borrower for acceptance by the
Lender as a Bankers' Acceptance shall have a face amount in
integral multiples of Cdn. $100,000 subject to a minimum
aggregate face amount of Cdn. $1,000,000, shall be payable in
Canada, and shall have a term of not less than seven days, if
available, and not more than 180 days.
(c) Each draft to be accepted by the Lender shall be tendered on
the applicable Borrowing Day by the Borrower to the Lender at
the Branch and the amount of the Accommodation constituted
thereby shall be the face amount of such draft. No draft shall
be tendered by the Borrower for acceptance by the Lender if
such draft is for a term that would expire subsequent to the
Maturity Date or if such draft is in an amount which is
inconsistent with the aggregate amount of Accommodation
<PAGE> 18
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available pursuant to the Credit.
(d) Upon tender of a draft by the Borrower for acceptance by the
Lender in accordance with the terms hereof, the Lender shall
accept such drafts and the Borrower shall pay to the Lender
the applicable fees for such acceptance, as required pursuant
to Section 4.08.
(e) unless the Borrower otherwise notifies the Lender, the Lender
shall purchase Bankers' Acceptances on their Borrowing Date at
the purchase price equal to the face amount of such Bankers'
Acceptances less an amount equal to the amount that yields to
the Bank (excluding the Bankers' Acceptance Fee) an interest
rate per annum equivalent to the BA Discount Rate.
(f) On the date of maturity of each Bankers' Acceptance, the
Borrower shall pay to the Lender the necessary Canadian
Dollars in respect of Bankers' Acceptance drawn in order to
discharge its obligations under such Bankers' Acceptance.
Prior to the Maturity Date, unless the Borrower prepays such
portion of the Credit, such payment shall be made from the
proceeds of a Rollover and (to the extent applicable) the
payment made by the Borrower pursuant to Section 2.06(h). If
the Borrower fails to give a Borrowing Notice in respect of
any such maturing Bankers' Acceptances, the Lender shall make
a Prime Rate Borrowing to the Borrower pursuant to the Credit,
for such purpose in the principal amount required to discharge
the Borrower's obligations pursuant to such Bankers'
Acceptance. The Lender shall promptly give notice to the
Borrower of any such Prime Rate Borrowings made by the Lender
to the Borrower, and the Borrower shall accept and use, and
hereby irrevocably directs the Lender to apply, the proceeds
of all such Prime Rate Borrowings made from time to time to
discharge the Borrower's obligations pursuant to such Bankers'
Acceptance.
(g) To facilitate the acceptance of Bankers' Acceptance pursuant
to this Agreement, the Borrower shall from time to time
provide the Lender a power of attorney pursuant to which the
Lender shall be entitled, upon receiving the Borrower's
instructions, to complete any Bankers' Acceptance pursuant to
this Agreement on behalf of the Borrower.
(h) If the Borrower fails to provide a Borrowing Notice in
accordance with Section 2.08(a) or fails to act in accordance
with a Borrowing Notice given, the Lender may in its
discretion, decline to stamp such additional Bankers'
Acceptances and any relevant maturing Bankers' Acceptances
shall be paid on their maturity by a Rollover by way of Prime
Rate Borrowings.
ARTICLE THREE
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TERMINATION AND REDUCTION OF CREDIT, REPAYMENT AND MATURITY
SECTION 3.01 MANDATORY REPAYMENT: Subject to the terms hereof, on the Maturity
Date all Indebtedness of the Borrower to the Lender shall be fully paid and
satisfied and the Credit shall be terminated.
SECTION 3.02 VOLUNTARY PREPAYMENT AND CANCELLATION:
(a) Upon giving to the Lender not less than two (2) Banking Days'
prior written notice specifying the amount and type or types
of Accommodation to be prepaid and the applicable voluntary
prepayment date the Borrower may prepay the principal amount
of the Credit in whole or in part, at any time and from time
to time.
(b) Any notice of voluntary prepayment provided by the Borrower
pursuant to Section 3.02(a) shall be irrevocable by the
Borrower and, if the Borrower defaults in making any such
voluntary prepayment thereafter, the Borrower shall promptly
arrange for payment to the Lender of all reasonable losses and
expenses incurred by the Lender in connection therewith, as
more fully provided in Section 9.02 hereof.
(c) Upon giving the Lender not less than two (2) Banking Days'
prior written notice specifying the amount of the Credit to be
cancelled and the effective date of the cancellation, the
Borrower may cancel any Unutilized Portion of the Credit in
whole or in part, at any time and from time to time.
(d) The amount of the Credit shall automatically reduce by the
amount of each voluntary prepayment when made and of each
voluntary cancellation on its effective date.
SECTION 3.03 TIME AND PLACE OF PAYMENT BY BORROWER: Each payment or prepayment
required or permitted to be made by the Borrower to the Lender hereunder
(whether on account of principal, interest, costs, or any other amount) shall be
made to the Lender at the Branch on the date for payment of the same in
immediately available funds. If any payment to be made by the Borrower hereunder
is released by the Borrower for wire transfer to the Borrower's Account after
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3:00 p.m. (Toronto time) on any day, such payment will be deemed to have been
made on the immediately following Banking Day for the purposes of the
calculation of interest, and interest will accrue due to such following Banking
Day.
SECTION 3.04 PAYMENTS TO BE MADE ON BANKING DAYS: Whenever any payment to be
made hereunder is due on a day that is not a Banking Day, such payment will be
due on the immediately following Banking Day and interest will accrue due to
such following Banking Day if payment is not made prior to that day.
SECTION 3.05 MANNER OF PAYMENT; NO SET-OFF: All payments to be made by the
Borrower pursuant to this Agreement including principal and interest will,
except as otherwise expressly provided herein, be payable in Canadian Dollars in
the case of Prime Rate Borrowings and Bankers' Acceptances and in U.S. Dollars
in the case of Base Rate Borrowings and LIBOR Borrowings; and all payments to be
made by the Borrower pursuant to this Agreement are to be made in freely
transferable, immediately available funds and without set-off, withholding or
deduction of any kind whatsoever, except to the extent required by applicable
law, and if any such set-off, withholding or deduction is so required and is
made, the Borrower will, as a separate and independent obligation to the Lender,
be obligated to pay to the Lender all such additional amounts as may be required
to fully indemnify and save harmless the Lender from such set-off, withholding
or deduction and as will result in the effective receipt by the Lender of all
amounts otherwise payable to it in accordance with the terms of this Agreement.
ARTICLE FOUR
INTEREST RATES, FEES AND CHARGES
SECTION 4.01 INTEREST RATE - PRIME RATE BORROWINGS: Subject to the provisions of
this Agreement, interest shall accrue on the aggregate principal amount of all
Prime Rate Borrowings outstanding from time to time at the variable rate of
interest per annum equal to the Prime Rate commencing on and including the day
on which an Advance is made and ending on, but excluding, the day on which it is
repaid or made subject to a Rollover to another form of Accommodation, such
interest to be calculated daily and payable monthly, in arrears, on the first
Banking Day of each and every month during which such Indebtedness remains
unpaid, based upon a calendar year of 365 days.
SECTION 4.02 INTEREST RATE - BASE RATE BORROWINGS: Subject to the provisions of
this Agreement, interest shall accrue on the aggregate principal amount of all
Base Rate Borrowings outstanding from time to time at the variable rate of
interest per annum equal to the Base Rate commencing on and including the day on
which an Advance is made and ending on, but excluding, the day on which it is
repaid or made subject to a Rollover to another form of Accommodation, such
interest to be calculated daily and payable monthly, in arrears, on the first
Banking Day of each and every month during which such Indebtedness remains
unpaid, based upon a year of 365 days.
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SECTION 4.03 INTEREST RATE - LIBOR BORROWINGS: Interest shall accrue on each
LIBOR Borrowing made pursuant to the Credit commencing on and including the
first day of the Interest Period relative to such LIBOR Borrowing and ending on,
but excluding, the last day of such Interest Period at the LIBOR Rate plus the
Applicable Margin, calculated on the basis of a year of 360 days and payable on
each Interest Payment Date.
SECTION 4.04 OVERDUE INTEREST: If interest is not paid on any principal amount
of the Indebtedness of the Borrower to the Lender hereunder, or any part
thereof, as and when interest is due and payable hereunder, unpaid interest
shall bear interest until paid, as well after as before demand, default,
maturity, and judgment, at the rates provided herein with respect to such
principal amount.
SECTION 4.05 GENERAL INTEREST PROVISIONS:
(a) Notwithstanding the provisions of this Article Four or any
other provision of this Agreement, in no event shall the
aggregate "interest" (as that term is defined in Section 347
of the Criminal Code (Canada)) exceed the effective annual
rate of interest on the "credit advanced" (as defined therein)
lawfully permitted under that section. The effective annual
rate of interest shall be determined in accordance with
generally accepted actuarial practices and principles over the
term of the Credit, and in the event of a dispute, a
certificate of a Fellow of the Canadian Institute of Actuaries
appointed by the Lender will be conclusive for the purposes of
such determination.
(b) The rates of interest per annum payable on or in respect of
Prime Rate Borrowings and Base Rate Borrowings are expressed
on the basis of a 365 day year. The rates of interest per
annum payable on or in respect of Bankers' Acceptances are
expressed on the basis of a 365 day year. The rates of
interest per annum payable on or in respect of LIBOR
Borrowings are expressed on the basis of a 360 day year. The
yearly rate of interest to which the rate of interest per
annum payable on or in respect of Prime Rate Borrowings, Base
Rate Borrowings or Bankers' Acceptances is equivalent is such
rate multiplied by a fraction the numerator of which is the
actual number of days in the relevant year and the denominator
of which is 365. The yearly rate of interest to which the rate
of interest per annum payable on or in respect of LIBOR
Borrowings is equivalent is such rate multiplied by a fraction
the numerator of which is the actual number of days in the
relevant year and the denominator of which is 360.
(c) A certificate of an authorized signing officer of the Lender
as to each amount and/or each rate of interest payable
hereunder from time to time shall be
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prima facie evidence of such amount and of such rate.
(d) For greater certainty, whenever any amount is payable under
this Agreement by the Borrower as interest or as a fee which
requires the calculation of an amount using a percentage per
annum, each party to this Agreement acknowledges and agrees
that such amount shall be calculated as of the date payment is
due without application of the so-called "deemed reinvestment
principle" or the "effective yield method".
SECTION 4.06 LIBOR BORROWINGS: Upon request by the Borrower by telephone at or
prior to 10:00 a.m. (Toronto time) on the second Banking Day before the
commencement of any Interest Period for a LIBOR Borrowing, the Lender shall
inform the Borrower of the prevailing LIBOR Rate for 30, 60, 90 or 180 days, as
requested by the Borrower, subject to the availability of any such Interest
Period to the Lender. If the Borrower wishes to obtain a LIBOR Borrowing, the
Borrower shall then confirm to the Lender the duration of the Interest Period
for the requested LIBOR Borrowing, subject to Section 4.07.
SECTION 4.07 SELECTION OF INTEREST PERIODS: The right of the Borrower to choose
the duration of each Interest Period shall be limited as follows:
(a) the Borrower may not select an Interest Period that ends after
the Maturity Date;
(b) the first Interest Period for a LIBOR Borrowing shall commence
on the Borrowing Day of such Advance and each subsequent
Interest Period relative thereto shall commence forthwith upon
the expiry of the immediately preceding Interest Period
relative thereto;
(c) if any Interest Period would end on a day which is not a
Banking Day, such Interest Period shall be extended to the
next succeeding Banking Day unless such next succeeding
Banking Day falls in the following month in which event such
Interest Period shall end on the immediately preceding Banking
Day; and
(d) if any Interest Period is extended or shortened by the
application of clause (c) above, the following Interest Period
shall (without prejudice to the application of clause (c)
above) end on the day on which it would have ended if the
immediately preceding Interest Period had not been so extended
or shortened.
SECTION 4.08 BANKERS' ACCEPTANCE FEE: Upon presentation by the Borrower to the
Lender of any draft for acceptance by the Lender as a Bankers' Acceptance, the
Borrower shall pay to the Lender at its Branch the Bankers' Acceptance Fee
applicable upon the principal amount of each such Bankers' Acceptance for the
duration of its term on the basis of the actual number of days from the date of
acceptance by the Lender up to and including the maturity date of the Bankers'
<PAGE> 23
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Acceptance, calculated on the basis of a calendar year at a rate equal to the
Applicable Margin. Payment of such Bankers' Acceptance Fee may be received from
the proceeds of the issuance of such Bankers' Acceptance.
SECTION 4.09 COMMITMENT FEE: The Borrower shall pay to the Lender a commitment
fee calculated at a rate per annum equal to the Applicable Percentage in effect
from time to time on the Unutilized Portion of the Credit. The commitment fee
shall accrue from day to day commencing on the Closing Date and shall be payable
quarterly in arrears until the Credit has been terminated.
SECTION 4.10 EXPENSES AND LEGAL FEES: Whether or not any or all of the
transactions contemplated herein shall be consummated, the Borrower shall pay to
the Lender on demand, all reasonable legal fees and disbursements (on a
solicitor and own client basis) incurred by the Lender with respect to the
preparation of this Agreement and the Documents. The Borrower shall in addition
reimburse the Lender on demand for all reasonable fees, costs and out-of-pocket
expenses including, without limitation, legal fees and disbursements (on a
solicitor and own client basis) incurred by the Lender following the Closing
Date in connection with any amendment to this Agreement and the Documents
requested by the Borrower and, following the occurrence of an Event of Default,
the exercising or defending of any or all of the rights, remedies and powers of
the Lender hereunder or under any of the Documents or the realizing on any
assets or property of the Borrower or the taking of any proceedings for the
purpose of enforcing the remedies provided herein or permitted in connection
herewith.
ARTICLE FIVE
CONDITIONS PRECEDENT
SECTION 5.01 CONDITIONS TO THE INITIAL ADVANCE: The obligation of the Lender to
make available the initial Drawdown under the Credit (which initial Drawdown
shall not, without the consent of the Lender, be made available by the Lender
after March 31, 1998) is subject to and conditional upon the Lender having
received all of the following on or before the Closing Date:
(a) all Documents shall have been duly executed and delivered by
all parties thereto;
(b) the Borrower shall have established the Borrower's Account;
(c) the Lender shall be satisfied that, at the time of the Closing
Date, no Material Adverse Change has occurred;
(d) all consents, approvals, requests and waiting periods of
Governmental Authorities necessary to complete or applicable
to the transactions contemplated pursuant to this Agreement
and the Offering Circular which, if not obtained, waived,
dispensed with, complied with or expired would prohibit the
taking up of the Synergistics
<PAGE> 24
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Shares, shall have expired or been obtained, waived or
dispensed with by the applicable Governmental Authority;
(e) the Lender shall have received all of the following, all in
form and substance satisfactory to the Lender:
(i) certified true copies of the constating documents of
the Borrower and the Guarantor and all amendments
thereto and restatements thereof;
(ii) certified copies of all corporate action taken by the
Borrower to authorize the borrowing of money, the
execution and delivery of this Agreement, and the
completion of the transactions contemplated hereby,
and the performance of all other acts, matters and
things provided for herein, together with a
certificate of incumbency of the Borrower;
(iii) certified copies of all corporate action taken by the
Guarantor to authorize the execution and delivery of
the Guarantee and the performance of all other acts,
matters and things provided for therein, together
with a certificate of incumbency of the Guarantor;
(iv) the Guarantee;
(v) the opinion of Borrower's Counsel as to all legal
matters pertaining to the Borrower, this Agreement
and the takeover bid for the Synergistics Shares, in
the form of Exhibit 2;
(vi) the opinion of Guarantor's Counsel as to all legal
matters pertaining to the Guarantor and the
Guarantee, in the form of Exhibit 3.
In the event the initial Drawdown shall take place subsequent to December 31,
1997, a certificate in writing signed under corporate seal by a senior officer
of the Borrower dated the date of such initial Drawdown certifying that all
representations and warranties set forth in this Agreement are true as at the
date thereof, and that no Default then exists.
SECTION 5.02 CONDITIONS PRECEDENT TO ALL DRAWDOWNS: The obligation of the Lender
to make available any Drawdown hereunder after the Closing Date is subject to
and conditional upon each of the following terms and conditions being satisfied:
(a) at the time of the Drawdown no Event of Default shall have
occurred and shall be continuing;
(b) to the best of the Borrower's knowledge, at the time of the
Drawdown there are no injunctions or restraining orders,
whether interlocutory or temporary, interim or
<PAGE> 25
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permanent, granted or in effect pursuant to Antitrust
Legislation prohibiting the Borrower from acquiring the
Synergistics Shares;
(c) the terms and conditions of this Agreement upon which the
Borrower may obtain a Drawdown set forth in Articles Two,
Three, Four, Eight and Nine have been complied with; and
(d) the Lender has received a Drawdown Notice.
SECTION 5.03 DISCRETION OF LENDER: Notwithstanding the nonfulfillment of any
condition referred to above, the Lender may make an Advance pursuant to the
Credit if the Lender, in its discretion, shall determine. The making of any
Advance by the Lender, either before or after the fulfillment of all applicable
conditions, will not constitute an approval, acceptance or waiver by the Lender
of any condition or Default.
SECTION 5.04 CONDITIONS SOLELY FOR THE LENDER'S BENEFIT: All conditions of the
obligation of the Lender to make any Advance available are imposed solely and
exclusively for the benefit of the Lender and no other Person will have standing
to require satisfaction of such conditions in accordance with their terms or be
entitled to assume that the Lender will refuse to make any Advance available in
the absence of strict compliance with any or all thereof and no other Person
will, under any circumstances, be deemed to be beneficiary of such conditions.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES
SECTION 6.01 REPRESENTATIONS AND WARRANTIES: The Borrower makes and gives the
following representations and warranties to the Lender, upon each of which the
Lender has relied in entering into this Agreement:
(a) INCORPORATION AND CORPORATE POWER: The Borrower is a
corporation incorporated, organized and validly existing under
the laws of the Province of Ontario.
(b) DUE AUTHORIZATION AND NO CONFLICT: The Borrower has taken or
has caused to be taken all necessary corporate action to
authorize the execution, delivery and performance of this
Agreement and the borrowing of money hereunder, and no such
action requires the consent or approval of any Governmental
Authority or any other Person, nor is any such action in
contravention of or in conflict with any applicable law, rule
or regulation or any contractual restriction binding on or
affecting the Borrower, or, as applicable, the articles or
by-laws of the Borrower.
<PAGE> 26
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(c) ENFORCEABILITY: This Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against the
Borrower in accordance with the terms thereof, subject only to
bankruptcy, insolvency, reorganization, arrangement or other
statutes or judicial decisions affecting the enforcement of
creditors' rights in general and to general principles of
equity under which specific performance and injunctive relief
may be refused by a court in its discretion.
(d) NO LITIGATION: Apart from proceedings under the Antitrust
Legislation, to the best of the Borrower's knowledge, there
are no actions, suits, proceedings, inquiries or
investigations existing, pending or threatened against or
adversely affecting the Borrower in any court or before any
federal, provincial, municipal or governmental department,
commission, board, tribunal, bureau or agency, whether
Canadian or foreign, or before any arbitrator, which (i) could
be reasonably likely to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of
this Agreement or the consummation of the transactions
contemplated hereby.
(e) NO INJUNCTION: To the best of the Borrower's knowledge, there
are no injunctions or restraining orders, whether
interlocutory or temporary, interim or permanent, granted or
in effect pursuant to Antitrust Legislation prohibiting the
Borrower from acquiring the Synergistics Shares.
(f) ADVERSE CHANGES: There has been no Material Adverse Change
since October 8, 1997.
(g) ENVIRONMENTAL COMPLIANCE: The operations and properties of the
Borrower comply in all material respects with all
Environmental Laws; all necessary Environmental Permits have
been obtained and are in effect for the operations and
properties of the Borrower; the Borrower is in compliance in
all material respects with all such Environmental Permits, and
no circumstances exist that could be reasonably likely to (i)
form the basis of an Environmental Action against the Borrower
or any of its properties that would have a Material Adverse
Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability
under any Environmental Law that would have a Material Adverse
Effect.
(h) OWNERSHIP: All of the issued and outstanding equity of the
Borrower is legally and beneficially owned by the Guarantor.
All of the issued and outstanding shares of the Borrower have
been duly issued and are fully paid, free and clear of all
liens and encumbrances. There are no outstanding warrants,
options, or rights to purchase or otherwise acquire any equity
in the Borrower.
<PAGE> 27
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SECTION 6.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES: All representations and
warranties of the Borrower as set forth herein shall survive the advance of
funds by the Lender.
ARTICLE SEVEN
COVENANTS OF THE BORROWER
SECTION 7.01 AFFIRMATIVE COVENANTS: The Borrower covenants and agrees with the
Lender that until there is no Indebtedness of the Borrower to the Lender
hereunder, the Credit has been terminated, and the Lender has no commitment or
obligation hereunder:
(a) USE OF FUNDS: The Borrower will use and employ the funds
received from the Lender pursuant to the Credit solely for the
purposes set forth in Section 2.01 hereof.
(b) BORROWER'S ACCOUNT: The Borrower shall establish and at all
times maintain current accounts with the Lender at the Branch.
(c) ACCESS AND INFORMATION: At any reasonable time and from time
to time, permit the Lender or any agents or representatives
thereof to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of,
the Borrower, and to discuss the affairs, finances and
accounts of the Borrower with any of the officers or directors
of the Borrower.
(d) NOTICES: The Borrower shall promptly, after obtaining
knowledge of same, give notice to the Lender of:
(i) any Default;
(ii) the commencement of any proceeding of the type
described in Section 6.01(d);
(iii) a representation or warranty made or given herein
which is established to be false or incorrect in any
material respect.
(e) CORPORATE STATUS AND QUALIFICATION: The Borrower will preserve
and maintain its corporate existence, rights (charter and
statutory) and franchises; provided, however, that the
Borrower and Synergistics may consummate any Second Step
Transaction and the Amalgamation; and provided further that
the Borrower shall not be required to preserve any right or
franchise if the Board of Directors of the Borrower shall
determine that the preservation thereof is no longer desirable
in the conduct of the
<PAGE> 28
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business of the Borrower and that the loss thereof is not
disadvantageous in any material respect to the Borrower or the
Lender.
(f) PARI PASSU: The Borrower shall ensure that at all times the
claims of the Lender against it under this Agreement rank at
least pari passu with the claims of all of its other unsecured
creditors (other than claims preferred by applicable law).
(g) CONDUCT OF BUSINESS: The Borrower shall maintain and preserve
all of its properties that are used or useful in the conduct
of its business in good working order and condition, ordinary
wear and tear excepted if the failure to so maintain and
preserve such properties could be reasonably likely to have a
Material Adverse Effect.
(h) GOVERNMENTAL COMPLIANCE: The Borrower shall comply, in all
material respects, with all applicable laws, regulations,
orders, restrictions and regulations of any Governmental
Authority having jurisdiction if non-compliance could be
reasonably likely to have a Material Adverse Effect.
(i) TAXES: The Borrower will pay and discharge before the same
become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a
lien upon its property; provided however, that the Borrower
shall not be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate
reserves are being maintained, unless and until any lien
resulting therefrom attaches to its property and becomes
enforceable against its other creditors.
(j) ENVIRONMENTAL COMPLIANCE: The Borrower will use and operate
all of its facilities and properties in material compliance
with all Environmental Laws and Environmental Permits if the
failure to do so could be reasonably likely to have a Material
Adverse Effect, keep all necessary permits, approvals,
certificates, licences and other authorizations relating to
environmental matters in effect and remain in material
compliance therewith if the failure to do so could be
reasonably likely have a Material Adverse Effect, and handle
all Hazardous Materials in material compliance with all
applicable Environmental Laws and Environmental Permits;
provided, however, that the Borrower shall not be required to
undertake any cleanup, removal, remedial or other action to
the extent that its obligation to do so is being contested in
good faith and by proper proceedings and appropriate reserves
are being maintained with respect to such circumstances.
(k) TAKE-OVER BID DOCUMENTATION: The Borrower shall provide copies
of any amendments, modifications, supplements and restatements
of the Offering Circular and the lock-up agreement with the
common shareholders of Synergistics to the Lender for its
review.
<PAGE> 29
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SECTION 7.02 NEGATIVE COVENANTS: The Borrower covenants and agrees with the
Lender that until there is no Indebtedness of the Borrower to the Lender
hereunder, the Credits have been terminated, and the Lender has no commitment or
obligation hereunder, the Borrower will not without the prior written consent of
the Lender:
(a) NO AMALGAMATION: otherwise than pursuant to any Second Step
Transaction or Amalgamation, enter into any transaction or
series of transactions (whether by way of amalgamation,
merger, winding-up, consolidation, reorganization, transfer,
sale, lease, or otherwise) whereby all or substantially all of
its undertaking, properties, rights, or assets would become
the property of any person or, in the case of amalgamation, of
the continuing corporation resulting therefrom, unless the
person receiving such assets or continuing therefrom is a
wholly-owned Subsidiary of the Guarantor;
(b) CHANGE IN CONTROL OF BORROWER: take or permit any action which
would result in a Change in Control of the Borrower; and
(c) CHANGE IN CONTROL OF SYNERGISTICS: subsequent to the purchase
of the Synergistic Shares, take or permit any action which
would result in a Change in Control of Synergistics.
ARTICLE EIGHT
DEFAULT
SECTION 8.01 EVENTS OF DEFAULT: Notwithstanding anything to the contrary in this
Agreement, the right of the Borrower to apply for further Advances shall, at the
option of the Lender, cease and the Indebtedness of the Borrower to the Lender
hereunder shall, at the option of the Lender, become immediately due and payable
to the Lender upon the occurrence of any of the following events (each such
event an "Event of Default"):
(a) FAILURE TO PAY PRINCIPAL OR INTEREST: If the Borrower fails to
punctually pay any Indebtedness within three (3) Banking Days
after the same becomes due and payable.
(b) FALSE REPRESENTATIONS: If any representation or warranty made
or given herein is false or incorrect in any material respect
at the time that it is made or given which is not remedied to
the Lender's sole satisfaction within three (3) Banking Days
after the Lender gives written notice to the Borrower that the
representation or warranty has proven to be false or incorrect
in any material respect.
<PAGE> 30
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(c) DEFAULT IN COVENANTS: If the Borrower fails in the observance
or performance of any of the terms, covenants or agreements to
be performed or observed by it hereunder, and such default
shall have continued for a period of 30 days after written
notice thereof has been delivered to the Borrower by the
Lender.
(d) CROSS-DEFAULT: If there is in existence and continuing any
Event of Default under the U.S. Credit Agreement or if the
Borrower shall default in the payment of any principal or
interest aggregating Cdn. $25,000,000 or more under any
obligation to repay any Debt or interest thereon and such
default is continuing, or if the Borrower shall default in the
performance or observance of any other term, condition or
provision under which Debt is outstanding and such default is
continuing, and, as a consequence thereof the holder of such
Debt is permitted or entitled to accelerate the maturity of
Debt aggregating Cdn. $25,000,000 or more.
(e) VOLUNTARY PROCEEDINGS: If the Borrower shall cease, or
threaten to cease, to carry on business or shall make a
general assignment for the benefit of creditors; or any
proceeding or filing shall be instituted or made by the
Borrower seeking relief on its behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment or
composition of it or its debts, in each case, under any law
relating to bankruptcy, insolvency or relief of debtors
(including, without limitation, the Bankruptcy and Insolvency
Act (Canada) and the Companies' Creditors Arrangement Act
(Canada)), or seeking appointment of a receiver, trustee,
liquidator, custodian or other similar official for it or for
any part of its properties or assets; or if the Borrower shall
take any corporate action to authorize any of the actions set
forth in this subsection.
(f) INVOLUNTARY PROCEEDINGS: If any proceeding or filing shall be
instituted or made against the Borrower seeking to have an
order for relief entered against it as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment or
composition of it or its debts, in each case, under any law
relating to bankruptcy, insolvency, reorganization or relief
of debtors (including, without limitation, the Bankruptcy and
Insolvency Act (Canada) and the Companies' Creditors
Arrangement Act (Canada)), or seeking appointment of a
receiver, trustee, custodian or other similar official for it
or for any substantial part of its properties or assets and
such proceeding or filing shall remain undismissed and
unstayed for a period of 30 days, or any of the actions sought
in such proceedings or filing (including, without limitation,
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 properties or
assets) shall occur.
(g) APPOINTMENT OF RECEIVER: If a receiver, liquidator, trustee,
or other person or officer with like powers shall be appointed
with respect to, or an encumbrancers
<PAGE> 31
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shall take possession of, a majority of the properties or
assets of the Borrower.
(h) GUARANTEE: If the Guarantor notifies the Lender that the
Guarantee is no longer enforceable against it.
(i) LITIGATION: Any judgment or order of a court of competent
jurisdiction shall be rendered or consented to against or by
the Borrower for the payment of money in excess of Cdn.
$25,000,000 net of insurance coverage.
(j) EXECUTIONS, DISTRESS: If any execution, extent or other
similar process of any court shall become enforceable against
the Borrower, or if a distress or any analogous process shall
be levied against any of the properties or assets of the
Borrower and the aggregate amount claimed pursuant to all such
executions, extents, other processes and distraints exceeds
$25,000,000.
(k) CHANGE IN CONTROL: If there shall be any Change in Control in
the Borrower after the date hereof or in Synergistics after
the initial Drawdown Date.
SECTION 8.02 REMEDIES: After default and acceleration pursuant to Section 8.01
hereof, the Lender may commence such legal action or proceedings against the
Borrower or its properties and assets as may be permitted hereunder or at law or
in equity all at such times and in such manner as the Lender in its sole
discretion may deem expedient and all without any additional notice,
presentment, demand, or any other similar proceeding, all of which are hereby
expressly waived.
SECTION 8.03 REMEDIES CUMULATIVE: It is expressly understood and agreed that the
rights and remedies of the Lender under this Agreement and the other Documents
are cumulative and are in addition to and not in substitution for any rights or
remedies provided by law and any single or partial exercise by the Lender of any
right or remedy for a default or breach of any term, covenant, condition or
agreement herein contained shall not be deemed to be a waiver of or to alter,
affect or prejudice any other right or remedy or other rights or remedies to
which the Lender may be lawfully entitled for the same default or breach, and
any waiver by the Lender of the strict observance, performance or compliance
with any term, covenant, condition or agreement herein contained, and any
indulgence granted by the Lender shall be deemed not to be a waiver of any
subsequent default.
SECTION 8.04 SET-OFF: Upon the occurrence of an Event of Default, in addition to
and not in limitation of any rights now or hereafter granted under applicable
law, the Lender may, to the extent permitted by law, without notice to the
Borrower at any time and from time to time: (i) combine, consolidate or merge
any or all of the deposits or other accounts of the Borrower with the Lender
(whether term, notice, demand or otherwise and whether matured or unmatured),
and the Indebtedness of the Borrower to the Lender hereunder, and (ii) set-off,
apply or transfer any or all sums standing to the credit of any such deposits or
accounts in or towards the satisfaction of any of the Indebtedness of the
Borrower to the Lender hereunder, and may do so notwithstanding that the
<PAGE> 32
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balances on such accounts and the Indebtedness may not be expressed in the same
currency and the Lender is hereby authorized to effect any necessary conversions
at the rate of exchange equal to the Exchange Equivalent then in effect.
ARTICLE NINE
CHANGE IN CIRCUMSTANCES AND INDEMNITIES
SECTION 9.01 INCREASED COSTS:
(a) If, due to either (i) the introduction of or any change in or
any interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank
or other Governmental Authority (whether or not having the
force of law) which becomes effective after the date hereof,
there shall be any increase in the cost to the Lender of
agreeing to make or making, funding or maintaining any
Borrowing, then the Borrower shall from time to time, upon
demand by the Lender, pay to the Lender additional amounts
sufficient to compensate the Lender for such additional cost.
(b) If, due to either (i) the introduction of or any change in or
in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank
or other Governmental Authority (whether or not having the
force of law) which becomes effective after the date hereof,
there shall be any increase in the amount of capital required
or expected to be maintained by the Lender as a result of or
based upon the existence of the Lender's commitment to lend
hereunder and other commitments of this type, then upon demand
by the Lender, the Borrower shall pay to the Lender, from time
to time as specified by the Lender, additional amounts
sufficient to compensate the Lender in the light of such
circumstances, to the extent that the Lender reasonably
determines such increase in capital to be allocable to the
existence of the Lender's commitment to lend hereunder.
(c) The Lender shall give prompt notice to the Borrower if it
determines that it is entitled to claim compensation under
this Section 9.01. The Lender shall not be entitled to
compensation in respect of any period which is more than 90
days prior to the date the Lender so notifies the Borrower. A
certificate as the amount of such compensation setting forth
the basis thereof in reasonable detail and submitted to the
Borrower by the Lender shall be rebuttable evidence thereof.
SECTION 9.02 LOSSES: The Borrower shall, from time to time, fully indemnify and
hold the Lender harmless from and against any and all reasonable costs, losses
(excluding lost profit), expenses, damages or liabilities which the Lender may
sustain or incur as a result of, without
<PAGE> 33
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duplication:
(a) the failure of the Borrower to utilize the Credit in the
manner specified in a Drawdown Notice (including if such
failure was caused by the failure of the Borrower to meet all
conditions precedent);
(b) the failure of the Borrower to pay any sum on its due date;
(c) any prepayment; or
(d) any Event of Default.
Without prejudice to the generality of the foregoing, the foregoing indemnity
shall extend to any loss, premium, penalty or expense which may be incurred by
the Lender in liquidating deposits from third parties acquired to make, maintain
or fund a Drawdown or any part thereof or any amount due or to become due under
this Agreement.
SECTION 9.03 CURRENCY INDEMNITY: If, for the purposes of obtaining judgment in
any court in any jurisdiction with respect to this Agreement, it becomes
necessary to convert into the currency of such jurisdiction (the "Judgment
Currency") any amount due under this Agreement in any currency other than the
Judgment Currency (the "Currency Due"), then conversion shall be made at the
rate of exchange prevailing on the Banking Day before the day on which judgment
is given. For this purpose "rate of exchange" means the rate at which the Lender
is able, on the relevant date, to purchase the Currency Due with the Judgment
Currency in accordance with its normal practice at its Main Branch in Toronto,
Ontario. In the event that there is a change in the rate of exchange prevailing
between the Banking Day before the day on which the judgment is given and the
date of payment of the amount due, the Borrower will, on the date of payment,
pay such additional amounts, if any, as may be necessary to ensure that the
amount paid on such date is the amount in the Judgment Currency which when
converted at the rate of exchange prevailing on the date of payment is the
amount then due under this Agreement in the Currency Due. If the amount of the
Currency Due which the Lender is so able to purchase exceeds the amount of the
Currency Due originally due to the Lender, the Lender shall promptly refund such
excess to the Borrower. If the amount of the Currency Due which the Lender is so
able to purchase is less than the amount of the Currency Due originally due to
the Lender, the Borrower shall indemnify and save the Lender harmless from and
against loss or damage arising as a result of such deficiency. This indemnity
shall constitute an obligation separate and independent from the other
obligations contained in this Agreement, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence granted
by the Lender from time to time and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum in respect of an
amount due under this Agreement or under any judgment or order.
SECTION 9.04 ENVIRONMENTAL INDEMNITY:
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(a) (i) The Borrower agrees to indemnify and hold harmless
the Lender and its Affiliates, and their officers,
directors, employees, agents and advisors (each, an
"Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by
reason of, or in connection with the preparation for
a defense of, any investigation, litigation or
proceeding arising out of, related to or in
connection with the actual or alleged presence of
Hazardous Materials on any property of the Borrower
or any Environmental Action relating in any way to
the Borrower, in each case whether or not such
investigation, litigation or proceeding is brought by
the Borrower, its directors, shareholders or
creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto
and whether or not the transactions contemplated
hereby are consummated, except to the extent such
claim, damage, loss, liability or expense resulted
from an Indemnified Party's gross negligence or
willful misconduct. The Borrower also agrees not to
assert any claim against the Lender or any of its
Affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any
theory of liability, for special or indirect damages
arising out of or otherwise relating to this
Agreement, any of the transactions contemplated
herein or the actual or proposed use of the proceeds
of the Advances.
(ii) Each Indemnified Party shall, promptly after becoming
aware of any actual or threatened action or claim
against such Indemnified Party in respect of which
indemnification may be sought against the Borrower
pursuant to this Section 9.04(b), notify the Borrower
in writing of such action or claim. In case any such
action shall be brought against any Indemnified Party
and such Indemnified Party shall notify the Borrower
of the commencement thereof, the Borrower may
participate therein or assume the defense thereof and
after notice from the Borrower to such Indemnified
Party of an election so to assume the defense
thereof, such Indemnified Party shall cooperate
fully, completely and promptly in the defense
thereof, including without limitation, the settlement
of outstanding claims, and the Borrower will not be
liable to such Indemnified Party under this Section
9.04(b) for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with
the defense thereof other than reasonable
out-of-pocket costs of investigation incurred with
the consent of the Borrower, which consent shall not
be unreasonably withheld or delayed; provided,
however, that unless and until the Borrower so
assumes the defense of any such action, the Borrower
shall have the right to participate at its own
expense in the defense of any such action to which it
is a party. If the Borrower shall not have so assumed
the defense of any such action or if any Indemnified
Party shall have reasonably concluded that there may
be defenses
<PAGE> 35
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available to it or them which are different from or additional
to those available to the Borrower (in which case the Borrower
shall not have the right to direct the defense of such action
on behalf of such Indemnified Party), legal or other expenses
incurred by such Indemnified Party shall be borne by the
Borrower; provided that the Borrower shall be liable only for
the expenses of a single legal counsel for all Indemnified
Parties in connection with any single action. Notwithstanding
the foregoing, the Borrower shall not be liable for any
settlement of any action or claim effected without its
consent.
(iii) The Borrower will not settle or compromise or consent to
the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification
has been sought hereunder (whether or not an Indemnified Party
is a party to such claim, action, suit or proceeding) without
the prior written consent of the Lender unless such
settlement, compromise or consent includes an unconditional
release of the Lender and each Indemnified Party from all
liability arising from such claim, action, suit or proceeding.
(b) The indemnity in this Section 9.04 shall survive for
a period of five (5) years from the date of the
initial Drawdown. If written notice of a claim
pursuant to this Section 9.04 is given by the Lender
to the Borrower prior to the expiry of such period,
then the right of the Lender to pursue such claim
shall survive the expiry of such five (5) year
period.
SECTION 9.05 LACK OF LIBOR RATE:
(a) If at any time prior to the commencement of an
Interest Period with respect to a LIBOR Borrowing,
the Lender shall have determined in good faith (which
determination shall be conclusive) that:
(i) by reason of circumstances affecting the
London inter-bank market, adequate and fair
means do not exist for ascertaining the rate
of interest applicable to a LIBOR Borrowing
intended to be outstanding during such
Interest Period;
(ii) deposits in U.S. Dollars for the duration of
such Interest Period are not available to
the Lender in the London interbank market in
sufficient amounts in the ordinary course of
business; or
(iii) the rate at which deposits are offered to it
in the London inter-bank market does not
accurately reflect the cost to the Lender of
funding the LIBOR Borrowing for the proposed
Interest Period;
then, from and after the date of such determination, the
Borrower shall, subject to
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Section 9.05(b), not have the right to obtain a LIBOR
Borrowing.
(b) The Lender shall notify the Borrower within 10 Banking Days of
becoming aware that the circumstances referred to in Section
9.05(a) no longer exist. Upon receipt of such notice, the
Borrower shall have the right to receive a LIBOR Borrowing in
accordance with the provisions hereof.
SECTION 9.06 UNLAWFUL BORROWINGS: Notwithstanding anything herein contained, if
at any time while any Advance is outstanding, the Lender determines in good
faith and notifies the Borrower that, by reason of the introduction of or any
change in any law, regulation, treaty, official directive or guideline, or any
change in the interpretation or application thereof by any court or by any
governmental authority charged with the administration thereof (including the
Superintendent of Financial Institutions for Canada), it is unlawful for the
Lender to make, maintain or fund any Base Rate Borrowing or LIBOR Borrowing or
to give effect to any of their related obligations as contemplated hereby, the
Lender, by such notice, may declare that the Lender's obligations relating
thereto under this Agreement shall be terminated and thereupon, or at the end of
such period as the Lender shall have determined in its discretion, the Base Rate
Borrowing or LIBOR Borrowing shall be converted to a Prime Rate Borrowing in an
amount equal to the Exchange Equivalent in Canadian Dollars of such Base Rate
Borrowing or LIBOR Borrowing in effect at that time, and the Borrower shall pay
all unpaid interest accrued thereon to the date of conversion; provided,
however, that if the maximum amount of the Credit in Canadian Dollars, as
referred to in Section 2.01, would be exceeded as a result of such conversion,
any such excess amount shall be payable to the Lender on demand and interest
shall accrue thereon to the time of payment at the same rates as those
applicable to Prime Rate Borrowings under the Credit. If any such law,
regulation, treaty, official directive or guideline, or such change therein,
shall only affect a portion of the Lender's obligations under this Agreement
which portion is, in the opinion of the Lender, severable from the remainder of
this Agreement so that the remainder of this Agreement may continue in full
force and effect without otherwise affecting any of the obligations of the
Lender under this Agreement, the Lender shall only declare its obligations under
that portion so terminated.
<PAGE> 37
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ARTICLE TEN
ASSIGNMENT AND PARTICIPATION
SECTION 10.01 BENEFIT OF AGREEMENT: This Agreement shall enure to the benefit of
and be binding on the parties hereto, their respective successors and any
permitted assignee or transferee of the parties' rights or obligations
hereunder.
SECTION 10.02 ASSIGNMENT BY BORROWER: This Agreement shall be binding upon and
enure to the benefit of the Borrower and its successors and permitted assigns,
provided that neither the rights nor obligations of the Borrower hereunder may
be assigned by it without the prior written consent of the Lender which may be
refused in the absolute discretion of Lender.
SECTION 10.03 ASSIGNMENT BY LENDER: From time to time the Lender may assign all
or any part of its rights to, and may have its obligations in respect of, not
less than Cdn. $5,000,000 of the Credit assumed by any Person upon securing the
consent of the Borrower, such consent not to be unreasonably withheld. No
assignee, however, shall be entitled to receive any greater amount payable under
or otherwise in respect of this Agreement than the Lender would have been
entitled to receive had such assignment not be made. An assignment shall become
effective when the Borrower has received from the assignee an undertaking
(addressed to the parties to this Agreement) to be bound by this Agreement in
its entirety and to perform the obligations assigned to it hereunder in form and
substance satisfactory to the Borrower, acting reasonably. Any assignee shall be
and be treated as if it were the Lender for all purposes of this Agreement,
shall be entitled to the benefit hereof, and shall be subject to the obligations
of the Lender to the same extent as if it were an original party in respect of
the rights or obligations assigned to it and the Lender shall be released and
discharged from its obligations hereunder. For the purposes of any such
assignment the Lender may upon securing the consent of the Borrower, such
consent not to be unreasonably withheld, disclose on a confidential basis to a
potential assignee such information about the Borrower as the Borrower may
permit and the Lender may see fit. The Borrower agrees to execute and deliver,
at the request and expense of the Lender, such deeds, documents, instruments,
and assurances as the Lender may reasonably request in connection with any such
assignment.
SECTION 10.04 PARTICIPATION:
(a) The rights, benefits and obligations of the Lender under or in
respect of this Agreement (referred in this Section 10.04 as
the "Rights") may, in whole or in part, be participated by the
Lender (referred to in this Section 10.04 as a
"Participation") from time to time to one or more Persons and
for this purpose the Lender may, upon securing the consent of
the Borrower, such consent not to be unreasonably withheld,
disclose, on a confidential basis, to a potential participant
(referred in this Section 10.04 as a "Participant") such
information about the Borrower as the Borrower may permit and
the Lender may see fit.
<PAGE> 38
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(b) If the Rights are the subject of a Participation, (i) the
Lender's obligations under this Agreement (including, without
limitation, its commitment to the Borrower hereunder) shall
remain unchanged, (ii) the Lender shall remain solely
responsible to the Borrower for the performance of such
obligations, (iii) the Lender shall remain the holder of all
Indebtedness owing under this Agreement, (iv) the Borrower
shall continue to deal solely and directly with the Lender in
connection with such Rights and (v) no Participant shall have
any right to approve any amendment or waiver of any provision
of this Agreement, or any consent to any departure by the
Borrower therefrom.
SECTION 10.05 LIMITATION ON ASSIGNMENT AND PARTICIPATION: The Lender may, in
connection with any assignment or Participation or proposed assignment or
Participation pursuant to Sections 10.03 or 10.04 disclose to the assignee or
Participant or the proposed assignee or Participant any information relating to
the Borrower furnished to the Lender by or on behalf of the Borrower provided
that prior to any such disclosure the Borrower shall have consented to the
disclosure and the assignee or Participant or proposed assignee or Participant
shall have agreed to preserve the confidentiality of any confidential
information relating to the Borrower received by it from the Lender. The Lender
shall not otherwise disclose any confidential information to any person without
the consent of the Borrower, other than (a) to the Lender's officers, directors,
employees, agents and advisors, and then only on a confidential basis, (b) as
required by any law, rule or regulation or judicial process and (c) as requested
or required by the Office of the Superintendent of Financial Institutions or
other Governmental Authority.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01 RIGHTS AND WAIVERS: The rights and remedies of the Lender under
the Documents and in connection therewith: (i) are cumulative, (ii) may be
exercised as often and in such order as the Lender considers appropriate, (iii)
are in addition to its rights and remedies under the general law, and (iv) shall
not be capable of being waived or varied except by virtue of an express waiver
or variation in writing signed by an officer of the Lender; and in particular
any failure to exercise or any delay in exercising any of such rights and
remedies shall, to the extent permitted by law, not operate as a waiver or
variation of that or any other such right or remedy; any defective or partial
exercise of any of such rights shall, to the extent permitted by law, not
preclude any other or future exercise of that or any other such right or remedy;
and no act or course of conduct or negotiation on the part of the Lender or on
its behalf shall, to the extent permitted by law, in any way preclude the Lender
from exercising any such right or remedy or constitute a suspension or variation
of any such right or remedy.
SECTION 11.02 NON-MERGER: The taking of a judgment or judgments (other than a
final order
<PAGE> 39
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of foreclosure) or any other action or dealing whatsoever by the Lender shall
not operate as a merger of any indebtedness or liability of the Borrower or in
any way suspend payment or affect or prejudice the rights, remedies and powers,
legal or equitable, which the Lender may have in connection with such
liabilities, and the surrender, cancellation or any other dealings with any
security for such liabilities shall not release or affect the liability of the
Borrower hereunder or under any security held by the Lender.
SECTION 11.03 DEBITING OF ACCOUNT: Prior to the Maturity Date, the Lender shall
debit the Borrower's Account with the amount of any principal, interest, costs
or other amounts due and payable by the Borrower in accordance with the terms
hereof the payment of which is to be funded by a Drawdown pursuant to Section
2.05(b).
SECTION 11.04 NOTICES: Any notice or communication to be given under this
Agreement to the Borrower may be effectively given by delivering the same to
either the Borrower at One Geon Center, P.O. Box 122, Avon Lake, Ohio 44012,
U.S.A., Attention: Jean M. Miklosko, Assistant Treasurer or to the Borrower c/o
Fasken Campbell Godfrey, 4200 - Toronto Dominion Bank Tower, Box 20,
Toronto-Dominion Centre, Toronto, Ontario, M5K 1N6, Attention: Jon J. Holmstrom,
and marked URGENT or by sending the same by prepaid registered mail to it at
either such address. Any notice or communication to be given under this
Agreement to the Lender may be effectively given by delivering the same to
Canadian Imperial Bank of Commerce, Commerce Court West, 7th Floor, Toronto,
Ontario, M5L 1A2, Attention: Doug Zinkiewich, Director or by sending the same by
prepaid registered mail to it such address. Any notice so delivered or mailed
shall be effective when received.
SECTION 11.05 STATEMENTS AND REPORTS: Except as otherwise provided herein, all
statements, reports, certificates, opinions, appraisals and other documents or
information required to be furnished to the Lender by the Borrower under this
Agreement shall be supplied by the Borrower without cost to the Lender.
SECTION 11.06 SEVERABILITY: The invalidity, for any reason, of any term or
provision of this Agreement shall not in any manner invalidate or cause the
invalidation of any other term or provision thereof but the same shall be deemed
to have been severed therefrom so that the validity, legality and enforceability
of the remaining terms and provisions shall not be affected, prejudiced or
impaired thereby.
SECTION 11.07 GOVERNING LAW: This Agreement has been made in the Province of
Ontario and shall be construed, interpreted and performed in accordance with the
laws of Ontario and the applicable laws of Canada.
SECTION 11.08 TIME OF ESSENCE: Time is of the essence of this Agreement, and a
forbearance by the Lender of the strict application of this provision shall not
operate as a continuing or subsequent forbearance.
<PAGE> 40
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SECTION 11.09 FURTHER ASSURANCES: The Borrower shall from time to time, upon
every reasonable request of the Lender, make, do, execute, and deliver or cause
to be made, done, executed and delivered all such further acts, deeds,
assurances and things as may be necessary in the opinion of the Lender, acting
reasonably, for more effectually implementing and carrying out the true intent
and meaning of this Agreement.
SECTION 11.10 ENTIRE AGREEMENT: This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes the
committed offer to finance dated September 29, 1997 with respect to the Credit.
There are no restrictions, agreements, promises, warranties, covenants or
undertakings made by the parties other than those set forth in the Documents. No
amendment, modification or termination of the Documents shall be effective
unless made in writing and signed by the party intended to be bound thereby.
SECTION 11.11 CONFLICT: In the event that there is any conflict or inconsistency
between the provisions contained in this Agreement and the provisions contained
in any Document delivered pursuant to or in connection with this Agreement, the
provisions of this Agreement shall govern and shall override the provisions
contained in such other Document.
SECTION 11.12 NO THIRD PARTY BENEFICIARIES: Subject to Article Eleven hereof,
this Agreement shall be for the sole benefit of the Lender and the Borrower, and
is not for the benefit of any other person.
SECTION 11.13 COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and all of which when taken together constitute but one and the same
agreement; any party may execute this Agreement by signing any counterpart of
it.
SECTION 11.14 RELATIONSHIP OF PARTIES: The provisions contained in this
Agreement shall not create or be deemed to create any relationship as between
the Borrower and the Lender other than that of debtor and creditor.
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IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
as of the date first written above.
1250828 ONTARIO INC.
Per: /s/ Jean Miklosko
-----------------------------------
Name: Jean Miklosko
Title: Assistant Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE
Per: /s/ Doug Zinkiewich
-----------------------------------
Name: Doug Zinkiewich
Title: Director
<PAGE> 1
EXHIBIT 10.15A
GUARANTY
THIS GUARANTY (as amended, supplemented, amended and restated
or otherwise modified from time to time, this "GUARANTY") dated as of October
27, 1997 made by THE GEON COMPANY, a Delaware corporation (the "GUARANTOR"), in
favour of Canadian Imperial Bank of Commerce (the "LENDER").
W I T N E S S E T H :
WHEREAS pursuant to a Credit Agreement dated as of the date
hereof (as amended, supplemented, amended and restated or otherwise modified
from time to time, the "CREDIT AGREEMENT"), between the Borrower (as defined
below) and the Lender, the Lender has extended the Credit to the Borrower;
AND WHEREAS as a condition precedent to the making of the
initial Advance under the Credit Agreement, the Guarantor is required to execute
and deliver this Guaranty;
AND WHEREAS the Guarantor has duly authorized the execution,
delivery and performance of this Guaranty;
AND WHEREAS it is in the best interests of the Guarantor to
execute this Guaranty inasmuch as the Guarantor, as the beneficial owner of all
of the issued and outstanding capital stock of the Borrower, will derive
substantial direct and indirect benefits from the granting of Accommodation made
from time to time to the Borrower by the Lender pursuant to the Credit
Agreement;
NOW THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, and in order to induce the Lender to
grant Accommodation pursuant to the Credit Agreement, the Guarantor agrees, for
the benefit of the Lender, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
"ACCRUED LIABILITIES" means, at any time, all Obligations which are (or
but for demand by the Lender (which the Lender is precluded from doing
by operation of law or court order)
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would be) due and payable by the Borrower to the Lender at the time in
accordance with the terms and conditions of the Credit Agreement.
"AGREED CURRENCY" is defined in Section 2.10.
"BORROWER", means 1250828 Ontario Inc., a corporation existing under
the laws of the Province of Ontario, and its successors by amalgamation
or otherwise.
"CONTINGENT LIABILITIES" means all Obligations, other than the Accrued
Liabilities.
"CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"GUARANTOR" is defined in the PREAMBLE.
"GUARANTY" is defined in the PREAMBLE.
"INTERCORPORATE INDEBTEDNESS" is defined in Section 2.8.
"JUDGMENT CURRENCY" is defined in Section 2.10.
"LENDER" is defined in the preamble and includes its successors and
assigns permitted under the Credit Agreement.
"OBLIGATIONS" means all indebtedness, liabilities and obligations of
the Borrower to the Lender arising under the Credit Agreement, whether
present or future, direct or indirect, absolute or contingent, matured
or not, at any time owing or remaining unpaid by the Borrower to the
Lender in any currency, including all principal, interest, commissions,
fees, reasonable fees and expenses, reasonable legal fees and other
out-of-pocket costs, indemnities, charges and expenses payable
thereunder.
"OTHER CURRENCY" is defined in Section 2.10.
"RATE OF EXCHANGE" is defined in Section 2.10.
"U.S. CREDIT AGREEMENT" means that certain credit agreement dated as of
August 16, 1994, among the Guarantor, Citibank, N.A. as administrative
agent, Nationsbank of North Carolina, N.A. as co-agent and the other
institutions noted therein. For greater certainty, the term "U.S.
Credit Agreement" as used herein shall include any amendments,
modifications, supplements, waivers or restatements to such agreement
only until such date as CIBC Inc. remains a lender to the Guarantor
pursuant to such agreement.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise
defined herein (and except for Article III hereof) or should the context
otherwise require, terms used in this
<PAGE> 3
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Guaranty, including its preamble and recitals, have the meanings provided in the
Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. GUARANTY. The Guarantor hereby absolutely, unconditionally
and irrevocably:
(a) guarantees the full and punctual payment when due in
accordance with the terms of the Credit Agreement, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or
otherwise, of all Obligations whether for principal, interest, fees,
expenses or otherwise; and
(b) indemnifies and holds harmless the Lender for any and all
reasonable out-of-pocket costs and expenses (including reasonable
attorney's fees and expenses) incurred by the Lender in enforcing any
rights under this Guaranty after the occurrence of an Event of Default
and (while such Event of Default in continuing) demand for payment of
all Accrued Liabilities is made hereunder;
PROVIDED HOWEVER, that the Guarantor shall be liable under this Guaranty for the
maximum amount of such liability that can be hereby incurred without rendering
this Guaranty, as it relates to the Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount. This Guaranty constitutes a guaranty of payment when due and not
of collection, and the Guarantor specifically agrees that it shall not be
necessary or required that the Lender exercise any right, assert any claim or
demand or enforce any remedy whatsoever against the Borrower (or any other
Person) before or as a condition to the obligations of the Guarantor hereunder.
SECTION 2.2. ACCELERATION OF GUARANTY. The Guarantor agrees that:
(a) in the event of an actual or deemed entry of an order for
relief with respect to the Guarantor under the United States Bankruptcy Code; or
(b) if an Event of Default referred to in Sections 8.01(e) or
(f) of the Credit Agreement occurs and is continuing and if such Event of
Default shall occur at a time when any of the Accrued Liabilities may not then
be due and payable,
the Guarantor agrees that it will pay to the Lender promptly following demand
the full amount which would be payable hereunder by the Guarantor in respect of
any Accrued Liabilities as if all such Accrued Liabilities were then due and
payable.
<PAGE> 4
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SECTION 2.3. GUARANTY ABSOLUTE ETC. This Guaranty shall in all respects
be a continuing, absolute, unconditional and irrevocable guaranty of payment,
and shall remain in full force and effect until all Obligations have been paid
in full in cash, all obligations of the Guarantor hereunder shall have been paid
in full in cash and the Credit has been terminated. The Guarantor guarantees
that the Obligations will be paid strictly in accordance with the terms of the
Credit Agreement, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Lender with respect thereto. The liability of the Guarantor under this Guaranty
shall be absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the
Credit Agreement or any other Document other than this Guaranty;
(b) the failure of the Lender
(i) to assert any claim or demand or to enforce any
right or remedy against the Borrower or any other Person under
the provisions of the Credit Agreement and any other Document
or otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Obligations:
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
extension, compromise or renewal of any Obligation;
(d) any reduction, limitation, impairment or termination of
the Obligations for any reason, other than payment, including any claim
of waiver, release, surrender, alteration or compromise, and shall not
be subject to (and the Guarantor hereby waives any right to or claim
of) any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality, nongenuineness,
irregularity, compromise or unenforceability of, or any other similar
event or occurrence affecting the Obligations;
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement or any Document other than this Guaranty;
(f) any addition, exchange, release, surrender or
non-perfection of any collateral, or any amendment to or waiver or
release or addition of, or consent to departure from, any other
guaranty, held by the Lender securing any of the Obligations;
<PAGE> 5
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(g) the insolvency of, or voluntary or involuntary bankruptcy,
assignment for the benefit of creditors, reorganization or other
similar proceedings affecting the Borrower or any of its assets; and
(h) any other circumstance (other than payment) which might
otherwise constitute a defense available to, or a legal or equitable
discharge of, the Borrower, any surety or any guarantor.
SECTION 2.4. REINSTATEMENT ETC. The Guarantor agrees that this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Obligations is rescinded or
must otherwise be restored by the Lender, upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 2.5. WAIVER, ETC. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Lender protect,
secure, perfect or insure any security interest or lien, or any property subject
thereto, or exhaust any right or take any action against the Borrower or any
other Person or entity or any collateral securing the Obligations.
SECTION 2.6. POSTPONEMENT OF SUBROGATION, ETC. The Guarantor agrees
that it will not exercise any rights which it may acquire by way of rights of
subrogation, reimbursement, exoneration, or indemnification, or any other right
to participate in any claim or remedy under this Guaranty, by any payment made
hereunder, until the payment in full in cash of all Accrued Liabilities demanded
under Section 2.1; PROVIDED, HOWEVER, that if:
(a) the Guarantor has made payment to the Lender of all
Accrued Liabilities demanded under Section 2.1, and
(b) all such Accrued Liabilities have been paid in full in
cash,
the Lender agrees that, at the Guarantor's request, the Lender will promptly
execute and deliver to the Guarantor appropriate documents (without recourse and
without representation or warranty, save that such Accrued Liabilities are due
and owing to the Lender and the Lender has not assigned or encumbered such
Accrued Liabilities) requested by the Guarantor to transfer to the Guarantor the
right to receive payment of the Accrued Liabilities so paid by the Guarantor.
<PAGE> 6
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SECTION 2.7. SUCCESSORS, TRANSFEREES AND ASSIGNS. This
Guaranty shall:
(a) be binding upon the Guarantor, and its successors,
transferees and assigns; and
(b) inure to the benefit of and be enforceable by the Lender.
Without limiting the generality of CLAUSE (B), the Lender may, subject
to the terms of the Credit Agreement, assign or otherwise transfer (in
whole or in part) any or all of the Credit to any other Person or
entity, and such other Person or entity shall thereupon become vested
with all rights and benefits in respect thereof granted to the Lender
under this Guaranty.
SECTION 2.8. POSTPONEMENT.
(a) All obligations, liabilities and indebtedness, present
and future, of the Borrower to the Guarantor of any nature whatsoever
and all security therefor (the "INTERCORPORATE INDEBTEDNESS") are
hereby postponed to the Obligations; PROVIDED that, until the
occurrence and continuance of an Event of Default and notice by the
Lender to the Guarantor that its liability hereunder has become due and
payable, the Guarantor (subject to the terms and provisions of this
Guaranty) shall have the right to receive payments in respect of the
Intercorporate Indebtedness in accordance with the terms thereof.
(b) If the liabilities of the Guarantor hereunder become due
and payable, the Lender shall be entitled to receive payment of the
liabilities of the Guarantor hereunder then due and payable in full
before the Guarantor shall be entitled to receive any payment on
account of the Intercorporate Indebtedness. After notice by the Lender
to the Guarantor that the liabilities of the Guarantor hereunder have
become due and payable, and for so long as any such liabilities then
due and payable shall remain unpaid, the Guarantor shall not purport to
release or withdraw the Intercorporate Indebtedness.
SECTION 2.9. WITHHOLDING TAXES.
The Guarantor hereby agrees that:
(a) All payments by the Guarantor hereunder shall be made free
and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed by any
taxing authority, but excluding franchise taxes and taxes imposed on or
measured by the net income, capital or receipts of the Lender (such
non-excluded items being called "TAXES"). In the event that any
withholding or deduction from any payment to be made by the Guarantor
hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Guarantor will:
<PAGE> 7
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(i) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(ii) promptly forward to the Lender an official
receipt or other documentation satisfactory to the Lender
evidencing such payment to such authority; and
(iii) pay to the Lender such additional amount or
amounts as is necessary to ensure that the net amount actually
received by the Lender will equal the full amount the Lender
would have received had no such withholding or deduction been
required.
Moreover, if any Taxes are directly asserted against the
Lender with respect to any payment received by the Lender hereunder, the Lender
may, after requesting the Guarantor to pay the same, allowing a reasonable time
for the Guarantor to do so and the lapse of such reasonable time without
payment, pay such Taxes and the Guarantor will promptly pay such additional
amounts (including any penalties, interest or expenses) as is necessary in order
that the net amount received by the Lender after the payment of such Taxes
(including any Taxes on such additional amount) shall equal the amount the
Lender would have received had such Taxes not been asserted.
(b) If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Lender the
required receipts or other required documentary evidence, the Guarantor
shall indemnify the Lender for any incremental Taxes, interest or
penalties that may become payable by the Lender as a result of any such
failure.
(c) Without prejudice to the survival of any other agreement
of the Guarantor hereunder, the agreements and obligations of the
Guarantor contained in this Section 2.9 shall survive the payment in
full of the Obligations.
(d) If the Lender receives payment from the Guarantor of any
Taxes pursuant to this Section 2.9 and the official receipts or other
documentation related thereto referred to in clause (a)(ii) above, the
Lender shall apply (provided that the Guarantor pays all costs and
expenses incurred by the Lender in connection with such application)
for a refund in respect of such Taxes to the extent it is entitled to
do so under applicable law and promptly pay such refund when received
to the Guarantor; provided, however, that the Guarantor agrees to
return such portion of such refund to the Lender promptly after it
receives notice from the Lender that the Lender is required to return
any portion of such refund to the relevant taxing authority. Nothing in
this clause shall be construed to require the Lender to disclose any of
its tax returns or other confidential or proprietary information to the
Guarantor or to conduct its business or to arrange or to alter in any
respect its tax or financial affairs so that it is entitled to receive
any refund of any Taxes.
SECTION 2.10. JUDGMENT CURRENCY.
<PAGE> 8
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(a) The Guarantor hereby agrees that payments hereunder on
account of the Obligations shall be made in the currency agreed to
(the"AGREED CURRENCY")with respect to each such Obligation and if any
payment is received in another currency (the "OTHER CURRENCY"), such
payment shall constitute a discharge of the liability of the Guarantor
only to the extent of the amount of the Agreed Currency which the
Lender is able to purchase with the amount of the Other Currency
received by it on the Banking Day next following such receipt in
accordance with normal procedures and after deducting any out-of-pocket
costs of exchange.
(b) If, for the purpose of obtaining judgment in any court in
any jurisdiction, it becomes necessary to convert into a particular
currency (the "JUDGMENT CURRENCY") any amount due in the Agreed
Currency, then the conversion shall be made on the basis of the rate of
exchange prevailing on the Banking Day next preceding the day on which
judgment is given. For the foregoing purposes "RATE OF EXCHANGE" means
the rate at which the Lender, in accordance with its normal banking
procedures, is able on the relevant date to purchase the Agreed
Currency with the Judgment Currency after deducting any out-of-pocket
costs of exchange.
(c) The obligation of the Guarantor in respect of any sum due
to the Lender hereunder shall, notwithstanding any judgment in a
currency other than the Agreed Currency, be discharged only to the
extent that on the Banking Day following receipt by the Lender of any
sum adjudged to be so due in such other currency, the Lender may, in
accordance with normal banking procedures, purchase the Agreed Currency
with such other currency after deducting any out-of-pocket costs of
exchange. In the event that the Agreed Currency so purchased is less
than the sum originally due to the Lender in the Agreed Currency, the
Guarantor, as a separate obligation and notwithstanding any such
judgment, hereby indemnifies and holds harmless the Lender against such
loss. In the event that the Agreed Currency so purchased is more than
the sum originally due, the Lender will refund the excess to the
Guarantor.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Guarantor
makes and gives the following representations and warranties to the Lender, upon
each of which the Lender has relied in entering into the Credit Agreement and in
accepting this Guaranty from the Guarantor. Each term used but not defined in
this Article III shall have the meanings provided in the U.S. Credit Agreement.
(a) The Guarantor is a corporation duly organized, validly
existing and in good
<PAGE> 9
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standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Guarantor
of this Guaranty and the consummation of the transactions contemplated
hereby, are within the Guarantor's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i)
the Guarantor's charter or by-laws or (ii) any law or any contractual
restriction binding or affecting the Guarantor.
(c) No authorization or approval or other action by, and
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery
and performance by the Guarantor of this Guaranty.
(d) This Guaranty constitutes a legal, valid and binding
obligation on the Guarantor, enforceable against the Guarantor in
accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, re-organization or other similar
laws affecting creditors' rights generally and by principles of
equity).
(e) The Consolidated balance sheet of the Guarantor and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statements of income and cash flows of the Guarantor and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Ernst & Young, independent public accountants, and the Consolidated
balance sheet of the Guarantor and its Subsidiaries as at June 30, 1997
and the related Consolidated statements of income and cash flows of the
Guarantor and its Subsidiaries for the six months then ended, duly
certified by the Chief Financial Officer of the Guarantor, copies of
which have been furnished to the Lender, fairly present, subject, in
the case of said balance sheet as of June 30, 1997 and said statements
of income and cash flows for the six months then ended, to year end
audit adjustments, the Consolidated financial condition of the
Guarantor and its Subsidiaries as at such dates and the Consolidated
results of the operations of the Guarantor and its Subsidiaries for the
periods ended on such dates, all in accordance with generally accepted
accounting principles consistently applied. Since December 31, 1996,
there has been no Material Adverse Change (as defined in the Credit
Agreement).
(f) To the best of the Guarantor's knowledge, there is no
pending or threatened action, suit, investigation, litigation or
proceeding, including, without limitation any Environmental Action,
affecting the Guarantor or any of its Subsidiaries before any court,
governmental agency or arbitrator that (i) could be reasonably likely
to have a Material Adverse Effect other than the litigation identified
in Schedule A hereto or (ii) purports to affect the legality, validity
or enforceability of this Guaranty.
(g) It is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve
System).
<PAGE> 10
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(h) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan.
(i) Neither the Guarantor nor any of its ERISA Affiliates has
incurred or is reasonably expected to incur any Withdrawal Liability to
any Multiemployer Plan.
(j) Neither the Guarantor nor any of its ERISA Affiliates has
been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and no such Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated, within
the meaning of Title IV of ERISA.
(k) Except as set forth in the financial statements referred
to in Section 3.1(e), the Guarantor and its Subsidiaries have no
material liability with respect to "expected post retirement benefit
obligations" within the meaning of Statement of Financial Accounting
Standards No. 106.
(l) The operations and properties of the Guarantor and each of
its Subsidiaries comply in all material respects with all Environmental
Laws, all necessary Environmental Permits have been obtained and are in
effect for the operations and properties of the Guarantor and its
Subsidiaries, the Guarantor and its Subsidiaries are in compliance in
all material respects with all such Environmental Permits, and no
circumstances exist that could be reasonably likely to (i) form the
basis of an Environmental Action against the Guarantor or any of its
Subsidiaries or any of their properties that could have a Material
Adverse Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under any
Environmental Law that could have a Material Adverse Effect.
(m) None of the properties currently or formerly owned or
operated by the Guarantor or any of its Subsidiaries is listed or
proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("NPL") or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency ("CERCLIS") or any analogous state list
of sites requiring investigation or cleanup, the listing, or proposed
listing of which would be reasonably likely to have a Material Adverse
Effect, except as described in the registration statement, Registration
No. 33-70998, declared effective by the Securities and Exchange
Commission on November 23, 1993 or, to the best knowledge of the
Guarantor, is adjacent to any such property.
(n) Except where noncompliance would not individually or in
the aggregate have a Material Adverse Effect (i) neither the Guarantor
nor any of its Subsidiaries has transported or arranged for the
transportation of any Hazardous Materials to any location
<PAGE> 11
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that is listed or proposed for listing on the NPL or on the CERCLIS or
any analogous state list, and (ii) all Hazardous Materials generated,
used, treated, handled or stored at or transported to or from any
property currently or formerly owned or operated by the Guarantor or
any of its Subsidiaries have been disposed of in compliance with all
Environmental Laws and Environmental Permits.
SECTION 3.2. COVENANTS. The Guarantor will, during the term
of this Guaranty:
(a) Comply, and cause each of its Subsidiaries (other than
Synergistics and, subsequent to the Amalgamation the Borrower (as each
such term is defined in the Credit Agreement)) to comply, in all
material respects, with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, compliance with
ERISA and Environmental Laws as provided in Section 3.2(j).
(b) Pay and discharge, and cause each of its Subsidiaries to
pay and discharge, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges or levies imposed upon it
or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither
the Guarantor nor any of its Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) Maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually
carried by companies engaged in similar business and owning similar
properties in the same general areas in which the Guarantor or such
Subsidiary operates; provided, however, that the Guarantor and its
Subsidiaries may self-insure to the same extent as is consistent with
its past practice and to the extent consistent with prudent business
practice.
(d) Preserve and maintain, and cause each of its Subsidiaries
to preserve and maintain, its corporate existence, rights (charter and
statutory) and franchises; provided, however, that the Guarantor and
its Subsidiaries may consummate any merger or consolidation permitted
under Section 5.02(b) of the U.S. Credit Agreement; and provided that
the Borrower and Synergistics may consummate any Second Step
Transaction or an Amalgamation (as each such term is defined in the
Credit Agreement); and provided further that neither the Guarantor nor
any of its Subsidiaries shall be required to preserve any right or
franchise if the Board of Directors of the Guarantor or such Subsidiary
shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Guarantor or such Subsidiary, as the
case may be, and that the loss thereof is not disadvantageous in any
material respect to the Guarantor, such Subsidiary or the lender
<PAGE> 12
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under the U.S. Credit Agreement.
(e) At any reasonable time and from time to time, permit the
Lender or its agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of, and
visit the properties of, the Guarantor, and to discuss the affairs,
finances and accounts of the Guarantor and any of its Subsidiaries with
any of the officers or directors of the Guarantor and with their
independent certified public accountants.
(f) Keep, and cause each of its Subsidiaries to keep, proper
books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the
Guarantor and each such Subsidiary in accordance with generally
accepted accounting principles in effect from time to time.
(g) Maintain and preserve, and cause each of its Subsidiaries
(other than Synergistics and, subsequent to the Amalgamation, the
Borrower (as each such term is defined in the Credit Agreement)) to
maintain and preserve, all of its properties that are used or useful in
the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
(h) Conduct, and cause each of its Subsidiaries to conduct,
all transactions otherwise permitted under the U.S. Credit Agreement
with any of their Affiliates on terms that are fair and reasonable and
no less favourable to the Guarantor or such Subsidiary than it would
obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
(i) Furnish to the Lender:
(i) 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 the Guarantor, Consolidated balance sheets of
the Guarantor and its Subsidiaries as of the end of such
quarter and Consolidated statements of income and cash flows
of the Guarantor and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, duly certified (subject to
year-end audit adjustments) by the chief financial officer or
the controller of the Guarantor as having been prepared in
accordance with GAAP, it being agreed that delivery of the
Guarantor's Quarterly Report on Form 10-Q will satisfy this
requirement;
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Guarantor, a
copy of the annual audit report for such year for the
Guarantor and its Subsidiaries, containing Consolidated
balance sheets of the Guarantor and its Subsidiaries as of the
end of such fiscal year and Consolidated statements of income
and cash flows of the Guarantor and its Subsidiaries for such
fiscal year, in each case accompanied by an opinion acceptable
to the Lender by
<PAGE> 13
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Ernst & Young or other independent public accountants
acceptable to the Lender; and
(iii) such other information respecting the condition
or operations, financial or otherwise, of the Guarantor or any
of its Subsidiaries as the Lender may from time to time
reasonably request.
(j) Comply, and cause each of its Subsidiaries and all lessees
and other Persons operating or occupying it's properties to comply, in
all material respects, with all applicable Environmental Laws and
Environmental Permits; obtain and renew and cause each of its
Subsidiaries to obtain and renew all Environmental Permits necessary
for its operations and properties; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of
its properties pursuant to the order of any regulatory authority and
generally in accordance with the requirements of all Environmental
Laws; provided, however, that neither the Guarantor nor any of its
Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or other action to the extent that its obligations to do so is
being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1. DOCUMENT. This Guaranty is a Document executed pursuant to
the Credit Agreement.
SECTION 4.2. INFORMATION. The Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that the Guarantor
assumes and incurs hereunder, and agrees that the Lender will have no duty to
advise the Guarantor of information known to it regarding such circumstances or
risks.
SECTION 4.3. BINDING ON SUCCESSORS, TRANSFERRED ASSIGNS; ASSIGNMENT. In
addition to, and not in limitation of, Section 2.7, this Guaranty shall be
binding upon the Guarantor and its successors, transferees and assigns and shall
inure to the benefit of and be enforceable by the Lender and its successors,
transferees and assigns (to the full extent provided pursuant to Section 2.7);
PROVIDED, HOWEVER, that the Guarantor may not delegate any of its obligations
hereunder without the prior written consent of the Lender, such consent not to
be unreasonably withheld, and any purported assignment in the absence of such
consent shall be void.
<PAGE> 14
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SECTION 4.4. AMENDMENTS, ETC. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 4.5. ADDRESSES FOR NOTICES TO THE GUARANTOR. Any notice or
communication to be given under this Guaranty to the Guarantor may be
effectively given by delivering the same to either the Guarantor at One Geon
Center, P.O. Box 122, Avon Lake, Ohio 44012, U.S.A., Attention: Jean M.
Miklosko, Treasurer or to the Guarantor c/o Fasken Campbell Godfrey, 4200 -
Toronto Dominion Bank Tower, Box 20, Toronto-Dominion Centre, Toronto, Ontario,
M5K 1N6, Attention: Jon J. Holmstrom, and marked URGENT or by sending the same
by prepaid registered mail to it at such address. Any notice so delivered or
mailed shall be effective when received. Any notice or communication to be given
under this Guaranty to the Lender shall be effective if given in accordance with
the provisions of the Credit Agreement as to the giving of notice to it, and the
Lender may change its address for notices in accordance with the said
provisions.
SECTION 4.6. NO WAIVER; REMEDIES. In addition to, and not in limitation
of, Sections 2.3 and 2.5, no failure on the part of the Lender 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. No waiver
of any of such rights and no modification, amendment or discharge of this
Guaranty shall be deemed to be made by the Lender or shall be effective unless
the same shall be in a writing executed and delivered by the Lender and then
such waiver shall apply only with respect to the specific instance involved and
shall in no way impair the rights of the Lender or the obligations of the
Guarantor to the Lender in any other respect at any other time. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 4.7. CAPTIONS. Captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 4.8. SETOFF. In addition to, and not in limitation of, any
rights of the Lender under applicable law, the Lender shall, upon the occurrence
and during the continuance of any Event of Default and after demand of all
Accrued Liabilities is made hereunder, have the right to appropriate and apply
to the payment of the obligations of the Guarantor owing to it hereunder,
whether or not then due any and all balances, credits, deposits, accounts or
moneys of the Guarantor then or thereafter maintained with the Lender, or any
agent or bailee for the Lender. The Lender agrees to promptly notify the
Guarantor after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such setoff and application.
SECTION 4.9. SEVERABILITY. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to
<PAGE> 15
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the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Guaranty.
SECTION 4.10. WAIVERS. The Guarantor hereby waives notice of acceptance
of this Guaranty, notice of the creation, renewal or accrual of any of the
Obligations and notice or proof of reliance by the Lender upon this Guaranty,
and waives diligence, protest, notice of protest, presentment, demand of
payment, notice of dishonor or nonpayment of any of the Obligations, suit or
taking other action or making any demand against, and any other notice to the
Borrower or any other party liable thereon.
SECTION 4.11. VARIOUS MATTERS. So far as the Guarantor is concerned,
the Lender may, at any time and from time to time, without the consent of, or
notice to the Guarantor, and without impairing or releasing any of the
obligations of the Guarantor hereunder, upon or without any terms or conditions
and in whole or in part:
(a) modify or change the manner, place or terms of, and/or
change or extend the time of payment of, renew or alter, any of the
Obligations, any security therefor, or any liability incurred directly
or indirectly in respect thereof, provided that such modification,
change, extension, renewal or alteration, or the manner in which it was
implemented, does not violate the provision of the Credit Agreement,
and this Guaranty shall apply to the Obligations as so modified,
changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or
otherwise deal with, in any manner and in any order, any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing the Obligations or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset or right with respect thereto;
(c) exercise or refrain from exercising any rights against the
Borrower or others;
(d) settle or compromise any of the Obligations, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of the Borrower to creditors of the Borrower other
than the Lender;
(e) apply any sums paid by or howsoever realized from any
Person (other than the Borrower or Guarantor) to any of the Obligations
regardless of what liability or liabilities of the Borrower remain
unpaid; provided however that any sums paid to the Lender by reason of
the Obligations shall be applied to satisfy the Obligations to the
extent paid; and
(f) amend or otherwise modify the Credit Agreement, consent to
or waive any
<PAGE> 16
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breach of, or any act, omission or default or Event of Default under
the Credit Agreement, or any agreements, instruments or documents
referred to therein or executed and delivered pursuant thereto or in
connection therewith, and this Guaranty shall apply to the Obligations
as set forth in each of such documents as so amended and modified. Any
such action, shall not impair or release any of the obligations of the
Guarantor hereunder.
SECTION 4.12. SURVIVAL. Notwithstanding any other provision of this
Guaranty, the liabilities of the Guarantor under this Guaranty in respect of the
Contingent Liabilities shall survive for a period of five years from the date
all principal and interest, fees and other Accrued Liabilities have been paid to
the Lender, whether pursuant to the Credit Agreement, this Guaranty or
otherwise.
SECTION 4.13. KNOWLEDGE. All provisions contained herein requiring the
Guarantor to make a determination or assessment of any event or circumstance or
other matter to the best of its knowledge shall be construed to represent the
actual knowledge of the President and Chief Executive Officer, Senior Vice
President Technology/Engineering, Senior Vice President Commercial, Vice
President Operations, Vice President General Counsel and Secretary and Chief
Financial Officer and Senior Vice President, Human Resources of the Guarantor,
after such individuals have made all inquiries and investigations as may be
reasonably necessary in the circumstances before making any such determination
or assessment.
SECTION 4.14. GOVERNING LAW. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 4.15. JURISDICTION, ETC.
(a) The Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the non-exclusive jurisdiction
of any New York State court or Federal court of the United States of
America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Guaranty, or for recognition or enforcement of any judgment, and the
Guarantor hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined
in any such New York State court or, to the extent permitted by law, in
such Federal court. The Guarantor agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Guaranty shall affect any right that
the Lender may otherwise have to bring any action or proceeding
relating to this Guaranty in the courts of any jurisdiction.
(b) The Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Guaranty in any New York State or Federal court. The Guarantor hereby
irrevocably
<PAGE> 17
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waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in
any such court.
SECTION 4.16. WAIVER OF JURY TRIAL. The Guarantor hereby irrevocably
waives all right to trial by jury in any action, proceeding or counter-claim
(whether based on contract, tort or otherwise) arising out of or relating to
this Guaranty or the actions of the Lender in the negotiation, administration or
enforcement thereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
THE GEON COMPANY
By: /s/ Jean M. Miklosko
--------------------------------
Name: Jean M. Miklosko
Title: Treasurer
<PAGE> 1
EXHIBIT 10.15B
GUARANTY
THIS GUARANTY (as amended, supplemented, amended and restated
or otherwise modified from time to time, this "GUARANTY") dated as of October
30, 1997 made by THE GEON COMPANY, a Delaware corporation (the "GUARANTOR"), in
favour of Canadian Imperial Bank of Commerce (the "LENDER").
W I T N E S S E T H :
WHEREAS pursuant to a Letter Agreement dated as of the date
hereof (as amended, supplemented, amended and restated or otherwise modified
from time to time, the "LETTER AGREEMENT"), between the Borrower (as defined
below) and the Lender, the Lender has extended a $15,000,000 demand operating
facility (the "Facility") in favour of the Borrower;
AND WHEREAS pursuant to the terms of the Letter Agreement, the
Guarantor is required to execute and deliver this Guaranty;
AND WHEREAS the Guarantor has duly authorized the execution,
delivery and performance of this Guaranty;
AND WHEREAS it is in the best interests of the Guarantor to
execute this Guaranty inasmuch as the Guarantor, as the beneficial owner of all
of the issued and outstanding capital stock of the Borrower, will derive
substantial direct and indirect benefits from the extension of credit pursuant
to the Facility made from time to time to the Borrower by the Lender pursuant to
the Letter Agreement;
AND WHEREAS the Lender and the Borrower have entered into an
agreement dated as of October 27, 1997, pursuant to which the Lender provided
the Borrower with a bridge credit in the maximum principal amount of
$135,000,000 (the "Credit Agreement");
NOW THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, and in order to induce the Lender to
establish the Facility pursuant to the Letter Agreement, the Guarantor agrees,
for the benefit of the Lender, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN TERMS. The following terms (whether or not
underscored) when used in this Guaranty, including its preamble and recitals,
shall have the following meanings (such definitions to be equally applicable to
the singular and plural forms thereof):
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"ACCRUED LIABILITIES" means, at any time, all Obligations which are (or
but for demand by the Lender (which the Lender is precluded from doing
by operation of law or court order) would be) due and payable by the
Borrower to the Lender at the time in accordance with the terms and
conditions of the Letter Agreement.
"AGREED CURRENCY" is defined in Section 2.10.
"BORROWER", means 1250828 Ontario Inc., a corporation existing under
the laws of the Province of Ontario, and its successors by amalgamation
or otherwise.
"CONTINGENT LIABILITIES" means all Obligations, other than the
Accrued Liabilities.
"CREDIT AGREEMENT" is defined in the FIFTH RECITAL.
"FACILITY" is defined in the FIRST RECITAL.
"GUARANTOR" is defined in the PREAMBLE.
"GUARANTY" is defined in the PREAMBLE.
"INTERCORPORATE INDEBTEDNESS" is defined in Section 2.8.
"JUDGMENT CURRENCY" is defined in Section 2.10.
"LENDER" is defined in the preamble and includes its successors and
assigns permitted under the Letter Agreement.
"LETTER AGREEMENT" is defined in the FIRST RECITAL.
"OBLIGATIONS" means all indebtedness, liabilities and obligations of
the Borrower to the Lender arising under the Letter Agreement, whether
present or future, direct or indirect, absolute or contingent, matured
or not, at any time owing or remaining unpaid by the Borrower to the
Lender in any currency, including all principal, interest, commissions,
fees, reasonable fees and expenses, reasonable legal fees and other
out-of-pocket costs, indemnities, charges and expenses payable
thereunder.
"OTHER CURRENCY" is defined in Section 2.10.
"RATE OF EXCHANGE" is defined in Section 2.10.
"U.S. CREDIT AGREEMENT" means that certain credit agreement dated as of
August 16, 1994, among the Guarantor, Citibank, N.A. as administrative
agent, Nationsbank of North Carolina, N.A. as co-agent and the other
institutions noted therein. For greater certainty,
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the term "U.S. Credit Agreement" as used herein shall include any
amendments, modifications, supplements, waivers or restatements to such
agreement only until such date as CIBC Inc. remains a lender to the
Guarantor pursuant to such agreement.
SECTION 1.2. CREDIT AGREEMENT DEFINITIONS. Unless otherwise
defined herein (and except for Article III hereof) or should the context
otherwise require, terms used in this Guaranty, including its preamble and
recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. GUARANTY. The Guarantor hereby absolutely, unconditionally
and irrevocably:
(a) guarantees the full and punctual payment when due in accordance
with the terms of the Letter Agreement, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise, of
all Obligations whether for principal, interest, fees, expenses or
otherwise; and
(b) indemnifies and holds harmless the Lender for any and all
reasonable out-of-pocket costs and expenses (including reasonable
attorney's fees and expenses) incurred by the Lender in enforcing any
rights under this Guaranty after the occurrence of a demand for payment
of all Accrued Liabilities is made hereunder;
PROVIDED HOWEVER, that the Guarantor shall be liable under this Guaranty for the
maximum amount of such liability that can be hereby incurred without rendering
this Guaranty, as it relates to the Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount. This Guaranty constitutes a guaranty of payment when due and not
of collection, and the Guarantor specifically agrees that it shall not be
necessary or required that the Lender exercise any right, assert any claim or
demand or enforce any remedy whatsoever against the Borrower (or any other
Person) before or as a condition to the obligations of the Guarantor hereunder.
SECTION 2.2. ACCELERATION OF GUARANTY. The Guarantor agrees that in the
event of an actual or deemed entry of an order for relief with respect to the
Guarantor under the United States Bankruptcy Code the Guarantor agrees that it
will pay to the Lender promptly following demand the full amount which would be
payable hereunder by the Guarantor in respect of any Accrued Liabilities as if
all such Accrued Liabilities were then due and payable.
SECTION 2.3. GUARANTY ABSOLUTE ETC. This Guaranty shall in all respects
be a continuing, absolute, unconditional and irrevocable guaranty of payment,
and shall remain in full force and
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effect until all Obligations have been paid in full in cash, all obligations of
the Guarantor hereunder shall have been paid in full in cash and the Facility
has been terminated. The Guarantor guarantees that the Obligations will be paid
strictly in accordance with the terms of the Letter Agreement, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Lender with respect thereto.
The liability of the Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the Letter
Agreement;
(b) the failure of the Lender
(i) to assert any claim or demand or to enforce any right or
remedy against the Borrower or any other Person under the
provisions of the Letter Agreement or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor of, or collateral securing, any Obligations:
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other extension,
compromise or renewal of any Obligation;
(d) any reduction, limitation, impairment or termination of the
Obligations for any reason, other than payment, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be
subject to (and the Guarantor hereby waives any right to or claim of)
any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality, nongenuineness,
irregularity, compromise or unenforceability of, or any other similar
event or occurrence affecting the Obligations;
(e) any amendment to, rescission, waiver, or other modification of, or
any consent to departure from, any of the terms of the Letter
Agreement;
(f) any addition, exchange, release, surrender or non-perfection of any
collateral, or any amendment to or waiver or release or addition of, or
consent to departure from, any other guaranty, held by the Lender
securing any of the Obligations;
(g) the insolvency of, or voluntary or involuntary bankruptcy,
assignment for the benefit of creditors, reorganization or other
similar proceedings affecting the Borrower or any of its assets; and
(h) any other circumstance (other than payment) which might otherwise
constitute a defense available to, or a legal or equitable discharge
of, the Borrower, any surety or any guarantor.
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SECTION 2.4. REINSTATEMENT ETC. The Guarantor agrees that this Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Obligations is rescinded or
must otherwise be restored by the Lender, upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 2.5. WAIVER, ETC. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Lender protect,
secure, perfect or insure any security interest or lien, or any property subject
thereto, or exhaust any right or take any action against the Borrower or any
other Person or entity or any collateral securing the Obligations.
SECTION 2.6. POSTPONEMENT OF SUBROGATION, ETC. The Guarantor agrees
that it will not exercise any rights which it may acquire by way of rights of
subrogation, reimbursement, exoneration, or indemnification, or any other right
to participate in any claim or remedy under this Guaranty, by any payment made
hereunder, until the payment in full in cash of all Accrued Liabilities demanded
under Section 2.1; PROVIDED, HOWEVER, that if:
(a) the Guarantor has made payment to the Lender of all Accrued
Liabilities demanded under Section 2.1, and
(b) all such Accrued Liabilities have been paid in full in cash,
the Lender agrees that, at the Guarantor's request, the Lender will promptly
execute and deliver to the Guarantor appropriate documents (without recourse and
without representation or warranty, save that such Accrued Liabilities are due
and owing to the Lender and the Lender has not assigned or encumbered such
Accrued Liabilities) requested by the Guarantor to transfer to the Guarantor the
right to receive payment of the Accrued Liabilities so paid by the Guarantor.
SECTION 2.7. SUCCESSORS, TRANSFEREES AND ASSIGNS. This Guaranty shall:
(a) be binding upon the Guarantor, and its successors, transferees
and assigns; and
(b) inure to the benefit of and be enforceable by the Lender.
Without limiting the generality of CLAUSE (B), the Lender may, subject to the
terms of the Letter Agreement, assign or otherwise transfer (in whole or in
part) any or all of the Credit to any other Person or entity, and such other
Person or entity shall thereupon become vested with all rights and benefits in
respect thereof granted to the Lender under this Guaranty.
SECTION 2.8. POSTPONEMENT.
(a) All obligations, liabilities and indebtedness, present and future,
of the Borrower to
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the Guarantor of any nature whatsoever and all security therefor (the
"INTERCORPORATE INDEBTEDNESS") are hereby postponed to the Obligations;
PROVIDED that, until the Lender shall have demanded the repayment of
any of the Obligations from the Borrower and notice by the Lender to
the Guarantor that its liability hereunder has become due and payable,
the Guarantor (subject to the terms and provisions of this Guaranty)
shall have the right to receive payments in respect of the
Intercorporate Indebtedness in accordance with the terms thereof.
(b) If the liabilities of the Guarantor hereunder become due and
payable, the Lender shall be entitled to receive payment of the
liabilities of the Guarantor hereunder then due and payable in full
before the Guarantor shall be entitled to receive any payment on
account of the Intercorporate Indebtedness. After notice by the Lender
to the Guarantor that the liabilities of the Guarantor hereunder have
become due and payable, and for so long as any such liabilities then
due and payable shall remain unpaid, the Guarantor shall not purport to
release or withdraw the Intercorporate Indebtedness.
SECTION 2.9. WITHHOLDING TAXES.
The Guarantor hereby agrees that:
(a) All payments by the Guarantor hereunder shall be made free and
clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed by any
taxing authority, but excluding franchise taxes and taxes imposed on or
measured by the net income, capital or receipts of the Lender (such
non-excluded items being called "TAXES"). In the event that any
withholding or deduction from any payment to be made by the Guarantor
hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Guarantor will:
(i) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(ii) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such
payment to such authority; and
(iii) pay to the Lender such additional amount or amounts as
is necessary to ensure that the net amount actually received
by the Lender will equal the full amount the Lender would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the
Lender with respect to any payment received by the Lender hereunder, the Lender
may, after requesting the Guarantor to pay the same, allowing a reasonable time
for the Guarantor to do so and the lapse of such reasonable
<PAGE> 7
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time without payment, pay such Taxes and the Guarantor will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by the Lender after the payment
of such Taxes (including any Taxes on such additional amount) shall equal the
amount the Lender would have received had such Taxes not been asserted.
(b) If the Guarantor fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Lender the required receipts
or other required documentary evidence, the Guarantor shall indemnify
the Lender for any incremental Taxes, interest or penalties that may
become payable by the Lender as a result of any such failure.
(c) Without prejudice to the survival of any other agreement of the
Guarantor hereunder, the agreements and obligations of the Guarantor
contained in this Section 2.9 shall survive the payment in full of the
Obligations.
(d) If the Lender receives payment from the Guarantor of any Taxes
pursuant to this Section 2.9 and the official receipts or other
documentation related thereto referred to in clause (a)(ii) above, the
Lender shall apply (provided that the Guarantor pays all costs and
expenses incurred by the Lender in connection with such application)
for a refund in respect of such Taxes to the extent it is entitled to
do so under applicable law and promptly pay such refund when received
to the Guarantor; provided, however, that the Guarantor agrees to
return such portion of such refund to the Lender promptly after it
receives notice from the Lender that the Lender is required to return
any portion of such refund to the relevant taxing authority. Nothing in
this clause shall be construed to require the Lender to disclose any of
its tax returns or other confidential or proprietary information to the
Guarantor or to conduct its business or to arrange or to alter in any
respect its tax or financial affairs so that it is entitled to receive
any refund of any Taxes.
SECTION 2.10. JUDGMENT CURRENCY.
(a) The Guarantor hereby agrees that payments hereunder on
account of the Obligations shall be made in the currency agreed to
(the"AGREED CURRENCY")with respect to each such Obligation and if any
payment is received in another currency (the "OTHER CURRENCY"), such
payment shall constitute a discharge of the liability of the Guarantor
only to the extent of the amount of the Agreed Currency which the
Lender is able to purchase with the amount of the Other Currency
received by it on the Banking Day next following such receipt in
accordance with normal procedures and after deducting any out-of-pocket
costs of exchange.
(b) If, for the purpose of obtaining judgment in any court in
any jurisdiction, it becomes necessary to convert into a particular
currency (the "JUDGMENT CURRENCY") any amount due in the Agreed
Currency, then the conversion shall be made on the basis of the rate of
exchange prevailing on the Banking Day next preceding the day on which
judgment is given. For the foregoing purposes "RATE OF EXCHANGE" means
the rate at which the Lender,
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in accordance with its normal banking procedures, is able on the
relevant date to purchase the Agreed Currency with the Judgment
Currency after deducting any out-of-pocket costs of exchange.
(c) The obligation of the Guarantor in respect of any sum due
to the Lender hereunder shall, notwithstanding any judgment in a
currency other than the Agreed Currency, be discharged only to the
extent that on the Banking Day following receipt by the Lender of any
sum adjudged to be so due in such other currency, the Lender may, in
accordance with normal banking procedures, purchase the Agreed Currency
with such other currency after deducting any out-of-pocket costs of
exchange. In the event that the Agreed Currency so purchased is less
than the sum originally due to the Lender in the Agreed Currency, the
Guarantor, as a separate obligation and notwithstanding any such
judgment, hereby indemnifies and holds harmless the Lender against such
loss. In the event that the Agreed Currency so purchased is more than
the sum originally due, the Lender will refund the excess to the
Guarantor.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.1. REPRESENTATIONS AND WARRANTIES. The Guarantor makes and
gives the following representations and warranties to the Lender, upon each of
which the Lender has relied in entering into the Letter Agreement and in
accepting this Guaranty from the Guarantor. Each term used but not defined in
this Article III shall have the meanings provided in the U.S. Credit Agreement.
(a) The Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Guarantor of this
Guaranty and the consummation of the transactions contemplated hereby,
are within the Guarantor's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene (i) the
Guarantor's charter or by-laws or (ii) any law or any contractual
restriction binding or affecting the Guarantor.
(c) No authorization or approval or other action by, and notice to or
filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance
by the Guarantor of this Guaranty.
(d) This Guaranty constitutes a legal, valid and binding obligation on
the Guarantor, enforceable against the Guarantor in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, re-organization or
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other similar laws affecting creditors' rights generally and by
principles of equity).
(e) The Consolidated balance sheet of the Guarantor and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statements of income and cash flows of the Guarantor and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Ernst & Young, independent public accountants, and the Consolidated
balance sheet of the Guarantor and its Subsidiaries as at June 30, 1997
and the related Consolidated statements of income and cash flows of the
Guarantor and its Subsidiaries for the six months then ended, duly
certified by the Chief Financial Officer of the Guarantor, copies of
which have been furnished to the Lender, fairly present, subject, in
the case of said balance sheet as of June 30, 1997 and said statements
of income and cash flows for the six months then ended, to year end
audit adjustments, the Consolidated financial condition of the
Guarantor and its Subsidiaries as at such dates and the Consolidated
results of the operations of the Guarantor and its Subsidiaries for the
periods ended on such dates, all in accordance with generally accepted
accounting principles consistently applied. Since December 31, 1996,
there has been no Material Adverse Change (as defined in the Credit
Agreement).
(f) To the best of the Guarantor's knowledge, there is no pending or
threatened action, suit, investigation, litigation or proceeding,
including, without limitation any Environmental Action, affecting the
Guarantor or any of its Subsidiaries before any court, governmental
agency or arbitrator that (i) could be reasonably likely to have a
Material Adverse Effect other than the litigation identified in
Schedule A hereto or (ii) purports to affect the legality, validity or
enforceability of this Guaranty.
(g) It is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System).
(h) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan.
(i) Neither the Guarantor nor any of its ERISA Affiliates has incurred
or is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan.
(j) Neither the Guarantor nor any of its ERISA Affiliates has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA.
(k) Except as set forth in the financial statements referred to in
Section 3.1(e), the Guarantor and its Subsidiaries have no material
liability with respect to "expected post
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retirement benefit obligations" within the meaning of Statement of
Financial Accounting Standards No. 106.
(l) The operations and properties of the Guarantor and each of its
Subsidiaries comply in all material respects with all Environmental
Laws, all necessary Environmental Permits have been obtained and are in
effect for the operations and properties of the Guarantor and its
Subsidiaries, the Guarantor and its Subsidiaries are in compliance in
all material respects with all such Environmental Permits, and no
circumstances exist that could be reasonably likely to (i) form the
basis of an Environmental Action against the Guarantor or any of its
Subsidiaries or any of their properties that could have a Material
Adverse Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under any
Environmental Law that could have a Material Adverse Effect.
(m) None of the properties currently or formerly owned or operated by
the Guarantor or any of its Subsidiaries is listed or proposed for
listing on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("NPL")
or on the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the U.S. Environmental
Protection Agency ("CERCLIS") or any analogous state list of sites
requiring investigation or cleanup, the listing, or proposed listing of
which would be reasonably likely to have a Material Adverse Effect,
except as described in the registration statement, Registration No.
33-70998, declared effective by the Securities and Exchange Commission
on November 23, 1993 or, to the best knowledge of the Guarantor, is
adjacent to any such property.
(n) Except where noncompliance would not individually or in the
aggregate have a Material Adverse Effect (i) neither the Guarantor nor
any of its Subsidiaries has transported or arranged for the
transportation of any Hazardous Materials to any location that is
listed or proposed for listing on the NPL or on the CERCLIS or any
analogous state list, and (ii) all Hazardous Materials generated, used,
treated, handled or stored at or transported to or from any property
currently or formerly owned or operated by the Guarantor or any of its
Subsidiaries have been disposed of in compliance with all Environmental
Laws and Environmental Permits.
SECTION 3.2. COVENANTS. The Guarantor will, during the term of this
Guaranty:
(a) Comply, and cause each of its Subsidiaries (other than Synergistics
and, subsequent to the Amalgamation the Borrower (as each such term is
defined in the Credit Agreement)) to comply, in all material respects,
with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, compliance with ERISA and
Environmental Laws as provided in Section 3.2(j).
(b) Pay and discharge, and cause each of its Subsidiaries to pay and
discharge, before
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the same shall become delinquent, (i) all taxes, assessments and
governmental charges or levies imposed upon it or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon
its property; provided, however, that neither the Guarantor nor any of
its Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(c) Maintain, and cause each of its Subsidiaries to maintain, insurance
with responsible and reputable insurance companies or associations in
such amounts and covering such risks as is usually carried by companies
engaged in similar business and owning similar properties in the same
general areas in which the Guarantor or such Subsidiary operates;
provided, however, that the Guarantor and its Subsidiaries may
self-insure to the same extent as is consistent with its past practice
and to the extent consistent with prudent business practice.
(d) Preserve and maintain, and cause each of its Subsidiaries to
preserve and maintain, its corporate existence, rights (charter and
statutory) and franchises; provided, however, that the Guarantor and
its Subsidiaries may consummate any merger or consolidation permitted
under Section 5.02(b) of the U.S. Credit Agreement; and provided that
the Borrower and Synergistics may consummate any Second Step
Transaction or an Amalgamation (as each such term is defined in the
Credit Agreement); and provided further that neither the Guarantor nor
any of its Subsidiaries shall be required to preserve any right or
franchise if the Board of Directors of the Guarantor or such Subsidiary
shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Guarantor or such Subsidiary, as the
case may be, and that the loss thereof is not disadvantageous in any
material respect to the Guarantor, such Subsidiary or the lender under
the U.S. Credit Agreement.
(e) At any reasonable time and from time to time, permit the Lender or
its agents or representatives thereof, to examine and make copies of
and abstracts from the records and books of account of, and visit the
properties of, the Guarantor, and to discuss the affairs, finances and
accounts of the Guarantor and any of its Subsidiaries with any of the
officers or directors of the Guarantor and with their independent
certified public accountants.
(f) Keep, and cause each of its Subsidiaries to keep, proper books of
record and account, in which full and correct entries shall be made of
all financial transactions and the assets and business of the Guarantor
and each such Subsidiary in accordance with generally accepted
accounting principles in effect from time to time.
(g) Maintain and preserve, and cause each of its Subsidiaries (other
than Synergistics and, subsequent to the Amalgamation, the Borrower (as
each such term is defined in the Credit Agreement)) to maintain and
preserve, all of its properties that are used or useful in
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the conduct of its business in good working order and condition,
ordinary wear and tear excepted.
(h) Conduct, and cause each of its Subsidiaries to conduct, all
transactions otherwise permitted under the U.S. Credit Agreement with
any of their Affiliates on terms that are fair and reasonable and no
less favourable to the Guarantor or such Subsidiary than it would
obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
(i) Furnish to the Lender:
(i) 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 the Guarantor, Consolidated balance sheets of the
Guarantor and its Subsidiaries as of the end of such quarter
and Consolidated statements of income and cash flows of the
Guarantor and its Subsidiaries for the period commencing at
the end of the previous fiscal year and ending with the end of
such quarter, duly certified (subject to year-end audit
adjustments) by the chief financial officer or the controller
of the Guarantor as having been prepared in accordance with
GAAP, it being agreed that delivery of the Guarantor's
Quarterly Report on Form 10-Q will satisfy this requirement;
(ii) as soon as available and in any event within 120 days
after the end of each fiscal year of the Guarantor, a copy of
the annual audit report for such year for the Guarantor and
its Subsidiaries, containing Consolidated balance sheets of
the Guarantor and its Subsidiaries as of the end of such
fiscal year and Consolidated statements of income and cash
flows of the Guarantor and its Subsidiaries for such fiscal
year, in each case accompanied by an opinion acceptable to the
Lender by Ernst & Young or other independent public
accountants acceptable to the Lender; and
(iii) such other information respecting the condition or
operations, financial or otherwise, of the Guarantor or any of
its Subsidiaries as the Lender may from time to time
reasonably request.
(j) Comply, and cause each of its Subsidiaries and all lessees and
other Persons operating or occupying it's properties to comply, in all
material respects, with all applicable Environmental Laws and
Environmental Permits; obtain and renew and cause each of its
Subsidiaries to obtain and renew all Environmental Permits necessary
for its operations and properties; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of
its properties pursuant to the order of any regulatory authority and
generally in accordance with the requirements of all Environmental
Laws; provided, however, that neither the Guarantor nor any of its
Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or
<PAGE> 13
-13-
other action to the extent that its obligations to do so is being
contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.1. DOCUMENT. This Guaranty is executed pursuant to the
Letter Agreement.
SECTION 4.2. INFORMATION. The Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that the Guarantor
assumes and incurs hereunder, and agrees that the Lender will have no duty to
advise the Guarantor of information known to it regarding such circumstances or
risks.
SECTION 4.3. BINDING ON SUCCESSORS, TRANSFERRED ASSIGNS; ASSIGNMENT. In
addition to, and not in limitation of, Section 2.7, this Guaranty shall be
binding upon the Guarantor and its successors, transferees and assigns and shall
inure to the benefit of and be enforceable by the Lender and its successors,
transferees and assigns (to the full extent provided pursuant to Section 2.7);
PROVIDED, HOWEVER, that the Guarantor may not delegate any of its obligations
hereunder without the prior written consent of the Lender, such consent not to
be unreasonably withheld, and any purported assignment in the absence of such
consent shall be void.
SECTION 4.4. AMENDMENTS, ETC. No amendment to or waiver of any
provision of this Guaranty, nor consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Lender and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 4.5. ADDRESSES FOR NOTICES TO THE GUARANTOR. Any notice or
communication to be given under this Guaranty to the Guarantor may be
effectively given by delivering the same to either the Guarantor at One Geon
Center, P.O. Box 122, Avon Lake, Ohio 44012, U.S.A., Attention: Jean M.
Miklosko, Treasurer or to the Guarantor c/o Fasken Campbell Godfrey, 4200 -
Toronto Dominion Bank Tower, Box 20, Toronto-Dominion Centre, Toronto, Ontario,
M5K 1N6, Attention: Jon J. Holmstrom, and marked URGENT or by sending the same
by prepaid registered mail to it at such address. Any notice so delivered or
mailed shall be effective when received. Any notice or communication to be given
under this Guaranty to the Lender shall be effective if given in accordance with
the provisions of the Letter Agreement as to the giving of notice to it, and the
Lender may change its address for notices in accordance with the said
provisions.
SECTION 4.6. NO WAIVER; REMEDIES. In addition to, and not in limitation
of, Sections 2.3
<PAGE> 14
-14-
and 2.5, no failure on the part of the Lender 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. No waiver of any of such
rights and no modification, amendment or discharge of this Guaranty shall be
deemed to be made by the Lender or shall be effective unless the same shall be
in a writing executed and delivered by the Lender and then such waiver shall
apply only with respect to the specific instance involved and shall in no way
impair the rights of the Lender or the obligations of the Guarantor to the
Lender in any other respect at any other time. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 4.7. CAPTIONS. Captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this
Guaranty.
SECTION 4.8. SETOFF. In addition to, and not in limitation of, any
rights of the Lender under applicable law, the Lender shall, after demand of all
Accrued Liabilities is made hereunder, have the right to appropriate and apply
to the payment of the obligations of the Guarantor owing to it hereunder,
whether or not then due any and all balances, credits, deposits, accounts or
moneys of the Guarantor then or thereafter maintained with the Lender, or any
agent or bailee for the Lender. The Lender agrees to promptly notify the
Guarantor after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such setoff and application.
SECTION 4.9. SEVERABILITY. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
SECTION 4.10. WAIVERS. The Guarantor hereby waives notice of acceptance
of this Guaranty, notice of the creation, renewal or accrual of any of the
Obligations and notice or proof of reliance by the Lender upon this Guaranty,
and waives diligence, protest, notice of protest, presentment, demand of
payment, notice of dishonor or nonpayment of any of the Obligations, suit or
taking other action or making any demand against, and any other notice to the
Borrower or any other party liable thereon.
SECTION 4.11. VARIOUS MATTERS. So far as the Guarantor is concerned,
the Lender may, at any time and from time to time, without the consent of, or
notice to the Guarantor, and without impairing or releasing any of the
obligations of the Guarantor hereunder, upon or without any terms or conditions
and in whole or in part:
(a) modify or change the manner, place or terms of, and/or
change or extend the time of payment of, renew or alter, any of the
Obligations, any security therefor, or any liability incurred directly
or indirectly in respect thereof, provided that such modification,
change, extension, renewal or alteration, or the manner in which it was
implemented, does
<PAGE> 15
-15-
not violate the provision of the Letter Agreement, and this Guaranty
shall apply to the Obligations as so modified, changed, extended,
renewed or altered;
(b) sell, exchange, release, surrender, realize upon or
otherwise deal with, in any manner and in any order, any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing the Obligations or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset or right with respect thereto;
(c) exercise or refrain from exercising any rights against the
Borrower or others;
(d) settle or compromise any of the Obligations, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of the Borrower to creditors of the Borrower other
than the Lender;
(e) apply any sums paid by or howsoever realized from any
Person (other than the Borrower or Guarantor) to any of the Obligations
regardless of what liability or liabilities of the Borrower remain
unpaid; provided however that any sums paid to the Lender by reason of
the Obligations shall be applied to satisfy the Obligations to the
extent paid; and
(f) amend or otherwise modify the Letter Agreement, consent to
or waive any breach of, or any act, omission or default under the
Letter Agreement, or any agreements, instruments or documents referred
to therein or executed and delivered pursuant thereto or in connection
therewith, and this Guaranty shall apply to the Obligations as set
forth in each of such documents as so amended and modified. Any such
action, shall not impair or release any of the obligations of the
Guarantor hereunder.
SECTION 4.12. SURVIVAL. Notwithstanding any other provision of this
Guaranty, the liabilities of the Guarantor under this Guaranty in respect of the
Contingent Liabilities shall survive for a period of five years from the date
all principal and interest, fees and other Accrued Liabilities have been paid to
the Lender, whether pursuant to the Letter Agreement, this Guaranty or
otherwise.
SECTION 4.13. KNOWLEDGE. All provisions contained herein requiring the
Guarantor to make a determination or assessment of any event or circumstance or
other matter to the best of its knowledge shall be construed to represent the
actual knowledge of the President and Chief Executive Officer, Senior Vice
President Technology/Engineering, Senior Vice President Commercial, Vice
President Operations, Vice President General Counsel and Secretary and Chief
Financial Officer and Senior Vice President, Human Resources of the Guarantor,
after such individuals have made all inquiries and investigations as may be
reasonably necessary in the
<PAGE> 16
-16-
circumstances before making any such determination or assessment.
SECTION 4.14. GOVERNING LAW. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 4.15. JURISDICTION, ETC.
(a) The Guarantor hereby irrevocably and unconditionally
submits, for itself and its property, to the non-exclusive jurisdiction
of any New York State court or Federal court of the United States of
America sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Guaranty, or for recognition or enforcement of any judgment, and the
Guarantor hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined
in any such New York State court or, to the extent permitted by law, in
such Federal court. The Guarantor agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Guaranty shall affect any right that
the Lender may otherwise have to bring any action or proceeding
relating to this Guaranty in the courts of any jurisdiction.
(b) The Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Guaranty in any New York State or Federal court. The Guarantor hereby
irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 4.16. WAIVER OF JURY TRIAL. The Guarantor hereby irrevocably
waives all right to trial by jury in any action, proceeding or counter-claim
(whether based on contract, tort or otherwise) arising out of or relating to
this Guaranty or the actions of the Lender in the negotiation, administration or
enforcement thereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
THE GEON COMPANY
By: /s/ Jean M. Miklosko
-------------------------------
Name: Jean M. Miklosko
Title: Treasurer
<PAGE> 1
EXHIBIT 10.16A
AMENDMENT TO PARTNERSHIP AGREEMENT
BETWEEN
OLIN SUNBELT, INC.
AND
1997 CHLORALKALI VENTURE, INC.
THIS AMENDMENT TO PARTNERSHIP AGREEMENT is entered into as of this 23rd
day of December, 1997, between Olin Sunbelt, Inc., a Delaware corporation
("OSI"), and 1997 Chloralkali Venture, Inc. ("1997 CVI"), a Delaware
corporation. .
WHEREAS, OSI and 1997 CVI entered into a Partnership Agreement dated as
of August 23, 1996 as amended (the "Partnership Agreement"), pursuant to which
OSI and 1997 CVI (collectively, the "Partners") established the Sunbelt Chlor
Alkali Partnership, a Delaware general partnership (the "Partnership"); and
WHEREAS, OSI and 1997 CVI desire to amend the Partnership Agreement in
certain respects as set forth herein;
NOW THEREFORE, OSI and 1997 CVI agree as follows:
1. Section 5.03 of Article 5 is amended to read in its entirety as
follows:
SECTION 5.03 RIGHT OF ASSIGNMENT WITH SHOT GUN SALE
The provisions of Sections 5.01 and 5.02 shall not apply to an
assignment by OSI or 1997 CVI (the "Selling Partner") of its interest in the
Partnership as a part of a sale involving (i) in the case of OSI, more than the
Olin Plant Site, or (ii) in the case of 1997 CVI, more than Geon's LaPorte Texas
facility; PROVIDED HOWEVER, that in the event of such an assignment, the Selling
Partner shall notify the other partner (the "Remaining Partner") of such
assignment and the Remaining Partner shall have a period of ninety (90) days
after such notice to elect to notify the Selling Partner (if the assignment has
not yet occurred) or the assignee of the Selling Partner's interest (if the
assignment has occurred) that the Remaining Partner is triggering a Shot-Gun
Sale, as set forth in Article 6 infra. Except in the event of such an assignment
by the Selling Partner to an entity in the case of 1997 CVI in competition with
Olin's Chlor Alkali business, and in the case of OSI in competition with Geon's
PVC, VCM, or EDC businesses, the Remaining Partner will not be able to trigger
the Shot-Gun sale unless after evaluating the assignee and the assignee's
financial condition and business practices, the Remaining Partner concludes in
its sole discretion using the utmost good faith that substituting the assignee
into the partnership relationship could have a substantially detrimental impact
on the Remaining Partner's present and/or future business, operations and/or
relationships, taken as a whole together with those of its affiliates,
pertaining to the Partnership, vis-a-vis had assignment not occurred.
<PAGE> 2
2. Except as amended herein, all other provisions of the Partnership
Agreement remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the Partners have executed this Amendment the day
and year first written above.
OLIN SUNBELT, INC.
/s/ Hassan Arabghani
---------------------------------
By: Name: Hassan Arabghani
Title: Vice President
1997 CHLORALKALI VENTURE, INC.
/s/ Jean M. Miklosko
---------------------------------
By: Name: Jean M. Miklosko
Title: Assistant Treasurer
<PAGE> 1
EXHIBIT 10.16B
AMENDMENT TO PARTNERSHIP AGREEMENT
BETWEEN
OLIN SUNBELT, INC.
AND
1997 CHLORALKALI VENTURE, INC.
THIS AMENDMENT TO PARTNERSHIP AGREEMENT is entered into as of this 23rd
day of December, 1997, between Olin Sunbelt, Inc., a Delaware corporation
("OSI"), and 1997 Chloralkali Venture, Inc. ("1997 CVI"), a Delaware
corporation.
WHEREAS, OSI and 1997 CVI entered into a Partnership Agreement dated as
of August 23, 1996 (the "Partnership Agreement"), pursuant to which OSI and 1997
CVI (collectively, the "Partners") established the Sunbelt Chlor Alkali
Partnership a Delaware general partnership (the "Partnership"); and
WHEREAS, OSI and 1997 CVI desire to amend the Partnership Agreement in
certain respects as set forth herein;
NOW THEREFORE, OSI and 1997 CVI agree as follows:
1. A new Section 1.12 is added as follows:
1.12 SENIOR DEBT
-----------
(A) FOR PURPOSES OF THIS AGREEMENT, "SENIOR DEBT" SHALL MEAN THE OBLIGATIONS OF
THE PARTNERSHIP AS SET FORTH UNDER THOSE CERTAIN NOTE PURCHASE AGREEMENTS DATED
AS OF DECEMBER , 1997 BY AND BETWEEN THE PARTNERSHIP AND VARIOUS INSTITUTIONAL
INVESTORS, INCLUDING BUT NOT LIMITED TO THE NOTES (AS DEFINED THEREIN), AS SUCH
SENIOR DEBT MAY BE MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME. THE TERMS
"GUARANTEE" AND "GUARANTOR" USED HEREIN SHALL HAVE THE DEFINITIONS SET FORTH IN
THE ABOVE-REFERENCED NOTE PURCHASE AGREEMENTS. THE PROVISIONS OF THIS SECTION
1.12 SHALL APPLY, NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY ELSEWHERE IN
THIS AGREEMENT OR IN ANY OF THE ANCILLARY AGREEMENTS.
(B) IF A GUARANTOR EVENT OF DEFAULT WITH RESPECT TO A GUARANTOR (A "DEFAULTING
GUARANTOR") OCCURS (SUCH GUARANTOR EVENTS OF DEFAULT BEING AS DEFINED IN SUCH
DEFAULTING GUARANTOR'S GUARANTEE DATED AS OF DECEMBER _, 1997), THEN FOR SO LONG
AS SUCH GUARANTOR EVENT OF DEFAULT REMAINS UNCURED, AT THE OPTION OF THE PARTNER
WHICH IS NOT AN AFFILIATE OF THE DEFAULTING GUARANTOR (THE "NON-AFFECTED
PARTNER"), THE MANAGEMENT COMMITTEE MEMBER(S) APPOINTED BY THE PARTNER
AFFILIATED WITH SUCH DEFAULTING GUARANTOR (THE "AFFECTED PARTNER") SHALL BECOME
NON-VOTING MEMBER(S) OF THE MANAGEMENT COMMITTEE, AND THE REMAINING VOTING
MEMBER(S) OF THE MANAGEMENT COMMITTEE SHALL CONSTITUTE A QUORUM AT MANAGEMENT
COMMITTEE MEETINGS, AND SHALL BE FULLY AUTHORIZED TO TAKE ACTIONS, INCLUDING
WITHOUT LIMITATION TO APPROVE DECISIONS OF IMPORTANCE (EXCEPT AS PROVIDED IN (C)
BELOW), ON BEHALF OF
<PAGE> 2
THE MANAGEMENT COMMITTEE, AND TO ACT BY RESOLUTION IN LIEU OF A MEETING. SUCH
OPTION SHALL BE EXERCISABLE IN THE SOLE DISCRETION OF THE NONAFFECTED PARTNER,
EFFECTIVE IMMEDIATELY UPON WRITTEN NOTICE TO THE AFFECTED PARTNER AND THE
PARTNERSHIP; PROVIDED HOWEVER THAT THE PARTNERS AGREE NOT TO EXERCISE SUCH
OPTION AT SUCH TIMES AS (A) THE ONLY OUTSTANDING GUARANTOR EVENTS OF DEFAULT
ARE, (I) WITH RESPECT TO THE GEON GUARANTEE, SOLELY A BREACH OF ITS COVENANTS
CONTAINED IN SECTIONS 4.1, 4.3, 4.8 AND/OR 4.9, OR (II) WITH RESPECT TO THE OLIN
GUARANTEE, SOLELY A BREACH OF ITS COVENANTS CONTAINED IN SECTIONS 4.3, 4.6
AND/OR 4.7; AND (B) NONE OF THE HOLDERS OF THE SENIOR DEBT HAVE DEMANDED
COMPLIANCE BY THE DEFAULTING GUARANTOR WITH SECTION 2.2 OF ITS GUARANTEE OR
STATED IN WRITING AN INTENTION TO REQUIRE SUCH COMPLIANCE OR TO ENFORCE SUCH
GUARANTEE.
(C) NOTWITHSTANDING SUBSECTION (B) ABOVE, THE VOTING MEMBER(S) OF THE
MANAGEMENT COMMITTEE SHALL NOT AGREE, WITHOUT THE CONSENT OF THE AFFECTED
PARTNER, ACTING THROUGH ITS NON-VOTING MEMBER(S) OF THE MANAGEMENT COMMITTEE,
(I) TO SELL ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP, (II) TO
AN EXPANSION OF THE FACILITY TO BE FUNDED BY THE PARTNERSHIP UNDER SECTION 1.11,
(III) TO REQUIRE ADDITIONAL CAPITAL CONTRIBUTIONS BY THE PARTNERS, EXCEPT TO THE
EXTENT NECESSARY TO FUND EXPENDITURES REQUIRED UNDER SECTION 4.04 OF THE
OPERATING AGREEMENT, (IV) TO AMEND OR WAIVE ANY PROVISION OF ANY ANCILLARY
AGREEMENT TO WHICH THE PARTNERSHIP AND THE NON-AFFECTED PARTNER OR A PARTNER
AFFILIATE OF THE NON-AFFECTED PARTNER ARE PARTY, IN ANY MATERIAL RESPECT WHICH
IS COMMERCIALLY UNREASONABLE AND WILL MATERIALLY ADVERSELY AFFECT THE FINANCIAL
CONDITION OR OPERATIONS OF THE PARTNERSHIP, (V) TO DECIDE TO REPUDIATE OR BREACH
ANY PROVISION OF AN ANCILLARY AGREEMENT TO WHICH THE AFFECTED PARTNER OR A
PARTNER AFFILIATE OF THE AFFECTED PARTNER IS PARTY, EXCEPT TO THE EXTENT
PERMITTED UNDER SUCH ANCILLARY AGREEMENT OR AS AN EXERCISE OF RIGHTS AND
REMEDIES AVAILABLE TO IT AT LAW OR EQUITY, OR (VI) TO CAUSE THE PARTNERSHIP TO
INCUR OR ISSUE ANY DEBT FOR BORROWED MONEY (OTHER THAN A PARTNER ADVANCE, AS
DEFINED BELOW) OR OTHERWISE INCREASE THE DEFAULTING GUARANTOR'S LIABILITY FOR
THE SENIOR DEBT UNDER ITS GUARANTEE TO THE HOLDERS OF THE SENIOR DEBT, EXCEPT TO
THE EXTENT NECESSARY TO FUND EXPENDITURES REQUIRED UNDER SECTION 4.04 OF THE
OPERATING AGREEMENT.
(D) IN THE EVENT THAT THE PARTNERSHIP INTEREST OF SUCH AFFECTED PARTNER
IS TRANSFERRED, ASSIGNED OR CONVEYED (WHETHER VOLUNTARILY, AS A RESULT OF
BANKRUPTCY PROCEEDINGS OR JUDICIAL PROCEEDING OR OTHERWISE BY OPERATION OF LAW)
OR THE DEFAULTING GUARANTOR CEASES TO OWN, DIRECTLY OR INDIRECTLY 100% OF THE
AFFECTED PARTNER, IN EACH CASE AT ANY TIME WHILE EITHER SUCH GUARANTOR EVENT OF
DEFAULT REMAINS UNCURED OR AS PART OF THE SETTLEMENT, SATISFACTION OR CURE OF
SUCH GUARANTOR EVENT OF DEFAULT, THEN THE VOTING AND NON-VOTING MEMBERS OF THE
MANAGEMENT COMMITTEE APPOINTED BY THE AFFECTED PARTNER SHALL CEASE TO BE MEMBERS
THEREOF AND THE TRANSFEREE, ASSIGNEE OR SUCCESSOR TO THE PARTNERSHIP INTEREST
SHALL HAVE NO RIGHT TO APPOINT VOTING MEMBER(S) OF THE MANAGEMENT COMMITTEE,
WHICH RIGHT SHALL BE DEEMED AUTOMATICALLY AND IRREVOCABLY EXTINGUISHED AND
PARAGRAPHS (B) AND (C) SHALL NO LONGER BE APPLICABLE. THIS SUBSECTION (D) SHALL
NOT APPLY IN THE CASE OF A PERMITTED ASSIGNMENT IN ACCORDANCE WITH ARTICLE 5 OF
THE PARTNERSHIP AGREEMENT, AND THE GUARANTOR EVENT OF DEFAULT IS CURED (OR
WAIVED BY THE HOLDERS OF THE SENIOR DEBT) AT OR PRIOR TO THE EFFECTIVE DATE OF
ASSIGNMENT.
(E) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER SECTION 11(1)(Y)
OF THE NOTE
<PAGE> 3
PURCHASE AGREEMENTS (A "TRIGGERING EVENT") WITH RESPECT TO THE GUARANTEE OF THE
PARTNER AFFILIATE OF A PARTNER (THE "REPUDIATING PARTNER"), THEN THE
NONREPUDIATING PARTNER, DIRECTLY OR THROUGH AN AFFILIATE, SHALL HAVE THE RIGHT
TO PURCHASE THE REPUDIATING PARTNER'S INTEREST IN THE PARTNERSHIP FOR A PURCHASE
PRICE EQUAL TO ONE DOLLAR ($1.00). SUCH RIGHT SHALL BE EXERCISABLE AT ANY TIME
AFTER THE TRIGGERING EVENT, AND THE TRANSFER SHALL BE DEEMED TO OCCUR
IMMEDIATELY AND AUTOMATICALLY UPON EXERCISE OF SUCH RIGHT BY THE NON-REPUDIATING
PARTNER. THE REPUDIATING PARTNER SHALL DELIVER SUCH ASSIGNMENTS AND OTHER
DOCUMENTS OF TRANSFER AS THE NONREPUDIATING PARTNER REASONABLY REQUIRES TO
FURTHER EFFECTUATE THE TRANSFER AS PROMPTLY AS POSSIBLE (BUT IN ANY EVENT NO
MORE THAN FIVE (5) BUSINESS DAYS AFTER PRESENTATION OF SUCH DOCUMENTS BY THE
NON-REPUDIATING PARTNER). SUCH PURCHASE OF THE PARTNERSHIP INTEREST SHALL NOT
AFFECT ANY OTHER RIGHTS AND REMEDIES WHICH THE NON-REPUDIATING PARTNER, ITS
AFFILIATES, AND/OR THE PARTNERSHIP MAY HAVE AGAINST THE REPUDIATING PARTNER
AND/OR ITS PARTNER AFFILIATES, OR OTHERWISE BE DEEMED TO AFFECT OR EXTINGUISH
THE GUARANTEE OF THE PARTNER AFFILIATE OF THE REPUDIATING PARTNER.
(F) IN THE EVENT A PARTNER DESIRES TO MAKE A TRANSFER OF ITS
PARTNERSHIP INTEREST PERMITTED UNDER ARTICLE 5 AND IN CONNECTION WITH SUCH
TRANSFER DESIRES THAT ITS PARTNER AFFILIATE'S GUARANTEE BE RELEASED, THEN THE
TRANSFERRING PARTNER SHALL NOTIFY THE OTHER PARTNER(S) AND THEREAFTER FOR A
PERIOD OF THIRTY (30) DAYS (OR SUCH LONGER PERIOD AS THE TRANSFERRING PARTNER IN
ITS SOLE DISCRETION MAY ELECT), THE TRANSFERRING PARTNER SHALL TAKE COMMERCIALLY
REASONABLE STEPS TO NEGOTIATE IN GOOD FAITH WITH THE HOLDERS OF THE SENIOR DEBT
TO SECURE SUCH RELEASE. IF SUCH EFFORTS ARE UNSUCCESSFUL, THEN SUCH PARTNER
SHALL NOTIFY THE OTHER PARTNER(S) AND THE OTHER PARTNER(S) SHALL, AT ITS OPTION,
HAVE AN ADDITIONAL THIRTY (30) DAY PERIOD TO CONDUCT NEGOTIATIONS WITH SUCH
HOLDERS REGARDING SUCH RELEASE. IF AT THE END OF SUCH NEGOTIATIONS SUCH HOLDERS
HAVE REFUSED TO RELEASE THE PARTNER AFFILIATE'S GUARANTEE, THEN THE PARTNERS
WILL CAUSE REPAYMENT OF THE SENIOR DEBT WITHIN THE FOLLOWING TEN (10) BUSINESS
DAYS, ON A 50/50 BASIS (OR OTHERWISE IN ACCORDANCE WITH THEIR THEN INTEREST IN
THE PARTNERSHIP PROVIDED IN SECTION 1.04); PROVIDED HOWEVER THAT ANY "MAKE
WHOLE" OR PREPAYMENT PENALTIES AND COSTS ASSOCIATED WITH SUCH REPAYMENT SHALL BE
PAID IN THE ENTIRETY BY THE TRANSFERRING PARTNER. THIS PARAGRAPH (F) SHALL NOT
BE APPLICABLE IF AN EVENT OF DEFAULT UNDER THE SENIOR DEBT OR ANY GUARANTEE HAS
OCCURRED AND REMAINS UNCURED (OTHER THAN AN EVENT OF DEFAULT WHICH IS SOLELY
APPLICABLE TO THE PARTNER AFFILIATE OF THE NON-TRANSFERRING PARTNER).
(G) THE PARTIES AGREE THAT FOR PURPOSES OF THIS SECTION 1.12, A
GUARANTOR EVENT OF DEFAULT TRIGGERED BY A BANKRUPTCY SHALL NOT BE CURABLE.
2. A new Section 2.13 is added as follows:
2.13 PARTNER ADVANCES
----------------
IN THE EVENT THAT A PARTNER OR A PARTNER AFFILIATE OF SUCH PARTNER (I)
MAKES A LOAN TO THE PARTNERSHIP (WHICH LOANS SHALL REQUIRE THE CONSENT OF THE
MANAGEMENT COMMITTEE, AS PROVIDED IN SECTION 2.03 HEREOF), (II) ADVANCES FUNDS
ON BEHALF OF THE PARTNERSHIP TO SATISFY PARTNERSHIP OBLIGATIONS UNDER ANY OF THE
ANCILLARY AGREEMENTS (WHETHER SUCH OBLIGATIONS ARE TO A THIRD PARTY OR TO A
PARTNER OR A PARTNER AFFILIATE), THE SENIOR DEBT OR OTHER PARTNERSHIP
OBLIGATIONS, OR (III) HAS A RIGHT OF CONTRIBUTION OR REIMBURSEMENT FROM THE
PARTNERSHIP AND/OR
<PAGE> 4
THE OTHER PARTNER FOR PAYMENTS MADE BY SUCH PARTNER OR PARTNER AFFILIATE ON
ACCOUNT OF THE SENIOR DEBT OR OTHER OBLIGATIONS OF THE PARTNERSHIP TO THIRD
PARTIES (ANY AND ALL OF (I) THROUGH (III) BEING A "PARTNER ADVANCE"), THEN SUCH
PARTNER ADVANCE SHALL NOT BE CONSIDERED A CONTRIBUTION TO THE CAPITAL OF THE
PARTNERSHIP AND SHALL NOT INCREASE THE CAPITAL ACCOUNT OF THE ADVANCING PARTNER.
THE AMOUNT OF ANY SUCH PARTNER ADVANCE (PLUS INTEREST AT A RATE AGREED BY THE
PARTIES, BUT IN NO EVENT LESS THAN THE APPLICABLE RATE PROVIDED IN SECTION 1274
OF THE INTERNAL REVENUE CODE OF 1986) SHALL BE AN OBLIGATION OF THE PARTNERSHIP
WHICH IS PAYABLE BEFORE ANY FURTHER DISTRIBUTIONS ARE MADE UNDER SECTION 2.05
ABOVE. REPAYMENT OF SUCH PARTNER ADVANCES SHALL NOT BE DEEMED WITHDRAWALS FROM
THE CAPITAL OF THE PARTNERSHIP.
3. Article 5 is amended as follows:
(a) In the first sentence of Section 5.01, the words "DIRECTLY OR
INDIRECTLY THROUGH THE TRANSFER OF THE OWNERSHIP AND/OR CONTROL OF SUCH PARTNER
TO A NON-AFFILIATE" are added after the words "or any part of its interest in
the Partnership,".
(b) Section 5.04(a) is amended by deleting the second sentence and
substituting the following therefor:
IF CHLORINE PRODUCTION IS CONTINUING AT THE OLIN PLANT AT THE TIME OF SUCH
ASSIGNMENT OR SHOT-GUN SALE, THEN OSI SHALL CAUSE THE OPERATOR OF THE OLIN PLANT
TO ENTER INTO A NEW OPERATING AGREEMENT BETWEEN THE PARTNERSHIP AND THE THEN
OPERATOR OF THE OLIN PLANT PURSUANT TO WHICH THE OPERATING AND OTHER SERVICES
AND RAW MATERIALS SUPPLIED UNDER THE OPERATING AGREEMENT SHALL BE PROVIDED AS A
UNITARY PACKAGE, TO THE EXTENT THE OLIN PLANT OPERATOR IS LEGALLY PERMITTED AT
THE TIME TO DO SO, ON THE EXACT SAME TERMS AND CONDITIONS AS THEN BEING
PROVIDED TO THE PARTNERSHIP UNDER THE OPERATING AGREEMENT.
4. Except as amended herein, all other provisions of the Partnership
Agreement remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the Partners have executed this Amendment the day
and year first written above .
OLIN SUNBELT, INC.
/s/ Hassan Arabghani
---------------------------------
By: Name: Hassan Arabghani
Title: Vice President
1997 CHLORALKALI VENTURE, INC.
/s/ Jean M. Miklosko
---------------------------------
By: Name: Jean M. Miklosko
Title: Assistant Treasurer
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Exhibit 10.20
Conformed Copy
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GUARANTEE
made by
THE GEON COMPANY
in favor of
THE PURCHASERS
of
SUNBELT CHLOR ALKALI PARTNERSHIP
GUARANTEED SECURED SENIOR NOTES DUE 2017
SERIES 0
Dated as of December 22, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINED TERMS
Section 1.1. Definitions .................................................... 1
Section 1.2. Other Definitional Provisions .................................. 8
ARTICLE II
GUARANTEE
Section 2.1. Guarantee ..................................................... 8
Section 2.2. Mandatory Purchase and Optional Purchases ..................... 9
Section 2.3. Right of Contribution ......................................... 10
Section 2.4. Limitation on Contribution and Subrogation .................... 10
Section 2.5. Amendments, etc. with respect to the Issuer Obligations........ 11
Section 2.6. Guarantee Absolute and Unconditional .......................... 12
Section 2.7. Reinstatement ................................................. 14
Section 2.8. Payments ...................................................... 15
Section 2.9. Ranking ....................................................... 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Organization; Power and Authority ............................. 15
Section 3.2. Authorization, etc ............................................ 15
Section 3.3. Disclosure .................................................... 16
Section 3.4. Financial Statements .......................................... 16
Section 3.5. Compliance with Laws, Other Instruments, etc .................. 16
Section 3.6. Governmental Authorizations, etc .............................. 17
Section 3.7. Status under Certain Statutes ................................. 17
ARTICLE IV
COVENANTS
Section 4.1. Statements by Officers as to Default .......................... 17
Section 4.2. Existence ..................................................... 18
Section 4.3. Maintenance of Properties ..................................... 18
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Section 4.4. Payment of Taxes and Other Claims ............................. 18
Section 4.5. Limitations on Liens .......................................... 19
Section 4.6. Limitation on Sale and Leaseback Transactions ................. 20
Section 4.7. Limitation on Consolidations, etc ............................. 20
ARTICLE V
MISCELLANEOUS
Section 5.1. Amendments in Writing ......................................... 24
Section 5.2. Notices 24
Section 5.3. No Waiver by Course of Conduct, Cumulative Remedies ........... 25
Section 5.4. Enforcement Expenses, Indemnification ......................... 25
Section 5.5. Successors and Assigns ........................................ 26
Section 5.6. Counterparts .................................................. 26
Section 5.7. Severability .................................................. 26
Section 5.8. Section Headings .............................................. 26
Section 5.9. Integration ................................................... 26
Section 5.10. Governing Law ................................................. 27
Section 5.11. Litigation; Waivers ........................................... 27
Section 5.12. WAIVER OF JURY TRIAL .......................................... 27
SCHEDULES
Schedule 3.3- DISCLOSURE OF ADDITIONAL INFORMATION
Schedule 5.2- NOTICE ADDRESSES OF GUARANTOR
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GUARANTEE
GUARANTEE, dated as of December 22, 1997, made by THE GEON COMPANY, a
Delaware corporation (the "Guarantor"), in favor of each of the holders of the
Guaranteed Secured Senior Notes due 2017, Series G (the "Series G Notes") issued
by Sunbelt Chlor Alkali Partnership (the "Issuer") pursuant to the Note Purchase
Agreements, each dated December 22, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Note Purchase Agreements"), between the Issuer
and each of the Purchasers.
RECITALS:
WHEREAS, pursuant to the Note Purchase Agreements, each of the
Purchasers has severally agreed to purchase its respective Series G Notes upon
the terms and subject to the conditions set forth therein;
WHEREAS, the Issuer is a Delaware general partnership between a
Subsidiary of the Guarantor and a Subsidiary of Olin; and
WHEREAS, it is a condition precedent to the obligation of the Purchasers
to purchase the Notes under the Note Purchase Agreements that the Guarantor
shall have executed and delivered this Guarantee for the ratable benefit of the
holders of the Series G Notes;
NOW, THEREFORE, in consideration of the premises and to induce the
Purchasers to enter into the Note Purchase Agreements and to induce the
Purchasers to purchase their respective Notes, the Guarantor hereby agrees with
each Purchaser, for the ratable benefit of the Purchasers and the holders of the
Series G Notes, as follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Definitions. (a) Unless otherwise defined herein, terms
defined in the Note Purchase Agreements and used herein shall have the meanings
given to them in the Note Purchase Agreements.
(b) The following terms shall have the following meanings:
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"Attributable Value" means, as to any particular lease under which any
Person is at the time liable and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from such
initial term date to the date of determination at a rate per annum equal to the
discount rate which would be applicable to a Capital Lease Obligation with like
term in accordance with generally accepted accounting principles. The net
amount of rent required to be paid under any such lease for any such period
shall be the lesser of: (1) the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges and (2) in the case of any lease which is terminable by the
lessee upon the payment of a penalty, the net amount calculated pursuant to (1)
but adjusted to also include the amount of such penalty and to exclude any rent
which would otherwise be required to be paid under such lease subsequent to the
first date upon which it may be so terminated.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
Indebtedness arrangements conveying the right to use) real or personal property
of such Person, which are required to be classified and accounted for as a
capital lease or a liability on the face of a balance sheet of such Person under
GAAP.
"Debt" means any notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"ERISA Affiliate" means any trade or business (whether or not incorpo-
rated) that is treated as a single employer together with the Guarantor under
section 414 of the Code.
"Guarantee" means this Guarantee, as the same may be amended, supple-
mented or otherwise modified from time to time.
"Guarantor" is defined in the preamble.
"Guarantor Event of Default" with respect to the Guarantor shall exist
if any of the following conditions or events shall occur and be continuing:
(a) the Guarantor defaults in the payment of any Guarantor
Obligation for more than five Business Days after the same becomes due
and payable; or
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(b) the Guarantor defaults in the performance of or compliance
with any term contained herein (other than those referred to in clause
(a)) and such default is not remedied within 30 days after the earlier
of (j) a Responsible Officer of the Guarantor obtaining actual
knowledge of such default and (ii) the Guarantor receiving written
notice of such default from any holder of a Note (any such written
notice to be identified as a "notice of default" and to refer
specifically to this clause (b) of this definition); or
(c) any representation or warranty made in writing by or on
behalf of the Guarantor in this Guarantee or any Related Document to
which it is a party or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or
incorrect in any material respect on the date as of which made; or
(d) (j) the Guarantor or any of the Guarantor's Significant
Subsidiaries is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or make-whole
amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $25,000,000 beyond any period
of grace provided with respect thereto, or (ii) the Guarantor or any
of the Guarantor's Significant Subsidiaries is in default in the
performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$25,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been
declared (or one or more Persons are entitled to declare such
Indebtedness to be), due and payable before its stated maturity or
before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or
condition (other than the passage of time or the right of the holder
of Indebtedness to convert such Indebtedness into equity interests),
(x) the Guarantor or any of the Guarantor's Significant Subsidiaries
has become obligated to purchase or repay an aggregate principal
amount of at least $25,000,000 of Indebtedness before its regular
maturity or before its regularly scheduled dates of payment, or (y)
one or more Persons have the exercisable right to require the
Guarantor or any of the Guarantor's Significant Subsidiaries to so
purchase or repay an aggregate principal amount of at least
$25,000,000 of Indebtedness; or
(e) the occurrence of a Bankruptcy Event with respect to the
Guarantor or any of the Guarantor's Significant Subsidiaries;
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(f) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against the
Guarantor or any of the Guarantor's Significant Subsidiaries, which
judgments (j) are not within 60 days after entry thereof bonded,
discharged or stayed pending appeal; or (ii) are not discharged within
60 days after the expiration of such stay; or
(g) the Guarantee of the Guarantor shall cease to be in full
force and effect or the Guarantor or any person acting on behalf of
the Guarantor shall contest in any manner the validity, binding nature
or enforceability of this Guarantee.
"Guarantor Material Adverse Effect" means a material adverse effect on
(a) the financial condition or operations of the Guarantor and its Subsidiaries
taken as a whole, or (b) the ability of the Guarantor to perform its obligations
under this Guarantee, or (c) the validity or enforceability of this Guarantee or
any other Related Document to which the Guarantor is a party.
"Guarantor Obligations" means with respect to the Guarantor, the collec-
tive reference to (j) the Series G Issuer Obligations, (ii) the Guarantor
Portion of the Miscellaneous Issuer Obligations and (iii) all obligations and
liabilities of the Guarantor which may arise under or in connection with this
Guarantee or any other Related Document to which the Guarantor is a party, in
each case whether on account of guarantee obligations, reimbursement
obligations, fees, indemnities, out of pocket costs and expenses or otherwise
(including, without limitation, all reasonable fees and disbursements of
counsel to the Collateral Agent or to the Noteholders that are required to be
paid by the Guarantor pursuant to the terms of this Guarantee or any other
Related Document to which the Guarantor is a party).
"Guarantor Portion" means (a) at any time when the Olin Guarantee is no
longer in full force and effect, 100% or (b) Olin or any person acting on behalf
of Olin shall be contesting the validity, binding nature or enforceability of
the Olin Guarantee, 100%, provided that, if the foregoing occurs after a Default
or an Event of Default has occurred, 50%, or (c) after the occurrence of a
Bankruptcy Event in respect of Olin, 100%, or (d) if an Issuer Affiliate
acquires all of the outstanding Series G Notes or the Series G Notes are prepaid
or repaid in full, in each case together with all Miscellaneous Issuer
Obligations that the Guarantor would have been obligated to pay as of the date
of such purchase or payment, 0%, and (e) at any time when none of the preceding
clauses of this definition shall be applicable, 50%.
"Guarantor Transfer" is defined in Section 5.5.
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"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume as a direct obligation or a Contingent Obligation, or otherwise become
liable in respect of such Indebtedness or other obligation or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
any such Indebtedness or other obligation on the balance sheet of any such
Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have
meanings correlative to the foregoing); provided, that a change in generally
accepted accounting principles that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an Incurrence of
such Indebtedness, and "Incur" means with respect to any Lien, to create, incur
or assume such Lien on any asset or property (and "Incurrence," "Incurred,"
"Incurable" and "Incurring" shall have meanings correlative to the foregoing).
"Issuer" is defined in the preamble.
"Issuer Affiliate" means the Guarantor, the Other Guarantor, the Issuer,
or any Affiliate of any of them.
"Issuer Obligations" means the collective reference to the unpaid
principal of and interest on the Series G Notes and all other obligations and
liabilities of the Issuer in respect of the Series G Notes (including, without
limitation, interest accruing at the then applicable rate provided in the Note
Purchase Agreements after the maturity of the Series G Notes and interest
accruing at the then applicable rate provided in the Note Purchase Agreements
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Issuer, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding) and Make Whole Amount, if any, on the Series G Notes and all other
obligations and liabilities of the Issuer to the Collateral Agent or any
Noteholders, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of' or in connection with, the Note Purchase Agreements and the other Issuer
Related Documents, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, out-of-pocket costs and expenses
or otherwise (including, without limitation, all reasonable fees and
disbursements of counsel to the Collateral Agent or to the Noteholders that are
required to be paid by the Issuer pursuant to the terms of any of the foregoing
agreements).
"Lien" means with respect to any property or asset, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential
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arrangement of any kind or nature whatsoever on or with respect to such property
or assets (including, without limitation, any conditional sale or other title
retention agreement having substantially the same economic effect as any of
the foregoing).
"Material" or "material" means material in relation to the financial
condition or operation of the Guarantor.
"Miscellaneous Issuer Obligations" means the collective reference to all
obligations and liabilities of the Issuer to the Collateral Agent or any
Noteholders, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Note Purchase Agreements and the other Issuer
Related Documents, in each case whether on account of reimbursement obligations,
fees, indemnities, out-of-pocket costs and expenses or otherwise (including,
without limitation, all reasonable fees and disbursements of counsel to the
Collateral Agent or to the Noteholders that are required to be paid by the
Issuer pursuant to the terms of any of the foregoing agreements), provided that
Miscellaneous Issuer Obligations shall not mean or include any Series 0 Issuer
Obligations or Series G Issuer Obligations.
"Note Purchase Agreements" is defined in the preamble.
"Notes" is defined in the Note Purchase Agreements.
"Obligations" means (j) in the case of the Issuer, the Issuer
Obligations, and (ii) in the case of the Guarantor, its Guarantor Obligations.
"Olin" means Olin Corporation, a Virginia corporation, in its capacity
as guarantor under the Olin Guarantee.
"Olin Guarantee" means the Guarantee, dated the date hereof, made by
Olin in favor of the Purchasers.
"Opinion of Counsel" means a written opinion of general counsel of the
Guarantor or other inside counsel for the Guarantor, who shall be acceptable to
the Required Holders.
"Other Guarantee" means the Olin Guarantee and any other guarantee by
any other Person of any portion of the Issuer Obligations.
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"Other Guarantor" means Olin, in its capacity as guarantor under the
Olin Guarantee, and any guarantor under any Other Guarantee.
"Sale and Leaseback Transaction" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor (or
pool thereof) or to which such lender or investor (or pool thereof) is a party,
providing for the leasing by such Person or any of its Subsidiaries of any
property or asset of such Person or any of its Subsidiaries which has been or is
being sold or transferred by such Person or such Subsidiary more than 270 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset.
"Series G Issuer Obligations" means the collective reference to the
unpaid principal of and interest on the Series 0 Notes and all other obligations
and liabilities of the Issuer in respect of the Series G Notes (including,
without limitation, interest accruing at the then applicable rate provided in
the Note Purchase Agreements after the maturity of the Series 0 Notes and
interest accruing at the then applicable rate provided in the Note Purchase
Agreements after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the Issuer,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) and Make-Whole Amount, if any, on the Series G Notes.
"Series G Notes" is defined in the preamble.
"Series O Notes" is defined in the Note Purchase Agreements.
"Series 0 Issuer Obligations" means the collective reference to the
unpaid principal of and interest on the Series 0 Notes and all other obligations
and liabilities of the Issuer in respect of the Series 0 Notes (including,
without limitation, interest accruing at the then applicable rate provided in
the Note Purchase Agreements after the maturity of the Series 0 Notes and
interest accruing at the then applicable rate provided in the Note Purchase
Agreements after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, relating to the Issuer,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) and Make-Whole Amount, if any, on the Series 0 Notes.
"Significant Subsidiary" means any Subsidiary of the Guarantor whose
assets exceed the greater of (1) $100 million, or (2) 15% of the consolidated
total assets
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of the Guarantor, determined in accordance with GAAP as of the most recent
fiscal quarter end.
"Subsidiary" is defined in the Note Purchase Agreements; provided how-
ever, that unless the context otherwise clearly requires, any reference to a
"Subsidiary" herein is a reference to a Subsidiary of the Guarantor.
"Tangible Assets" of any Person means, at any date, the gross book value
as shown by the accounting books and records of such Person of all its property
both real and personal, less the net book value of (i) all its licenses,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
non-compete agreements or organizational expenses and other like intangibles,
(ii) unamortized Indebtedness discount and expense, (iii) all reserves for
depreciation, obsolescence, depletion and amortization of its properties and
(iv) all other proper reserves which in accordance with generally accepted
accounting principles should be provided in connection with the business
conducted by such Person; provided, however, that with respect to the Guarantor
and its Subsidiaries, adjustments following the date of this Guarantee to the
accounting books and records of the Guarantor and its Subsidiaries resulting
from the acquisition of control of the Guarantor by another Person in accordance
with Accounting Principles Board Opinions Nos. 16 and 17 or otherwise shall not
be given effect to.
Section 1.2. Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in this
Guarantee shall refer to this Guarantee as a whole and not to any particular
provision of this Guarantee, and Section and Schedule references are to this
Guarantee unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II
GUARANTEE
Section 2.1. Guarantee. (a) The Guarantor hereby unconditionally and
irrevocably, guarantees to each Purchaser and each Noteholder, for the ratable
benefit of the Purchasers and the Noteholders and their respective permitted
successors, permitted endorsees, permitted transferees and permitted assigns,
the prompt and complete payment and performance by the Issuer when due (whether
at the stated maturity, by acceleration
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or otherwise) of (i) the Series G Issuer Obligations and (ii) the Guarantor
Portion of the Miscellaneous Issuer Obligations.
(b) The guarantee contained in this Article II shall be a continuing
guarantee and remain in full force and effect until all the Guarantor
Obligations shall have been satisfied by cash payment in full, subject to
reinstatement pursuant to Section 2.7.
Section 2.2. Mandatory Purchase and Optional Purchases. (a) The
Guarantor agrees, upon the occurrence of a Guarantor Event of Default (as
defined herein), that the Guarantor shall immediately purchase all Series G
Notes then out- standing ratably from each Noteholder at a price in cash equal
to 100% of the principal amount of such Noteholder's Series G Notes, and
together with interest on such purchased principal amount which is accrued and
unpaid on the date of such purchase (including, without limitation, interest
accruing at the then applicable rate provided in the Note Purchase Agreements
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Issuer, whether
or not a claim for post-filing or post-petition interest is allowed in such pro-
ceeding) and any Make-Whole Amount on such purchased principal amount computed
as of the date of such purchase;
(b) The Guarantor or an Affiliate of the Guarantor may at any time
(subject to the applicable provisions of the Note Purchase Agreements) purchase
the Notes ratably from each Noteholder in whole or in part (including as all or
part of a Series) at a purchase price in cash equal to 100% of the principal
amount so purchased, plus accrued and unpaid interest on the principal amount so
purchased and the Make-Whole Amount determined for the purchase date with
respect to such principal amount, provided that following any such purchase at
any time when a Default, Event of Default, Guarantor Default or Guarantor Event
of Default (as each such term is defined in the Note Purchase Agreements) shall
have occurred and be continuing, such Purchaser may not transfer any such Notes
to any Person other than an Affiliate of the Guarantor.
(c) The Guarantor or an Affiliate of the Guarantor or the Person
referred to in Section 8.2(d) of the Note Purchase Agreements may at any time
purchase the Notes held by the non-consenting holders as provided in Section
8.2.(d) of the Note Purchase Agreements.
(d) The Guarantor will not purchase, redeem, prepay or otherwise
acquire, directly or indirectly, any or all of the outstanding Notes (including
as all or any part of a Series) except upon the purchase, redemption, payment or
prepayment of the
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Notes in accordance with the terms of this Guarantee and the Note Purchase
Agreement or pursuant to an offer made pro rata and on the same terms to the
holders of all of the Notes.
(e) Any Notes purchased by the Guarantor pursuant to this Section shall
be held by it (or its Affiliates) subject to Section 17.4 of the Note Purchase
Agreements and the Subordination Agreement.
Section 2.3. Right of Contribution. The Collateral Agent, on behalf of
the Noteholders, acknowledges that a right of contribution may exist as among
the Guarantors with respect to payments made by the Guarantors under the
Guarantees. The Guarantor hereby agrees that to the extent the Guarantor shall
have any right to seek and receive contribution from and against any Other
Guarantor, such right of contribution shall be subject to the terms and
conditions of Section 2.4. No such right of contribution shall in any respect
limit the obligations and liabilities of the Guarantor to the Collateral Agent
and the Noteholders, and the Guarantor shall remain liable to the Collateral
Agent and the Noteholders for the full amount guaranteed by the Guarantor
hereunder.
Section 2.4. Limitation on Contribution and Subrogation. (a) Not-
withstanding any payment made by the Guarantor hereunder or any set-off or
application of funds of the Guarantor by the Collateral Agent or any Noteholder,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Collateral Agent or any Noteholder against the Issuer or any collateral security
or guarantee or right of offset held by the Collateral Agent or any Noteholder
for the payment of any portion of the Issuer Obligations, nor shall the
Guarantor seek or be entitled to seek any contribution from the Issuer, until
all amounts owing to the Collateral Agent and the Noteholders by the Issuer on
account of the Issuer Obligations are paid in full. Unless and until all of the
Issuer Obligations and the Guaranteed Obligations shall have been discharged in
full, the Guarantor will not assign or otherwise transfer any such claim against
the Issuer to any other Person. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all of the Issuer
Obligations shall not have been fully bonded or paid in full, such amount shall
be held by the Guarantor in custody for the Collateral Agent and the
Noteholders, segregated from other funds of the Guarantor, and shall, forthwith
upon receipt by the Guarantor, be turned over to the Collateral Agent in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Collateral Agent, if required), to be applied against the Issuer Obligations,
whether matured or unmatured, in such order as the Collateral Agent may
determine.
(b) Notwithstanding any payment made by the Guarantor hereunder or any
set-off or application of funds of the Guarantor by the Collateral Agent or any
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Noteholder, the Guarantor shall not be entitled to be subrogated to any of the
rights of the Collateral Agent or any Noteholder against any Other Guarantor,
nor shall the Guarantor seek or be entitled to seek any contribution from any
Other Guarantor in respect of payments made by the Guarantor hereunder, until
either (i) all amounts owing to the Collateral Agent and the Noteholders by the
Issuer on account of the Issuer Obligations relating to the Series of Notes
guaranteed by such Other Guarantor are paid in full (an "Other Series
Discharge") or (ii) there has been an Effective Cure described in paragraph (x)
or (y) of the definition thereof with respect to the Series of Notes guaran-
teed by such Other Guarantor ("Other Guarantee Cure"). Unless and until there
has been either an Other Series Discharge or an Other Guarantee Cure, the
Guarantor will not assign or otherwise transfer any such claim against such
Other Guarantor to any other Person. If any amount shall be paid to the
Guarantor on account of such subrogation rights at any time when there has not
been either an Other Series Discharge or an Other Guarantee Cure, such amount
shall be held by the Guarantor in custody for the Collateral Agent and the
Noteholders, segregated from other funds of the Guarantor, and shall, forthwith
upon receipt by the Guarantor, be turned over to the Collateral Agent in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Collateral Agent, if required), to be applied against the Issuer Obligations,
whether matured or unmatured, in such order as the Collateral Agent may
determine.
Section 2.5. Amendments, etc. with respect to the Issuer Obligations.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of any of the Issuer Obligations
made by the Collateral Agent or any Noteholder may be rescinded by the
Collateral Agent or such Noteholder and any of the Issuer Obligations continued,
and the Issuer Obligations, or the liability of any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Collateral Agent or any Noteholder, and the Note
Purchase Agreements and the other Issuer Related Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Collateral
Agent (or the Required Holders or all Noteholders, as the case may be) may deem
advisable from time to time (provided, however, that the Guarantor shall not
become liable for any increase in principal outstanding pursuant to the Series 0
Issuer Obligations or principal outstanding pursuant to the Series G Issuer
Obligations, in either case pursuant to an amendment to the Notes or the Note
Purchase Agreements, without its express consent), and any collateral security,
guarantee or right of offset at any time held by the Collateral Agent or any
Noteholder for the payment of the Issuer Obligations may be sold, exchanged,
waived,
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surrendered or released. Neither the Collateral Agent nor any Noteholder shall
have any obligation to protect, secure, perfect or insure any Lien at any time
held by it as security for the Issuer Obligations or for the guarantee contained
in this Article II or any property subject thereto.
Section 2.6. Guarantee Absolute and Unconditional. Subject to the terms
of the Note Purchase Agreement, the Guarantor unconditionally waives any and all
notice of the creation, renewal, extension or accrual of any of the Issuer
Obligations and notice of or proof of reliance by the Collateral Agent or any
Noteholder upon the guarantee contained in this Article II or acceptance of
the guarantee contained in this Article II; the Issuer Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon the guarantee
contained in this Article II; and all dealings between the Issuer, the Guarantor
and Olin on the one hand, and the Collateral Agent and the Noteholders, on the
other hand, likewise shall be conclusively presumed to have been had or consum-
mated in reliance upon the guarantee contained in this Article II. The Guarantor
unconditionally waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment or any other notice that may be required, by
statute, rule of law or otherwise to preserve any rights of any Noteholder
against the Guarantor, to or upon any of the Issuer, the Guarantor or any Other
Guarantor with respect to the Issuer Obligations; any right to the enforcement,
assertion, exercise or exhaustion by any holder of any right, power, privilege
or remedy conferred in any Related Document; any requirement to mitigate the
damages resulting from any default under any Related Documents, any notice of
any sale, transfer or other disposition of any right, title to or interest in
any Note by any holder thereof or in any other Related Document, any release of
the Guarantor from its obligations hereunder resulting from any loss by it or
its rights of subrogation hereunder and any other circumstance whatsoever which
might constitute a legal or equitable discharge, release or defense of a
guarantor or surety or which might otherwise limit recourse against the
Guarantor. The Guarantor understands and agrees that the guarantee contained in
this Article II shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability of
the Note Purchase Agreements or any other Related Document, any of the Issuer
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by the
Collateral Agent or any Noteholder, (b) any defense, set-off, counterclaim,
deduction, diminution, abatement, suspension, deferment or reduction (other than
a defense of payment or performance) which may at any time be available to or be
asserted by the Issuer or any other Person against the Collateral Agent or any
Noteholder, or (c) any other circumstance whatsoever (with or without notice to
or knowledge of the Issuer or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Issuer for the
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Issuer Obligations, or of the Guarantor under the guarantee contained in this
Article II, in bankruptcy or in any other instance, including, without
limitation:
(i) any amendment of or change in, or termination or waiver of,
any of the Related Documents (other than by an effective agreement in
writing expressly amending this Guarantee as provided in Section 5.1);
(ii) any furnishing, acceptance or release of any of the Issuer
Obligations;
(iii) any failure, omission or delay on the part of the Issuer to
conform or comply with any term of any of the Related Documents or any
other instrument or agreement referred to in paragraph (i) above;
(iv) any waiver of the payment, performance or observance of any
of the obligations, conditions, covenants or agreements contained in
any Related Document (other than by an effective agreement in writing
expressly waiving any provision of this Guarantee as provided in
Section 5.1), or any other waiver, consent, extension, indulgence,
compromise, settlement, release or other action or inaction under or
in respect of any of the Related Documents or any other instrument
or agreement referred to in paragraph (i) above;
(v) any failure, omission or delay on the part of any Noteholder
to enforce, assert or exercise any right, power or remedy conferred on
it in this Guarantee;
(vi) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit
of creditors, composition, receivership, conservatorship,
custodianship, liquidation, marshalling of assets and liabilities or
similar proceedings with respect to the Issuer or the Guarantor or any
other person or any of their respective properties or creditors, or
any action taken by any trustee or receiver or by any court in any
such proceeding;
(vii) any limitation on the liability or obligations of the
Issuer or the Guarantor or any other person under any of the Related
Documents, or any discharge, termination, cancellation, frustration,
irregularity, invalidity or unenforceability, in whole or in part,
of any of the Related Documents or any other agreement or instrument
referred to in paragraph (i) above or any term hereof;
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(viii) any merger or consolidation of the Issuer or the Guarantor
into or with any other corporation, or any sale, lease or transfer of
any of the assets of the Issuer or the Guarantor to any other person;
(ix) any change in the ownership or partnership structure of the
Issuer, or any change in the corporate relationship between the Issuer
and the Guarantor, or any termination of such relationship; or
(x) any other occurrence, circumstance, happening or event
whatsoever, whether similar or dissimilar to the foregoing, whether
foreseen or unforeseen, and any other circumstance which might
otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or which might otherwise limit
recourse against the Guarantor.
When making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against the Guarantor, the Collateral Agent or any Noteholder may, but
shall be under no obligation to, make a similar demand on or otherwise pursue
such rights and remedies as it may have against the Issuer, any Other Guarantor
or any other Person or against any collateral security or guarantee for any of
the Issuer Obligations or any right of offset with respect thereto, and any
failure by the Collateral Agent or any Noteholder to make any such demand, to
pursue such other rights or remedies or to collect any payments from any Issuer,
any Other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
any Issuer, any Other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve the Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the
Collateral Agent or any Noteholder against the Guarantor. For the purposes
hereof "demand" shall include the commencement and continuance of any legal
proceedings.
Section 2.7. Reinstatement. The guarantee contained in this Article II
shall continue to be effective, or be automatically reinstated, as the case may
be, if at any time payment, or any part thereof, of any of the Issuer
Obligations is rescinded or must otherwise be restored or returned by the
Collateral Agent or any Noteholder upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Issuer or the Guarantor, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Issuer or the Guarantor or any substantial
part of its property, or otherwise, all as though such payments had not been
made. If an event permitting the acceleration of any Issuer Obligations shall at
any time have occurred and be continuing, and such acceleration of any Issuer
Obligations shall at such
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time be prevented by reason of the pendency against the Issuer or any other
Person of a case or proceeding under a bankruptcy or insolvency law, the
Guarantor agrees that, for purposes of this Guarantee and the Guarantor
Obligations hereunder, such Guarantor Obligations shall be deemed to have been
accelerated with the same effect as if such Guarantor Obligations had been
accelerated in accordance with the terms hereof, and the Guarantor shall
forthwith pay the full amount of the Guarantor Obligations hereunder without
further notice or demand.
Section 2.8. Payments. The Guarantor hereby guarantees that payments
hereunder will be paid to the Collateral Agent without set-off or counterclaim
in United States dollars to each Noteholder as provided in the Note Purchase
Agreements, or if pursuant to Section 2.2, at the office specified in Section
14.1, or by the method specified in Section 14.2 (if applicable) of the Note
Purchase Agreement.
Section 2.9. Ranking. This Guarantee shall rank at least pari passu with
all other unsecured and senior unsubordinated Indebtedness of the Guarantor.
Without limiting the generality of the foregoing, this Guarantee shall rank at
least pari passu with any other guarantee by the Guarantor in favor of any
creditors of the Issuer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Purchasers to enter into the Note Purchase Agreements and
to induce the Purchasers to purchase the Notes thereunder, the Guarantor hereby
represents and warrants to the Collateral Agent, each Purchaser and each
Noteholder that:
Section 3.1. Organization; Power and Authority. The Guarantor is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Guarantor Material Adverse Effect. The Guarantor has the
corporate power and authority to execute and deliver this Guarantee and to
perform the provisions thereof.
Section 3.2. Authorization. etc. Execution and delivery of this
Guarantee has all due authorization by all necessary corporate action on the
part of the Guarantor, and this Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor in accordance with
its terms, except as such enforce-
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ability may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
Section 3.3. Disclosure. The Guarantor, through its agent, Citicorp
Securities, Inc., has delivered to each Purchaser a copy of a Private Placement
Memorandum, dated August 27, 1997, including Supplement No.1 (the
"Memorandum"), relating to the transactions contemplated hereby. Except as
disclosed in Schedule 3.3, this Guarantee, the Geon Portion of the Memorandum,
the documents, certificates or other writings delivered to the Purchasers by or
on behalf of the Guarantor in connection with the transactions contemplated
hereby, taken as a whole, do not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Except as
disclosed in the Memorandum or as expressly described in Schedule 3.3, or in one
of the documents, certificates or other writings identified in Schedule 3.3,
since December 31, 1996, there has been no change in the financial condition or
operations of the Guarantor or any Subsidiary except changes that individually
or in the aggregate could not reasonably be expected to have a Guarantor
Material Adverse Effect. There is no fact known to the Guarantor that could
reasonably be expected to have a Guarantor Material Adverse Effect that has not
been set forth herein or in the Memorandum or in the other documents,
certificates and other writings delivered to the Purchasers by or on behalf of
the Guarantor specifically for use in connection with the transactions
contemplated hereby.
Section 3.4. Financial Statements. The Guarantor has delivered to each
Purchaser copies of the financial statements of the Guarantor contained in
Exhibit B of the Memorandum. All of such financial statements (including in each
case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Guarantor as of the respective dates
specified in such Schedule and the consolidated results of its operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
Section 3.5. Compliance with Laws. Other Instruments. etc. The execu-
tion, delivery and performance by the Guarantor of this Guarantee will not (j)
contravene, result in any breach of, or constitute a default under, or result
in the creation of any Lien in respect of any property of the Guarantor under,
any indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter or by-laws, or any other
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agreement or instrument to which the Guarantor is bound or by which the
Guarantor may be bound or affected, (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling or any court, arbitrator or Governmental Authority applicable to the
Guarantor or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Guarantor except
where such contraventions, breaches, defaults, Liens, conflicts or violations
would not reasonably be expected to have, in the aggregate, a Guarantor Material
Adverse Effect.
Section 3.6. Governmental Authorizations. etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by (a) the Guarantor of this Guarantee or (b the Issuer of the Series G Notes
except where failure to make or do such consents, approvals, authorizations,
registrations, filings or declarations, would not, in the aggregate, be
reasonably expected to have a Guarantor Material Adverse Effect.
Section 3.7. Status under Certain Statutes. Neither the Guarantor nor
any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
ARTICLE IV
COVENANTS
The Guarantor covenants and agrees with the Collateral Agent, the
Purchasers and the Noteholders that, from and after the date of this Guarantee
until all the Guarantor Obligations shall have been satisfied by cash payment in
full;
SECTION 4.1. Statements by Officers as to Default. The Guarantor will
deliver to the Purchasers, within 120 days after the end of each fiscal year of
the Guarantor ending after the date hereof, an Officers' Certificate, stating
whether or not to the best knowledge of the signers thereof the Guarantor is in
default in the performance and observance of any of the terms, provisions and
conditions of this Guarantee (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Guarantor shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge.
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The Guarantor will, so long as any of the Notes are outstanding, deliver
to the Purchasers, forthwith upon any Responsible Officer becoming aware of (i)
any Default, Event of Default, Guarantor Default or Guarantor Event of Default
or (ii) any default or event of default under any other mortgage, indenture or
instrument, an Officers' Certificate specifying such Default, Event of Default,
Guarantor Default, Guarantor Event of Default or default and what action the
Guarantor is taking or proposes to take with respect thereto.
SECTION 4.2. Existence. Subject to Section 4.7, the Guarantor will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (charter and statutory) and franchises; provided,
however, that the Guarantor shall not be required to preserve any such right or
franchise if the Board of Directors of the Guarantor shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Guarantor and that the loss thereof would not be reasonably likely to have a
Guarantor Material Adverse Effect.
SECTION 4.3. Maintenance of Properties. The Guarantor will cause all
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Guarantor may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Guarantor from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Guarantor,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Purchasers.
SECTION 4.4. Payment of Taxes and Other Claims. The Guarantor will pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Guarantor or any Subsidiary or upon the income, profits or
property of the Guarantor or any Subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Guarantor or any Subsidiary, provided, however, that the
Guarantor shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
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SECTION 4.5. Limitations on Liens. The Guarantor shall not, and shall
not permit any of its Subsidiaries to, Incur or suffer to exist any Lien on
property or assets now owned or hereafter acquired to secure Indebtedness
without making, or causing such Subsidiary to make, effective provision for
securing the Guarantor Obligations (and, if the Guarantor shall so determine,
any other Indebtedness of the Guarantor which is not subordinate to the
Guarantor Obligations or of such Subsidiary) equally and ratably with such
Indebtedness as to such property or assets for so long as such Indebtedness
shall be so secured.
The foregoing restrictions will not apply to Liens in respect of
Indebtedness existing at the date of the Indenture or to; (i) Liens on any
property existing at the time of acquisition thereof, (ii) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
the Guarantor or any Subsidiary; (iii) Liens on property of the Guarantor or any
Subsidiary in favor of the United States of America, any state thereof, or any
instrumentality of either to secure certain payments pursuant to any contract or
statute; (iv) Liens to secure Indebtedness Incurred for the purpose of financing
all or any part of the purchase price or the cost of construction or improvement
of the property subject to such Liens, and securing only the property so
purchased, constructed or improved; (v) Liens for taxes or assessments or other
governmental charges or levies, Liens imposed by law, such as mechanics' and
materialmen's Liens, for sums not due or sums being contested in good faith and
with respect to which adequate reserves are being maintained, to the extent
required by generally accepted accounting principles and Liens securing
reimbursement obligations with respect to trade letters of credit, banker's
acceptances and sight drafts incurred in the ordinary course of business which
encumber documents and other property relating to such trade letters of credit,
banker's acceptances and sight drafts; (vi) Liens to secure obligations under
worker's compensation laws or similar legislation, including Liens with respect
to judgments which are not currently dischargeable; (vii) Liens created by or
resulting from any litigation or other proceeding which is being contested in
good faith by appropriate proceedings, including Liens arising out of judgments
or awards against the Guarantor or any Subsidiary with respect to which the
Guarantor or such Subsidiary is in good faith prosecuting an appeal or
proceedings for review or for which the time to make an appeal has not yet
expired; or final unappealable judgment Liens which are satisfied within 15 days
of the date of judgment; or Liens incurred by the Guarantor or any Subsidiary
for the purpose of obtaining a stay or discharge in the course of any litigation
or other proceeding to which the Guarantor or such Subsidiary is a party; and
(viii) Liens to secure any extension, renewal or refinancing (or successive
extensions, renewals or refinancings), in whole or in part, of any Indebtedness
secured by Liens referred to in the foregoing clauses (i) to (vii) so long as
such Liens do not extend to any other property and the Indebtedness so secured
is not increased.
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In addition to the foregoing, the Guarantor or any Subsidiary may Incur
a Lien to secure Indebtedness or enter into a Sale and Leaseback Transaction,
without equally and ratably securing the Guarantor Obligations, if the sum of
(a) the amount of Indebtedness subject to a Lien entered into after the date of
the Indenture and otherwise prohibited by the Indenture, and (b) the
Attributable Value of Sale and Leaseback Transactions entered into under Section
4.6(i) does not exceed five percent of Consolidated Tangible Assets of the
Guarantor at the time of such determination.
SECTION 4.6. Limitation on Sale and Leaseback Transactions. The
Guarantor shall not, and shall not permit any of its Subsidiaries to enter into
any Sale and Leaseback Transaction (except for a period not exceeding 36 months)
unless (i) the Guarantor or such Subsidiary would be entitled to Incur a Lien to
secure Indebtedness in an amount equal to the Attributable Value of the Sale and
Leaseback Transaction in accordance with Section 4.5, without equally and
ratably securing the Guarantor Obligations; or (ii) the Guarantor or the
Subsidiary applies or commits to apply within 120 days an amount equal to the
net proceeds of the property sold pursuant to the Sale and Leaseback Transaction
to the redemption or repurchase of Notes or, if no Notes are redeemable or
available for purchase, to the redemption or repayment of Guarantor Indebtedness
which is pari passu to the Guarantor Obligations or, if no pari passu
Indebtedness is redeemable or payable, other Guarantor or Subsidiary
Indebtedness which is redeemable or payable.
SECTION 4.7. Limitation on Consolidations. etc. (a) The Guarantor shall
not consolidate with or merge into any other Person or convey, transfer or lease
its properties and assets substantially as an entirety to any Person, and the
Guarantor shall not permit any person to consolidate with or merge into the
Guarantor or convey, transfer or lease its properties and assets substantially
as an entirety to the Guarantor, unless;
(i) in case the Guarantor shall consolidate with or merge into
another person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the person formed by such
consolidation or into which the Guarantor is merged or the person
which acquires by conveyance or transfer, or which leases, the
properties and assets of the Guarantor substantially as an entirety
shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of the United States of America, any
State thereof or the District of Columbia and shall expressly assume,
by an agreement supplemental hereto, executed and delivered to the
Noteholders, in form reasonably satisfactory to the Required Holders,
the due and punctual payment of the Guaranteed Obligations and the
performance or observance of every covenant of this Guarantee on the
part of the Guarantor to be performed or observed;
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(ii) immediately after giving effect to such transaction and
treating any Debt which becomes an obligation of the Guarantor or any
Subsidiary as a result of such transaction as having been incurred by
the Guarantor or such Subsidiary at the time of such transaction, no
Guarantor Default or Guarantor Event of Default shall have happened
and be continuing;
(iii) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Guarantor
would become subject to a mortgage, pledge, lien, security interest
or other encumbrance which would not be permitted by this Guarantee,
the Guarantor or such successor Person, as the case may be, shall take
such steps as shall be necessary effectively to secure the Guarantor
Obligations equally and ratably with (or prior to) all Indebtedness
secured thereby; and
(iv) the Guarantor has delivered to the Noteholders an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental agreement is required in connection with such
transaction, such supplemental agreement, comply with this Section and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
(b) Upon any consolidation of the Guarantor with, or merger of the
Guarantor into, any other Person or any conveyance, transfer or lease of the
properties and assets of the Guarantor substantially as an entirety in
accordance with clause (a), the successor Person formed by such consolidation or
into which the Guarantor is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Guarantor under this Guarantee with the same effect as
if such successor Person had been named as the Guarantor herein, and thereafter,
except in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Guarantee and the other Related Documents.
SECTION 4.8. Financial and Business Information; SEC and Other Reports.
The Guarantor shall deliver to each holder of Notes that is an Institutional
Investor
(a) within 75 days alter the end of each quarterly fiscal period in each
fiscal year of the Guarantor (other than the last quarterly fiscal period of
each such fiscal year), a copy of,
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(i) a balance sheet of the Guarantor as at the end of such
quarter, and
(ii) statements of income, changes in stockholders' equity and
cash flows of the Guarantor, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Responsible Officer of the Guarantor as fairly presenting, in all
material respects, the financial position of the entity being reported on and
its results of operations and cash flows, subject to changes resulting from
year-end adjustments provided that it is understood and agreed that the delivery
of the Guarantor's Form 10-Q containing the Guarantor's quarterly financial
statements as filed with the Securities and Exchange Commission shall satisfy
the requirements of this paragraph (a);
(b) within 120 days after the end of each fiscal year of the Guarantor
ending after the date hereof, a copy of:
(i) a consolidated balance sheet of the Guarantor, as at the end
of such year, and
(ii) consolidated statements of income, changes in stock-
holders' equity and cash flows of the Guarantor, for such year.
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the entity being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances provided that
it is understood and agreed that the delivery of the Guarantor's Form 10-K
containing the Guarantor's
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annual financial statements as filed with the Securities and Exchange Commission
shall satisfy the requirements of this paragraph (b); and
(c) promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by the
Guarantor or any Subsidiary to public securities holders generally,
and (ii) each regular or periodic report, each registration statement
(without exhibits except as expressly requested by such holder), and
each prospectus and all amendments thereto filed by the Guarantor or
any Subsidiary with the Securities and Exchange Commission and of all
press releases and other statements made available generally by the
Guarantor or any Subsidiary to the public concerning developments that
are Material.
SECTION 4.9. Inspection. If a Guarantor Event of Default exists and if
the Guarantor has not complied with its obligations pursuant to Section 2.2 of
the Guarantee within three days of the Guarantor Event of Default first
occurring then the Guarantor shall permit the representatives of each holder of
Notes that is an Institutional Investor at the expense of the Guarantor to visit
and inspect any of the offices or properties of the Guarantor, to examine all
of its books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss its affairs, finances and accounts with
representatives of the Guarantor, the independent public accountants of the
Guarantor (and by this provision the Guarantor authorizes such accountants to
discuss the affairs, finances and accounts of the Guarantor), all at such times
and as often as may be requested, provided, that the Guarantor shall not be
required to disclose information from a non-affiliated third party which is
subject to a confidentiality agreement nor waive any reasonable claim of
privilege, and provided further, that the holders will attempt in good faith
(such good faith to take into account that a Guarantor Event of Default then
exists) to coordinate their inspections so as not to cause an unnecessary burden
on the Guarantor.
SECTION 4.10. Restrictions on Payment. The Guarantor will not and will
not permit any of its Affiliated to purchase, redeem, prepay or otherwise
acquire, directly or indirectly, any of the outstanding Notes except upon the
purchase, redemption, payment or prepayment of the Notes in accordance with
the terms of the Note Purchase Agreements and the Notes or Section 2.2 of this
Guarantee, or pursuant to an offer made pro rata and on the same terms to the
holders of all the Notes.
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ARTICLE V
MISCELLANEOUS
Section 5.1. Amendments in Writing. (a) None of the terms or provi-
sions of this Guarantee may be waived, amended, supplemented or otherwise
modified except in accordance with Section 17 of the Note Purchase Agreements,
including without limitation Section 17.4 thereof.
(b) The Guarantor will not and will not permit any of its Affiliates to
pay or cause to be paid, directly or indirectly, any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes or any waiver or amendment of any of the
terms and provisions hereof or of the Note Purchase Agreements or any other
Related Document unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
(c) The Guarantor will provide each holder of the Notes (irrespective of
the amount of Notes then owned by it) with sufficient information, sufficiently
far in advance of the date a decision is required, to enable such holder to make
an informed and considered decision with respect to any proposed amendment,
waiver or consent in respect of any of the provisions hereof or of any Related
Document. The Guarantor will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of Section 17
of the Note Purchase Agreements to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the
consent or approval of, the Required Holders.
(d) The Guarantor agrees that upon the timely occurrence of an Effective
Cure described in clause (x) or (y) of the definition thereof following the
occurrence of a Bankruptcy Event with respect to the Guarantor, all rights and
remedies of the holders under this Guarantee shall be automatically assigned to
the Non-Defaulting Guarantor and the Non-Defaulting Guarantor, and not the
holders, the Required Holders or the Collateral Agent, shall have the right to
consent to any amendment or waiver of this Guarantee.
Section 5.2. Notices. All notices, requests and demands to or upon the
Collateral Agent or the Guarantor hereunder shall be effected in the manner
provided for in Section 18 of the Note Purchase Agreements; provided that any
such notice, request or
24
<PAGE> 28
demand to or upon the Guarantor shall be addressed to the Guarantor at its
notice address set forth on Schedule 5.2.
Section 5.3. No Waiver by Course of Conduct. Cumulative Remedies.
Neither the Collateral Agent nor any Purchaser or Noteholder shall by any act
(except by a written instrument pursuant to Section 5.1), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default, Event of Default or Guarantor Event of
Default. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent or any Purchaser or any Note- holder, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Collateral Agent or any Purchaser or any Noteholder of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Collateral Agent or such Purchaser or Noteholder would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
Section 5.4. Enforcement Expenses, Indemnification. (a) The Guarantor
agrees to pay or reimburse each Purchaser, each Noteholder and the Collateral
Agent for all its reasonable out-of-pocket costs and expenses incurred in
collecting against the Guarantor under the guarantee contained in Article II or
otherwise enforcing or preserving any rights under this Guarantee and the
other Related Documents to which the Guarantor is a party, including, without
limitation, the reasonable fees and disbursements of one firm of counsel to the
Purchasers, the Noteholders and the Collateral Agent.
(b) The Guarantor agrees to pay, and to save the Collateral Agent, the
Purchasers and each Noteholder harmless from, any and all liabilities with
respect to (or resulting from any delay in paying) any and all stamp,
documentary, excise, sales or other taxes, assessments, levies or governmental
charges (other than income taxes and franchise taxes) which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Guarantee.
(c) The Guarantor agrees to pay, and to save the Collateral Agent, the
Purchasers and the Noteholders harmless from, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
out-of-pocket costs and expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery,
25
<PAGE> 29
enforcement, performance and administration of this Guarantee to the extent the
Issuer would be required to do so pursuant to the Collateral Agreement.
(d) The agreements in this Section 5.4 shall survive repayment of the
Obligations and all other amounts payable under the Note Purchase Agreements and
the other Related Documents. The Guarantor's obligations in this Section 5.4 are
in addition to its obligations under Article IV.
Section 5.5. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of the Guarantor and shall inure to the benefit
of the Collateral Agent, the Purchasers and the Noteholders and their permitted
successors and permitted assigns; provided that the Guarantor may not assign,
transfer or delegate any of its rights or obligations (a "Guarantor Transfer")
under this Guarantee without the prior written consent of all the Noteholders.
Notwithstanding the foregoing, if holders of at least 80% of the outstanding
principal amount of the Notes (exclusive of Notes then owned by the Guarantor,
the Other Guarantor, the Issuer or any of their respective Affiliated) consent
to a Guarantor Transfer, and the Issuer prepays the Notes of the nonconsenting
Noteholders pursuant to Section 8.2(d) of the Note Purchase Agreements, then
such Guarantor Transfer may be effected.
Section 5.6. Counterparts. This Guarantee may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.
Section 5.7. Severability. Any provision of this Guarantee that is pro-
hibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 5.8. Section Headings. The Section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
Section 5.9. Integration. This Guarantee and the other Related Docu-
ments represent the agreement of the Guarantors, the Collateral Agent, the
Purchasers and the Noteholders with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Collateral Agent, any
26
<PAGE> 30
Purchaser or any Noteholder relative to subject matter hereof and thereof not
expressly set forth or referred to herein or in the other Related Documents.
Section 5.10. Governing Law. This Guarantee shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York, without giving effect to its principles or
rules of conflict of laws to the extent such principles or rules would require
the application of the laws of another jurisdiction.
Section 5.11. Litigation; Waivers. The Guarantor hereby irrevocably and
unconditionally;
(a) submits in any legal action or proceeding relating to this
Guarantee and the other Related Documents to which it is a party, or
for recognition and enforcement of any judgment in respect thereof,
whether in tort, in contract or at law or in equity, to the exclusive
general jurisdiction of the Courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof,
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding brought in any such
court or the jurisdiction of any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (return receipt requested), postage prepaid, to the
Guarantor at its address referred to in Section 5.2 or at such other
address of which the Collateral Agent shall have been notified
pursuant thereto; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law.
Section 5.12. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE OR ANY OTHER RELATED DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
27
<PAGE> 31
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to
be duly executed and delivered as of the date first above written.
THE GEON COMPANY
By:/s/Jean M. Mikiosko
----------------------
Title; Treasurer
28
<PAGE> 32
GUARANTEE
SCHEDULE 3.3
DISCLOSURE
Guarantor's Form 1OQ for quarter ended September 30, 1997 is incorporated herein
by reference.
<PAGE> 33
GUARANTEE
SCHEDULE 5.2
NOTICES
The Geon Company
One Geon Center
Avon Lake, OH 44012
Attn: Secretary
Facsimile: (440) 930-3830
With copy to:
The Geon Company
One Geon Center
Avon Lake, OH 44012
Attn: Treasurer
Facsimile: (440) 930-3727
<PAGE> 1
EXHIBIT 11
THE GEON COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
BASIC EARNINGS PER SHARE:
Number of Shares:
<S> <C> <C> <C>
Weighted average shares outstanding 23.3 24.2 25.4
Less unearned portion of restricted stock awards
included in outstanding shares (.4) (.3) (.2)
------ ----- ------
Total weighted average common shares outstanding for
computation of basic earnings per share 22.9 23.9 25.2
====== ===== ======
Basic earnings per share $ .98 $ .51 $ 1.28
====== ===== ======
DILUTED EARNINGS PER SHARE:
Number of Shares:
Weighted average shares outstanding 23.3 24.2 25.4
Plus dilutive effect of stock options (1) .2 .4 .5
Plus dilutive impact of stock awards earned under
incentive plans (2) .1 - -
------ ----- ------
Total weighted average common shares and common
equivalent shares outstanding for computation of
diluted earnings per share 23.6 24.6 25.9
====== ===== ======
Diluted earnings per share $ .95 $ .50 $ 1.24
====== ===== ======
</TABLE>
Note: The Company adopted Statement of Financial Accounting Standands (SFAS) No.
128, 'Earnings per Share', in 1997. All prior year earnings per share amounts
have been restated to comply with the requirements of SFAS 128.
(1) The dilutive effect of options is based on the treasury stock method
using average market price for the period.
(2) Represents the net dilutive effect of stock awards granted under
incentive plans for the period from the time the awards were earned
until the stock was issued to the employees
<PAGE> 1
Exhibit 13
The Geon Company - 1997 Annual Report
Leadership,
Growth & Innovation
in Polymers
[THE GEON COMPANY LOGO]
<PAGE> 2
ABOUT THE COMPANY
The Geon Company, headquartered in Avon Lake, Ohio, is the world's largest
manufacturer and marketer of polyvinyl chloride (PVC) compounds and a leading
North American producer of PVC resins. With the 1997 acquisition of Synergistics
Industries Limited, the Company has 17 manufacturing plants in the United States
and Canada, as well as joint ventures in Europe, Australia, Singapore and the
United States. Since Geon became an independent enterprise in 1993, our
employees have dedicated themselves to creating the benchmark company within the
chemical industry. We have achieved much of this goal through leadership in
technology, operational safety, environmental performance, manufacturing
productivity and by delivering value to our customers.
ABOUT THIS ANNUAL REPORT
In prior annual reports, we have highlighted different aspects of Geon such
as our markets, our business teams, our manufacturing facilities, and our
environmental and safety performance. This year, our theme is Geon's strategic
focus on growth and cost reduction. The success of our strategy hinges on the
efforts of all 2,000 of our employees and their drive to make Geon the best in
our industry.
GEON AT A GLANCE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
VINYL SUSPENSION/ SPECIALTY
CHLORIDE MASS DISPERSION
PRODUCTS RAW MATERIALS MONOMER RESINS RESINS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOCATIONS McIntosh, Alabama LaPorte, Texas Deer Park, Texas Henry, Illinois
Chlor-alkali joint Henry, Illinois Pedricktown,
venture with Olin Louisville, Kentucky New Jersey
Corporation Niagara Falls, Ontario,
Orangeville, Ontario, Canada
Canada Pedricktown, New Jersey
Plasticizers Scotford, Alberta,
St. Remi de Napierville, Canada
Quebec, Canada Altona, Victoria,
Plasticizers Australia(J.V.)*
- ---------------------------------------------------------------------------------------------------------------
CAPACITIES 250,000 TONS CHLORINE 2.4 BILLION POUNDS 2.6 BILLION POUNDS 220 MILLION
50 MILLION POUNDS PER YEAR PER YEAR POUNDS
PLASTICIZERS PER YEAR PER YEAR
- ---------------------------------------------------------------------------------------------------------------
APPLICATIONS Chlorine-Feedstock Feedstock Water & drainage piping Floorings
& MARKETS for VCM for PVC House siding Coatings
Plasticizers-Additives polymerization Medical tubing / bags
for flexible compounds Packaging
Windows
Calendered goods
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------
COMPOUNDS SERVICE
- ---------------------------------------------------------------------------
<S> <C> <C>
LOCATIONS Avon Lake, Ohio Avon Lake, Ohio
Conroe, Texas Polymer
Farmington, New Jersey Diagnostics, Inc.
Lindsay, Ontario, Canada
Long Beach, California
Louisville, Kentucky
Niagara Falls, Ontario, Canada
Orangeville, Ontario, Canada
Plaquemine, Louisiana
St. Remi de Napierville, Quebec,
Canada
Terre Haute, Indiana
Valleyfield, Quebec, Canada
Mentone, Victoria, Australia(J.V.)*
Newton Aycliffe, England (J.V.)*
Singapore (J.V.)*
- ---------------------------------------------------------------------------
CAPACITIES 1.1 BILLION POUNDS PER YEAR
- ---------------------------------------------------------------------------
APPLICATIONS Appliance housings & components Analytical
& MARKETS Computer enclosures services &
Electrical enclosures testing
Pipe fittings
Vertical blinds
Windows
Wire & cable insulation & jacketing
Weatherstripping
Automotive components
- ---------------------------------------------------------------------------
</TABLE>
*J.V.=Joint Venture
<PAGE> 3
The Geon Company
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
(Dollars in Millions, Except Per Share Data) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales ............................................... $1,250.0 $1,144.4 $1,267.8
Employee separation and plant phase-out ............. 15.0 - 63.9
Operating income .................................... 52.0 29.9 63.3
Net income .......................................... 22.5 12.2 32.2
Capital expenditures ................................ 50.9 73.4 70.0
Depreciation and amortization ....................... 53.3 54.1 56.6
Total debt .......................................... 227.6 156.8 147.2
Average equity market value ......................... 494.7 580.2 680.9
Stockholders' equity ................................ 223.8 222.4 208.9
Earnings per share, basic ........................... $ .98 $ .51 $ 1.28
Common shares outstanding (in millions, year-end) ... 23.2 23.3 24.7
Number of employees (year-end) ...................... 2,010 1,683 1,725
Employee and management stock ownership ............. 14% 12% 8%
Stockholders (estimated as of December 31) .......... 7,000 7,000 7,000
</TABLE>
1997 SALES
BY GEOGRAPHIC REGION
$ MILLIONS
[PIE CHART]
<TABLE>
<S> <C>
CANADA $246.6 20%
NA EXPORT $36.2 3%
AUSTRALIA $51.5 4%
US $915.7 75%
</TABLE>
1997 SALES BY PRODUCT
$ MILLIONS
[PIE CHART]
<TABLE>
<S> <C>
PERFORMANCE POLYMERS & SERVICES 49%
$606.7
- COMPOUNDS
- SPECIALTY DISPERSION RESINS
- SYNERGISTICS
VCM $7.4
OTHER $82.1
SUSPENSION/MASS RESINS $553.8 44%
</TABLE>
GEON SALES AND SHIPMENTS
[LINE CHART]
Index, 1992 = 100
$ Millions In Pounds
<TABLE>
<CAPTION>
Dollars Total Shipments, Resins & Compounds, North America
<S> <C> <C>
1992 894.3 100
1993 972.5 100
1994 1,208.6 110
1995 1,267.8 106
1996 1,144.4 122
1997 1,250.0 133
</TABLE>
GEON SALES PER EMPLOYEE
[LINE CHART]
Pounds Shipped Per Employee
Index, 1992 = 100
<TABLE>
<S> <C>
1992 100
1993 115
1994 136
1995 137
1996 162
1997 178
</TABLE>
1
<PAGE> 4
The Geon Company
TO OUR STOCKHOLDERS:
[PHOTO]
William F. Patient, left, and Thomas A. Waltermire
1997 was a defining year in which we took some critical steps to position Geon
for the 21st century. We have been laying the groundwork for these actions ever
since Geon became an independent company in 1993. Now, with 1997 complete, we
look back with satisfaction at Geon's improved financial results in the face of
very competitive market conditions -- and ahead with anticipation at our
significant potential for earnings growth.
A YEAR OF HARD-WON EARNINGS IMPROVEMENT
We achieved 1997 sales of $1.25 billion and net income of $31.7 million, or
$1.38 per share basic, before a previously announced charge for employee
separation costs. In 1996, sales totaled $1.1 billion and net income was $12.2
million, or $0.51 per share basic. We are especially pleased with the impressive
gains in net income and earnings per share.
These results were achieved despite the fact that polyvinyl chloride (PVC)
resin margins sank to historic lows for the second consecutive year. Industry
resin cash margins (the difference between the market price for pipe PVC resin
and market prices for the key raw materials used to produce PVC resin) fell
roughly 1.0 cent per pound year over year. Each 1.0 cent-per-pound change
impacts earnings by roughly $0.50 per share.
In the face of tough industry conditions, Geon increased earnings $0.87 per
share before a special charge. This accomplishment stemmed, in part, from past
cost reduction efforts such as the LaPorte vinyl chloride monomer (VCM) plant
expansion, as well as sales growth and improved profit performance in compounds
and specialty dispersion resins.
2
<PAGE> 5
Overall, Geon shipments of resins and compounds combined increased 7
percent in 1997. Industrywide, North American resin shipments grew approximately
6 percent including exports, or 3 percent excluding exports. With industry
capacity increasing approximately 7 percent, overall capacity utilization did
not improve, leading to further reduction in industry cash margins. Most PVC
industry market segments experienced good growth: pipe, 3 percent; siding, 6
percent; and windows, 12 percent.
As we do each year, we established Company income improvement goals,
excluding the impact of cash margins, and we slightly exceeded our $50 million
target for 1997. We have set another goal of $60 million in improved Geon
earnings power through 2000.
A NEW STRUCTURE FOR A NEW FUTURE
In 1997, we implemented a new operating strategy for Geon, with the
formation of separate operating units focused on key market segments and the
appointment of general managers to lead them. This structure allows us to
readily add new business units and to focus on cost reduction and growth. With
more functional responsibility, the general managers already are helping to
drive change and provide more direct accountability for results. (Details of our
strategic planning can be found on pages 6 and 7.)
In February 1998, Chief Operating Officer Tom Waltermire was named
president, and the Board of Directors nominated him for election to the board at
the annual stockholders' meeting on May 7, 1998. David Wilson was appointed vice
president and chief financial officer in mid-1997.
In May 1997, we announced a voluntary early retirement program. As a
result, 73 individuals from our headquarters and research and development staffs
elected to retire by the end of 1998. To cover these costs, we took a one-time
pre-tax charge of $15 million in the second quarter. Savings will reach $11
million annually by 1999.
SEEKING NEW APPROACHES TO REWARD OUR STOCKHOLDERS
In the years immediately following Geon's inception, we focused primarily
on what we called "fixing the business": making the hard choices necessary to
improve the profitability of our resin and compound operations. Having achieved
substantial cost reductions and sales growth, we were able, as promised, to earn
improved operating returns for our stockholders even at the bottom of a
protracted margin trough.
Yet, we know we need to do more to grow and create substantial stockholder
value. Two important decisions emerged from our planning:
- OUR VALUE-ADDED MARKET SEGMENTS -- COMPOUNDS AND SPECIALTY DISPERSION
RESINS -- SHOULD BE EXPANDED THROUGH TOP-LINE GROWTH AND ACQUISITIONS.
The acquisition of Synergistics Industries Limited in fourth-quarter 1997
was a major first step in executing our strategy. Through this $86.5 million
transaction, our compound operation grew nearly 50 percent. This acquisition
will be immediately accretive to earnings in 1998, before any merger synergies
are achieved.
Synergistics operates six plants, with shipments almost equally split
between Canada and the United States. The company brings important non-PVC
products that fit well with Geon's market strengths.
We created another value-added business opportunity in 1997: Polymer
Diagnostics, Inc., which allows clients to take advantage of our
state-of-the-art research and testing facilities. We will market these
capabilities to a wide range of clients who need our testing and problem-solving
skills in polymer sciences.
"We take our commitment
to create stockholder value very personally. The belief
and pride that stem from this commitment are driving the
changes you see at Geon."
3
<PAGE> 6
TO OUR STOCKHOLDERS: continued
"We are confident that the
changes we are implementing
will make Geon an even
more attractive and desirable
investment opportunity
in the future."
- GEON'S PVC/VCM OPERATIONS MUST FOCUS ON OPERATIONAL EXCELLENCE WHILE
BECOMING MORE BACKWARD INTEGRATED.
Prior to 1997, we made substantial improvements in our PVC resin operations
to become a very cost-competitive player within the industry. Yet, we know that
for resins to remain cost competitive, we need to lower our acquisition costs
for chlorine and ethylene, the key raw materials used to produce PVC. In 1997,
we took major steps to create more raw material integration.
Our 50/50 chlor-alkali joint venture with Olin Corporation, which started
up in the fourth quarter of 1997, will supply about 35 percent of our chlorine
needs at below-market costs. In addition, we recently reached agreement with
Bayer Corporation to take byproduct hydrogen chloride by pipeline from Bayer's
Baytown, Texas, plant. With startup of this arrangement in third-quarter 1998,
we will have about 65 percent of our chlorine needs supplied at near-integrated
economics, at a substantially lower investment.
Effective ethylene sourcing is equally critical. We are exploring a range
of strategic alternatives to realize our objective: integrated ethylene
economics at the lowest possible capital investment.
STRIDES IN EFFICIENCY, INNOVATION AND SAFETY
Geon marked some additional milestones in 1997:
- Geon 2000, our SAP information system, came online within budget and on
time with enhanced customer service and manufacturing controls.
- Once again, Geon employees demonstrated their commitment by turning in
one of the strongest safety and environmental performances in our industry. The
details, highlighted on pages 16 and 17, showcase their achievements.
WITH BEST WISHES
In January 1998, Ed Martinelli, senior vice president for corporate
development, retired after a 34-year career with Geon. As a prominent
contributor to Geon's growth and success, Ed will be missed for his operational
expertise, dedication and vast experience.
Harry Hammerly, a member of our Board of Directors since 1994, has elected
to retire, effective with our 1998 annual stockholder meeting. Harry has
provided invaluable guidance to our Company, and we are grateful for his many
contributions.
LOOKING AHEAD
For Geon and our stockholders, the future holds exciting possibilities. We
have placed Geon on sound footing by cutting costs, improving productivity and
upgrading our systems. Our new structure gives us greater focus and a better
foundation for growth. We are confident that our performance in 1998 and beyond
will steadily improve.
Expansion of our value-added operation will continue through internal
growth and acquisitions.
Resins will benefit from further productivity gains and cost reductions
such as the chlor-alkali joint venture.
Geon employees and board members now own 14 percent of the outstanding
shares of Geon stock. We take our commitment to create stockholder value very
personally. The belief and pride that stem from this commitment are driving the
changes you see at Geon.
We are confident these changes will make Geon an even more attractive and
desirable investment opportunity in the future.
Sincerely,
/s/ William F. Patient
William F. Patient
Chairman of the Board and
Chief Executive Officer
/s/ Thomas A. Waltermire
Thomas A. Waltermire
President and Chief Operating Officer
March 2, 1998
4
<PAGE> 7
The Geon Company
A SKILLED LEADERSHIP TEAM
CHARTS GEON'S GROWTH
Geon is committed to creating additional stockholder value through growth and
cost reduction. A team of senior leaders from all segments of the business has
developed a plan and is charged with delivering on this pledge.
[PHOTO]
/s/ Louis M. Maresca
Louis M. Maresca, Vice President and
General Manager, Resins
[PHOTO]
/s/ V. Lance Mitchell
V. Lance Mitchell, Vice President and
General Manager, Compounds
[PHOTO]
/s/ Gregory L. Rutman
Gregory L. Rutman, Vice President,
General Counsel and Secretary
[PHOTO[
/s/ W. David Wilson
W. David Wilson, Vice President and
Chief Financial Officer
[PHOTO]
/s/ A. Kim Aagaard
A. Kim Aagaard, President and Chief Executive
Officer, Synergistics Industries Limited
[PHOTO]
/s/ Clarence J. Nosal
Clarence J. Nosal, Vice President and
General Manager, Intermediates
[PHOTO]
/s/ Donald P. Knechtges
Donald P. Knechtges, Senior Vice President,
Business and Technology Development
[PHOTO]
/s/ Denis Belzile
Denis Belzile, General Manager,
Specialty Dispersion Resins
5
<PAGE> 8
The Geon Company
FROM THE BEGINNING: ESTABLISHING THE FOUNDATION
Geon is spun off from The BFGoodrich Company as an independent company in 1993
COMPANY COMMITMENTS
- - Shut down older, inefficient facilities
- - Improve operating efficiencies to benchmark levels
- - Reduce overhead
- - Improve cash flow
- - Reward stockholders
ACTIONS
- - Eliminated high-cost capacity
- - Simplified business with redesigned and streamlined product line requiring
fewer raw materials
- - Reduced production downtimes and increased run rates
- - Reduced raw material costs
- Sunbelt chlor-alkali joint venture with Olin Corporation, started up
in fourth-quarter 1997, initially will provide 35 percent of Geon's
chlorine needs
- 800-million-pound expansion of LaPorte, Texas, plant, completed in
1996, eliminates most of Geon's need to purchase VCM at market prices
- - Rewarded employee performance and productivity increases
- Gainsharing and Success Sharing plans continue as meaningful
incentives
- - Repurchased more than 16 percent of outstanding shares
RESULTS
- - Increased resin capacity: more than 600 million pounds since 1992
- - Increased earnings capacity: more than $135 million at constant 1992
margins through productivity, growth, quality and cost reductions
- - Near doubling of shipments per employee since 1992
- - Reduction in head count: more than 40 percent since 1990 (prior to
Synergistics Industries Limited acquisition)
- - Increased returns to stockholders: through dividends and share repurchases,
more than 115 percent of net income, or more than $6 per share, since 1993
- - Benefits from Olin joint venture and Bayer Corporation agreement, which
will:
- Allow Company to source 65 percent of its chlorine needs at
below-market cost levels by third-quarter 1998
- Meet nearly 85 percent of Geon's chlorine needs after a potential Olin
joint venture plant expansion
- - Significant savings from LaPorte plant expansion
- - Alignment of employees' interests with those of stockholders:
- More than 50 percent of Success Sharing and management incentive
payouts in 1997 in restricted stock
- Employee share ownership increased to 14 percent
6
<PAGE> 9
TOWARD THE NEXT CENTURY: CREATING GROWTH AND VALUE
COMPANY COMMITMENTS
- - Develop the next phase of Geon's strategy, with a focus on:
- Top-line growth in the value-added, differentiated operations,
including compounds and specialty dispersion resins
- Greater stockholder value through earnings growth
- Stronger integration in the resin and raw material operations
- Benchmark performance in PVC resins and compounds, with a goal of
another $60 million in operating income improvements through 2000
- Leadership in: value to customers, safety and environmental
performance, operational excellence, rewards to stockholders
ACTIONS
- - Restructuring
- Reorganized management structure around core units, enabling Company
to integrate new opportunities and acquisitions more easily
- Appointed general managers of units and gave them more functional
responsibility
- Appointed a president and chief operating officer
- Planned headquarters staff reduction of 15 percent by the close of
1998 to simplify business and lower cost structure
- - Realizing growth opportunities
- Acquired Synergistics Industries Limited, Canadian manufacturer of
plastic compounds and liquid plasticizers
- Formed Polymer Diagnostics, Inc. to expand Geon's industry-leading
testing and research capabilities
EXPECTED RESULTS
- - Company's strategic focus clearly established as a service and technology
leader in polymers
- - Benefits from Synergistics acquisition, which will:
- Contribute to earnings growth
- Complement Geon's product offerings
- Boost Geon's market strength in non-PVC products
- - Growth in more profitable differentiated operations; improved productivity
and cost competitiveness in resin operations
- - Earnings growth to reward stockholders
- - New ventures and acquisitions
- - Global opportunities, broadly based in compounding
7
<PAGE> 10
The Geon Company
PERFORMANCE POLYMERS
AND SERVICES: NEW OPPORTUNITIES, VALUE-ADDED GROWTH
"Geon is the
largest merchant
compounder in the world.
We believe we have
the people, the systems
and the technology
to be the clear leader
globally."
-- V. Lance Mitchell, Vice President and
General Manager, Compounds
[PHOTO]
Geon's performance polymers and services units are composed of Geon's
compounding operations; Synergistics Industries Limited, the compounder we
acquired late in 1997; specialty dispersion resins; and Polymer Diagnostics,
Inc., the business venture we formed to market our internal research and testing
capabilities. These units provide technology and services -- the "value-added"
element -- to customers. They offer Geon the opportunity to increase earnings
through top-line growth.
COMPOUNDS: INNOVATION AND IMPROVEMENT
Geon has long been recognized as a leader in polyvinyl chloride (PVC)
compounding. From the 1950s, when Geon technologies produced some of the first
rigid compound formulations for pipe and siding, through the 1990s, when Geon
demonstrated the ability to mold PVC into complex parts for appliances and
business equipment, the Company has been at the forefront of most new compound
applications.
Compounding occurs when vinyl resin, a free-flowing powder, is mixed with
additives. The resulting compound can then be processed into useful products.
Depending upon which additives are used, vinyl compounds can be tough and
impact-resistant or soft and flexible.
Compounds have always been a critical component of Geon's overall business,
but in the late 1980s and earlier this decade, we were not achieving the
financial return expected from this value-added segment. So we focused our
efforts, streamlining our product line, improving manufacturing rates, reducing
production downtimes and eliminating high-cost capacity. As a result of these
efforts, since 1992:
- Sales per manufacturing employee have grown by 120 percent.
- Product quality complaints have decreased 65 percent.
- Shipments have increased an annual average of 5 percent.
- The number of discrete product offerings has decreased 41 percent.
- The number of raw materials purchased for manufacturing has decreased 40
percent.
8
<PAGE> 11
Encouraged by our progress, we made some strategic decisions in 1997 to
accelerate our growth. We devised a new management structure and appointed a
general manager of compounds. A dedicated business team now has full-time
responsibility for compounds and the supporting functional areas. This
restructuring increases accountability and aligns costs more closely with the
compound operations.
ACQUISITION BRINGS GROWTH,
NEW SYNERGIES
A second strategic shift involves acquisition. In the fourth quarter of
1997, Geon acquired Synergistics Industries Limited, a manufacturer of a broad
line of plastic compounds and liquid plasticizers, for approximately $86.5
million. Synergistics, which in 1997 achieved record full-year sales of $240
million split equally between the United States and Canada, will operate
initially as a wholly owned subsidiary of Geon. The acquisition is expected to
be accretive to earnings in 1998.
Synergistics has six manufacturing plants and about 500 employees in the
United States and Canada. In addition to vinyl compounds, Synergistics brings to
Geon some new products, including cross-linked polyethylene, thermoplastic
elastomers and plasticizers.
[PHOTO]
Clockwise, from bottom:
David J. DiRienzo, Senior Manager, Engineering; John F. Dresch, Director -
Commercial; Phillip Donataccio, Director, Compound Manufacturing Operations;
David C. Honeycutt, Manager, Marketing Communications; Cynthia G. Tomasch,
Manager of Financial Analysis - Manufacturing and Distribution
9
<PAGE> 12
The Geon Company
PERFORMANCE POLYMERS
AND SERVICES: NEW OPPORTUNITIES, VALUE-ADDED GROWTH
The combination of Synergistics' expertise with Geon's strengths in
specific markets should allow for rapid growth of these product offerings.
Moving forward, additional synergies can be expected from this pairing of two
complementary companies.
With the addition of Synergistics, Geon's compound capacity jumped nearly
50 percent. We also added capacity of 50 million pounds of plasticizer, an
important raw material in flexible PVC compounds.
SPECIALTY DISPERSION RESINS: TECHNOLOGY LEADERSHIP AND GROWTH
Our specialty dispersion resin unit provides uniquely performing products
and technology for the coatings, automotive and foam markets. This unit is
positioned to be an important contributor to our earnings growth.
Specialty dispersion resins are much finer in particle size than suspension
resins. When compounded with plasticizers (to produce plastisols), they take on
soft, flexible characteristics. They are used primarily in wire and metal
coatings, vinyl flooring, carpet backing, wall coverings and automotive
interiors, as well as in consumer goods such as toys.
[PHOTO]
Clockwise, from bottom:
Christopher J. Mohn, Director, Corporate Analysis; Joel A. Simmons, Manager,
Human Resources - Compounds; Ashok C. Shah, Director, Compound Technology;
Gregory P. Smith, Corporate Controller; Jean M. Miklosko, Treasurer
10
<PAGE> 13
Specialty dispersion resins stand as an example of Geon's technology
leadership in providing products with unique benefits in processing
characteristics and performance.
Geon ranks as the largest among six North American producers with a market
share of approximately 28 percent. Focusing on operational excellence, Geon's
specialty dispersion resin unit has made significant improvements the last five
years in manufacturing and customer service performance as well as in product
quality. On-time shipments have increased and quality performance has improved.
Since 1992, production per manufacturing employee has increased 70 percent.
Geon's strategic objectives through the end of the century include becoming
the preferred North American supplier of specialty dispersion resins through
excellence in service, product consistency and application performance,
technology and innovation. Internally, we have acknowledged the importance of
this market by establishing a separate unit headed by a general manager.
POLYMER DIAGNOSTICS:
A NEW BUSINESS VENTURE
Looking beyond PVC resins and compounds, Geon found a new way to provide an
important service in 1997 when we formed Polymer Diagnostics, Inc., a wholly
owned subsidiary offering analytical, testing and problem-solving capabilities
to customers, suppliers, academic institutions and other clients in the area of
polymer sciences. Polymer Diagnostics illustrates Geon's entrepreneurial spirit
and benefits clients, who can take advantage of our state-of-the-art research
and testing facilities and collaborate with leading scientists and engineers in
the field of polymers.
As an example, a retail supplier of consumer products asked Polymer
Diagnostics to compare one of the supplier's household items to a competing
brand. Through testing and analysis, Polymer Diagnostics found that the client's
product was superior, but posed some cost challenges. On the strength of these
findings, the client made changes to stave off the competitive threat.
LOOKING FORWARD
Geon is strongly committed to its differentiated and value-added units,
which are key to earnings improvement. While continuing to drive toward lower
costs and higher productivity, we will seek growth opportunities, including
additional acquisitions.
"Synergistics and Geon
are natural partners.
This combination will
benefit all of our customers and stockholders."
-- A. Kim Aagaard, President and Chief Executive
Officer, Synergistics Industries Limited
[PHOTO]
"We have built a larger, more profitable
specialty dispersion resin unit that
firmly establishes
Geon's reputation
in the marketplace."
-- Denis Belzile, General Manager,
Specialty Dispersion Resins
[PHOTO]
11
<PAGE> 14
The Geon Company
SUSPENSION/MASS RESINS
AND INTERMEDIATES: LOWERING COSTS, CREATING GROWTH
"The last five years have dramatically
demonstrated the importance of
being both a low-cost producer of
PVC and an integrated
manufacturer back
to key raw materials."
-- Louis M. Maresca, Vice President and
General Manager, Resins
[PHOTO]
Geon's suspension/mass resin and intermediates units, including the joint
venture with Olin Corporation, are driven largely by cost and productivity.
Because the largest PVC processors buy resin, then sell products in price-driven
markets such as pipe and siding, being a low-cost supplier is a competitive
necessity.
PVC RESINS: ACHIEVING LOWER COSTS
AND CREATING GROWTH
If 1996 was a challenging year for resins, then 1997 reinforced the tough
nature of this competitive business. Even so, Geon made significant strides
toward the goal of being a very cost-competitive supplier of PVC resins.
To run the resin operations more effectively, we restructured in 1997 into
separate business units. Employees from functional areas such as manufacturing,
sales, and research and development are now focused within the new resin
organization.
We continue to target a customer base that will grow faster than the
market. We have aligned with some of the best processors in our industry, and we
are matching our customers with our plant capabilities to improve logistics
costs. By increasing our productivity through debottlenecking, we are expanding
our resin capacity in low-cost increments to meet our customers' growing needs.
With an emphasis on operational excellence in every phase of the resin
business, Geon has achieved substantial cost improvements. Our new SAP
information system (see page 18) is a valuable tool in our drive for added
efficiencies. By increasing inventory turns, improving product quality,
increasing reactor productivity, controlling logistics and utility costs, and
improving customer forecasts, we have made benchmark improvements despite
intensely competitive business conditions.
These efforts, built on five years of hard work, have yielded major
improvements in resins. Since 1992:
- Shipments have grown an average 6 percent per year versus market growth
of 5 percent.
- Productivity per manufacturing employee has increased 122 percent.
- Inventory turns have improved 15 percent.
Despite these achievements, PVC industry supply/demand conditions continue
to intensify the competitive nature of this business. The 1997 addition of
approximately 7 percent to North American capacity more than offset industrywide
growth in demand of roughly 6 percent. A 6 percent increase in
12
<PAGE> 15
capacity is anticipated in 1998. With interest rates expected to remain low, and
building and construction to be at levels similar to those in 1997, North
American PVC demand is projected to grow 4 to 5 percent in 1998.
Recent trends have seen approximately 5 percent of North America's PVC
resin production shipped to Southeast Asia. Historically, Geon has not exported
significantly to this region. The current economic crisis in the region,
however, is expected to cause a slowdown in 1998 exports and a more competitive
PVC market globally, creating pressure on operating rates and margins.
INTERMEDIATES: PROVIDING LOW-COST VCM AND RAW MATERIALS
Like the other areas, intermediates was reorganized under a general manager
in 1997; it now includes our vinyl chloride monomer (VCM) licensing group.
1997 was the first full year of operation following the 800-million-pound
expansion of Geon's LaPorte, Texas, VCM plant. VCM made at LaPorte is a
low-cost, high-quality raw material that is polymerized into PVC at Geon's North
American resin plants. Since startup in 1996, the expanded plant has
demonstrated its leadership in VCM technology by attaining design throughput
rates and excellent raw material conversion efficiencies. LaPorte is an industry
benchmark -- the largest and, we believe, the lowest-cost VCM plant in the
world.
[PHOTO]
Clockwise, from bottom:
Anne L. Selcer, Manager, Human Resources - Intermediates; David D. Quester,
Director of Manufacturing Operations; Robert M. Rosenau, Business Director -
Suspension/Mass Resins; Jeffrey J. Gilgenbach, Controller - Intermediates; James
J. Schonaerts, Director, Feedstocks and Purchasing; Timothy G. Manning, Plant
Manager - LaPorte
13
<PAGE> 16
The Geon Company
SUSPENSION/MASS RESINS
AND INTERMEDIATES: LOWERING COSTS, CREATING GROWTH
The LaPorte expansion, which brought the plant's total capacity to 2.4
billion pounds, reduces Geon's raw material costs because it enables us to
produce more VCM at below-market prices. The annual benefit of the LaPorte
expansion, based on average VCM market prices of the last three years, is
approximately $35 million.
Geon has long recognized the importance of trimming raw material costs so
we can realize our goal of being the low-cost provider in the PVC industry.
Having achieved full integration in VCM, we have been working toward integrated
economics in chlorine and ethylene as well.
In the last two years, fully integrated producers attained attractive
margins on chlorine and ethylene. Some industry observers believe this situation
exacerbated the over-supply in VCM/PVC, driving margins well below the last
trough in 1992-93. Fully integrated margins, however, were above those in
1992-93.
What does this mean for Geon? It reinforces our strategy of integration in
chlorine and ethylene to achieve a competitive cost position. We believe,
however, that we would do a disservice to our stockholders if we rushed into
backward integration. We
[PHOTO]
Clockwise, from bottom:
Barry M. Hendrix, Director, Sales - Resin; J. Philip Allison, Director,
International Resin Sales - EDC/VCM Marketing and Distribution; Ashok K.
Mendiratta, Director, Technology - Resin; Robert F. Kissling, Manager, Human
Resources - Resin; John L. Rastetter, Director, Planning/Business Development
14
<PAGE> 17
need to capture the value of integration through either advantageous long-term
contracts or integration opportunities at better-than-industry capital
investments.
CHLORINE: INTEGRATED ECONOMICS, LOW CAPITAL INVESTMENT
An important step toward integration is the 250,000-ton chlor-alkali plant
in McIntosh, Alabama, under the Sunbelt Chlor-Alkali Partnership, a 50/50 joint
venture agreement between Geon and Olin Corporation. Startup occurred in
November 1997. The plant, which uses an innovative membrane cell technology, is
believed to be a benchmark in capital cost per electrical chemical unit. The
plant will supply approximately one-third of Geon's chlorine needs; Olin will
market the caustic soda. A future plant expansion to 400,000 tons can be readily
accommodated.
Geon also has an agreement with Bayer Corporation under which Bayer will
build and operate a 17-mile pipeline to transport byproduct anhydrous hydrogen
chloride from its Baytown, Texas, plant to Geon's nearby LaPorte plant. Geon is
building an oxychlorination facility that will use hydrogen chloride to produce
VCM, instead of using elemental chlorine. Startup is expected in the third
quarter of 1998.
The Bayer initiative, combined with the eventual expansion of the Olin
joint venture, positions Geon with integrated chlorine economics capable of
supplying approximately 85 percent of current needs. If both these projects had
been in place in 1995, the average yearly benefit would have equaled
approximately $ 0.67 per share -- and that gain would have been realized with
the lowest capital investment in the industry.
ETHYLENE: SEEKING FAVORABLE TERMS
As one of the largest merchant consumers of ethylene on the Gulf Coast,
Geon has always been an efficient buyer. For some time, we have been exploring
other options in ethylene. Economic integration in ethylene is important to us,
but we will carefully assess our needs and evaluate our options so that we find
the right opportunity for Geon.
A COMPANYWIDE COMMITMENT
We are confident that we can reduce costs and continue the cost-effective
growth of Geon's resin operations. We are becoming a stronger integrated, more
cost-competitive player, and we will add sales, capacity and value at low cash
costs. In this way, we will improve our competitiveness and fulfill our promise
to deliver earnings growth and value to our stockholders.
"We are in business
not to market VCM,
but to provide
the lowest-cost
raw materials to Geon's
resin and compound operations."
-- Clarence J. Nosal, Vice President and
General Manager, Intermediates
[PHOTO]
15
<PAGE> 18
The Geon Company
SAFETY AND ENVIRONMENT: AN EXCELLENT SAFETY PERFORMANCE,
A "BEST-EVER" ENVIRONMENTAL YEAR
"We are steadfast
in our determination
to be the benchmark
company in the chemical
industry for safety
and environmental
performance."
-- Edward L. Beeler, Director,
Environmental, Health and Safety
[PHOTO]
It's no accident that Geon people post industry-leading safety and environmental
performances year after year. Geon has always placed a premium on operating
injury-free, curbing chemical emissions and reducing waste. Once again in 1997,
our employees displayed their extraordinary dedication by recording superb
results in these vital areas.
We do not exaggerate when we lay claim to being the benchmark company in
the chemical industry for safety and the environment. We are proud of our record
and determined to maintain our leadership position.
A BANNER SAFETY YEAR FOR PLANTS
With just 10 recordable injuries companywide, Geon employees equaled their
best-ever year for injury prevention, which was 1995.
Our plants had an exceptional year. While all 10 recordables in 1995
occurred at the plants, only six of the 1997 recordables were plant-related. The
year ended with no recordable injuries at our Deer Park, Henry, Pedricktown,
Plaquemine and Terre Haute facilities.
Given this superior performance, it's no surprise that a record 11 plants
met performance criteria for the Chairman's Safety Award. To qualify for this
Company honor, a site must have had no lost-time injury, defined as an
on-the-job injury that requires an employee to be away from the workplace at
least one day; a recordable injury rate consistent with Geon's challenging
targets; and no serious incidents such as fires or explosions.
The only shadow over Geon's 1997 safety performance was the first lost-time
injury in our North American operations in almost 31/2 years. It occurred in
June at One Geon Center headquarters. This incident ended a record period --
more than 14 million working hours -- without a lost-time injury in North
America.
Six of our plants continued in 1997 to compile remarkable track records for
operating without a lost-time injury. Deer Park has recorded no lost-time
injuries in the last 12 years, or 2.4 million working hours. The Henry and Terre
Haute plants have experienced 91/2 years
1997 GEON EMPLOYEE
SAFETY PERFORMANCE
[BAR CHART]
Incidence Rate (1)
<TABLE>
<CAPTION>
TOTAL RECORDABLES LOST TIME
<S> <C> <C>
CMA companies over 2 million
hours/year 1.99 0.35
Geon (2) 0.47 0.05
</TABLE>
(1) Injuries per 200,000 hours (or 100 employees/year)
(2) Full-year 1997 Geon statistics
16
<PAGE> 19
each, or 3.7 million and 1.7 million working hours, respectively, without a
lost-time injury. Others with outstanding histories are Louisville at 8 1/2
years, or 4.1 million working hours; Pedricktown, 8 years, or 4 million working
hours; and Long Beach, 7 1/2 years, or 0.9 million hours, without a lost-time
injury.
A STAR IN LAPORTE'S CROWN
LaPorte distinguished itself in a unique way: It became the first Geon
plant to achieve STAR certification from the U.S. Occupational Safety and Health
Administration (OSHA) through participation in OSHA's Voluntary Protection
Program.
Of all the work sites across the country, only about 330 hold STAR
certification, OSHA's highest-level safety designation. To attain this select
status, LaPorte voluntarily underwent a rigorous, week-long safety audit, during
which it demonstrated compliance with 19 difficult elements comprising OSHA's
model worker safety plan. In September, the assistant secretary of labor
formally awarded STAR certification -- on LaPorte's first try.
A YEAR FOR ENVIRONMENTAL SUPERLATIVES
It's difficult to overstate Geon's environmental successes in 1997. We had
our best year ever in terms of reportable chemical releases and permit
exceedances, which we reduced by a full 50 percent in our North American
operations.
GEON PLANT EMISSIONS (1)
[LINE CHART]
In Pounds
<TABLE>
<CAPTION>
REPORTING YEAR Water Off-site(2) Air
<S> <C> <C> <C>
1987 13.17 43.94 42.89
1988 15.52 51.61 27.88
1989 14.56 5.39 20.87
1990 11.41 8.69 15.80
1991 10.57 7.46 22.72
1992 5.92 6.60 15.84
1993 2.95 21.23 14.80
1994 0.12 9.41 17.47
1995 1.05 1.94 18.55
1996 2.11 1.66 14.09
1997 1.73 2.32 13.80
</TABLE>
(1) SARA Title III Emissions
(2) Landfill and others
Eight sites operated with no exceedances or releases. In this elite
category are the Avon Lake Technology Center and the Avon Lake, Long Beach,
Louisville, Niagara Falls, Pedricktown, Plaquemine and Terre Haute plants.
Pedricktown passed the four-year mark for perfect compliance.
Continued recycling and solid waste reduction initiatives at all Geon
plants diverted wastes from landfill disposal and produced significant savings
for the Company. In 1996, these combined efforts eliminated 14.5 million pounds
of material from landfills and yielded savings of $700,000. We do not yet have
comparable figures for 1997, but we believe we have sustained this positive
trend.
Worthy of mention is LaPorte, which achieved a 40 percent reduction in
wastewater treatment plant solid waste generation and a greater than 20 percent
reduction in overall waste.
Eight plants and the Avon Lake Technology Center met criteria for Geon's
W.C. Holbrook Environmental Award of Excellence. To qualify, a site must
demonstrate compliance with the national emission standard for hazardous air
pollutants for vinyl chloride, prevent exceedances/releases and meet specified
targets for waste reduction.
EMPLOYEES WIN RECOGNITION FOR GEON
Agencies, governmental organizations, trade associations and safety
councils honored Geon last year for commendable environmental and safety
performance in 1996. Among the highlights:
- For the ninth consecutive year, Geon received the Conrail Diamond Drop
Award for flawless shipping. This award recognizes companies that shipped at
least 1,000 rail cars of hazardous material during the year without a
shipper-caused release. Geon is the only shipper in the nation to be honored
every year since the award's inception.
- The Vinyl Institute presented a special award to Deer Park for 10
consecutive years of perfect compliance with national emission standards for
vinyl chloride.
- For minimizing air pollutant emissions, the Henry, LaPorte, Louisville,
Niagara Falls and Pedricktown plants earned the Vinyl Institute's Environmental
Achievement Award. Safety Performance Awards went to LaPorte, Pedricktown and
Scotford for outstanding worker safety records.
17
<PAGE> 20
The Geon Company
GEON 2000: THE GEON 2000 INFORMATION SYSTEM:
ON TIME, ON BUDGET -- AND ONLINE
"So successful were
we in carrying out this project across our
organization that
Geon's implementation
is viewed as benchmark
by the industry."
-- Kenneth M. Smith,
Chief Information Officer
[PHOTO]
The Geon 2000 information system with SAP computer software technology was
installed companywide in 1997. Although we are still learning the full
capabilities of the system, we can point to many practical benefits for Geon and
our customers:
- When a customer calls with an order, we now can readily determine whether
we have the product in stock and, if not, when we can make it. Based on
inventory and production schedules, we can promise a very reliable delivery
date.
- Customer Operations can measure and report on-time deliveries each month,
which helps us improve customer service.
- In the resin supply chain, we can track and see the consequences of
production schedule breaks, which we have reduced to no more than a handful a
month.
- In compounds, SAP has played a key role in improved inventory planning,
order execution and distribution.
- SAP has had a tangible impact on Geon's ability to reduce freight costs.
We installed the SAP system in resins and intermediates in November 1996.
Compounds followed in February 1997. Implementation was seamless, allowing our
employees to continue working throughout the transition period. No customer or
manufacturing disruptions occurred as implementation took place on time and
within budget.
So successful were we in carrying out this project across our organization
that Geon's implementation is viewed as benchmark by the industry.
The SAP project stands as a shining example of Geon's ability to assemble a
cross-functional team from all levels of the organization to address a critical
issue. These dedicated people deserve our thanks for working long hours under
considerable pressure to ensure that the job was done right.
Now, our entire organization is linked on a real-time basis for faster
response. SAP is helping us serve our customers better, reduce our operating and
working capital costs, and run our business more efficiently.
The SAP system is the most visible component of our entire Geon 2000
initiative. More than just an information system, Geon 2000 was conceived as a
fundamental transformation in the way we do business. As a tool in this
re-engineering of our business processes, SAP is proving its worth daily.
We are nowhere near to tapping the system's full potential, so employee
training will remain a priority. We made an excellent start and now SAP and Geon
2000 are helping us serve our customers reliably and run our business smoothly.
18
<PAGE> 21
The Geon Company and Subsidiaries
FINANCIAL SUMMARY
TABLE OF CONTENTS
<TABLE>
<S> <C>
Management's Analysis-Income...........20
Consolidated Statements of Income......21
Management's Analysis-Balance Sheets...22
Consolidated Balance Sheets............23
Management's Analysis-Cash Flows.......24
Consolidated Statements of Cash Flows..25
Consolidated Statements of Stockholders'
Equity........................26
Notes to Consolidated Financial
Statements....................27
Quarterly Data.........................35
Selected Six-Year Financial Data.......36
Report of Independent Auditors.........37
Corporate Information..................38
</TABLE>
GEON EARNINGS AND NORTH AMERICAN
INDUSTRY RESIN MARGINS'
[LINE CHART]
<TABLE>
<CAPTION>
Earnings before interest,
tax, depreciation, amortization
and employee separation and plant North American industry
phase-out costs resin margins
--------------- -------------
$ Millions Cents Per Pound
<S> <C> <C>
1992 54.0 4.0
1993 85.7 3.8
1994 163.5 6.9
1995 183.4 8.7
1996 89.7 1.2
1997 119.8 0.4
</TABLE>
CAPTIAL EXPENDITURES
AND DEPRECIATION
[LINE CHART]
$ Millions
<TABLE>
<CAPTION>
Capital Expenditures Depreciation
<S> <C> <C>
1992 72.2 58.9
1993 44.6 60.3
1994 61.5 58.2
1995 70.0 56.6
1996 73.4 54.1
1997 50.9 53.0
</TABLE>
COMMON STOCK QUARTERLY PRICE RANGE
[BAR CHART]
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1993
2nd 20.875 18.25
3rd 24.25 17.75
4th 24.0 19.125
1994
1st 30.0 23.25
2nd 30.875 25.625
3rd 30.125 25.25
4th 31.625 25.50
1995
1st 30.0 26.0
2nd 29.75 23.50
3rd 31.375 25.125
4th 26.75 23.375
1996
1st 28.375 24.375
2nd 28.75 22.5
3rd 25.125 18.125
4th 23.50 18.125
1997
1st 23.25 18.625
2nd 23.125 20.125
3rd 20.813 18.50
4th 24.188 20.375
</TABLE>
19
<PAGE> 22
The Geon Company and Subsidiaries
MANAGEMENT'S ANALYSIS - STATEMENTS OF INCOME
In 1997, the Company achieved new records in both resin and compound
shipments. Operating income, before a special charge for employee separation
costs, increased $37.1 million, or 124% over 1996 despite lower industry resin
margins (selling prices less the cost of key raw materials) in 1997 versus last
year. This improvement is the result of the Company's efforts to grow and expand
its value-added market segments, which consist of compounds and specialty
dispersion resins. In addition, the Company has further reduced the material and
operating costs of its resin operations with the April 1996 startup of its
LaPorte, Texas, vinyl chloride monomer (VCM) plant facility expansion and other
improvements. The acquisition of Synergistics Industries Limited (Synergistics)
was completed and became part of Geon's consolidated operations effective
October 31, 1997. While Synergistics had a strong two months of operations, its
impact on 1997 earnings was not significant, as a result of accounting
adjustments. We are confident that Synergistics will be accretive to earnings in
1998.
1997 INDUSTRY CONDITIONS - The Company believes that, based on the Society of
Plastics Industry's (SPI) December 1997 data, North American (U.S. and Canada)
producer shipments of polyvinyl chloride (PVC) resins (including exports) are
estimated to have increased 6% over 1996. In 1997, based on SPI data, export
shipments are estimated to have increased 33% over 1996. Domestic shipments
increased approximately 3% over last year.
Capacity utilization (shipments/capacity) for North America is estimated at
94% of effective capacity (88% of nameplate) in 1997. North American capacity
increased 7% over 1996.
The Company believes that average industry operating spreads for the
largest PVC resin market applications decreased approximately 1.0 cent per pound
in 1997 as compared with 1996. This decrease was the result of higher average
feedstock costs of approximately 20%, only partially offset by higher average
selling prices. In 1997, ethylene costs on average were approximately 15% higher
than in 1996. Average chlorine costs increased approximately one-third over 1996
levels.
1997 RESULTS OF OPERATIONS - The Company had sales of $1.25 billion for 1997, an
increase of 9% from 1996. The Company's unit shipment growth exceeded the
industry with increases in resin and compound of 7% and 17%, respectively. The
compound shipments increased 7%, excluding Synergistics. The Company's export
shipments in 1997 of both resin and VCM decreased from 1996 levels 24% and 88%,
respectively.
In 1997, the Company had operating income of $52 million and net income of
$22.5 million. Despite improved earnings, the Company continues to focus on cost
reductions and recorded a second-quarter pre-tax charge of $15 million ($9.2
million after tax) to cover costs associated with a voluntary early retirement
program. Construction was completed and a jointly owned chlor-alkali plant
commenced operations in November 1997. The plant will produce approximately
one-third of Geon's chlorine requirements at producer economics. During the
year, the Company further improved its resin production per unit of capacity and
compound manufacturing output per line hour. Further, the Company is pursuing
increased revenues in value-added market segments, which resulted in the
acquisition of Synergistics for approximately $86.5 million. In 1997,
employment, excluding the Synergistics acquisition, declined by 8%.
1996 INDUSTRY CONDITIONS - Total shipments were 11% higher than in 1995. The
effective capacity utilization rate in 1996 was 95%, or 1% higher than in 1995.
The 1996 average resin spreads were approximately 6.5 cents per pound below
1995.
1996 RESULTS OF OPERATIONS - The Company had sales of $1.14 billion for 1996, a
decrease of 10% from 1995. The Company's unit shipment growth exceeded the
industry with increases in resin and compound of 14% and 11%, respectively. The
unit sales growth was more than offset by decreases in resin selling prices.
Also, the VCM volume being exported substantially decreased from 1995.
In 1996, the Company had operating income of $29.9 million, down from
$127.2 million in 1995, excluding the 1995 special charge primarily associated
with the compound manufacturing reconfiguration. This decline in operating
income primarily resulted from the severe drop in industry resin spreads. The
lower 1996 resin spreads, as compared with 1995, decreased resin operating
income by approximately $110 million. During 1996, employment levels declined by
2%.
20
<PAGE> 23
The Geon Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
(In Millions, Except Per Share Data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $1,250.0 $1,144.4 $1,267.8
OPERATING COSTS AND EXPENSES:
Cost of sales .............................................. 1,133.6 1,061.8 1,090.2
Selling and administrative ................................. 49.4 52.7 50.4
Employee separation and plant phase-out .................... 15.0 -- 63.9
- --------------------------------------------------------------------------------------------------------------------
1,198.0 1,114.5 1,204.5
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME .............................................. 52.0 29.9 63.3
Interest expense .............................................. (11.9) (10.8) (6.2)
Interest income ............................................... .7 1.4 1.8
Other (expense) income, net ................................... (6.2) .2 (6.5)
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES .................................... 34.6 20.7 52.4
Income tax expense ............................................ (12.1) (8.5) (20.2)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME .................................................... $ 22.5 $ 12.2 $ 32.2
====================================================================================================================
EARNINGS PER COMMON SHARE
Basic ...................................................... $ .98 $ .51 $ 1.28
- --------------------------------------------------------------------------------------------------------------------
Diluted .................................................... $ .95 $ .50 $ 1.24
====================================================================================================================
Weighted average shares used to compute earnings per share:
Basic ...................................................... 22.9 23.9 25.2
Diluted .................................................... 23.6 24.6 25.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE> 24
The Geon Company and Subsidiaries
MANAGEMENT'S ANALYSIS - BALANCE SHEETS
The consolidated balance sheet at December 31, 1997, reflects the solid
financial position of The Geon Company.
ASSETS - Total assets increased by 18% to $872.9 million at December 31, 1997.
The change in assets is primarily related to the acquisition of Synergistics.
Other assets include the intangibles associated with the Synergistics
acquisition and the Company's equity investments. Included in the equity
investments is the Company's 50% participation in a chlor-alkali joint venture
and an Australian joint venture with Orica Limited (formerly ICI Australia). The
Australian joint venture commenced operations in August 1997, with the Company
contributing most of the assets of its Australian PVC subsidiary in exchange for
a 37% ownership interest.
LIABILITIES AND EQUITY - The Synergistics acquisition was funded with a
variable-rate short-term credit facility. At December 31, 1997, $83.9 million
was outstanding under this agreement. The Company intends to refinance the
Synergistics short-term credit facility with long-term debt prior to the
expiration of this credit agreement in June 1998. At December 31, 1997, the
Company had outstanding $125 million in debentures issued in 1995 and maturing
in 10 and 20 years from issuance. The debentures have received investment-grade
credit ratings. In addition, the Company has available unsecured lines of credit
and overdraft facilities totaling $193 million. Other non-current liabilities
include most of the Company's accrued environmental liabilities, including those
associated with Synergistics, as well as pension accruals. The stronger U.S.
dollar against the Canadian and Australian dollar resulted in unrecognized
translation losses included in other equity of $8.3 million. In 1997, the
Company returned $11.6 million to its stockholders in the form of dividends and
repurchased 0.2 million shares.
ENVIRONMENTAL MATTERS - The Company generates both hazardous and non-hazardous
wastes, the treatment, storage, transportation and disposal of which are
regulated by various governmental agencies. The Company has been designated a
potentially responsible party by the U.S. Environmental Protection Agency in
connection with one plant and various other sites. The Company has accrued $51
million to cover future environmental remediation expenditures and does not
believe any of the matters either individually or in the aggregate will have a
material adverse effect on its capital expenditures, earnings, cash flow or
liquidity. Included in the $51 million accrual are the estimated future costs to
remediate Synergistics' facilities to Geon's historical environmental operating
practices. Capital expenditures related to the limiting and monitoring of
hazardous and non-hazardous wastes amounted to $4 million, $3 million and $7
million for 1997, 1996 and 1995, respectively. The Company estimates capital
expenditures during 1998 of approximately $3 million to $5 million. Expenditures
related to the remediation of previously contaminated sites are projected to be
$25 million to $30 million over the next five years. The risk of additional
costs and liabilities is inherent in certain plant operations and certain
products produced at the Company's plants, as is the case with other companies
involved in the PVC industry. For additional discussion of environmental
matters, refer to Note K of the Notes to Consolidated Financial Statements.
YEAR 2000 - The Company has nearly completed the conversion of its primary
commercial and financial information systems to an enterprise-wide system which
is year 2000 compliant. The Company is continuing to evaluate other systems and
processes and may incur internal staff costs as well as consulting and other
expenses to upgrade or replace these systems. Future expenditures, beyond those
which the Company would incur in the normal course of maintaining and upgrading
its systems, are not projected to be material. Certain factors that may affect
these forward-looking comments are discussed on page 37.
22
<PAGE> 25
The Geon Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
(In Millions, Except Per Share Data) 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 49.1 $ 17.9
Accounts receivable ......................................................... 110.8 72.7
Inventories ................................................................. 122.4 105.1
Deferred income tax assets .................................................. 20.7 18.1
Prepaid expenses ............................................................ 10.5 20.0
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ..................................................... 313.5 233.8
Property, net ............................................................... 456.6 457.2
Deferred charges and other assets ........................................... 102.8 45.9
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS .......................................................... $872.9 $736.9
=============================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term bank debt ........................................................ $ 90.4 $ 18.9
Accounts payable ............................................................ 164.7 126.4
Accrued expenses ............................................................ 57.7 57.6
Current portion of long-term debt ........................................... .8 .7
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ................................................ 313.6 203.6
Long-term debt .............................................................. 136.4 137.2
Deferred income tax liabilities ............................................. 35.8 33.0
Post-retirement benefits other than pensions ................................ 86.2 86.7
Other non-current liabilities including pensions ............................ 77.1 54.0
- -------------------------------------------------------------------------------------------------------------
Total liabilities 649.1 514.5
- -------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, 10.0 shares authorized; no shares issued ................... -- --
Common stock, $0.10 par, authorized 100.0 shares; issued 27.9 shares ........ 2.8 2.8
Additional paid-in capital .................................................. 295.8 296.1
Retained earnings ........................................................... 73.3 62.4
Common stock held in treasury, 4.7 shares in 1997 and 4.6 shares in 1996 .... (118.0) (115.7)
Other ....................................................................... (30.1) (23.2)
- -------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ............................................... 223.8 222.4
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $872.9 $736.9
=============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE> 26
The Geon Company and Subsidiaries
MANAGEMENT'S ANALYSIS - CASH FLOWS
Net cash used by operating and investing activities was $17.3 million in
1997, and includes the acquisition of Synergistics at a net investment of $82.2
million. Excluding the Synergistics acquisition, net cash provided by net
operating and investing activities was $64.9 million, or an increase of $73.5
million over 1996. This increase was primarily due to higher earnings before
non-cash charges (employee separation and plant phase-out, depreciation and
amortization, and deferred income taxes) of $22.0 million and the repayment of
prior-year advances to equity affiliates. In addition, lower 1997 purchases of
property were offset by changes in operating working capital (accounts
receivable plus inventory less accounts payable).
In 1996, net cash used by operating and investing activities was $8.6
million, or $42.9 million lower than in 1995. The change was primarily due to
lower earnings before non-cash charges, partially offset by a decrease in
operating working capital. At December 31, 1996, operating working capital was
$18.7 million lower than in the previous year. Other uses in 1995 included
higher pension contributions, which totaled $23.6 million.
Financing activities in 1997 primarily reflect the funding of the purchase
price for the Synergistics acquisition and the payment of dividends. During the
three years ended December 31, 1997, the Company repurchased $85.4 million of
common stock. During 1995, the Company issued debentures and prepaid long-term
bank debt.
The Company believes it has sufficient funds to support dividends, debt
service requirements and normal capital expenditures under its existing working
capital facilities and other available permitted borrowings. The Company intends
to refinance the short-term credit facility used to initially fund the
Synergistics acquisition with long-term debt prior to the expiration of the
credit facility in June 1998. Certain factors that may affect these
forward-looking comments are discussed on page 37. Under an August 1996 Board of
Directors resolution, the Company is authorized to repurchase an additional 1.7
million shares of Geon common stock.
INFLATION - The Company employs a number of strategies to mitigate the impact of
inflation on financial results. A considerable amount of capital spending is
directed toward cost reduction and productivity improvement projects. Moreover,
through its research and development efforts, the Company is continually
exploring ways to reduce the cost of existing products and to develop new
products with improved performance characteristics that will command premium
prices. The Company is also reviewing and re-engineering its administrative
activities on an ongoing basis in order to streamline operations and reduce
costs.
24
<PAGE> 27
The Geon Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(In Millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $22.5 $12.2 $32.2
Adjustments to reconcile net income to net cash provided by operating activities:
Employee separation and plant phase-out ...................................... 15.0 -- 63.9
Depreciation and amortization ................................................ 53.3 54.1 56.6
Provision for deferred income taxes .......................................... 6.3 8.8 1.5
Changes in assets and liabilities:
Accounts receivable ....................................................... (2.8) 30.1 43.1
Inventories ............................................................... (4.3) (12.0) (18.1)
Accounts payable .......................................................... (2.5) .6 (43.3)
Accrued expenses .......................................................... (6.0) (2.5) (3.9)
Income taxes payable/receivable, net ...................................... 4.2 (2.1) (18.0)
Other ..................................................................... 12.3 (4.6) (9.6)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................... 98.0 84.6 104.4
INVESTING ACTIVITIES
Business acquisition, net of cash acquired of $4.3 .............................. (82.2) -- --
Purchases of property ........................................................... (50.9) (73.4) (70.0)
Investment in, advances to or repayments from equity affiliates ................. 17.8 (19.8) (.1)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING AND INVESTING ACTIVITIES ............... (17.3) (8.6) 34.3
FINANCING ACTIVITIES
Increase (decrease) in short-term debt .......................................... 72.0 9.8 (1.4)
Proceeds from long-term debt .................................................... -- -- 125.0
Repayment of long-term debt ..................................................... (4.0) (.7) (80.0)
Net proceeds from issuance of common stock ...................................... .3 .4 1.6
Repurchase of common stock ...................................................... (4.1) (32.4) (48.9)
Dividends ....................................................................... (11.6) (12.1) (12.7)
Other ........................................................................... -- -- (5.0)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ............................. 52.6 (35.0) (21.4)
Effect of exchange rate changes on cash ......................................... (4.1) .4 .7
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 31.2 (43.2) 13.6
Cash and cash equivalents at beginning of year .................................. 17.9 61.1 47.5
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................................ $49.1 $17.9 $61.1
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
25
<PAGE> 28
The Geon Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Common
Shares Additional Stock
(Dollars in Millions, Except Per Share Data; Common Held in Common Paid-In Retained Held in
Shares in Thousands) Shares Treasury Total Stock Capital Earnings Treasury Other
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 ........................ 27,832 1,513 $240.2 $2.8 $ 266.7 $42.8 $(42.2) $(29.9)
Net income ....................................... 32.2 32.2
Stock-based compensation and exercise of options . 45 (160) 9.0 7.2 4.5 (2.7)
Repurchase of common stock ....................... 1,844 (48.9) (48.9)
Adjustment of minimum pension liability .......... (13.5) (13.5)
Translation adjustment ........................... 2.6 2.6
Cash dividends ($.50 per share) .................. (12.7) (12.7)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 ........................ 27,877 3,197 $208.9 $2.8 $273.9 $62.3 $(86.6) $(43.5)
Net income ....................................... 12.2 12.2
Stock-based compensation and exercise of options . (107) 3.0 (3.7) 3.3 3.4
Repurchase of common stock ....................... 1,469 (32.4) (32.4)
Adjustment of minimum pension liability .......... 16.4 16.4
Adjustment related to step-up in tax basis ....... 25.9 25.9
Translation adjustment ........................... .5 .5
Cash dividends ($.50 per share) .................. (12.1) (12.1)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 ........................ 27,877 4,559 $222.4 $2.8 $296.1 $62.4 $(115.7) $(23.2)
Net income ....................................... 22.5 22.5
Stock-based compensation and exercise of options . (59) 1.9 (.3) 1.8 .4
Repurchase of common stock ....................... 200 (4.1) (4.1)
Adjustment of minimum pension liability .......... 1.0 1.0
Translation adjustment ........................... (8.3) (8.3)
Cash dividends ($.50 per share) .................. (11.6) (11.6)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 ........................ 27,877 4,700 $223.8 $2.8 $295.8 $73.3 $(118.0) $(30.1)
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
26
<PAGE> 29
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. THE COMPANY
The Geon Company (Company or Geon), together with its subsidiaries, is one
of the leading North American producers and marketers of polyvinyl chloride
(PVC) resins and is the largest producer and marketer of PVC compounds. The
Company also produces and markets vinyl chloride monomer (VCM), an intermediate
precursor to PVC. The Company operates primarily in the United States and Canada
in one business segment. Sales include exports from North America of $36.2
million, $85.7 million and $183.0 million in 1997, 1996 and 1995, respectively.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany transactions are eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of less than three months to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Most domestic
inventories are valued by the last-in, first-out (LIFO) cost method. Inventories
not valued by the LIFO method are valued principally by the average cost method.
PROPERTY AND DEPRECIATION
Property, plant and equipment is recorded at cost, net of depreciation and
amortization computed principally using the straight-line method over the
estimated useful life of the asset, ranging from 3 to 15 years for machinery and
equipment and up to 40 years for buildings. Property, plant and equipment is
generally depreciated on accelerated methods for income tax purposes. Repairs
and maintenance costs are expensed as incurred, except for plant turnaround
costs, which are deferred and amortized over the period benefited. At December
31, 1997, and 1996, unamortized turnaround costs were $1.9 million and $6.4
million, respectively.
GOODWILL
The excess of the purchase price paid over the fair value of the net assets
of businesses acquired is recorded as goodwill and amortized over a 35-year
period on a straight-line basis. Goodwill and other long-lived assets are
reviewed for impairment. Measurement of impairment may be based upon appraisals,
market values of similar assets or discounted cash flows.
FINANCIAL INSTRUMENTS
The fair values of cash equivalents and short-term bank debt approximate
their carrying amount because of the short maturity of those instruments. The
fair values of long-term debt and debentures are estimated based on the present
value of the underlying cash flows discounted at the Company's estimated
borrowing rate. At December 31, 1997 and 1996, the fair value of long-term debt,
including debentures, approximates its carrying value.
The Company periodically enters into interest rate exchange and foreign
currency forward contracts to manage exposure to foreign currency and interest
rate fluctuations. The interest rate exchange agreements generally do not
qualify for hedge accounting treatment and, accordingly, are carried at market
value, with the related gains and losses recognized immediately in income. Gains
and losses on foreign currency contracts qualifying as hedges are deferred and
recognized at the termination or settlement of the underlying hedged item. Gains
and losses on currency contracts that do not qualify for hedge accounting are
recognized immediately in income.
REVENUE RECOGNITION
The Company recognizes revenues at the point of passage of title, which is
generally at the time of shipment.
ENVIRONMENTAL COSTS
The Company expenses, on a current basis, recurring costs associated with
managing hazardous substances and pollution in ongoing operations. Costs
associated with the remediation of environmental contamination are accrued when
it becomes probable that a liability has been incurred and the Company's
proportionate share of the amount can be reasonably estimated.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs, which were $17.1 million, $17.5 million and
$18.0 million in 1997, 1996 and 1995, respectively, are charged to expense as
incurred.
FOREIGN CURRENCY TRANSLATION
Income statement items are translated at average currency exchange rates.
Transaction gains and losses are included in determining net income. All balance
sheet accounts of foreign subsidiaries and equity investees are translated at
the current exchange rate as of the end of the period. The Company's share of
the resulting translation adjustment is recorded as part of the other component
of stockholders' equity. The cumulative unrecognized translation adjustment loss
was $27.0 million, $18.6 million and $19.1 million at December 31, 1997, 1996
and 1995, respectively.
27
<PAGE> 30
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EARNINGS PER COMMON SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," which replaced the computation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Earnings per share for all prior periods have been restated to conform with the
new standard.
Basic earnings per share are computed using the weighted average number of
shares of common stock outstanding during the period. Earnings per share on a
diluted basis also reflect the potential dilutive effect of stock options and
restricted stock awards and other incentives.
STOCK OPTIONS
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
AUSTRALIAN JOINT VENTURE
In August 1997, the Company entered into a joint venture resulting from the
merger of its Australian PVC operations with the operations of an unrelated
party. Geon contributed certain net assets, including inventory and property and
equipment, in exchange for 37% ownership in the joint venture. This joint
venture is accounted for under the equity method. Prior to the formation of the
joint venture, Geon's Australian PVC operations had assets of approximately $44
million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income," which requires that an enterprise
classify items of other comprehensive income (such as foreign currency
translation adjustments) in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The
Company will comply with the provisions of this statement upon its required
adoption in 1998.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which establishes new
standards for the way public business enterprises report information about
operating segments in annual financial statements, and which requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is currently studying the effects of adoption of this
statement, which will be effective for the Company beginning on December 31,
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts for 1996 and 1995 have been reclassified to conform to the
1997 presentation.
NOTE C. BUSINESS ACQUISITION
Effective October 31, 1997, the Company acquired substantially all of the
outstanding capital stock of Synergistics Industries Limited
(Synergistics) of Mississauga, Ontario, Canada, a manufacturer of plastic
compounds and materials. The acquisition is being accounted for under the
purchase method of accounting and, accordingly, the purchase cost of
approximately $86.5 million, including related acquisition costs, has initially
been allocated to assets acquired and liabilities assumed based upon their
estimated fair values. The excess of the purchase price over the estimated fair
value of net assets acquired of $63.6 million has been recorded as goodwill. The
acquisition was initially financed with a short-term credit facility (See
Financing Arrangements). The operating results of Synergistics have been
included in the consolidated statement of income from the date of acquisition.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and Synergistics as if the
acquisition had occurred at the beginning of 1996, with pro forma adjustments to
reflect the amortization of goodwill, interest expense on acquisition debt and
other adjustments, together with the related income tax effects. The pro forma
financial information is not necessarily indicative of the results of operations
if the acquisition had actually occurred at the beginning of the periods
presented.
<TABLE>
<CAPTION>
(In Millions, Except Per Share Data) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Sales .................................... $1,454.0 $1,312.3
Operating income ......................... 70.6 36.8
- ----------------------------------------------------------------
Net income ............................... 23.5 11.9
- ----------------------------------------------------------------
Basic earnings per common share .......... $ 1.03 $ .50
Diluted earnings per common share ........ 1.00 .48
================================================================
</TABLE>
28
<PAGE> 31
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D. FINANCING ARRANGEMENTS
Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1997, are as follows: 1998--$0.8 million; 1999--$0.8 million;
2000--$1.8 million; 2001--$0.3 million; and 2002--$0.5 million. Interest paid
amounted to $12.5 million, $10.9 million and $7.6 million during 1997, 1996 and
1995, respectively. At December 31, long-term debt consisted of the following:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
6.875% Debentures (maturing 2005) .......... $ 75.0 $ 75.0
7.500% Debentures (maturing 2015) .......... 50.0 50.0
6.660% Industrial revenue bonds
(maturing 2009) ......................... 9.3 9.9
Other ...................................... 2.9 3.0
- ----------------------------------------------------------------
137.2 137.9
- ----------------------------------------------------------------
Less current portion ....................... .8 .7
- ----------------------------------------------------------------
$136.4 $137.2
================================================================
</TABLE>
The Company has obtained a variable-rate short-term credit facility to
temporarily fund the acquisition of Synergistics. At December 31, 1997, $83.9
million was outstanding under this agreement. The Company intends to fund the
acquisition with long-term debt prior to the expiration of this credit agreement
in June 1998.
The Company had the following unsecured lines of credit, all of which are
short term except for the revolving credit facility that expires in the year
2000.
<TABLE>
<CAPTION>
Number of Permitted
(Dollars in Millions) Lines Borrowings
- ---------------------------------------------------------------
<S> <C> <C>
U.S. (including the $100 revolving
credit facility) ..................... 7 $160
Canada (includes acquisition facility) .. 4 122
- ---------------------------------------------------------------
$282
===============================================================
</TABLE>
At December 31, 1997, approximately $193 million of the credit and
overdraft facilities was available. The weighted-average Canadian interest rate
on short-term borrowings was 4.1% at December 31, 1997. The Company's bank
agreements contain restrictive covenants and require the maintenance of
financial ratios. No specific restrictions have been placed on dividends or
share repurchases.
NOTE E. LEASING ARRANGEMENTS
The Company leases warehouse space, a production facility, machinery and
equipment, automobiles and railcars under operating leases with remaining terms
up to 12 years. Rent expense amounted to $32.1 million, $23.8 million and $16.4
million during 1997, 1996 and 1995, respectively. The future minimum lease
payments under non-cancelable operating leases with initial lease terms in
excess of one year at December 31, 1997, are as follows: 1998--$29.2 million;
1999--$26.3 million; 2000--$21.4 million; 2001--$150.4 million; 2002--$6.1
million; thereafter--$65.1 million.
The Company leases a VCM production facility and related equipment under an
operating lease that expires in 2001. Under the terms of the lease, the Company
has options to renew the lease for five one-year periods and may purchase the
VCM facility and equipment at the then- fair value at any time during the lease
term. The lease provides for a substantial residual value guarantee by the
Company at the termination of the lease. During 1996, the Company amended the
lease agreement to include additional equipment for which the Company has also
assumed a $45 million construction performance obligation. Accumulated
construction in process was $38.4 million at December 31, 1997.
NOTE F. SALE OF ACCOUNTS RECEIVABLE
The Company has an agreement with a bank to sell an undivided interest in
certain trade accounts receivable under which, on an ongoing basis, a maximum of
$85.0 million can be sold from a designated pool subject to limited recourse.
Payments are collected from the sold accounts receivable; the collections are
reinvested in new accounts receivable for the buyers; and a yield based on
defined short-term market rates is transferred to the buyers. Buyers have
collection rights to recover payments from the receivables in the designated
pool. Sales of accounts receivable averaged $79.9 million, $40.5 million and
$68.7 million in 1997, 1996 and 1995, respectively. Accounts receivable at
December 31, 1997, and 1996, are net of $60.0 million and $68.1 million,
respectively, representing the interests in receivables sold under these
agreements. The discount from the Company's sale of receivables is included in
"Other expense, net" in the Consolidated Statements of Income.
29
<PAGE> 32
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G. INVENTORIES
<TABLE>
<CAPTION>
December 31,
(In Millions) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
At FIFO or average cost, which approximates
current costs:
Finished products and in process ........ $107.8 $102.2
Raw materials and supplies .............. 48.7 36.3
- ----------------------------------------------------------------
156.5 138.5
Reserve to reduce certain inventories to
LIFO basis .............................. (34.1) (33.4)
- ----------------------------------------------------------------
$122.4 $105.1
================================================================
</TABLE>
Approximately 62% and 67% of the pre-LIFO inventory amounts have been
valued by the LIFO method at December 31, 1997, and 1996, respectively.
NOTE H. PROPERTY
<TABLE>
<CAPTION>
December 31,
(In Millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Land ..................................... $ 7.9 $ 7.9
Buildings ................................ 151.2 146.4
Machinery and equipment .................. 1,014.2 1,025.6
- -----------------------------------------------------------------
1,173.3 1,179.9
Less accumulated depreciation and
amortization .......................... 716.7 722.7
- -----------------------------------------------------------------
$ 456.6 $ 457.2
=================================================================
</TABLE>
Capital expenditures for 1997, 1996 and 1995 include $2.4 million, $1.1
million and $1.6 million, respectively, of capitalized interest costs.
NOTE I. OTHER BALANCE SHEET LIABILITIES
<TABLE>
<CAPTION>
(In Millions) Accrued Expenses Non-Current Liabilities
- ------------------------------------------------------------------------
December 31, December 31,
1997 1996 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employment costs ............ $22.6 $21.0 $ 4.6 $ 5.9
Environmental ............... 7.3 6.0 43.7 21.2
Plant utilities ............. 1.4 1.4 3.2 4.6
Taxes, other than income .... 13.1 10.8 -- --
Post-retirement benefits .... 7.7 7.7 -- --
Pension ..................... -- -- 20.1 16.5
Other ....................... 5.6 10.7 5.5 5.8
- ------------------------------------------------------------------------
$57.7 $57.6 $77.1 $54.0
========================================================================
</TABLE>
NOTE J. EMPLOYEE BENEFIT PLANS
PENSION BENEFIT PLANS
The Company has two defined benefit pension plans covering substantially
all domestic employees. The plan covering salaried employees generally provides
benefit payments using a formula that is based on employee compensation and
length of service. The plan covering union wage employees generally provides
benefit payments of stated amounts for each year of service. Annual
contributions to the plans are sufficient to satisfy legal requirements. Plan
assets consist principally of corporate and government obligations and funds
invested in equities. Annual pension expense included the following components:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned ... $ 4.1 $ 4.0 $ 2.8
Interest cost ...................... 19.5 18.8 18.0
Income on plan assets .............. (36.4) (33.4) (33.4)
Net amortization and deferral ...... 20.6 22.3 22.7
- -----------------------------------------------------------------
Pension expense, net ............... $ 7.8 $ 11.7 $ 10.1
=================================================================
</TABLE>
The following table sets forth as of December 31, 1997, and 1996, the
status of the Company's funded defined benefit pension plans. This table
excludes accrued pension costs of $8.3 million and $2.9 million for unfunded,
non-qualified pension plans and the related projected benefit obligations (PBO)
of $9.7 million and $4.1 million at December 31, 1997, and 1996, respectively.
<TABLE>
<CAPTION>
Change
1997 vs.
(In Millions) 1997 1996 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Plan assets at fair value ......... $241.8 $212.2 $29.6
Accumulated benefit obligation
(ABO) .......................... 256.7 234.2 22.5
- -----------------------------------------------------------------
Plan assets less than ABO ......... $ 14.9 $ 22.0 $ 7.1
=================================================================
</TABLE>
At December 31, 1997, the plan assets were $241.8 million, which represents
an increase of $29.6 million over year-end 1996. The growth in these assets was
the result of actions taken by the Company and favorable security markets.
Income earned on these assets was $19.6 million, which represents a return of
18% in 1997. The Company also made contributions in 1997 of $11.0 million. Over
the last three years, the Company's contributions have totaled $46.6 million, or
$17.0 million above normal pension expense recognized during this period. From
plan assets, benefit payments of $17.7 million were made in 1997.
30
<PAGE> 33
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Change
1997 vs.
(In Millions) 1997 1996 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
ABO ................................ $256.7 $234.2 $22.5
Effect of projected salary increases 27.7 27.6 .1
- ------------------------------------------------------------------
PBO ................................ $284.4 $261.8 $22.6
- ------------------------------------------------------------------
Plan assets less than PBO .......... $ 42.6 $ 49.6 $ 7.0
Unamortized balances:
Transitional liability .......... (5.6) (6.9) (1.3)
Prior service cost .............. (4.4) (5.7) (1.3)
Net actuarial loss .............. (30.3) (38.0) (7.7)
Adjustments required to recognize
minimum liability ............ 9.5 14.6 5.1
- ------------------------------------------------------------------
Accrued pension cost ............... $ 11.8 $ 13.6 $ 1.8
==================================================================
</TABLE>
Major assumptions used in accounting for the Company's defined benefit
pension plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for
obligations ............ 7.2% 7.5% 7.1%
Rate of increase in
compensation levels .... 4.0%-7.0% 4.0%-7.0% 4.0%-7.0%
Expected long-term rate of
return on plan assets .. 9.5% 9.5% 9.0%
================================================================
</TABLE>
A curtailment loss of $10.7 million was recorded in 1997 relating to a
voluntary retirement program. The curtailment loss is included in the employee
separation charge of $15.0 million recognized in the consolidated statement of
income. At December 31, 1997, and 1996, $2.3 million and $3.3 million,
respectively, were recorded as the cumulative additional minimum pension
liability and included in the other component of stockholders' equity as a
reduction.
RETIREMENT SAVINGS PLAN
The Company maintains a voluntary retirement savings plan (RSP) for most
employees. Under provisions of the RSP, eligible employees can receive Company
matching contributions up to the first 6% of their eligible earnings. For 1997,
1996 and 1995, Company contributions amounted to $4.7 million each year. In
addition, the Company makes profit-sharing payments to the RSP for those
employees not covered by management incentive compensation plans. In 1997, 1996
and 1995, these profit-sharing payments totaled $.8 million, $1.0 million and
$2.5 million, respectively.
POST-RETIREMENT BENEFIT PLANS
The Company sponsors several unfunded defined benefit post-
retirement plans that provide certain health care and life insurance benefits to
eligible employees. The health care plans are contributory, with retiree
contributions adjusted periodically, and contain other cost-sharing features
such as deductibles and coinsurance. The life insurance plans are generally
non-contributory. Below is the combined status of the plans at December 31:
<TABLE>
(In Millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit
obligation (APBO):
Retirees ................................. $83.3 $81.4
Fully eligible active plan participants .. 4.4 3.5
Other active plan participants ........... 6.8 6.6
Unrecognized gain (loss) ................. (.6) 2.9
- -----------------------------------------------------------------
$93.9 $94.4
=================================================================
</TABLE>
The annual post-retirement benefit expense for each of the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned .... $ .4 $ .4 $ .3
Interest cost on APBO ............... 6.5 6.5 7.1
- ----------------------------------------------------------------
Post-retirement expense, net ........ $6.9 $6.9 $7.4
Payment of claims ................... $7.4 $7.1 $7.4
================================================================
</TABLE>
At December 31, 1997, the average assumed rate of increase in the per
capita cost of covered benefits was 8% for 1998 and is assumed to decrease
gradually to 5% in 2005 and thereafter. An increase in the assumed health care
cost trend rates by 1% in each year would increase the APBO as of December 31,
1997, by $4.3 million, and the aggregate of the service and interest cost
components of net periodic post-retirement benefit cost for 1997 by $0.3
million.
The discount rates used in determining the APBO at December 31, 1997, and
1996, were 7.2% and 7.5%, respectively. The decrease in the discount rate in
1997 from 1996 increased the APBO at December 31, 1997, by $2.8 million.
31
<PAGE> 34
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K. COMMITMENTS
ENVIRONMENTAL
The Company has been notified by the U.S. Environmental Protection Agency,
a state environmental agency or a private party that it may be a potentially
responsible party (PRP) in connection with seven active and inactive
non-Company-owned sites. While government agencies frequently claim PRPs are
jointly and severally liable at these sites, in the Company's experience,
interim and final allocation of liability costs are generally made based on the
relative contribution of waste. The Company believes that it has potential
continuing liability with respect to only four such sites. In addition, the
Company initiates corrective and preventive environmental projects of its own to
ensure safe and lawful activities at its operations. The Company believes that
compliance with current governmental regulations at all levels will not have a
material adverse effect on its financial condition.
Based on estimates prepared by the Company's environmental
engineers and consultants, the Company at December 31, 1997, had accruals
totaling $51.0 million to cover future environmental expenditures related to
previously contaminated sites. Of this accrued amount, $18.2 million is
attributable to future remediation expenditures at the Calvert City, Kentucky,
site and less than $0.1 million is attributable to off-site environmental
remediation liabilities, including the four sites mentioned above. An additional
$25.0 million is attributable to the properties acquired as part of the
Synergistics acquisition, and is related to anticipated costs to remediate these
facilities to Geon's historical environmental operating practices.
The remaining amount is primarily attributable to other environmental
remediation projects at nine other Company-owned facilities. At Calvert City,
consent orders have been signed with both the U.S. Environmental Protection
Agency and the Commonwealth of Kentucky Department of Environmental Protection,
which provide for a sitewide remediation program primarily to remove ethylene
dichloride from groundwater, the cost of which has been accrued. The Company
expended $5.0 million, $6.1 million and $3.0 million during 1997, 1996 and 1995,
respectively, on the remediation of such sites.
GUARANTEES
At December 31, 1997, the Company, through an indemnification agreement
with BFG, is contingently liable through December 31, 2001, with respect to
guarantees of securities of other issuers in the amount of $47.5 million, for
which the Company would be reimbursed by Occidental Chemical Holding Corporation
for any amounts paid under the guarantees.
The Company has a 50% participation in a joint venture operating a
chlor-alkali plant. The Company has guaranteed $97.5 million of the joint
venture's outstanding senior secured notes, maturing in 2017.
OTHER
The Company and its subsidiaries have commitments for a substantial portion
of its key raw material feedstocks and energy incidental to the ordinary course
of business. The Company is also from time to time subject to routine litigation
incidental to its business. The Company believes that any liability that may
finally be determined would not have a material adverse effect on its financial
condition.
NOTE L. OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Currency exchange (loss) gain ....... $(2.2) $1.6 $ (.9)
Income from equity affiliates ....... .4 1.0 .1
Discount on sale of trade receivables (5.0) (2.4) (4.5)
Other income (expense), net ......... .6 -- (1.2)
- ---------------------------------------------------------------------------------------------------------------------------
$(6.2) $ .2 $(6.5)
===========================================================================================================================
</TABLE>
NOTE M. INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Domestic ........................... $24.9 $(8.9) $40.1
Foreign ............................ 9.7 29.6 12.3
- -----------------------------------------------------------------
$34.6 $20.7 $52.4
=================================================================
</TABLE>
A summary of income tax expense (benefit) is as follows:
<TABLE>
(In Millions) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ........................ $ .4 $(10.4) $10.0
State .......................... (1.1) -- 2.0
Foreign ........................ 6.5 10.1 6.7
- -----------------------------------------------------------------
Total current ............... 5.8 (.3) 18.7
Deferred:
Federal ........................ 6.9 8.8 4.0
State .......................... 1.8 (.4) .5
Foreign ........................ (2.4) .4 (3.0)
- -----------------------------------------------------------------
Total deferred .............. 6.3 8.8 1.5
- -----------------------------------------------------------------
Total tax expense ........... $12.1 $ 8.5 $20.2
=================================================================
</TABLE>
32
<PAGE> 35
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The income tax rate for financial reporting purposes varied from the
federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate ............ 35.0% 35.0% 35.0%
Increase (decrease):
State tax net of federal benefit .......... 1.5 (1.5) 3.1
Differences in rates of foreign
operations .............................. 2.0 .8 (1.1)
Foreign withholding accrued on
unremitted earnings ..................... 1.1 4.7 2.0
Adjust prior year's income tax liability .. (5.9) -- --
Other, net ................................ 1.3 2.1 (.5)
- ---------------------------------------------------------------------------
Effective income tax rate ................. 35.0% 41.1% 38.5%
===========================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
at December 31 are as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation .............. $ 97.6 $ 84.0
Other, net .............................. 16.7 19.1
- ------------------------------------------------------------------
Total deferred tax liabilities ....... 114.3 103.1
- ------------------------------------------------------------------
Deferred tax assets:
Post-retirement benefits other than pensions 32.9 33.1
Employment cost and pension ............. 9.3 5.9
Environmental ........................... 16.7 9.5
Net operating loss carryforward ......... 13.6 8.1
LIFO inventory .......................... 5.0 3.3
Intangibles ............................. 4.0 5.8
Alternative minimum tax credit
carryforward .......................... 3.9 5.9
Foreign tax credit carryforward ......... 6.0 4.3
Foreign tax valuation allowance ......... (6.0) (4.3)
State taxes ............................. .5 2.3
Other, net .............................. 13.3 14.3
- ------------------------------------------------------------------
Total deferred tax assets ............ 99.2 88.2
Net deferred tax liabilities ......... $ 15.1 $ 14.9
==================================================================
</TABLE>
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax assets will not be realized. As
realization of the foreign tax credit carryforwards is considered uncertain, a
valuation allowance has been recorded. The Company believes that the timing of
the reversal of its deferred tax liabilities, principally relating to
accelerated depreciation, will be sufficient to fully recognize its remaining
deferred tax assets. In particular, the turnaround of the largest deferred tax
asset, related to accounting for post-retirement benefits other than pensions,
will occur over an extended period of time and, as a result, will be realizable
for tax purposes over those future periods.
During 1996 the Company finalized the effects of the step-up in the tax
basis of its assets as a result of formation and recorded adjustments to
deferred taxes and equity of $25.9 million.
The Company has provided for U.S. federal and foreign withholding tax on
$24.1 million, or 19% of foreign subsidiaries' undistributed earnings, as of
December 31, 1997. Regarding the undistributed earnings on which no federal and
foreign withholding has been provided, earnings are intended to be reinvested
indefinitely. It is not practical to determine the amount of income tax
liability that would result had such earnings been actually repatriated. On
repatriation, certain foreign countries impose withholding taxes. The amount of
foreign withholding taxes that would be payable on remittance of the entire
amount of undistributed earnings would approximate $7.3 million.
During 1997, 1996 and 1995, the Company paid income taxes net
of refunds of $1.9 million, $2.2 million and $37.9 million, respectively. The
Company has a net operating loss carryforward of approximately $38.7 million, of
which $12.4 million will expire in 2011 and the remaining $26.3 million will
expire in 2012. In addition, the Company has foreign tax carryforwards of $6.0
million, which will expire from 1999 through 2002, and an alternative minimum
tax credit carryforward of $3.9 million.
NOTE N. EMPLOYEE SEPARATION AND PLANT PHASE-OUT CHARGES
In 1997, the Company recorded a $15.0 million before-tax charge, primarily
for employee separation costs related to position reductions at its
headquarters. Of this, $10.7 million related to enhanced retirement pension
benefits and the balance to employee separation and associated costs. In
addition, in 1995, the Company recorded a $63.9 million before-tax charge,
primarily related to the reconfiguration of the manufacturing of vinyl compound
products.
33
<PAGE> 36
The Geon Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O. STOCK OPTION AND STOCK INCENTIVE PLANS
The 1995 Incentive Stock Plan provides for the awarding or granting of
options to purchase common stock of the Company. Generally, options granted
become exercisable at the rate of 35% after one year, 70% after two years and
100% after three years. Certain options are fully exercisable after grant. The
term of each option cannot extend beyond 10 years from the date of grant.
Certain options carry with them limited stock appreciation rights exercisable in
the event of a change in control. All options under the plans have been granted
at 100% of market (as defined) on the date of the grant. In addition, certain
senior-level executives received special awards in connection with the formation
of the Company and the initial public offering (IPO) of stock on April 29, 1993,
which included stock options with rights to purchase 1.2 million shares. These
awards became exercisable four years after grant date. The Company also has a
stock plan for non-employee directors under which options are granted.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted Average
(In Thousands, Except Per Share Data) Shares Exercise Price
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1995 .......... 1,818 $19.05
Issued .................................. 321 26.73
Exercised ............................... 80 18.34
Canceled ................................ 4 26.40
- ------------------------------------------------------------------------
Outstanding at January 1, 1996 .......... 2,055 20.27
Issued .................................. 284 25.98
Exercised ............................... 21 18.57
Canceled ................................ 3 26.85
- ------------------------------------------------------------------------
Outstanding at January 1, 1997 .......... 2,315 20.97
Issued .................................. 318 20.07
Exercised ............................... 51 20.51
Canceled ................................ 48 23.91
- ------------------------------------------------------------------------
Outstanding at December 31, 1997 ........ 2,534 $20.81
- ------------------------------------------------------------------------
Exercisable at December 31, 1997
Exercise prices: $14.92-$30.13 ....... 2,048 $20.35
Weighted average remaining life ...... 7 years
========================================================================
</TABLE>
Under the Company's incentive programs, senior executives and other key
employees are also eligible annually to receive bonus awards, consisting of
stock or a combination of stock and cash. Under these plans, performance
measures are established and used to determine the payout, if any.
At December 31, 1997, restricted shares totaling 0.4 million were
outstanding. The restrictions generally lapse over one to three years, with some
subject to acceleration based on the Company's stock price performance. The
unamortized portion of compensation expense related to these stock awards
included in other component of stockholders' equity was $0.8 million and $1.3
million at December 31, 1997, and 1996, respectively.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its incentive plans.
Accordingly, no compensation cost has been recognized for its fixed option plans
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. Had the compensation cost
for the stock options granted in 1997 and 1996 been determined based upon the
fair value at the grant date, consistent with the fair value method of FASB
Statement No. 123, "Accounting for Stock-Based Compensation," the Company's net
earnings and earnings per share would have been reduced by $2.1 million ($.09
per share) in 1997 and $0.7 million ($.03 per share) in 1996 on a diluted basis.
The impact in 1995 was not material. The fair value of the stock options at the
grant date was estimated using the Black-Scholes option pricing model with an
assumed risk-free interest rate of 5.4% and 5.7%, an assumed dividend yield of
2.5% and 2.0%, and stock price volatility of 28.5% and 29.8% for 1997 and 1996,
respectively. A seven-year weighted average life was used for both 1997 and
1996.
The compensation cost related to the stock portion of the annual incentive
plans, three-year incentive plan and amortization of restricted stock awarded at
the IPO amounted to $2.3 million, $3.0 million and $4.2 million in 1997, 1996
and 1995, respectively.
At December 31, 1997, 3.1 million shares were reserved for future issuance
upon exercise of stock options granted or were available for future grants under
the Company's incentive plans.
34
<PAGE> 37
The Geon Company and Subsidiaries
35
QUARTERLY DATA (UNAUDITED)
35
<TABLE>
<CAPTION>
1997 QUARTERS 1996 Quarters
----------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) FOURTH THIRD SECOND FIRST Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES ................................ $312.3 $303.7 $333.0 $301.0 $279.1 $307.8 $311.8 $245.7
Employee separation .................. -- -- 15.0 -- -- -- -- --
Operating income (loss) .............. 11.4 18.3 14.5 7.8 4.6 13.4 18.4 (6.5)
Net income (loss) .................... 3.5 10.6 6.1 2.3 1.6 6.1 10.1 (5.6)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Basic ............................. $ .15 $ .47 $ .27 $ .10 $ .07 $ .26 $ .41 $ (.23)
Diluted ........................... .15 .45 .26 .10 .07 .25 .40 (.23)
DIVIDEND PAID PER COMMON SHARE ....... .125 .125 .125 .125 .125 .125 .125 .125
COMMON STOCK PRICE
High .............................. $24 3/16 $20 13/16 $ 23 1/8 $23 1/4 $23 1/2 $25 1/8 $28 3/4 $28 3/8
Low ............................... 20 3/8 18 1/2 20 1/8 18 5/8 18 1/8 18 1/8 22 1/2 24 3/8
</TABLE>
1997: Second-quarter results include an after-tax charge of $9.2 million ($15.0
million before tax) for employee separation costs.
35
<PAGE> 38
The Geon Company and Subsidiaries
SELECTED SIX-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
Pro Forma
(Unaudited)(1) Historical
(In Millions, Except Per Share Data) 1997 1996 1995 1994 1993 1992 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES ....................................... $ 1,250.0 $ 1,144.4 $ 1,267.8 $ 1,208.6 $ 972.5 $ 894.3 $ 982.8 $ 969.9
Employee separation and plant phase-out ..... 15.0 -- 63.9 -- 9.7 14.4 9.7 16.0
Operating income (loss) ..................... 52.0 29.9 63.3 102.1 14.5 (22.9) 18.6 (19.3)
Income (loss) before extraordinary item and
cumulative effect of change in method of
accounting ............................... 22.5 12.2 32.2 57.9 2.2 (22.1) 6.0 (15.0)
Extraordinary loss on early extinguishment
of debt .................................. -- -- -- (1.3) -- -- -- --
Cumulative effect of change in method of
accounting ............................... -- -- -- -- (1.1) (57.5) (1.1) (70.4)
NET INCOME (LOSS) ........................... 22.5 12.2 32.2 56.6 1.1 (79.6) 4.9 (85.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Before extraordinary item and change in
method of accounting ..................... $ .98 $ .51 $ 1.28 $ 2.11 $ .08 $ (.84)
Extraordinary loss .......................... -- -- -- (.05) -- (2.19)
Change in method of accounting .............. -- -- -- -- (.04) --
NET INCOME (LOSS)(2) ........................ .98 .51 1.28 2.06 .04 (3.03)
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
BEFORE EXTRAORDINARY ITEM AND CHANGE IN
METHOD OF ACCOUNTING .................. $ .95 $ .50 $ 1.24 $ 2.08 $ .08 $ (.84)
Extraordinary loss ....................... -- -- -- (.05) -- (2.19)
Change in method of accounting ........... -- -- -- -- (.04) --
NET INCOME (LOSS)(3) ........................ .95 .50 1.24 2.03 .04 (3.03)
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE .................. .50 .50 .50 .50 .375 --
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA At December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Total assets ................................ $ 872.9 $ 736.9 $ 752.0 $ 791.7 $ 721.2 $ 686.9
Long-term debt .............................. 136.4 137.2 137.9 93.0 88.3 18.7
</TABLE>
(1)On February 11, 1993, the Company was formed as a wholly owned subsidiary of
The BFGoodrich Company (BFG) in preparation for the IPO of its common stock on
April 29, 1993. BFG transferred to the Company substantially all of the
operating assets and liabilities of its Geon Vinyl Division, other than the net
assets of the chlor-alkali, ethylene and utility operations of BFG located
principally at Calvert City, Kentucky (Calvert Facilities), in exchange for the
Company's common stock.
The historical results for 1993 and 1992 include the results of operations
associated with the Calvert Facilities through February 28, 1993. The cost of
VCM consumed from the Calvert Facilities was recorded at historical intercompany
cost through April 29, 1993.
The pro forma results for 1993 and 1992 exclude the results of operations
associated with the Calvert Facilities. The data are also presented as if the
Company purchased the VCM associated with the Calvert Facilities at market
prices rather than at historical intercompany costs. Subsequent to the initial
public offering of the Company's common stock on April 29, 1993, purchases of
VCM from BFG were at market prices. The pro forma results also include the cost
associated with certain May 1993 bank arrangements, as if they had occurred at
the beginning of 1993.
(2)The employee separation and plant phase-out charges reduced basic earnings
per share as follows: 1997--$.40; 1995--$.56; 1993--$.22; 1992--$.36.
(3)The employee separation and plant phase-out charges reduced diluted earnings
per share as follows: 1997--$.39; 1995--$.52; 1993--$.22; 1992--$.36. 36
36
<PAGE> 39
The Geon Company and Subsidiaries
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF THE GEON COMPANY:
We have audited the accompanying consolidated balance sheets of The Geon
Company and subsidiaries as of December 31, 1997, and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements, which appear on pages 21, 23, and 25 through 34, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Geon
Company and subsidiaries at December 31, 1997, and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 29, 1998
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This report contains statements concerning trends and other forward-looking
information affecting or relating to the Company and its industry that are
intended to qualify for the protections afforded "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from such statements for a variety of factors including, but
not limited to: (1) unanticipated changes in world, regional, or U.S. PVC
consumption growth rates affecting the Company's markets; (2) unanticipated
changes in industry capacity or in the rate at which anticipated changes in
industry capacity come online in the PVC, VCM and chlor-alkali industries; (3)
fluctuations in raw material prices and supply, in particular fluctuations
outside the normal range of industry cycles; (4) unanticipated delays in
achieving or inability to achieve cost reduction and employee productivity
goals; (5) unanticipated production outages; (6) the impact on the North
American vinyl markets and supply/demand balance resulting from the economic
situation in the Far East; (7) the ability to obtain financing at anticipated
rates; and (8) unanticipated expenditures required in conjunction with year 2000
compliance.
37
<PAGE> 40
The Geon Company
CORPORATE INFORMATION
- --------------------------------------
EXECUTIVE OFFICERS
WILLIAM F. PATIENT
Chairman of the Board and Chief Executive
Officer
THOMAS A. WALTERMIRE
President and Chief Operating Officer
DONALD P. KNECHTGES
Senior Vice President, Business and
Technology Development
LOUIS M. MARESCA
Vice President and General Manager, Resins
V. LANCE MITCHELL
Vice President and General Manager,
Compounds
CLARENCE J. NOSAL
Vice President and General Manager,
Intermediates
GREGORY L. RUTMAN
Vice President, General Counsel and
Secretary
W. DAVID WILSON
Vice President and Chief Financial Officer
FACILITIES
AVON LAKE, OHIO
Headquarters
Research and Development
Compounds
CONROE, TEXAS
Compounds
DEER PARK, TEXAS
Resins
FARMINGDALE, NEW JERSEY
Compounds
HENRY, ILLINOIS
Resins
LAPORTE, TEXAS
VCM
LINDSAY, ONTARIO, CANADA
Compounds
LONG BEACH, CALIFORNIA
Compounds
LOUISVILLE, KENTUCKY
Resins
Compounds
NIAGARA FALLS, ONTARIO, CANADA
Resins
Compounds
ORANGEVILLE, ONTARIO, CANADA
Compounds
Plasticizers
PEDRICKTOWN, NEW JERSEY
Resins
PLAQUEMINE, LOUISIANA
Compounds
SCOTFORD, ALBERTA, CANADA
Resins
ST. REMI DE NAPIERVILLE, QUEBEC, CANADA
Compounds
Plasticizers
TERRE HAUTE, INDIANA
Compounds
VALLEYFIELD, QUEBEC, CANADA
Compounds
STOCK EXCHANGE LISTING
The Geon Company Common Stock is listed on the New York Stock Exchange. Symbol:
GON.
STOCKHOLDER INQUIRIES
If you have any questions concerning your account as a stockholder, name or
address changes, inquiries regarding dividend checks or stock certificates, or
if you need tax information regarding your account, please contact our transfer
agent:
The Bank of New York
P.O. Box 11258
Church Street Station
New York, New York 10286-1258
Phone: (800) 524-4458
Complimentary copies of Form 10-K and other reports filed with the Securities
and Exchange Commission are available from:
Investor Relations Administrator
The Geon Company
One Geon Center
Avon Lake, Ohio 44012
Phone: (440) 930-1444
ANNUAL MEETING
The annual meeting of stockholders of The Geon Company will be held May 7, 1998,
at 9:00 a.m. at The Forum Conference and Education Center, One Cleveland Center,
1375 East 9th Street, Cleveland, Ohio.
The meeting notice and proxy materials were mailed to stockholders with this
report. The Geon Company urges all stockholders to vote their proxies so that
they can participate in the decisions at the annual meeting.
FINANCIAL INFORMATION
Security analysts and representatives of financial institutions are invited to
contact:
W. David Wilson
Vice President and Chief Financial Officer
The Geon Company
One Geon Center
Avon Lake, Ohio 44012
Phone: (440) 930-3204
Fax: (440) 930-1002
E-mail: [email protected]
and
Dennis Cocco
Vice President, Corporate and Investor Affairs
The Geon Company
One Geon Center
Avon Lake, Ohio 44012
Phone: (440) 930-1538
Fax: (440) 930-1428
E-mail: [email protected]
AUDITORS
Ernst & Young LLP
1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115-1405
MEDIA CONTACT
Dennis Cocco
Vice President, Corporate and Investor Affairs
The Geon Company
One Geon Center
Avon Lake, Ohio 44012
Phone: (440) 930-1538
Fax: (440) 930-1428
E-mail: [email protected]
INTERNET ACCESS
Information on The Geon Company's products and services, as well as on news
releases, EDGAR filings, Form 10-K, 10-Q, etc., is available on the Internet at
http://www.geon.com.
38
<PAGE> 41
BOARD OF DIRECTORS
- ---------------------------------
WILLIAM F. PATIENT, 63
Chairman of the Board and Chief Executive
Officer
JAMES K. BAKER, 66
Vice Chairman, Arvin Industries, a worldwide supplier of original equipment and
replacement automotive parts 2, 4*, 5
GALE DUFF-BLOOM, 58
President of Marketing and Company Communications, J.C. Penney Company, Inc., a
major retailer of apparel, jewelry, home furnishings and services through
department stores and catalogs 1, 2*, 5
J.A. FRED BROTHERS, 57
Executive Vice President, Ashland Inc., a diversified company with operations in
specialty chemical production and distribution, motor oil and car care products,
and highway construction 3, 4
J. DOUGLAS CAMPBELL, 56
Retired President and Chief Executive Officer, Arcadian Corporation, the leading
Western Hemisphere producer and marketer of nitrogen chemicals and fertilizers
1, 3, 5
HARRY A. HAMMERLY, 64
Retired Executive Vice President, 3M Company, a worldwide diversified
manufacturer of industrial, commercial, consumer and health care products 1, 2,
4
D. LARRY MOORE, 61
Retired President and Chief Operating Officer, Honeywell, Inc., a global
enterprise providing electronic automation and control systems for homes,
buildings, process control industries and aerospace 1, 2, 3*
JOHN D. ONG, 64
Chairman Emeritus, The BFGoodrich Company, a provider of aircraft components,
systems and services, as well as specialty chemical products 2, 4, 5*
R. GEOFFREY P. STYLES, 67
Retired Vice Chairman, Royal Bank of Canada, Canada's largest bank 1*, 3, 4
1 Audit Committee
2 Compensation Committee
3 Environmental, Health and Safety Committee
4 Financial Policy Committee
5 Nominating and Governance Committee
*Denotes Chairman
<PAGE> 42
[THE GEON COMPANY LOGO]
The Geon Company
One Geon Center
Avon Lake, Ohio 44012
(440) 930-1000
www.geon.com
<PAGE> 1
EXHIBIT 21
THE GEON COMPANY
SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- -------------
1997 Chloralkali Venture Inc. Alabama
The Geon Company Australia Limited Australia
Auseon Limited Australia
Australian Vinyls Corporation (1) Australia
Geon Canada Inc. Canada
Synergistics Industries Limited Canada
LP Holdings, Inc. Canada
Geon Engineering Vinyls Limited England
Hydro Geon (2) England (3)
Geon Development Inc. Delaware
Synergistics Chemicals Inc. Delaware
La Porte Chemicals Corp. Delaware
Lincoln & Southern Railroad Company Delaware
Polymer Diagnostics Inc. Delaware
Sunbelt Chlor Alkali Partnership (2) Delaware (3)
Synergistics Industries (NJ), Inc. New Jersey
SPC Geon PTE LTD. (2) Singapore
Synergistics Industries (TX), Inc. Texas
Invversiones The Geon Company de Venezuela C.A. Venezuela
Notes:
- ------
(1) Owned 37.4% by the Company
(2) Owned 50% by the Company.
(3) Partnership
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of The Geon Company
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Geon Company of our report dated January 29,1998, included in the 1997
Annual Report to the Stockholders of The Geon Company.
Our audit also included the financial statement schedule of The Geon Company
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express and opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Regisration Statement
(Form S-3 No. 33-80522) of The Geon Company and in the related prospectus, in
the Registration Statement (Form S-8 No. 33-92398) pertaining to The Geon
Retirement Savings Plan, in the Registration Statement (Form S-8 No. 33-80262)
pertaining to The Geon Company Deferred Compensation Plan for Non-Employee
Directors, in the Registration Statement (From S-8 No. 33-62112) pertaining to
The Geon Company Incentive Stock Plan, in the Registration Statement (Form S-8
No. 33-65520) pertaining to The Geon Company Retirement Savings Plus Plan, and
in the Registration Statement (Form S-8 No. 33-65518) pertaining to The Geon
Company Retirement Plus Savings Plan for Wage Employees of our report dated
January 29, 1998, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of The Geon Company.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 19, 1998
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