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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-13780
M&F WORLDWIDE CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0423416
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, N.Y. 10021
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(Address of principal executive offices) (Zip Code)
212-572-8600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days. [X] Yes [ ] 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 Common Stock held by non-affiliates of
the registrant as of March 9, 1998 was $119,842,160.
The number of shares of Common Stock outstanding as of March 9, 1998 were
20,656,502.
Documents incorporated by reference
Portions of the registrant's Proxy Statement for its Annual Meeting of
Stockholders, which is to be filed pursuant to Regulation 14A not later than
April 30, 1998, are incorporated herein by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
M&F Worldwide Corp. ("M&F Worldwide" or the "Company") formerly Power
Control Technologies, Inc. was incorporated in Delaware on June 1, 1988 and is
a holding company that conducts its operations through its wholly-owned
subsidiary Pneumo Abex Corporation ("Pneumo Abex").
M&F Worldwide has been a public company since June 15, 1995 when shares
of its common stock, par value $.01 per share (the "M&F Worldwide Common
Stock"), were publicly distributed (the "M&F Worldwide Distribution") to
existing stockholders of Abex Inc. ("Abex"), M&F Worldwide's former parent, in
connection with the merger (the "Abex Merger") of Abex and a wholly-owned
subsidiary of Mafco Holdings Inc. ("Holdings") and the related transfer (the
"Transfer") to a subsidiary of Mafco Consolidated Group Inc. ("MCG") of
substantially all of Abex's consolidated assets and liabilities, other than
those relating to its Abex NWL Aerospace Division ("Aerospace"), which
continued to be owned by M&F Worldwide. On July 16, 1992, Abex was spun off
(the "Abex Distribution") from the Henley Group Inc. ("Henley Group").
Following the Abex Distribution and prior to the M&F Worldwide Distribution,
Abex, through M&F Worldwide, sold three of its five operating divisions and
combined the two others to form Aerospace. Prior to July 16, 1992, M&F
Worldwide was an indirect wholly-owned subsidiary of Henley Group.
On April 15, 1996, the Company sold to Parker Hannifin Corporation
("Parker Hannifin") its entire Aerospace operations including substantially all
of its assets (the "Aerospace Sale"), pursuant to the terms of a Master Asset
Purchase Agreement for aggregate cash consideration of $201.1 million. In
connection with the Aerospace Sale, Parker Hannifin, the buyer, assumed the
operating liabilities of the Aerospace Business, including the Company's
existing debt.
On November 25, 1996, Mafco and M&F Worldwide consummated the
transactions contemplated by a Stock and VSR Purchase Agreement (the "Purchase
Agreement"), dated as of October 23, 1996, by and among MCG, M&F Worldwide and
PCT International Holdings Inc. ("Purchaser"), a Delaware corporation and
wholly-owned subsidiary of M&F Worldwide. Pursuant to the Purchase Agreement,
Purchaser acquired from MCG (the "Flavors Acquisition"), all the issued and
outstanding shares (the "Shares") of capital stock of Flavors Holdings Inc.
("Flavors"), a Delaware corporation and wholly-owned subsidiary of MCG, and
23,156,502 Value Support Rights (each a "VSR" and, collectively, the "VSRs")
issued pursuant to a Value Support Rights Agreement (the "VSR Agreement"),
dated November 25, 1996 between MCG and American Stock Transfer & Trust
Company, as trustee.
In consideration for the Shares and VSRs, Purchaser paid MCG cash in the
amount of $180 million. In addition, Purchaser paid MCG deferred cash payments
of $3.7 million on June 30, 1997 and $3.5 million on January 2, 1998. MCG owns
approximately 30% of the outstanding shares of M&F Worldwide Common Stock and
all of the convertible redeemable preferred stock which has an aggregate
liquidation preference of $20.0 million.
Immediately following the Flavors Acquisition, Mafco Worldwide
Corporation ("Mafco Worldwide"), then a wholly-owned subsidiary of Flavors,
through a series of transactions merged with and into Pneumo Abex, with Pneumo
Abex being the surviving corporation and becoming a wholly-owned subsidiary of
Flavors.
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Through Pneumo Abex (as the successor to Mafco Worldwide), the Company is
primarily in the business of producing licorice extract and other flavoring
agents. Based upon its knowledge of the licorice industry, the Company believes
that it is the world's largest producer of licorice extract and the only
manufacturer of licorice extract in the United States. The Company also
believes that it manufactures more than 70% of the worldwide licorice extract
sold to end-users. Approximately 72% of the Company's licorice sales are to the
worldwide tobacco industry for use as flavoring and moistening agents in the
manufacture of American blend cigarettes as well as other tobacco products
(moist snuff, chewing tobacco and pipe tobacco). While licorice extract
represents a small percentage of the total cost of manufacturing American blend
cigarettes and other tobacco products, the particular formulation and quantity
used by each brand is an important element of the brand's flavor.
The Company also sells licorice extract to worldwide confectioners, food
processors and pharmaceutical manufacturers for use as flavoring or masking
agents. In addition, the Company sells licorice root residue as a garden mulch
under the name Right Dress. The Company's other products include non-licorice
natural flavors, spices and botanicals that are used as flavoring ingredients
in food and tobacco products.
The Company has achieved its position as the world's leading manufacturer
of licorice extract through its experience in obtaining licorice root, its
technical expertise at maintaining the consistency and quality of its product
and its ability to develop and manufacture proprietary formulations for
individual customers and applications.
OPERATING STRATEGIES
The Company intends to maintain its position as the world leader in
licorice extract: (a) by continuing to expand in foreign markets as the
popularity of American blend cigarettes continues to increase; (b) by improving
its manufacturing process and raw material procurement in order to achieve
lower costs and; (c) by forming joint ventures in strategic areas of the world
to increase its overall licorice business.
PRODUCTS AND MANUFACTURING
Licorice extract products. The Company produces a variety of licorice
products from licorice root, licorice extract produced by others and certain
other flavor ingredients at its facilities in Camden, New Jersey and Gardanne,
France. The Company selects licorice root from various sources to optimize
flavoring and chemical characteristics and then shreds the root to matchstick
size. Licorice solids are then extracted from the shredded root with hot water.
After filtration and evaporation, the concentrated extract is converted into
powder, semifluid or blocks, depending on the customer's requirements, and then
packaged and shipped. For certain customers, extracts from root may be blended
with licorice extracts from other producers and non-licorice ingredients to
produce licorice flavors that meet the individual customer's requirements.
Licorice extract can be further purified to produce licorice derivatives. The
Company maintains finished goods inventories of sufficient quantity to provide
immediate delivery to its domestic tobacco and non-tobacco customers.
Domestically produced licorice extract for foreign orders is either produced
and shipped within 30 days or shipped from inventory held at a European
warehouse immediately. French produced extract is primarily shipped from
inventory.
Other products. The Company also sells non-licorice flavoring agents to
the tobacco, spice, pharmaceutical and health food industries. The Company
cleans, grinds or cuts unprocessed spices and botanicals, principally chilies,
sage, cassia (cinnamon) and cocoa bean shells to customer specifications.
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RAW MATERIALS
Licorice extract is derived from the roots of the licorice plant, a
shrub-like leguminous plant that is indigenous to the Middle East and Central
Asia. The plant's roots, which can be up to several inches thick and up to 25
feet long are harvested when the plant is about four years old. They are then
cleaned, dried and bagged or pressed into bales. Through its foreign suppliers,
the Company acquires the root in local markets for shipment to the Company's
processing facilities in Camden, New Jersey or Gardanne, France. Most of the
licorice root processed by the Company originates in Afghanistan, China,
Pakistan, Azerbaijan, Uzbekistan, Turkmenistan, Syria and Turkey. Through many
years of experience, the Company has developed extensive knowledge and
relationships with their suppliers in these areas. Although the amount of
licorice root the Company purchases from any individual source or country
varies from year to year depending on cost and quality, the Company endeavors
to purchase some licorice root from all available sources. This enables the
Company to maintain multiple sources of supply and relationships with many
suppliers so that if the licorice root from any one source becomes temporarily
unavailable or uneconomic, the Company will be able to replace that source with
licorice root from another area or supplier. During 1997, two suppliers of
root, one in Germany and one in Pakistan, supplied 14% and 24%, respectively of
the Company's total root purchases. The Company tries to maintain a sufficient
licorice root inventory and open purchase contracts to meet production needs
for up to two years. Licorice root has an indefinite retention period as long
as it is kept dry, and therefore the Company has experienced little, if any,
material spoilage. The Company has been able to obtain licorice root without
interruption since World War II even though there has been periodic instability
in the areas of the world where licorice root grows.
In addition to licorice root, the Company also purchases significant
quantities of licorice extract produced by others for use as a raw material.
These licorice extracts are available from producers primarily in China in
quantities sufficient to meet the Company's current requirements and
anticipated requirements for the foreseeable future. During 1997, the Company
had two licorice suppliers of licorice extracts who supplied more than 10% of
total licorice extract purchases.
Other non-licorice raw materials for the Company's other blended licorice
and non-licorice products are commercially available through many domestic and
foreign sources.
SALES AND MARKETING
All licorice sales in the U.S. (including sales of licorice extract to
U.S. cigarette manufacturers for use in American blend cigarettes to be
exported) are made through the Company's executive offices located in Camden,
New Jersey, with technical support from the Company's research and development
department. Outside the U.S., the Company sells its products directly from its
Camden, New Jersey offices and through its French subsidiary, exclusive agents
and independent distributors.
The Company has established strong relationships with its customers in
the tobacco and other industries because of its expertise in producing and
supplying consistent quality licorice products with a high level of service and
security of supply. The Company ships products worldwide and provides technical
assistance for product development for both tobacco and non-tobacco
applications.
The Company sells licorice root residue, a by-product of the licorice
extract manufacturing process, as a garden mulch under the name Right Dress.
Distribution of Right Dress is limited to the area within a 200-mile radius of
Camden, New Jersey due to shipping costs and supply limitations.
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In 1997, Pneumo Abex's ten largest customers, eight of which are
manufacturers of tobacco products, accounted for approximately 58% of the
Company's net revenues and one customer, Philip Morris Companies Inc. ("Philip
Morris") accounted for approximately 30% of the Company's 1997 sales. If Philip
Morris were to stop purchasing licorice extract from the Company, it would have
a significant adverse effect on the financial results of the Company.
COMPETITION
The Company believes that its position as the largest manufacturer of
licorice extract in the world arises from its long-standing ability to provide
its customers with a steady supply of high quality and consistent products,
together with superior technical support. Producing licorice extract of
consistently high quality at low cost requires an experienced work force,
careful manufacturing and rigorous quality control. The Company's long-term
relationships and knowledge of the licorice root market are of great value in
enabling it to consistently acquire quality raw materials at reasonable cost.
Although the Company could face increased competition in the future, the
Company currently encounters limited competition in sales of licorice extract
to tobacco companies in many of its markets as a result of the factors
described above and the large investments in inventories of raw materials and
production facilities that are required to adequately fulfill its customers'
needs. Other markets in which the Company operates, particularly the
confectionery licorice market in Europe, are more competitive. Significant
competing producers of licorice extract are government owned and private
corporations in China, a government owned corporation in Iran and a government
affiliated corporation based in Israel.
THE TOBACCO INDUSTRY
Developments and trends within the tobacco industry may have a material
effect on the operations of the Company.
Producers of tobacco products are subject to regulation in the U.S. at
the federal, state and local levels. Together with changing public attitudes
toward smoking, a constant expansion of smoking regulations since the early
1970s has been a major cause for the decline in consumption. Moreover, the
trend is toward increasing regulation of the tobacco industry.
For more than 30 years, the sale and use of cigarettes has been subject
to opposition from government and health officials in the U.S. and other
countries due to claims that cigarette smoking is harmful to an individual's
health. These claims have resulted in a number of substantial restrictions on
the marketing, advertising, sale and use of cigarettes, in diminished social
acceptability of smoking and in activities by anti-smoking groups designed to
inhibit cigarette sales. The effects of these claims together with substantial
increases in state and federal taxes on cigarettes have resulted in lower
cigarette consumption, which is likely to continue in the future.
During the period 1993-1997, U.S. cigarette consumption declined at an
average of 1.0% per year and exports of cigarettes by U.S. manufacturers
increased at an average rate of 0.9% per year. Prior to 1997 exports of
cigarettes increased at an average rate of 4.3% per year. In 1997 exports of
cigarettes decreased as compared to 1996 by approximately 8.8%. The growth of
U.S. cigarette exports prior to 1997 was due to successful marketing of U.S.
cigarette brands by U.S. tobacco manufacturers, the increasing popularity of
the lighter flavor of American blend cigarettes, particularly in Europe and
Asia and reduced trade barriers that had previously limited imports of
cigarettes manufactured by U.S. manufacturers. The decrease in exports in 1997
is due to increased foreign manufacturing capacity by U.S. tobacco companies,
inventory adjustments and the timing of export
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shipments. In response to the growing popularity of American blend cigarettes
and increased exports by U.S. manufacturers, foreign manufacturers are now
producing American blend cigarettes.
Consumption of chewing tobacco and moist snuff is concentrated primarily
in the U.S. U.S. production of chewing tobacco products has steadily declined
for more than a decade and from 1993 through 1997 it has declined by 2.8%.
Consumption has declined because chewing tobacco appeals to a limited and
declining customer base, primarily males living in rural areas. Moist snuff
consumption has risen steadily since the mid-1970s and has increased 2.9% from
1993 through 1997 due to the shift away from cigarettes and other types of
smoking tobacco.
Health Regulations. Federal law has required health warnings on
cigarettes since 1965 and has recently required states, in order to receive
full funding for federal substance abuse block grants, to establish a minimum
age of 18 years for the sale of tobacco products, together with an appropriate
enforcement program. In recent years, a variety of bills relating to tobacco
issues have been introduced in the Congress of the United States, including
bills that would have (i) prohibited the advertising and promotion of all
tobacco products and/or restricted or eliminated the deductibility of such
advertising expenses; (ii) increased labeling requirements on tobacco products
to include, among other things, addiction warnings and lists of additives and
toxins; (iii) modified federal preemption of state laws to allow state courts
to hold tobacco manufacturers liable under common law or state statutes; (iv)
shifted regulatory control of tobacco products and advertisements from the
Federal Trade Commission (the "FTC") to the U.S. Food and Drug Administration
(the "FDA"); (v) increased tobacco excise taxes; and (vi) required tobacco
companies to pay for health care costs incurred by the federal government in
connection with tobacco related diseases. Hearings have been held on certain of
these proposals; however, to date only excise tax increases on tobacco products
starting in the year 2000, in varying amounts, have been passed by Congress.
Future enactment of such proposals or similar bills may have an adverse effect
on the sales or operations of the Company. In addition, various federal
agencies, including the FDA, have recently proposed to regulate the tobacco
industry.
As a result primarily of lawsuits brought by a large number of state
Attorneys General against certain tobacco companies and others seeking to
recover, among other things, health care cost reimbursement, five tobacco
manufacturers agreed on June 20, 1997 to support the adoption by Congress of a
proposed resolution (the "Proposed Resolution") that calls for significant
regulation of tobacco products and the payment of $368.5 billion over the first
25 years. As a result, a number of bills have been introduced in Congress that
would result in significant regulation of tobacco. Although it is not possible
to predict whether and when any such legislation will be enacted into law, its
enactment may fundamentally alter the way in which tobacco companies conduct
business in this country.
In addition, federal, state and local legislative and regulatory bodies
have increasingly moved to curtail smoking by prohibiting smoking in certain
public places, restricting the sale of tobacco products to minors, increasing
labeling requirements, regulating the marketing, promotion and advertisement of
cigarettes and smokeless tobacco and protecting non-smokers from so-called
"second-hand" smoke. Smokeless tobacco manufacturers are subject to similar
health warning regulations as cigarette producers, and there has been
litigation that claims smokeless tobacco causes oral cancer. To the extent that
further actions are taken to regulate tobacco products and restrict smoking,
such actions could have a material adverse effect on the Company. Some foreign
countries have also taken steps to restrict or prohibit cigarette advertising
and promotion, to require ingredient disclosure, to impose maximum constituent
levels, to increase taxes on cigarettes, to control prices, to restrict
imports, to ban or severely restrict smoking in workplace and public places,
and otherwise to discourage cigarette smoking.
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Massachusetts recently enacted legislation requiring manufacturers of
cigarettes, chewing tobacco and snuff to provide the state annually with a list
of the additives (in descending order of weight) and the nicotine yield ratings
of each brand they produce, which information will, subject to certain
conditions, be made publicly available. In response to challenges to the law
brought by a number of tobacco manufacturers in December 1997, the United
States District Court for the District of Massachusetts preliminarily enjoined
the additive disclosure requirement. The nicotine yield rating reporting
requirement was unaffected by this decision.
As a producer of food-grade products, the Company's business is subject
to certain FDA and New Jersey Department of Health Regulations. Compliance with
these regulations has not had a material effect on the Company's business.
Tobacco Industry Litigation. The cigarette and smokeless tobacco
industries have experienced and are experiencing significant health-related
litigation involving tobacco and health issues. Litigation against the
cigarette industry has historically been brought by individual cigarette
smokers. In 1992, the United States Supreme Court in Cipollone v. Liggett
Group, Inc. ruled that federal legislation relating to cigarette labeling
requirements preempts claims based on failure to warn consumers about the
health hazards of cigarette smoking, but does not preempt claims based on
express warranty, misrepresentation, fraud or conspiracy. To date, individual
cigarette smokers' claims against the cigarette industry have been generally
unsuccessful; however on August 9, 1996, a Florida jury in Carter v. Brown &
Williamson Tobacco Corporation determined that a cigarette manufacturer was
negligent in the production and sale of its cigarettes and sold a product that
was unreasonably dangerous and defective, awarding the plaintiffs a total of
$750,000 in compensatory damages. The verdict is on appeal.
Current tobacco litigation generally falls within one of three
categories: class actions, individual actions and actions brought by individual
states or localities, unions and others, to recover health care costs allegedly
attributable to tobacco-related illnesses. The pending actions allege a broad
range of injuries resulting from the use of tobacco products or exposure to
tobacco smoke and seek various remedies, including compensatory and, in some
cases, punitive damages together with certain types of equitable relief such as
the establishment of medical monitoring funds and restitution. The major
tobacco companies are vigorously defending these actions. During 1997, the
health care cost reimbursement actions brought by state Attorneys General in
Mississippi, Florida and Texas were settled for significant amounts in the
billions of dollars for the first 25 years. On June 20, 1997, five tobacco
companies entered into a Proposed Resolution that contains provisions that, if
enacted by Congress, would significantly impact tobacco litigation. The
Proposed Resolution requires that the payment of $368.5 billion dollars over
the first 25 years and would, in effect, limit litigation to individual actions
for compensatory damages. As discussed above, several bills purporting to
implement some or all of the provisions of the Proposed Resolution have been
introduced in Congress.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et. al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette
smokers. Notwithstanding the dismissal, new class actions asserting claims
similar to those in Castano have been filed in a number of states. To date, a
number of pending class actions against major cigarette manufacturers have been
certified. One class action that had been pending in Florida was settled in
1997 for several hundred million dollars. The class was composed of flight
attendants allegedly injured through exposure to secondhand smoke.
There can be no assurance that there will not be an increase in
health-related litigation involving tobacco and health issues against the
cigarette industry or that the Company, as a supplier to
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the tobacco industry, will not be party to such litigation. This litigation, if
successful, could have a material adverse effect on the Company.
Excise Taxes. The tobacco industry, including cigarettes and smokeless
tobacco, has been subject to federal, state and local excise taxes for many
years. In recent years, federal, state and local governments have increased or
proposed increases to such taxes as a means of both raising revenue and
discouraging the consumption of tobacco products. The Company is unable to
predict the likelihood of enactment of such proposals or the extent to which
enactment of such proposals would effect tobacco sales. A significant reduction
in consumption of cigarettes and other tobacco products could have a material
adverse effect on the Company.
SEASONALITY
The licorice business is generally non-seasonal. However, sales of Right
Dress garden mulch occur primarily in the first seven months of the year.
BACKLOG
The backlog of the Company at any time is generally not significant.
Domestic and foreign tobacco orders are received quarterly, monthly or weekly
depending upon customer requirements. Certain confectionery customers negotiate
annual contracts which were not significant at December 31, 1997.
EMPLOYEES
At December 31, 1997, the Company has approximately 321 employees. The
Company has 151 employees covered under collective bargaining agreements. The
agreement covering employees at the Camden, New Jersey facility expires at the
end of May 2001. Management believes that its employee relations are good.
CORPORATE INDEMNIFICATION MATTERS
The Company is indemnified by third parties with respect to certain of its
contingent liabilities, such as certain environmental and asbestos matters, as
well as certain tax and other matters. In connection with the Abex Merger, a
subsidiary of Abex, M&F Worldwide, Pneumo Abex and certain other subsidiaries
of M&F Worldwide entered into a transfer agreement (the "Transfer Agreement").
Under the Transfer Agreement, substantially all of Abex's consolidated assets
and liabilities, other than those relating to Aerospace, were transferred to a
subsidiary of MCG, with the remainder being retained by Pneumo Abex. The
Transfer Agreement provides for appropriate transfer, indemnification and tax
sharing arrangements, in a manner consistent with applicable law and existing
contractual arrangements.
The Transfer Agreement requires such subsidiary of MCG to undertake certain
administrative and funding obligations with respect to certain asbestos claims
and other liabilities, including environmental claims, retained by Pneumo Abex.
The Company will be obligated to make reimbursement for the amounts so funded
only when amounts are received by the Company under related indemnification and
insurance agreements. Such administrative and funding obligations would be
terminated as to asbestos products claims in the case of a bankruptcy of Pneumo
Abex or M&F Worldwide or of certain other events affecting the availability of
coverage for such claims from third party indemnitors and insurers.
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Prior to 1988, a former subsidiary of the Company manufactured certain
asbestos-containing friction products. Pneumo Abex has been named, typically
along with 10 to 30 other companies, as a defendant in various personal injury
lawsuits claiming damages relating to exposure to asbestos. Pursuant to
indemnification agreements, Whitman Corporation ("Whitman") has retained
ultimate responsibility for all asbestos-related claims made through August
1998 and for certain asbestos-related claims asserted thereafter. In connection
with the sale by Abex in December 1994 of its Friction Products Division, a
subsidiary of Cooper Industries, Inc. assumed responsibility for substantially
all of the asbestos-related claims made after August 1998. Pneumo Abex
maintained product liability insurance covering substantially all of the period
during which asbestos-containing products were manufactured. Pursuant to court
rulings and interim agreements reached with certain insurance carriers,
insurers are reimbursing approximately 90% of the aggregate defense and
settlement costs associated with such claims, and Pneumo Abex continues to seek
recovery of the remaining amount of unreimbursed costs from its carriers in an
ongoing insurance coverage litigation commenced in 1982. As of December 31,
1997, there was approximately 34,000 pending claims, and MCG has approximately
$9.2 million in unreimbursed costs pending receipt from the insurance carrier
or Whitman. Pneumo Abex is unable to forecast either the number of future
asbestos-related claimants or the amount of future defense and settlement costs
associated with present or future asbestos-related claims.
The Transfer Agreement further provides that MCG will indemnify Pneumo Abex
with respect to all environmental matters associated with Abex's former
operations to the extent not paid by third party indemnitors or insurers, other
than the operations relating to Pneumo Abex's Aerospace business which were
sold to Parker Hannifin in April 1996. Accordingly, environmental liabilities
arising after the 1988 Whitman acquisition that relate to Pneumo Abex's former
Aerospace facilities will be the responsibility of Pneumo Abex. Whitman is
obligated to indemnify Pneumo Abex for costs, expenses and liabilities relating
to environmental and natural resource matters to the extent attributable to the
pre-1988 operation of the businesses acquired from Whitman, subject to certain
conditions and limitations principally relating to compliance with notice,
cooperation and other procedural requirements. Whitman is generally discharging
its environmental indemnification liabilities in the ordinary course. In
addition to the remedial actions as to which Whitman has acknowledged its
indemnification responsibilities, Pneumo Abex is party to a number of cases
involving tort claims concerning an environmental site alleging exposure to
lead for which Whitman has declined to accept responsibility. MCG is managing
these cases on behalf of Pneumo Abex, and MCG and Whitman are currently sharing
equally the defense costs for such cases, subject to a reservation of their
respective rights.
It is generally not possible to predict the ultimate total costs relating to
any remediation that may be demanded at any of the sites subject to the Whitman
indemnity due to, among other factors, uncertainty regarding the extent of
prior pollution, the complexity of applicable environmental laws and
regulations and their interpretations, uncertainty regarding future changes to
such laws and regulations of their enforcement, the varying costs and
effectiveness of alternative cleanup technologies and methods, and the
questionable and varying degrees of responsibility and/or involvement by Pneumo
Abex. However, the aggregate cost to all parties of cleanup and related
expenses with respect to matters for which Pneumo Abex, together with numerous
other third parties, have been named potentially responsible parties could
exceed $150 million, including approximately $20 million in remedial action
costs, as estimated by the U.S. Environmental Protection Agency, in respect of
one site actively managed and funded by Whitman.
On February 5, 1996, the Company, through Pneumo Abex, entered into a
reimbursement agreement with Chemical Bank and MCG (the "Reimbursement
Agreement"). The Reimbursement Agreement provides for letters of credit
totaling $20.8 million covering certain environmental issues
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relating to such site and not related to the current business of Pneumo Abex.
The cost of the letters of credit are being funded by MCG and/or Whitman.
Pneumo Abex had $20.0 million and $20.8 million of letters of credit
outstanding at December 31, 1997 and 1996, respectively, in connection with the
Reimbursement Agreement.
The Company has not recognized any liability in its financial statements for
matters covered by indemnification agreements. The Company considers these
obligations to be those of third-party indemnitors and monitors their financial
position to determine the level of uncertainty associated with their ability to
satisfy their obligations. Based upon the indemnitors' active management of
indemnifiable matters, discharging of the related liabilities when required,
and financial positions based upon publicly filed financial statements, as well
as the history of insurance recovery set forth above, the Company believes that
the likelihood of indemnitors failing to satisfy their obligations is remote.
The Transfer Agreement also provides for certain funding indemnification and
cooperation arrangements among Pneumo Abex, M&F Worldwide and a subsidiary of
MCG in respect of certain liabilities which may arise under the Employee
Retirement Security Act of 1974 relating to the sale of Pneumo Abex's friction
products division in 1994.
In the opinion of management, based upon the information available at this
time, the outcome of the matters referred to above will not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 2. PROPERTIES
THE COMPANY'S PRINCIPAL PROPERTIES ARE AS FOLLOWS:
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OWNED APPROXIMATE
OR FLOOR SPACE
LOCATION USE LEASED (SQUARE FEET)
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Camden, New Jersey Licorice manufacturing, warehousing Owned 390,000
and administration
Camden, New Jersey Warehousing Leased(a) 140,000
Pennsauken, New Jersey Warehousing Leased(b) 40,000
Gardanne, France Licorice manufacturing and administration Owned 48,900
Richmond, Virginia Manufacturing and warehousing Owned 45,000
for non-licorice products
Richmond, Virginia Manufacturing and administration Leased(c) 65,000
for non-licorice products
</TABLE>
- ----------------------
(a) Lease expires on March 31, 1998 (not renewed).
(b) Lease expires on June 18, 2003.
(c) Lease expires on October 30, 2001.
The Company believes that its facilities are well-maintained and are in
substantial compliance with environmental laws and regulations.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings, claims and investigations are pending against M&F
Worldwide and Pneumo Abex, including those relating to commercial transactions,
product liability, safety and health matters and other matters. M&F Worldwide
and Pneumo Abex are involved in various stages of legal proceedings, claims,
investigations and cleanup relating to environmental or natural resource
matters, some of which relate to waste disposal sites. Most of these matters
are covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities. In addition, the U.S. Government has asserted claims
of defective pricing relating to certain contracts of the former Aerospace
operations.
The Company believes that the outcome of such pending legal proceedings
in the aggregate will not have a material adverse effect on the Company's
consolidated financial position or results of operations. The Company carries
general liability insurance but has no health hazard policy, which, to the best
of the Company's knowledge, is consistent with industry practice.
See Item 1. Business - The Tobacco Industry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The M&F Worldwide Common Stock is listed on the New York Stock Exchange,
Inc. ("NYSE") under the symbol MFW. The following table sets forth, for the
calendar quarters indicated, the high and low closing prices per share of the
M&F Worldwide Common Stock on the NYSE based on published financial sources.
HIGH LOW
CALENDAR 1996
First Quarter $9 1/2 $7 3/4
Second Quarter 9 1/2 8 3/4
Third Quarter 9 7 1/2
Fourth Quarter 8 1/2 7 1/2
CALENDAR 1997
First Quarter 8 7 1/4
Second Quarter 8 15/16 7 1/4
Third Quarter 9 3/4 8 1/2
Fourth Quarter 10 3/8 9 3/8
The number of holders of record of the M&F Worldwide Common Stock as of
March 7, 1998 was approximately 6,691.
M&F Worldwide has not paid any cash dividends on the M&F Worldwide Common
Stock to date. M&F Worldwide does not currently intend to pay regular cash
dividends on the M&F Worldwide Common Stock. M&F Worldwide's dividend policy
will be reviewed from time to time by the Board of Directors in light of M&F
Worldwide's results of operations and financial position and
11
<PAGE>
such other business considerations as the Board of Directors considers
relevant. The ability of Pneumo Abex to pay dividends is limited by its credit
agreement, which in turn may limit the ability of the Company to pay dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and the Notes to Consolidated
Financial Statements.
In order to protect the availability of the Company's net operating loss
carryforwards, the M&F Worldwide charter prohibits, subject to certain
exceptions, transfers of M&F Worldwide Common Stock, until such date as fixed
by the Board of Directors of M&F Worldwide, to any person who owns, or after
giving effect to such transfer would own, at least 5% of the outstanding M&F
Worldwide Common Stock. The Company has been advised by counsel that the
transfer restriction in the M&F Worldwide charter is enforceable. The Company
intends to take all appropriate action to preserve the benefit of the
restriction including, if necessary, the institution of legal proceedings
seeking enforcement.
On December 31, 1996, the Company distributed to its stockholders the
VSRs received as part of the Flavors Acquisition. MCG called the VSRs in
January 1998 for $0.56 per VSR.
ITEM 6. SELECTED FINANCIAL DATA
M&F Worldwide is the successor to Abex for financial reporting purposes
as a result of the Transfer, the Abex Merger and the M&F Worldwide
Distribution, which occurred on June 15, 1995. Accordingly, financial
information presented for periods prior to June 15, 1995 represent Abex's
results. The following table sets forth selected historical financial data of
Abex and M&F Worldwide. Accordingly, the Abex consolidated financial statements
may not necessarily reflect the results of operations or financial position had
Abex been a separate stand-alone entity. Abex's industrial products and
aerospace businesses have been classified as discontinued operations in the
statements of operations data. See the Notes to Consolidated Financial
Statements for a discussion of the Company's formation and the basis of
presentation.
The table below reflects financial data for each of the years in the
five-year period ended December 31, 1997. The selected historical financial
information for each of the years in the two-year period ended December 31,
1994 has been derived from the audited consolidated financial statements of
Abex, while information for the years 1995, 1996 and 1997, have been derived
from the audited consolidated financial statements of M&F Worldwide.
The selected historical financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of M&F Worldwide included
elsewhere in this Annual Report on Form 10-K.
12
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales (a) .............................. $100.4 $ 9.5 $ -- $ -- $ --
Income (loss) from continuing operations (b) 22.5 10.4 (4.0) (30.1) (39.4)
Income (loss) per common share from
continuing operations (c):
Basic .................................. 1.01 .43 (.24) (1.52) (1.99)
Diluted ................................ .96 .43 (.24) (1.52) (1.99)
BALANCE SHEET DATA (AT PERIOD END):
Total assets (d) ........................... $313.1 $ 318.1 $51.3 $336.8 $302.2
Long-term debt (including current portion
and short-term borrowings) (e) .......... 77.6 100.1 -- 31.1 112.8
Redeemable preferred stock (f) ............. 20.0 20.0 20.0 -- --
Total stockholders' equity (deficit) (g) ... 185.6 166.0 22.5 102.2 (29.2)
</TABLE>
- ---------------
(a) Reflects sales of Flavors since its acquisition on November 25, 1996.
Sales of the Company's Aerospace and industrial products businesses are
included in discontinued operations through their respective dates of
sale.
(b) Includes the results of Flavors, since its acquisition on November 25,
1996. Prior to the Abex Merger and the Transfer, results from continuing
operations reflects costs associated with the former corporate office of
Abex.
(c) In 1997 the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"), the effect of which was to
restate 1996 income per common share from continuing operations. For
further discussion of earnings per share and the impact of SFAS 128, see
the notes to the consolidated financial statements beginning on page F-8.
(d) The decrease from 1994 to 1995 was primarily the result of the Transfer.
The increase from 1995 to 1996 primarily reflects the Flavors Acquisition
funded with proceeds from the Aerospace Sale.
(e) Decrease in long-term debt from 1993 to 1995 was primarily related to the
paydown of debt as well as the sale of certain business segments. The
increase in long-term debt from 1995 to 1996 was primarily the result of
the Flavors Acquisition.
(f) Reflects the issuance of redeemable convertible preferred stock in
connection with the Abex Merger and Transfer.
(g) Stockholders' equity (deficit) includes the extraordinary gain of $94.0
in 1993 reflecting an adjustment to the Company's reserves for
indemnification under its tax sharing agreements, the gain recorded in
1994 on the sale of the industrial products business of $128.4 and the
gain of $153.7 in 1996 on the sale of the Aerospace business partially
offset by the VSR distribution of $23.2 in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
13
<PAGE>
GENERAL
As a result of the sale of the Company's Aerospace business in 1996, the
Company has classified those operations as discontinued in the consolidated
financial statements. Accordingly, the results of operations below do not
reflect the sales, cost of sales or selling, general and administration
expenses ("SG&A") from the discontinued Aerospace business for the years
presented.
The discussion of historical results reflects the results of operations
of Flavor's licorice extract and other flavoring agents business since November
25, 1996, the date of the Flavors Acquisition. The results of operations data
presented below reflects the application of the purchase method of accounting
for the Flavors Acquisition based on the purchase price allocation.
The pro forma consolidated financial information below gives effect to
the Flavors Acquisition, the Abex Merger and Transfer and the Aerospace Sale as
if such transactions occurred on January 1, 1995.
RESULTS OF OPERATIONS
During 1993, Mafco Worldwide's largest customer substantially reduced the
price of its premium brand cigarettes in order to regain market share which had
been lost to generic or "no frills" type cigarettes. The generic cigarettes
sold at a discount to premium brands and had captured a substantial share of
the U.S. cigarette market. In addition, cigarette inventories at distributors
were reduced by abandoning the practice of loading distributors with cigarettes
at the end of each quarter. As a result of these actions, Mafco Worldwide sold
less licorice extract to the cigarette industry in 1993 than in previous years.
In 1994, Mafco Worldwide's sales volume to the cigarette industry increased as
production volumes in the cigarette industry returned to pre-1993 levels. This
trend has continued since 1994.
Actual year ended December 31, 1997 compared to pro forma year ended December
31, 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
---- ----
(in millions) (in millions)
<S> <C> <C>
Net sales ........................................... $ 100.4 $ 103.4
Cost of sales ....................................... 54.0 57.3
------- -------
Gross profit ........................................ 46.4 46.1
Selling, general and administrative expenses ........ 9.9 8.5
Amortization of intangibles ......................... 4.3 4.3
Other, net........................................... (0.3) (0.3)
------- -------
Operating income .................................... 32.5 33.6
Interest expense .................................... 7.1 9.9
Interest, investment and other income, net .......... (0.5) (0.5)
------- -------
Income from continuing operations before income taxes 25.9 24.2
Provision for income taxes .......................... 3.4 3.3
------- -------
Income from continuing operations ................... $ 22.5 $ 20.9
======= =======
</TABLE>
Net sales in 1997 were $100.4 million and $103.4 million on a pro forma
basis in 1996. U.S. sales decreased $4.1 million in 1997 to $58.0 million. The
decrease resulted from lower licorice shipment volume to the Company's
smokeless tobacco customers and lower sales volume of non licorice products.
Foreign and export sales in 1997 increased by $1.1 million to $42.4 million in
1997. The increase was due primarily to increased shipment volume.
14
<PAGE>
Cost of sales were $54.0 million in 1997 as compared to $57.3 million on
a pro forma basis in 1996. The decrease of $3.3 million was due to lower
material costs and a reduction in the amortization of the purchase accounting
adjustments related to inventory. As a percentage of net sales, cost of sales
decreased to 53.8% in 1997 from 55.4% on a pro forma basis in 1996.
SG&A expenses were $9.9 million in 1997 and $8.5 million on a pro forma
basis in 1996. The increase of $1.4 million was primarily due to higher
compensation, professional service and corporate costs in 1997 and income
recognized in 1996 on a bad debt recovery.
Interest expense was $7.1 million in 1997 and was $9.9 million on a pro
forma basis in 1996, a decrease of $2.8 million due to lower debt outstanding
at lower average interest rates in 1997.
The provision for income taxes was $3.4 million in 1997 and was $3.3
million on a pro forma basis in 1996. The increase relates to state and foreign
taxes.
Year ended December 31, 1997 compared to the year ended December 31, 1996
Net sales were $100.4 million and $9.5 million for the year ended
December 31, 1997 and 1996, respectively. Net sales in 1996 reflects the
business of Flavors since the Flavors Acquisition on November 25, 1996, whereas
1997 reflects an entire year's results.
Cost of sales were $54.0 million and $6.6 million for the year ended
December 31, 1997 and 1996, respectively. Cost of sales in 1996 reflects the
business of Flavors since the Flavors Acquisition on November 25, 1996,
including one month's amortization of the purchase accounting write-up related
to inventory of $1.3 million and depreciation expense on property, plant and
equipment, whereas 1997 reflects an entire year's results.
SG&A expenses (income) were $9.9 million and $(0.1) million for the years
ended December 31, 1997 and 1996, respectively. The 1996 income primarily
reflects on-going corporate costs and SG&A expenses of Flavors since the
Flavors Acquisition on November 25, 1996, offset by income recognized on the
Company's overfunded pension plan, whereas 1997 reflects an entire year's
results.
Amortization of intangibles was $4.3 million and $0.4 million for the
years ended December 31, 1997 and 1996, respectively. Amortization of
intangibles in 1996 reflects expense since the Flavors Acquisition, whereas
1997 reflects an entire year's results.
Interest expense was $7.1 million and $0.9 million for the years ended
December 31, 1997 and 1996, respectively. The 1996 expense reflects interest
expense on the debt of Pneumo Abex since the Flavors Acquisition on November
25, 1996, whereas 1997 reflects an entire year's results.
Interest, investment and other income, net was $0.5 million and $8.9
million for the years ended December 31, 1997 and 1996, respectively. Interest,
investment and other income, net in 1997 primarily relates to interest income
on cash and cash equivalents. Interest, investment and other income, net in
1996 primarily reflects income on the proceeds from the Aerospace Sale which
were invested in cash equivalents and marketable securities pending its use to
finance the Flavors Acquisition.
The Company recorded a tax provision from continuing operations of $3.4
million (an effective rate of 13.1%) and $0.2 million (an effective rate of
1.9%) for the years ended December 31, 1997 and 1996, respectively. For the
year ended December 31, 1997, the effective tax rate differs from the statutory
tax rate primarily due to the reduction of the valuation allowance which
represents a portion
15
<PAGE>
of the Company's net operating losses which are expected to be utilized. For
the year ended December 31, 1996, the effective tax rate differs from the
statutory tax rate primarily due to the benefit realized on the tax loss
associated with discontinued operations as well as a reduction of the valuation
allowance which represents a portion of the Company's net operating losses
which are expected to be utilized. Based upon the combined results of
operations of Mafco Worldwide and the Company over the last several years and
taking into consideration the current operating environment of the tobacco
industry, the Company believes that is more likely than not that these tax
benefits will be realized. However, realization of the net deferred tax assets
and future reversals of the valuation allowance will depend on future earnings
and accordingly the valuation allowance will be evaluated on a periodic basis.
Income from discontinued operations of Aerospace for the year ended
December 31, 1996 was $4.4 million representing the results of Aerospace
through April 15, 1996, the date of sale.
The Company recorded a net gain of $153.7 million related to the
Aerospace Sale in the year ended December 31, 1996. There were no income taxes
provided in connection with the sale as the tax bases of the assets and
liabilities sold exceeded the net proceeds and resulted in a tax loss.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Net sales were $9.5 million for the year ended December 31, 1996. Net
sales reflects the business of Flavors since the Flavors Acquisition on
November 25, 1996.
Cost of sales were $6.6 million for the year ended December 31, 1996.
Cost of sales reflects the business of Flavors since the Flavors Acquisition on
November 25, 1996, including one month's amortization of the purchase
accounting write-up related to inventory of $1.3 million and depreciation
expense on property, plant and equipment.
SG&A expenses (income) were $(0.1) million and $10.5 million for the
years ended December 31, 1996 and 1995, respectively. The 1996 income primarily
reflects on-going corporate costs and SG&A expenses of Flavors since the
Flavors Acquisition on November 25, 1996, including one month's amortization
of the purchase accounting adjustments related to intangibles offset by income
recognized on the Company's overfunded pension plan. The 1995 expenses
primarily related to costs associated with the former office of Abex before the
Transfer and Abex Merger and on-going corporate costs of the Company after the
Transfer and Abex Merger, partially offset by income recognized on the
Company's overfunded pension plan.
Interest expense was $0.9 million and $0.4 million for the years ended
December 31, 1996 and 1995, respectively. The increase primarily reflects
interest expense on the debt of Pneumo Abex since the Flavors Acquisition on
November 25, 1996.
Interest, investment and other income, net was $8.9 million and $6.9
million for the years ended December 31, 1996 and 1995, respectively. Interest,
investment and other income, net in 1996 primarily reflects income on the
proceeds from the Aerospace Sale which were invested in cash equivalents and
marketable securities pending its use to finance the Flavors Acquisition.
Interest, investment and other income, net in 1995 primarily relates to
interest income on cash held by Abex before the Abex Merger and Transfer.
The Company recorded a tax provision from continuing operations of $0.2
million (an effective rate of 1.9%) and $0.0 for the years ended December 31,
1996 and 1995, respectively. For the year ended December 31, 1996, the
effective tax rate differs from the statutory tax rate primarily due to the
16
<PAGE>
benefit realized on the tax loss associated with discontinued operations as
well as a reduction of the valuation allowance which represents a portion of
the Company's net operating losses which are expected to be utilized. Based
upon the combined results of operations of Mafco Worldwide and the Company over
the last several years and taking into consideration the current operating
environment of the tobacco industry, the Company believes that is more likely
than not that these tax benefits will be realized. However, realization of the
net deferred tax assets and future reversals of the valuation allowance will
depend on future earnings and accordingly the valuation allowance will be
evaluated on a periodic basis.
Income from discontinued operations of Aerospace was $4.4 million and
$16.9 million for the years ended December 31, 1996 and 1995, respectively. The
1996 period represents the results of Aerospace through April 15, 1996, the
date of sale while the 1995 period represents Aerospace for the full period.
The Company recorded a net gain of $153.7 million related to the
Aerospace Sale in the year ended December 31, 1996. There were no income taxes
provided in connection with the sale as the tax bases of the assets and
liabilities sold exceeded the net proceeds and resulted in a tax loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows provided by (used in) operating activities
were $25.3 million, $8.2 million and ($16.8) million for the years ended
December 31, 1997, 1996 and 1995, respectively. Cash provided by operating
activities during 1997 was primarily from net income. Cash provided by
operating activities during 1996 primarily reflects interest and investment
income and operating cash flows of Flavors since the Flavors Acquisition.
Operating cash used during 1995 reflects payment of corporate expenses related
to the former corporate office of Abex as well as payments with respect to
non-operating liabilities of Abex prior to the Abex Merger and the Transfer.
Cash flows used in investing activities during 1997 consisted of capital
expenditures of $2.3 million, and $1.9 million for a 50% equity investment in a
Peoples' Republic of China ("PRC") company and the purchase of a U.S. company
which owns a PRC company. Cash flows provided by investing activities during
1996 consisted primarily of the proceeds from the sale of Aerospace partially
offset by the cash used in the Flavors Acquisition. In 1995, cash flows used in
investing activities was $181.2 million, which reflects cash transferred in the
Abex Merger. Capital expenditures by the Company during 1996 since the Flavors
Acquisition were $0.2 million. On a pro forma basis, assuming the Flavors
Acquisition had occurred on January 1, 1995, capital expenditures would have
been $1.9 million and $2.3 million in 1996 and 1995, respectively. While the
Company has not made any significant commitments for capital expenditures, they
are planned to be approximately $3.0 million for 1998.
Cash flows used in financing activities in 1997 primarily reflects the
refinancing of the Company's 11 7/8% Senior Subordinated Notes due 2002 in
November 1997 with borrowings under a new credit agreement and available cash.
Cash flows from financing activities in 1996 and 1995 primarily reflect net
repayments of borrowings of $25.1 million and $31.1 million, respectively. In
November 1997, the Company entered into a five-year $120.0 million revolving
credit facility with a group of banks to finance the redemption of all of its
outstanding debt and for its working capital and other general corporate
purposes. At December 31, 1997, $76.6 million was borrowed under this facility
and $23.5 million was reserved for lender guarantees on outstanding letters of
credit. Management believes the remaining availability of approximately $19.9
million under the revolving credit facility and cash generated from operations
will be sufficient to meet the Company's needs for working capital, capital
expenditures and debt service for the foreseeable future.
17
<PAGE>
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company has completed a preliminary assessment and plans to modify or
replace portions of the software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total year
2000 project cost is not expected to be significant and will be expensed as
incurred. To date, the Company has not incurred significant expenses relating
to the year 2000 issue.
The project is estimated to be completed no later than December 31, 1998,
which is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the year 2000 issue will not pose significant operational problems
for its computer systems. Based on the Company's preliminary assessment, if
such modifications and conversions are not made, or are not completed timely,
the Company does not believe that the year 2000 issue will have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could materially differ from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability of personnel trained in this area, the ability to locate and
correct all relevant computer codes and similar uncertainties.
TAX MATTERS
In connection with the Abex Merger and the Transfer, MCG and the Company
entered into a tax sharing agreement. Under the indemnification provisions of
the tax sharing agreement and with respect to periods ending on or prior to
June 15, 1995, MCG will generally be required to pay any tax liabilities of the
Company, except for foreign income taxes related to Aerospace. At December 31,
1997, the Company had available Federal net operating loss carryforwards of
approximately $184.7 million, which expire in years 2000 through 2011.
OTHER
The Company is indemnified by third parties with respect to certain
environmental and asbestos matters, as well as certain tax and other matters.
The Company has not recognized any liability in its financial statements for
matters covered by indemnification agreements. The Company considers these
obligations to be those of third-party indemnitors and monitors their financial
position to determine the level of uncertainty associated with their ability to
satisfy their obligations. Based upon the indemnitors' active management of
indemnifiable matters, discharging of the related liabilities when required,
and financial positions based upon publicly filed financial statements, as well
as the history of insurance recovery set forth above, the Company believes that
the likelihood of indemnitors failing to satisfy their obligations is remote.
18
<PAGE>
For a discussion of certain indemnification obligations to the Company,
see Item 1. Business - Corporate Indemnification Matters.
FOREIGN EXCHANGE
Most of the Company's export sales and purchase of licorice raw
materials are made in U.S. dollars. The Company's French subsidiary sells in
several European currencies as well as the U.S. dollar and purchases raw
materials principally in U.S. dollars.
INFLATION
Prior to 1993, Mafco Worldwide had historically been able to pass
inflationary increases for raw materials and other costs onto customers through
price increases. Since 1993, inflationary increases for raw materials and other
costs have not been significant. There can be no assurance that the Company
will be able to pass on future cost increases to its customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements and supplementary data listed in the
accompanying Index to Consolidated Financial Statements and Schedule on page
F-1 herein. Information required by other schedules called for under Regulation
S-X is either not applicable or is included in the financial statements or
notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None in 1997.
On November 25, 1996, the Registrant dismissed Arthur Andersen LLP ("AA")
and engaged Ernst & Young LLP ("E&Y") as its independent auditors. This change
of auditors was approved by the Registrant's Board of Directors based upon the
recommendation of its Audit Committee.
In connection with the audits of the Registrant's financial statements
for each of the years in the two year period ended December 31, 1995, and the
subsequent interim period, there have been no disagreements with AA on any
matters of accounting principles or practices, financial statement disclosure
or auditing scope and procedures.
The reports of AA on the Registrant's financial statements for each of
the years in the two year period ended December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.
The Registrant obtained from AA a letter addressed to the Commission
stating that it agrees with the statements in the three preceding paragraphs. A
copy of that letter, dated December 5, 1996 was filed as Exhibit 16.1 of Form
8-K/A on December 23, 1996.
On November 25, 1996, the Registrant consummated the Flavors Acquisition.
E&Y has been the independent auditors for Flavors since 1987.
Prior to the Flavors Acquisition, the Registrant had no operating assets.
Its primary assets were short term marketable securities. Substantially all of
these securities were used to acquire Flavors. Accordingly, the capital stock
of Flavors is currently the Registrant's primary asset. E&Y is also the auditor
for MCG.
19
<PAGE>
PART III
The information required by Part III, Items 10 through 13, of Form 10-K
is incorporated by reference from the Registrant's definitive proxy statement
for its 1998 annual meeting of stockholders, which is to be filed pursuant to
Regulation 14A not later than April 30, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1 and 2) Financial statements and financial statement schedule. See
Index to Consolidated Financial Statements and Schedule which appears
on page F-1 herein.
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Master Asset Purchase Agreement, dated as of January
15, 1996, as amended, by and among the Company, Pneumo
Abex and Parker Hannifin, without exhibits and
schedules (incorporated by reference to Exhibit 2.1 to
M&F Worldwide's Form 10-K dated December 31, 1995).
2.2 Closing Agreement, dated as of April 15, 1996, by and
among the Company, Pneumo Abex and Parker Hannifin
(incorporated by reference to Exhibit 2.2 to M&F
Worldwide's Form 8-K dated April 30, 1996).
2.3 Stock and VSR Purchase Agreement, dated as of October
23, 1996, by and among Mafco, the Company and PCT
International Holdings Inc. (incorporated by reference
from Exhibit 7 of Mafco's Schedule 13D, dated October
25, 1996, filed with respect to M&F Worldwide).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to M&F
Worldwide's Form 8-K dated April 30, 1996).
3.2 By-Laws of the Company as currently in effect
(incorporated by reference to Exhibit 3.2 to M&F
Worldwide's Form 10-K dated December 31, 1995).
4.1 Form of Indenture, together with form of Senior
Subordinated Note (incorporated by reference to
Amendment No. 1 to Mafco Worldwide's Registration
Statement on Form S-1 (33-48904) (the "1992 S-1")).
20
<PAGE>
4.2 First Supplemental Indenture, dated as of November 25,
1996, between Pneumo Abex Corporation and First Trust
of New York, National Association, pursuant to the
Indenture dated as of November 12, 1992 between Mafco
Worldwide Corporation and First Trust of New York,
National Association (successor to Security Pacific
National Trust Company (New York), as trustee).
4.3 Form of Purchase Agreement among Mafco Worldwide,
Flavors Holdings Inc. and the institutional sellers
party thereto (incorporated by reference to Amendment
No. 2 to the 1992 S-1).
4.4 Credit Agreement dated as of June 29, 1994 among Mafco
Worldwide, the Banks (as defined in the Credit
Agreement) and The Chase Manhattan Bank, N.A., as agent
(incorporated by reference to Mafco Worldwide's Form
10-Q filed August 16, 1994).
4.5 Consent Number 5 and First Amendment, dated as of
November 11, 1996, to the Credit Agreement dated as of
June 29, 1994 among Mafco Worldwide, the Banks (as
defined in the Credit Agreement) and The Chase
Manhattan Bank, N.A., as agent.
4.6 Consent Number 6 and Second Amendment, dated as of
December 12, 1996, to the Credit Agreement, dated as of
June 29, 1994 among Pneumo Abex Corporation, the Banks
(as defined in the Credit Agreement) and The Chase
Manhattan Bank, as agent.
4.7 Third Amendment dated as of February 5, 1997, to the
Credit Agreement, dated as of June 29, 1994 among
Pneumo Abex Corporation, the Banks (as defined in the
Credit Agreement and The Chase Manhattan Bank, as
agent.
4.8 Assumption Agreement, dated as of November 25, 1996,
made by Pneumo Abex Corporation in favor of the Banks
(as defined in the Assumption Agreement and The Chase
Manhattan Bank (successor by merger to The Chase
Manhattan Bank, N.A.) as agent.
10.1 Transfer Agreement among the Company, MCG Intermediate
Holdings Inc., Pneumo Abex and PCT International
Holdings Inc. (incorporated by reference to Exhibit
10.1 to PCT's Current Report on Form 8-K dated June
28, 1995).
10.2 Tax Sharing Agreement between the Company and Mafco
(incorporated by reference to Exhibit 10.2 to M&F
Worldwide's Form 10-K dated December 31, 1995).
10.3 Registration Rights Agreement between Mafco and the
Company (incorporated by reference to Exhibit 2 to the
Schedule 13D dated June 26, 1995 filed by Mafco
Holdings Inc., Mafco Consolidated Holdings Inc. and
Mafco in connection with the Company's capital stock).
21
<PAGE>
10.4 Letter Agreement, dated as of June 26, 1995, between
the Company and Mafco (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form
8-K dated June 28, 1995).
10.5 Letter Agreement, dated as of February 5, 1996,
between the Company and Mafco (incorporated by
reference to Exhibit 6 to Amendment No. 2 to Schedule
13D dated February 8, 1996 filed by Mafco Holdings
Inc., Mafco Consolidated Holdings Inc. and Mafco in
connection with the Company's capital stock).
10.6 Reimbursement Agreement, dated as of February 5, 1996,
among the Company, Mafco and Chemical Bank
(incorporated by reference to Exhibit 10.6 to M&F
Worldwide's Form 10-K dated December 31, 1995).
10.7 Stock Purchase Agreement, dated April 28, 1988, between
Pneumo Abex and Whitman Corporation (incorporated by
reference to Exhibit 2.1 to Pneumo Abex's Registration
Statement on Form S-1, Commission File No. 33-22725) as
amended by an Amendment, dated as of August 29, 1988,
and a Second Amendment and related Settlement
Agreement, dated September 23, 1991 (incorporated by
reference to exhibit 10.4 to Abex Inc.'s Annual Report
on Form 10-K for 1992).
10.8 Asset Purchase Agreement, dated as of May 15, 1993,
between Pneumo Abex and The BF Goodrich Company
(incorporated by reference to Exhibit 2.1 to Abex
Inc.'s Current Report on Form 8-K dated June 10,
1993).
10.9 Asset Purchase Agreement, dated as of November 21,
1994, by and between Pneumo Abex and Wagner Electric
Corporation (incorporated by reference to Exhibit 1 to
Abex Inc.'s Current Report on Form 8-K dated November
21, 1994).
10.10 Lease dated as of December 26, 1989, between MacAndrews
& Forbes Group, Inc. and Fulton Bottom Associates, L.P.,
as amended on May 14, 1990, and as further amended on
October 15, 1991 (incorporated by reference to the
1992 S-1).
10.11 Contract dated as of May 31, 1994 between Mafco
Worldwide and the Licorice and Paper Employees
Association of Camden, N.J. (incorporated by reference
to Mafco Worldwide's Form 10-Q filed November 14,
1994).
10.12 Agreement dated January 1, 1994 between M.F. Neal &
Co. and Local Union No. 309T (incorporated by
reference to Mafco Worldwide's 1993 Form 10-K).
10.13 Form of Reimbursement Agreement between the Company and
Holdings (incorporated by reference to Amendment No. 2
to the 1992 S-1).
22
<PAGE>
10.14 Consent Number 1 and First Amendment, dated as of
November 25, 1996, to the Reimbursement Agreement,
dated as of February 5, 1996, among Pneumo Abex
Corporation (the "Account Party"), Mafco (the
"Guarantor") and The Chase Manhattan Bank as issuing
bank.
10.15 Form of License Agreement between Mafco Worldwide and
Holdings (incorporated by reference to Amendment No.
2 to the 1992 S-1).
10.16 Form of Lease to be dated March 31, 1993 between the
Company and H.W.R. Corporation (incorporated by
reference to Mafco Worldwide's 1992 Form 10-K).
10.17 Tax Sharing Agreement between Mafco Worldwide and Mafco
(incorporated by reference to Mafco Worldwide's 1995
Form 10-K).
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.18 M&F Worldwide 1995 Stock Plan (the "1995 Stock Plan")
for employees of the Company and employees of
affiliated corporations (incorporated by reference to
Annex C to the Proxy Statement/Prospectus included in
the Company's Registration Statement on Form S-1 (File
No. 33-92186)).
10.19 Amendment to the 1995 Stock Plan
10.20 Amendment dated June 15, 1995 to Trust Agreement
dated as of July 1, 1992 between Pneumo Abex and
Mellon with respect to the 1992 Stock Trust for Former
Participants in the 1989 Stock Plan for Executive
Employees of the Henley Group and its Subsidiaries
(incorporated by reference to Exhibit 10.16 to M&F
Worldwide's Form 10-K dated December 31, 1995).
10.21 Abex Inc. Executive Retirement and Savings Program as
amended and restated effective June 15, 1995
(incorporated by reference to Exhibit 10.17 to M&F
Worldwide's Form 10-K dated December 31, 1995).
10.22 Trust Agreement dated July 1, 1992 between MCG
Intermediate Holdings Inc. and Mellon, as amended and
restated effective as of June 15, 1995 (incorporated by
reference to Exhibit 10.18 to M&F Worldwide's Form 10-K
dated December 31, 1995).
10.23 First Amendment, dated November 13, 1995, to Amended
and Restated Trust Agreement between MCG Intermediate
Holdings Inc. and Mellon (incorporated by reference to
Exhibit 10.19 to M&F Worldwide's Form 10-K dated
December 31, 1995).
10.24 Employment agreement, dated January 7,1997, between
the Registrant and J. Eric Hanson.
10.25 The Company's 1997 Stock Option Plan.
23
<PAGE>
10.26 Tobacco Products Group Performance Bonus Plan
(incorporated by reference to Exhibit 10.5 to Mafco's
Form 10-Q dated March 31, 1996).
10.27* Credit Agreement dated as of November 17,, 1997
among Pneumo Abex, the lenders (as defined in the
Credit Agreement), Chase Manhattan Bank, Chase
Securities Inc., Bank Boston, N.A. and Chase Manhattan
Bank Delaware.
10.28* Contract dated as of May 31, 1997 between Mafco
Worldwide and Licorice and Paper Employees Association
of Camden, New Jersey AFL-CIO.
16.1 Letter on change in certifying accountant
(incorporated by reference to Exhibit 16.1 of Form
8-K/A of M&F Worldwide filed on December 23, 1996).
21* List of subsidiaries
23.1* Consent of Ernst & Young LLP
23.2* Consent of Arthur Andersen LLP
24* Powers of attorney executed by Messrs. Perelman,
Durnan, Folz, Gittis, Hanson, Liebman, Meister, Roche
and Slovin.
27* Financial data schedule
*Filed herein.
(b) Reports on Form 8-K:
Form 8-K filed on November 27, 1996 (Items 2, 4 and 7).
Form 8-K/A filed on December 23, 1996 (Item 4).
24
<PAGE>
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, thereto duly authorized.
M&F WORLDWIDE CORP.
Dated: March 25, 1998 By: Theo W. Folz*
----------------------------------------
Theo W. Folz
Chairman of the Board,
President and Chief Executive Officer
Dated: March 25, 1998 By:/s/Irwin Engelman
----------------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Dated: March 25, 1998 By:/s/Laurence Winoker
-----------------------------------------
Laurence Winoker
Vice President and Controller
(Chief Accounting Officer)
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and of the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Ronald O. Perelman * Director March 25, 1998
- --------------------------------
Ronald O. Perelman
Jaymie A. Durnan * Director March 25, 1998
- --------------------------------
Jaymie A. Durnan
Theo W. Folz * Director March 25, 1998
- --------------------------------
Theo W. Folz
Howard Gittis * Director March 25, 1998
- --------------------------------
Howard Gittis
J. Eric Hanson * Director March 25, 1998
- --------------------------------
J. Eric Hanson
Lance A. Liebman * Director March 25, 1998
- --------------------------------
Lance A. Liebman
Paul M. Meister * Director March 25, 1998
- --------------------------------
Paul M. Meister
James G. Roche* Director March 25, 1998
- --------------------------------
James G. Roche
Bruce Slovin * Director March 25, 1998
- --------------------------------
Bruce Slovin
* The undersigned by signing his name hereto does hereby execute this Form
10-K pursuant to powers of attorney filed as exhibits to this Form 10-K.
Dated: March 25, 1998 By:/s/Joram Salig
----------------------------------------
Joram Salig
Attorney-in-Fact
26
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
ITEM 8, ITEM 14 (A)(1) AND (2) AND (D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1997
The following consolidated financial statements of M&F Worldwide are
included in Item 8:
As of December 31, 1997 and 1996 and for the years ended December 31,
1997, 1996 and 1995.
Pages
-----
Reports of Independent Auditors........................................ F-2
Consolidated Balance Sheets............................................ F-4
Consolidated Statements of Income...................................... F-5
Consolidated Statements of Stockholders' Equity........................ F-6
Consolidated Statements of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements............................. F-8
The following financial statement schedule of M&F Worldwide is included
in Item 14(d):
Schedule I - Condensed Financial Information of Registrant............. F-29
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-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
M&F Worldwide Corp.
We have audited the accompanying consolidated balance sheets of M&F Worldwide
Corp. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of M&F
Worldwide Corp. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 5, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of M&F Worldwide Corp.
(formerly Power Control Technologies, Inc.)
We have audited the consolidated statement of income of M&F Worldwide Corp.
(formerly Power Control Technologies, Inc.) and Subsidiaries for the year ended
December 31, 1995, and the related consolidated statements of stockholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of M&F Worldwide
Corp. (formerly Power Control Technologies, Inc.) and Subsidiaries for the year
ended December 31, 1995, and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Detroit, Michigan
March 11, 1996, except for the first
paragraph of Note 4, as to which the
date is February 3, 1997.
F-3
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 0.4 $ 5.7
Trade accounts receivable, net 10.0 11.3
Inventories 50.0 46.0
Prepaid expenses and other 1.1 3.3
-------- --------
Total current assets 61.5 66.3
Property, plant and equipment, net 25.8 26.3
Deferred tax asset, net 38.4 38.4
Intangibles assets related to business acquired, net 167.6 172.7
Other assets 19.8 14.4
-------- --------
Total assets $ 313.1 $ 318.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1.0 $ 0.0
Trade accounts payable 5.7 5.2
Accrued compensation and benefits 3.6 3.1
Taxes payable 2.7 1.4
Deferred cash payments due to MCG 3.5 7.2
Other accrued expenses 6.4 6.8
-------- --------
Total current liabilities 22.9 23.7
Long-term debt 76.6 100.1
Other liabilities 8.0 8.3
Redeemable preferred stock 20.0 20.0
Commitments and contingencies -- --
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,656,502 shares issued and outstanding in 1997 and 1996 0.2 0.2
Additional paid-in capital 26.7 26.7
Retained earnings 160.2 139.3
Currency translation adjustment (1.5) (0.2)
-------- --------
Total stockholders' equity 185.6 166.0
-------- --------
Total liabilities and stockholders' equity $ 313.1 $ 318.1
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 100.4 $ 9.5 $ 0.0
Cost of sales (54.0) (6.6) 0.0
------- ------ ------
Gross profit 46.4 2.9 0.0
Selling, general and administrative (expenses) income (9.9) 0.1 (10.5)
Amortization of intangibles (4.3) (0.4) --
Other, net 0.3 -- --
------- ------ ------
Operating profit (loss) 32.5 2.6 (10.5)
Interest expense (7.1) (0.9) (0.4)
Interest, investment and other income, net 0.5 8.9 6.9
------- ------ ------
Income (loss) from continuing operations before income taxes 25.9 10.6 (4.0)
Provision for income taxes (3.4) (0.2) 0.0
------- ------ ------
Income (loss) from continuing operations 22.5 10.4 (4.0)
Discontinued operations
Income from operations of discontinued aerospace business, net of tax -- 4.4 16.9
Gain on sale of discontinued aerospace business -- 153.7 0.0
------- ------ ------
Income from discontinued operations, net of taxes -- 158.1 16.9
Income before extraordinary loss 22.5 168.5 12.9
Extraordinary loss -- -- (1.6)
------- ------ ------
Net income 22.5 168.5 11.3
------- ------ ------
Preferred stock dividends (1.6) (1.6) (0.9)
------- ------ ------
Net income available to common stockholders $ 20.9 $166.9 $ 10.4
======= ====== ======
Basic income (loss) per common share:
Continuing operations $ 1.01 $ 0.43 $ (0.24)
Discontinued operations -- 7.64 0.83
------- ------ ------
1.01 8.07 0.59
Extraordinary loss -- -- (0.08)
------- ------ ------
Net income $ 1.01 $ 8.07 $ 0.51
======= ====== ======
Diluted income (loss) per common share:
Continuing operations $ 0.96 $ 0.43 $(0.24)
Discontinued operations -- 7.64 0.83
------- ------ ------
0.96 8.07 0.59
Extraordinary loss -- -- (0.08)
------- ------ ------
Net income $ 0.96 $ 8.07 $ 0.51
======= ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in millions)
<TABLE>
<CAPTION>
Retained
Additional Earnings/ Currency
Common Paid-in (Accumulated Translation
Stock Capital Deficit) Adjustment Total
------- ---------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $0.2 $116.8 $(14.8) $ -- $102.2
Transfer of assets, liabilities and
issuance of redeemable preferred stock (90.1) (90.1)
Net income 11.3 11.3
Preferred stock dividends (0.9) (0.9)
---- ----- ------ ----- ------
Balance, December 31, 1995 0.2 26.7 (4.4) -- 22.5
Net income 168.5 168.5
Preferred stock dividends (1.6) (1.6)
Currency translation adjustment (0.2) (0.2)
Distribution of VSRs (23.2) (23.2)
---- ----- ------ ----- ------
Balance, December 31, 1996 0.2 26.7 139.3 (0.2) 166.0
Net income 22.5 22.5
Preferred stock dividends (1.6) (1.6)
Currency translation adjustment (1.3) (1.3)
---- ----- ------ ----- ------
Balance, December 31, 1997 $0.2 $26.7 $160.2 $(1.5) $185.6
==== ===== ====== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 22.5 $168.5 $ 11.3
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Income from operations of discontinued businesses -- (4.4) (16.9)
Gain on sale of discontinued businesses -- (153.7) --
Extraordinary loss -- -- 1.6
Depreciation and amortization 6.7 0.5 1.1
Changes in assets and liabilities net of assets and liabilities
Total current assets transferred, sold or acquired
Increase in trade accounts receivable 0.8 0.9 --
Decrease in net assets held for sale -- -- 5.2
Increase in inventories (4.8) (0.1) --
Increase (decrease) in accounts payable and accrued expenses 0.7 0.9 (25.1)
Other, net (0.6) (4.4) 6.0
------- ------ ------
Cash provided by (used in) operating activities 25.3 8.2 (16.8)
------- ------ ------
Cash flows used in investing activities
Proceeds from sale of discontinued operations, net -- 196.8 --
Capital expenditures (2.3) (0.2) --
Acquisition of Flavors, net of cash acquired -- (178.4) --
Transfer of cash in Abex Merger -- -- (181.2)
Investment in Peoples' Republic of China companies (1.9) -- --
------- ------ ------
Cash (used in) provided by investing activities (4.2) 18.2 (181.2)
------- ------ ------
Cash flows used in financing activities
Repayment of borrowings (105.6) (25.1) (31.1)
Net short term borrowings 1.0 -- --
Proceeds from revloving credit facility 82.1 7.3 --
Preferred stock dividends paid (1.2) (1.6) (0.9)
Deferred cash payment to MCG (3.7) -- --
Other, net 1.2 (1.3) --
------- ------ ------
Cash used in financing activities (26.2) (20.7) (32.0)
------- ------ ------
Effect of exchange rate on cash (0.2) -- --
Net (decrease) increase in cash and cash equivalents (5.3) 5.7 (230.0)
Cash and cash equivalents at beginning of year 5.7 -- 230.0
------- ------ ------
Cash and cash equivalents at end of year $ 0.4 $ 5.7 $ 0.0
======= ====== ======
Supplemental schedule of cash flow information:
Interest paid $ 10.4 $ 0.3 $ 4.0
Taxes paid 1.6 2.7 2.3
</TABLE>
See Notes to Consolidated Financial Statement.
F-7
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BACKGROUND AND BASIS OF PRESENTATION
M&F Worldwide Corp. (formerly Power Control Technologies, Inc.) ("M&F
Worldwide" or the "Company") was incorporated in Delaware on June 1, 1988 and
is a holding company which conducts its operations through its wholly-owned
subsidiary Pneumo Abex Corporation ("Pneumo Abex").
M&F Worldwide has been a public company since June 15 1995 when shares of
its common stock, par value $.01 per share (the "M&F Worldwide Common Stock"),
were publicly distributed (the "M&F Worldwide Distribution") to existing
stockholders of Abex Inc. ("Abex"), M&F Worldwide's former parent, in
connection with the merger (the "Abex Merger") of Abex and a wholly-owned
subsidiary of Mafco Holdings Inc. ("Holdings") and the related transfer (the
"Transfer") to subsidiary of Mafco Consolidated Group Inc. ("MCG") of
substantially all of Abex's consolidated assets and liabilities, other than
those relating to its Abex NWL Aerospace Division ("Aerospace"), which
continued to be owned by M&F Worldwide. On July 16, 1992, Abex was spun off
(the "Abex Distribution") from the Henley Group Inc. ("Henley Group").
Following the Abex Distribution and prior to the M&F Worldwide Distribution,
Abex through M&F Worldwide, sold three of its five operating divisions and
combined the two others to form Aerospace. Prior to July 16, 1992, M&F
Worldwide was an indirect wholly-owned subsidiary of Henley Group. The assets
of Aerospace were subsequently sold (the "Aerospace Sale") in April 1996 (see
Note 4).
On June 15, 1995, the Company transferred cash and other assets and
liabilities to MCG The assets and liabilities transferred were as follows:
Accounts receivable, net $ 3.3
Working capital items, net 1.6
Property and equipment, net 13.9
Other assets and liabilities, net (79.3)
Accounts payable (0.2)
Accrued liabilities (52.1)
Dividend (68.4)
--------
Cash transferred $(181.2)
In addition to the transfer of cash and other assets and liabilities, the
Company issued $20.0 par value of 8% cumulative, redeemable convertible
preferred stock (the "Preferred Stock") to MCG (see Note 9).
On November 25, 1996, MCG and M&F Worldwide consummated the transactions
contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement").
Pursuant to the Purchase Agreement, among other things, all the issued and
outstanding shares (the "Shares") of capital stock of Flavors Holdings Inc.
("Flavors"), a wholly-owned subsidiary of MCG were acquired by the Company (see
Note 3).
F-8
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Flavors produces a variety of licorice products from licorice root,
licorice extract produced by others and certain other flavor ingredients at its
facilities in Camden, New Jersey and Gardanne, France. Approximately 72% of
Flavors' licorice sales are to the worldwide tobacco industry for use as
flavoring and moistening agents in the manufacture of American blend cigarettes
as well as other tobacco products (moist snuff, chewing tobacco and pipe
tobacco). While licorice extract represents a small percentage of the total
cost of manufacturing American blend cigarettes and other tobacco products, the
particular formulation and quantity used by each brand is an important element
in the brand's flavor. Flavors also sells licorice extract to worldwide
confectioners, food processors and pharmaceutical manufacturers for use as
flavoring or masking agents. In addition, Flavors sells licorice root residue
as a garden mulch under the name Right Dress. Flavors manufactures and sells
other non-licorice products which include natural flavors, spices and
botanicals that are used as flavoring ingredients in food and tobacco products.
For financial reporting purposes, M&F Worldwide is considered the
successor to Abex Inc.; therefore, financial information presented for periods
prior to June 15, 1995 represent Abex Inc.'s results. The historical financial
statements prior to June 15 include in continuing operations expenses related
to Abex Inc.'s former corporate office and other income and expenses related to
assets and liabilities transferred to MCG. As a result of the Aerospace Sale on
April 15, 1996 (see Note 4), the Company has classified the results of the
aerospace segment as discontinued operations for all periods presented. From
November 25, 1996, the Company's financial statements reflect the operations of
Flavors.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all material intercompany accounts
and transactions. The Company accounts for its investments in affiliates on the
equity method.
USE OF ESTIMATES:
The preparation of the 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.
REVENUE RECOGNITION:
Sales are recorded when title passes to customers.
CASH EQUIVALENTS:
Cash equivalents with maturities of 90 days or less (primarily short term
money market funds) are carried at cost which approximates market.
F-9
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
determined principally by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging from
4 to 20 years. Leasehold improvements are amortized over their estimated useful
lives or the terms of the leases, whichever is shorter. Repairs and maintenance
are charged to operations as incurred, and expenditures for additions and
improvements are capitalized.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets, including goodwill and product formulations, relate to
the Flavors Acquisition and are being amortized on a straight-line basis over
40 years. Accumulated amortization aggregated $4.7 and $0.4 at December 31,
1997 and 1996, respectively. The Company's accounting policy regarding the
assessment of the recoverability of the carrying value of goodwill is to review
the carrying value of goodwill if the facts and circumstances suggest that they
may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted future cash flows of the
Company, the carrying value of goodwill will be reduced to their estimated fair
value.
INCOME (LOSS) PER COMMON SHARE:
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with the basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effect of stock options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts have been
restated to conform to SFAS 128 requirements where appropriate (See Note 19).
F-10
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME TAXES:
The Company computes income taxes under the liability method. Under the
liability method, deferred income taxes are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
PENSION PLANS:
The Company has pension plans which cover certain current and former
employees who meet eligibility requirements. Benefits are based on years of
service and, in some cases, the employee's compensation. The Company's policy
is to contribute annually the minimum amount required pursuant to the Employee
Retirement Income Security Act. Plan assets are principally invested in common
stocks, mutual funds, fixed income securities and cash equivalents. The Company
also maintains a 401(k) plan for its non-union employees. Subsidiaries outside
the United States have retirement plans that provide certain payments upon
retirement.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are attributable to Flavors and
expensed as incurred. The amounts charged against income were not significant
in 1997 and 1996.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet date. Income
and expense items are generally translated at the average exchange rates
prevailing during the period presented. Gains and losses resulting from foreign
currency transactions are included in the results of operations and those
resulting from translation of financial statements are recorded as a component
of stockholders' equity.
STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123, encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation plans using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. (See Note 10).
F-11
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
3. FLAVORS ACQUISITION
On November 25, 1996, MCG and M&F Worldwide consummated the transactions
contemplated by the Purchase Agreement, by and among MCG, M&F Worldwide and M&F
Worldwide International Holdings Inc. ("Purchaser"), a Delaware corporation and
wholly-owned subsidiary of M&F Worldwide. Pursuant to the Purchase Agreement,
Purchaser acquired from MCG (the "Flavors Acquisition"), all the shares of
Flavors and 23,156,502 Value Support Rights (each a "VSR", and collectively,
the "VSRs") issued pursuant to a Value Support Rights Agreement (the "VSR
Agreement"), dated November 25, 1996 between MCG and American Stock Transfer &
Trust Company, as trustee. On December 31, 1996, the Company distributed to its
stockholders the VSRs received as part of the Flavors Acquisition.
In consideration for the Shares and VSRs, Purchaser paid MCG cash in the
amount of $180.0. In addition, Purchaser paid MCG deferred cash payments of
$3.7 on June 30, 1997 and $3.5 on January 2, 1998.
Each of the Purchase Agreement and VSR Agreement were unanimously
approved by the Boards of Directors of MCG and M&F Worldwide and, in the case
of M&F Worldwide, by a Special Committee of independent directors formed for
the purpose of considering the transaction. MCG owns approximately 30% of the
outstanding shares of M&F Worldwide Common Stock and all of the Preferred Stock
with an aggregate liquidation preference of $20.0 (see Note 9).
Immediately following the Flavors Acquisition, Mafco Worldwide, a
wholly-owned subsidiary of Flavors, through a series of transactions merged
with and into Pneumo Abex, with Pneumo Abex being the surviving corporation and
Pneumo Abex becoming a wholly-owned subsidiary of Flavors.
The Flavors Acquisition was accounted for using the purchase method of
accounting. The allocation of the purchase price to assets and liabilities was
based on their respective fair values at November 25, 1996. The purchase price
and expenses associated with the acquisition exceeded the fair value of
Flavors' net assets by $95.1 and has been assigned to goodwill, which is being
amortized over forty years on the straight-line basis. The fair values of the
assets and liabilities acquired are summarized below:
Current assets $ 63.3
Noncurrent assets 260.2
Current liabilities (22.8)
Noncurrent liabilities (111.5)
------
$189.2
======
The following unaudited pro forma consolidated financial information
gives effect to the Flavors Acquisition, the Abex Merger and Transfer and the
Aerospace Sale as if such transactions occurred on January 1, 1995. These pro
forma results include certain adjustments, primarily increased depreciation and
amortization and decreased interest and tax expense, and are not necessarily
indicative of what the results would have been had the acquisition occurred on
January 1, 1995.
F-12
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-------------------
1996 1995
----- ------
<S> <C> <C>
Net sales $103.4 $103.2
Income from continuing operations 20.9 13.8
Net income 20.9 13.8
Basic income per share .93 .59
Diluted income per share .90 .59
</TABLE>
4. DISCONTINUED OPERATIONS
On April 15, 1996, the Company consummated the Aerospace Sale, pursuant
to which it sold to Parker Hannifin Corporation ("Parker Hannifin") its
Aerospace operations including substantially all of its assets for aggregate
cash consideration of $201.1, before transaction costs of approximately $4.3.
As a result of the Aerospace Sale, the Company has classified the results of
operations of the aerospace segment as discontinued for all periods presented.
The Company recorded a gain of $153.7 related to this sale, net of
transaction costs. In connection with the Aerospace Sale, Parker Hannifin, the
buyer, assumed the operating liabilities of Aerospace, including the existing
debt of the Company.
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
------ -----
<S> <C> <C>
Raw materials $36.6 $32.2
Work-in-progress 0.6 0.4
Finished goods 12.8 13.4
----- -----
$50.0 $46.0
===== =====
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 1.7 $ 1.7
Buildings 7.7 7.5
Machinery and equipment 18.7 16.9
Construction-in-progress 0.1 0.4
------ ------
28.2 26.5
Accumulated depreciation (2.4) (0.2)
------ ------
$25.8 $26.3
====== ======
</TABLE>
F-13
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Depreciation expense was $2.3 and $0.2 in 1997 and 1996, respectively.
7. INCOME TAXES
Information pertaining to the Company's income (loss) from continuing
operations before income taxes and the applicable provision for income taxes is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Income (loss) from continuing operations
before income taxes:
Domestic $24.1 $10.2 $(4.0)
Foreign 1.8 0.4 -
----- ----- ------
$25.9 $10.6 $(4.0)
===== ===== =====
1997 1996 1995
---- ---- ----
Provision for income taxes:
Current:
Federal $1.0 $ - $ -
State and local 1.0 0.1 -
Foreign 0.7 0.1 -
---- ---- ---
2.7 0.2 -
Deferred:
Federal $ - $ - $ -
State and local 0.4 - -
Foreign 0.3 - -
---- ---- ---
$3.4 $0.2 $-
==== ==== ==
</TABLE>
The Company did not record a benefit on the losses from continuing
operations in 1995 as it was not assured that it would be able to realize
benefit for such losses in the future.
There were no income taxes provided in connection with the Aerospace Sale
in 1996 as the tax bases of the assets and liabilities sold exceeded the net
proceeds and resulted in a tax loss.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
F-14
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------ -------
<S> <C> <C>
Deferred tax assets:
Inventory $ 0.6 $ -
Accrued expenses and other liabilities 2.0 2.1
Debt - 4.6
Net operating loss carryforwards 64.7 67.9
Capital loss carryforwards 7.0 7.0
Minimum tax carryforward 0.2 -
----- -----
Total deferred tax asset 74.5 81.6
Valuation allowance (29.5) (38.2)
----- -----
Total deferred tax asset net of
valuation allowance 45.0 43.4
Deferred tax liabilities:
Property, plant and equipment 0.8 0.9
Pension asset 5.9 5.1
Intangibles 2.0 0.7
Other 0.2 0.1
------ ------
Total deferred tax liability 8.9 6.8
------ ------
Net deferred tax asset $36.1 $36.6
===== =====
</TABLE>
In connection with the Flavors Acquisition purchase price allocation, the
Company has reduced the valuation allowance on net deferred tax assets. Based
upon the historical results of Flavors projected for a period which takes into
consideration the current operating environment in the tobacco industry, the
Company believes that it is more likely than not that it will be able to
utilize these benefits.
The effective tax rate on income from continuing operations before income
taxes varies from the current statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% (35.0)%
State and local taxes, net 5.6 0.6 -
Alternative minimum tax 0.9 - -
Foreign tax in excess of U.S. 1.6 - -
(Decrease) increase in valuation
allowance (33.1) (4.8) 35.0
Benefit of tax loss - discontinued
operations - (28.9) -
Other 3.2 - -
------ ------- ------
13.1% 1.9% - %
====== ====== ======
</TABLE>
The Company had available Federal net operating loss carryforwards of
approximately $184.7 and $194.0 at December 31, 1997 and 1996, respectively,
which expire in the years 2000 through 2011.
F-15
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In order to protect the availability of the Company's net operating loss
carryforwards, the M&F Worldwide charter prohibits, subject to certain
exceptions, transfers of M&F Worldwide Common Stock until such date as fixed by
the Board of Directors of M&F Worldwide to any person who owns, or after giving
effect to such transfer would own, at least 5% of the outstanding M&F Worldwide
Common Stock. The Company has been advised by counsel that the transfer
restriction in the M&F Worldwide charter is enforceable. The Company intends to
take all appropriate action to preserve the benefit of the restriction
including, if necessary, the institution of legal proceedings seeking
enforcement.
In connection with the Abex Merger and the Transfer, MCG and the Company
entered into a tax sharing agreement. Under the indemnification provisions of
the tax sharing agreement and with respect to periods ending on or prior to
June 15, 1995, MCG will generally be required to pay any tax liabilities of the
Company, except for foreign income taxes related to the Aerospace division.
8. AUTHORIZED CAPITAL STOCK
M&F Worldwide's authorized capital stock consists of 250,000,000 shares
of common stock, par value $0.01 per share, of which 20,656,502 shares were
outstanding at December 31, 1997 and 1996 and 250,020,000 shares of preferred
stock, par value $0.01 per share, 20,000 of which were outstanding at December
31, 1997 and 1996.
The M&F Worldwide Common Stock is issuable in one or more series or
classes, any or all of which may have such voting powers, full or limited, or
no voting powers, and such designations, preferences and related participating,
optional or other special rights and qualifications, limitations or
restrictions thereof, are set forth in the Company's Certificate of
Incorporation or any amendment thereto, or in the resolution providing for the
issuance of such stock adopted by the Company's Board of Directors, which is
expressly authorized to set such terms for any such issue.
9. REDEEMABLE PREFERRED STOCK
In connection with the Abex Merger, as of June 15, 1995, the Company
issued $20 face amount of Preferred Stock. The Preferred Stock has a
liquidation value of $1,000 per share (the "Liquidation Value"), plus an amount
equal to all accrued and unpaid dividends to the date of final distribution.
Dividends on the Preferred Stock are cumulative and payable quarterly in
arrears at an amount per share equal to $20 per $1,000 Liquidation Value from
and after June 16, 1995. All dividends are payable in cash.
The Preferred Stock is non-voting, except as required by law and as
follows: (i) in the event M&F Worldwide defaults on the equivalent of six
quarterly dividends, the M&F Worldwide Board of Directors ("M&F Worldwide
Board") shall be increased by two, and holders of the Preferred Stock shall
have the exclusive right to elect two directors to the M&F Worldwide Board,
such right to remain in effect until all accumulated dividends have been paid
in full and dividends have been paid regularly for at least a year; (ii) in the
event M&F Worldwide defaults on its mandatory redemption obligation, the M&F
Worldwide Board shall be increased by two, and holders of the Preferred Stock
shall have the exclusive right (in addition to all other rights) to elect two
directors to the M&F
F-16
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Worldwide Board, such right to remain in effect until such default is cured;
and (iii) the affirmative vote of holders of the Preferred Stock representing
at least 662/3% of the aggregate voting power as a separate class shall be
required for (x) the authorization of any preferred stock having a preference
as to dividends or in liquidation over the Preferred Stock, and (y) the
adoption of any amendment to the M&F Worldwide charter if such amendment
materially affects any of the rights, preferences or privileges of the holders
of the Preferred Stock.
The Preferred Stock is convertible, at the option of the holder, at any
time after 90 days from June 16, 1995, into shares of M&F Worldwide Common
Stock at a rate of 125 shares of M&F Worldwide Common Stock for each share of
Preferred Stock, subject to adjustment (as so adjusted, the "Common Stock
Conversion Rate"). The Common Stock Conversion Rate is subject to appropriate
antidilution adjustment in certain situations including payment of dividends or
distributions in shares of M&F Worldwide Common Stock, any subdivision,
reclassification or combination of shares of M&F Worldwide Common Stock, or
certain rights offerings and similar issuances for consideration valued at less
than the market value of the M&F Worldwide Common Stock.
M&F Worldwide, at its sole option at any time after 90 days from June 15,
1995, may redeem the Preferred Stock for an amount with respect to each share
of Preferred Stock equal to (i) the sum of the Liquidation Value thereof and
all accrued and unpaid dividends thereon to the redemption date plus (ii) an
amount equal to interest on the amount determined in clause (i) at 8% per
annum, compounded on a quarterly basis, from the date the redemption amount is
otherwise due and payable (without regard to whether M&F Worldwide may legally
redeem such shares) to the date the redemption amount is actually paid. The
Preferred Stock is redeemable at the option of the holder of the Preferred
Stock in the event of a Change of Control, as defined.
10. STOCK AND OTHER PLANS
M&F Worldwide established two stock plans, one in 1995 and one in 1997,
(the "Stock Plans") which provide for the grant of awards covering up to
2.0 million shares of M&F Worldwide Common Stock, which would, if used in full,
represent approximately 10% of the outstanding M&F Worldwide Common Stock of
the Company subject to adjustment in the event of stock dividends, split-ups,
recapitalization and similar transactions.
During 1995, the Compensation Committee granted non-statutory stock
options (NSO's) covering 0.59 million shares at a price of $6.25 per share
which equaled the market price of the underlying stock on the date of grant and
as a result, no compensation cost was recognized. None of the options were
exercised and in connection with the Aerospace Sale in 1996, all outstanding
options under the Stock Plan were canceled. The pro forma impact of accounting
for the stock options under the fair value method prescribed by SFAS 123 was
not material to net income and net income per share for the years ended December
31, 1996 and 1995.
During 1995, the Company recognized $0.9 of compensation expense related
to the previous Abex Inc. stock plan. In connection with the Abex Merger, 1.49
million stock appreciation rights and twenty thousand restricted units held by
former Abex employees and directors were converted into 0.9
F-17
<PAGE>
million shares of M&F Worldwide Common Stock and the plans under which such
shares were issued were terminated.
During 1997, the Company issued 1.6 million non-qualified stock options
at a price ranging from $7.375 - $7.625 per option, including a grant of 0.5
million options to the Chairman of the Executive Committee of the Board of
Directors for services rendered and to be rendered to the Company. All of these
options were outstanding at December 31, 1997, but none were exercisable. The
options vest one-third each year beginning on the first anniversary of the
grant date and become fully vested on the third anniversary of the grant date,
except for 0.5 million options which vest on the fifth anniversary of their
grant date. The weighted average remaining contractual life of the options
outstanding at December 31, 1997 was 9.2 years. The weighted average grant date
fair value of options granted during 1997 was $2.89 per option.
The exercise price of the stock options issued were equal to the market
value of the Company's stock on the dates of grant and accordingly, no
compensation cost has been recognized for stock options issued. Had
compensation cost for the stock options issued by the Company been determined
based on the fair value at grant date for awards in 1997 consistent with the
provisions of SFAS 123, the Company's net income and income per share for the
year ended December 31, 1997 would have been reduced to the pro forma amounts
indicated below:
Net income - as reported $22.5
Net income - pro forma 21.4
Basic income per share - as reported 1.01
Diluted income per share - as reported .96
Basic income per share - pro forma .96
Diluted income per share - pro forma .92
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants under the stock plans in 1997: dividend yield
of 0.0%; expected volatility of 21%; risk-free interest rate of 6.49%; and
expected life of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
11. PENSION PLANS
Certain current and former employees are covered under various retirement
plans. Plans covering salaried employees generally provide pension benefits
based on years of service and compensation. Plans covering hourly employees and
union members generally provide stated benefits
F-18
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
for each year of credited service. Plan assets are invested primarily in common
stocks, mutual funds, fixed income securities and cash equivalents. The
Company's funding policy is to contribute annually the statutory required
minimum amount as actuarially determined.
The following table reconciles the funded status of the Company's
significant pension plans from continuing operations as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation (includes vested
benefits of $123.5 and $119.2) $123.7 $119.4
====== ======
Plan assets at fair value $154.8 $150.3
Less: Projected benefit obligation for service
rendered to date (125.3) (121.1)
------ ------
Plan assets in excess of projected benefit obligation 29.5 29.2
Unrecognized prior service cost 0.2 -
Unrecognized net gain (12.1) (15.0)
------- -------
Net pension asset $ 17.6 $ 14.2
====== ======
</TABLE>
The Company has an unfunded supplemental benefit plan to provide salaried
employees with retirement benefits which were limited by U.S. income tax
regulation. In addition, the Company has an unfunded benefit plan which
provides benefits to certain former employees of the Company. The projected
benefit obligations, after adjusting for prior service costs and unrecognized
actuarial gains and losses for the plans included in other liabilities, were
$1.5 at December 31, 1997 and 1996.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% as of December 31,
1997 and 1996. The rate of increase in future compensation levels reflected in
the determination of the Company's salaried plans the supplemental benefit plan
was 4%-5% for 1997 and 4.5%-5% for 1996. Certain employees of the Company are
covered under a union pension plan which provides for a benefit accrual based
upon a flat dollar amount for each year of credited service. The expected
long-term rate of return on assets for the non-union plans was 9% in 1997,
8%-9% in 1996 and 9% in 1995 and 9% for the union pension plans for 1997 and
1996. Unrecognized items are amortized over the estimated remaining service
lives of active employees.
In connection with the sale of Aerospace, the Company transferred $70.6
in plan assets to Parker Hannifin and recognized curtailment gain in accordance
with SFAS 88 of $4.5 in 1996 which is included in the gain on sale of
discontinued aerospace business.
Net periodic pension income, included in selling, general and
administrative expenses, consisted of the following components:
F-19
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 0.3 $ 0.3 $ --
Interest cost on projected benefit obligation 8.7 8.8 8.1
Actual gain on plant assets (12.8) (23.1) (20.2)
Net amortizations and deferrals 0.8 11.3 10.4
------- ------- -------
Net pension income $ (3.0) $ (2.7) $ (1.7)
======= ======= =======
</TABLE>
12. SHORT-TERM BORROWING AND LONG-TERM DEBT
The Company's French subsidiary has credit agreements renewable annually
with two banks whereby it may borrow up to fourteen million French francs
(approximately $2.3 at December 31, 1997) for working capital purposes. At
December 31, 1997, approximately $1.0 was borrowed and at December 31, 1996 no
amounts were borrowed which is included in short term borrowings on the
consolidated balance sheet. These borrowings bear interest of 5.20% at December
31, 1997. In addition, $0.3 of this facility was reserved for letters of credit
at December 31, 1997. The Company's subsidiary in the Peoples' Republic of
China has short term borrowings, the balance of which was not significant at
December 31, 1997.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
Revolving Credit Facility $76.6 $ -
Senior Credit:
Revolving Credit Loans - 7.3
11 7/8 Senior Subordinated Notes Due 2002 - 92.8
------- --------
$76.6 $100.1
======= ========
</TABLE>
In connection with the Flavors Acquisition, the Company assumed debt
under a term and revolving credit facility (the "Senior Credit") totaling $25.1
and 11 7/8% Senior Subordinated Notes due 2002 (the "Senior Subordinated
Notes") with a principal value of $85.0 and fair value of approximately $92.8.
The Senior Subordinated Notes were to mature on November 15, 2002, and were not
subject to redemption through the operation of a sinking fund. The Senior
Subordinated Notes were redeemed on November 15, 1997 at 105.95% of principal
amount.
The Senior Credit was entered into in June 1994 between Pneumo Abex and a
group of lenders. It was originally comprised of $30.0 in Tranche A Loans,
$20.0 in Tranche B Loans and $25.0 in Revolving Credit Loan commitments (the
"Revolving Credit Loans"). The Tranche A and Tranche B loans were repaid in
full on December 31, 1996 and in February 1997 the Senior Credit was amended to
reduce the Revolving Credit Loans to $12.5. At December 31, 1996, $7.3 was
borrowed under the Revolving Credit Loans and $2.3 was reserved for lender
guarantees on outstanding letters of credit.
F-20
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In November 1997, Pneumo Abex entered into a five-year $120.0 revolving
credit facility (the "Revolving Credit Facility") with a group of banks to
finance the redemption of all of its outstanding Senior Subordinated Notes and
for working capital and other general corporate purposes. At December 31, 1997,
$76.6 was borrowed under the Revolving Credit Facility and $23.5 was reserved
for lender guarantees on outstanding letters of credit. The Revolving Credit
Facility permits Pneumo Abex to choose between various interest rate options
and to specify the interest rate period to which the interest rate options are
to apply, subject to certain parameters. Borrowing options available are (i)
the Alternate Base Rate Loans (as defined) and (ii) Eurodollar Loans (as
defined) plus a borrowing margin (0.875% at December 31, 1997). The borrowing
margin is adjusted quarterly based on certain performance ratios. The Revolving
Credit Facility provides for a commitment fee of one quarter of one percent per
annum on the unused Revolving Credit Facility. The Revolving Credit Facility is
guaranteed by Flavors and a domestic subsidiary of Pneumo Abex. The Revolving
Credit Facility contains various restrictive covenants which include, among
other things, limitations on indebtedness and liens, minimum interest coverage
and maximum leverage ratios, operating cash flow maintenance and limitations on
the sale of assets. The average interest charged on outstanding Revolving
Credit Facility borrowings at December 31, 1997 was 6.80%.
The 1995 extraordinary charge of $1.6 relates to premiums on debt retired
by the Company prior to the Abex Merger.
13. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of trade accounts receivable. The
Company's customers are geographically dispersed, but are concentrated in the
tobacco industry. Even though eight of the Company's ten largest customers are
in the tobacco industry and accounted for approximately 58% of the Company's
net revenues in 1997, Pneumo Abex historically has had no material losses on
its trade receivables from customers in the tobacco industry. Probable bad debt
losses have been provided for in the allowance for doubtful accounts.
From time to time, the Company enters into forward exchange contracts to
hedge certain receivables and firm sales commitments denominated in foreign
currencies. The effects of movements in currency exchange rates on these
instruments are recognized when the related operating revenue is recognized.
Realized gains and losses on foreign currency contracts are included in the
underlying asset or liability being hedged and recognized in There were no
contracts outstanding at December 31, 1997 and 1996.
The carrying amounts for cash and cash equivalents, trade accounts
receivable, accounts payable, accrued liabilities and long-term debt
approximate fair value.
14. COMMITMENTS AND CONTINGENCIES
Rental expense, which includes rent for facilities, equipment and
automobiles under operating leases expiring through 2002, amounted to $0.6 for
the year ended December 31, 1997. Rental expense was not significant for the
year ended December 31, 1996 from the date of the Flavors
F-21
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Acquisition. Future minimum rental commitments for operating leases with
noncancelable terms in excess of one year from December 31, 1997 are as
follows:
1998 $0.3
1999 0.3
2000 0.3
2001 0.3
2002 0.1
Thereafter -
------
$1.3
======
The Company had outstanding letters of credit totaling $23.8 and $23.1 at
December 31, 1997 and 1996, respectively. Restricted cash of $0.1 and $1.7 at
December 31, 1997 and 1996, respectively, included in other assets reflects
segregated cash held for the benefit of certain parties to cover certain
insurance obligations.
At December 31, 1997, the Company had obligations to purchase
approximately $6.9 of raw materials.
The Company is indemnified by third parties with respect to certain of its
contingent liabilities, such as certain environmental and asbestos matters, as
well as certain tax and other matters. In connection with the Abex Merger, a
subsidiary of Abex, M&F Worldwide, Pneumo Abex and certain other subsidiaries
of M&F Worldwide entered into a transfer agreement (the "Transfer Agreement").
Under the Transfer Agreement, substantially all of Abex's consolidated assets
and liabilities, other than those relating to Aerospace, were transferred to a
subsidiary of MCG, with the remainder being retained by Pneumo Abex. The
Transfer Agreement provides for appropriate transfer, indemnification and tax
sharing arrangements, in a manner consistent with applicable law and existing
contractual arrangements.
The Transfer Agreement requires such subsidiary of MCG to undertake certain
administrative and funding obligations with respect to certain asbestos claims
and other liabilities, including environmental claims, retained by Pneumo Abex.
The Company will be obligated to make reimbursement for the amounts so funded
only when amounts are received by the Company under related indemnification and
insurance agreements. Such administrative and funding obligations would be
terminated as to asbestos products claims in the case of a bankruptcy of Pneumo
Abex or M&F Worldwide or of certain other events affecting the availability of
coverage for such claims from third party indemnitors and insurers.
Prior to 1988, a former subsidiary of the Company manufactured certain
asbestos-containing friction products. Pneumo Abex has been named, typically
along with 10 to 30 other companies, as a defendant in various personal injury
lawsuits claiming damages relating to exposure to asbestos. Pursuant to
indemnification agreements, Whitman Corporation ("Whitman") has retained
ultimate responsibility for all asbestos-related claims made through August
1998 and for certain asbestos-related claims asserted thereafter. In connection
with the sale by Abex in December 1994 of its Friction Products Division, a
subsidiary of Cooper Industries, Inc. assumed responsibility for substantially
all
F-22
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
of the asbestos-related claims made after August 1998. Pneumo Abex
maintained product liability insurance covering substantially all of the period
during which asbestos-containing products were manufactured. Pursuant to court
rulings and interim agreements reached with certain insurance carriers,
insurers are reimbursing approximately 90% of the aggregate defense and
settlement costs associated with such claims, and Pneumo Abex continues to
seek recovery of the remaining amount of unreimbursed costs from its carriers
in an ongoing insurance coverage litigation commenced in 1982. As of December
31, 1997, there was approximately 34,000 pending claims, and MCG has
approximately $9.2 in unreimbursed costs pending receipt from the insurance
carrier or Whitman. Pneumo Abex is unable to forecast either the number of
future asbestos-related claimants or the amount of future defense and
settlement costs associated with present or future asbestos-related claims.
The Transfer Agreement further provides that MCG will indemnify Pneumo Abex
with respect to all environmental matters associated with Abex's former
operations to the extent not paid by third party indemnitors or insurers, other
than the operations relating to Pneumo Abex's Aerospace business which was sold
to Parker Hannifin in April 1996. Accordingly, environmental liabilities
arising after the 1988 Whitman acquisition that relate to Pneumo Abex's former
Aerospace facilities will be the responsibility of Pneumo Abex. Whitman is
obligated to indemnify Pneumo Abex for costs, expenses and liabilities relating
to environmental and natural resource matters to the extent attributable to the
pre-1988 operation of the businesses acquired from Whitman, subject to certain
conditions and limitations principally relating to compliance with notice,
cooperation and other procedural requirements. Whitman is generally discharging
its environmental indemnification liabilities in the ordinary course. In
addition to the remedial actions as to which Whitman has acknowledged its
indemnification responsibilities, Pneumo Abex is party to a number of cases
involving tort claims concerning an environmental site alleging exposure to
lead for which Whitman has declined to accept responsibility. MCG is managing
these cases on behalf of Pneumo Abex, and MCG and Whitman are currently sharing
equally the defense costs for such cases, subject to a reservation of their
respective rights.
It is generally not possible to predict the ultimate total costs relating to
any remediation that may be demanded at any of the sites subject to the Whitman
indemnity due to, among other factors, uncertainty regarding the extent of
prior pollution, the complexity of applicable environmental laws and
regulations and their interpretations, uncertainty regarding future changes to
such laws and regulations of their enforcement, the varying costs and
effectiveness of alternative cleanup technologies and methods, and the
questionable and varying degrees of responsibility and/or involvement by Pneumo
Abex. However, the aggregate cost to all parties of cleanup and related
expenses with respect to matters for which Pneumo Abex, together with numerous
other third parties, have been named potentially responsible parties could
exceed $150, including approximately $20 in remedial action costs, as estimated
by the U.S. Environmental Protection Agency, in respect of one site actively
managed and funded by Whitman.
On February 5, 1996, the Company, through Pneumo Abex, entered into a
reimbursement agreement with Chemical Bank and MCG (the "Reimbursement
Agreement"). The Reimbursement Agreement provides for letters of credit
totaling $20.8 covering certain environmental issues relating to such site and
not related to the current business of Pneumo Abex. The cost of the letters of
credit are being funded by MCG and/or Whitman. Pneumo Abex had $20.0 and $20.8
of letters of credit
F-23
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
outstanding at December 31, 1997 and 1996, respectively, in connection with the
Reimbursement Agreement.
The Company has not recognized any liability in its financial statements for
matters covered by indemnification agreements. The Company considers these
obligations to be those of third-party indemnitors and monitors their financial
position to determine the level of uncertainty associated with their ability to
satisfy their obligations. Based upon the indemnitors' active management of
indemnifiable matters, discharging of the related liabilities when required,
and financial positions based upon publicly filed financial statements, as well
as the history of insurance recovery set forth above, the Company believes that
the likelihood of indemnitors failing to satisfy their obligations is remote.
The Transfer Agreement also provides for certain funding indemnification and
cooperation arrangements among Pneumo Abex, M&F Worldwide and a subsidiary of
MCG in respect of certain liabilities which may arise under the Employee
Retirement Security Act of 1974 relating to the sale of Pneumo Abex's friction
products division in 1994.
On January 2, 1996, M&F Worldwide entered into a settlement agreement with
the U.S. Government pursuant to which M&F Worldwide agreed to pay the U.S.
Government $12.5 to settle allegations of labor mischarging and related
contract disputes relating to Aerospace. On January 8, 1996, pursuant to the
terms of such settlement agreement, M&F Worldwide paid such amount to the U.S.
Government. The U.S. Government had also asserted a claim of non-compliance
with Cost Accounting Standards. In February 1996, M&F Worldwide entered into a
settlement agreement with the U.S. Government pursuant to which M&F Worldwide
agreed to pay the U.S. Government $0.2 to settle the Cost Accounting Standards
non-compliance assertion. On March 11, 1996, pursuant to the terms of such
settlement agreement, M&F Worldwide paid such amount to the U.S. Government. In
addition, the U.S. Government has asserted claims of defective pricing. Based
upon current U.S. Government procurement regulations, under certain
circumstances involving defective pricing a contractor can incur fines and
penalties, as well as be suspended or debarred from U.S. Government contracts.
In addition, various legal proceedings, claims and investigations are
pending against M&F Worldwide and Pneumo Abex, including those relating to
commercial transactions, product liability, safety and health matters and other
matters. M&F Worldwide and Pneumo Abex are involved in various stages of legal
proceedings, claims, investigations and cleanup relating to environmental or
natural resource matters, some of which relate to waste disposal sites. Most of
these matters are covered by insurance, subject to deductibles and maximum
limits, and by third-party indemnities. In addition, the U.S. Government has
asserted claims of defective pricing relating to certain contracts of the
former Aerospace operations.
In the opinion of management, based upon the information available at this
time, the outcome of the matters referred to above will not have a material
adverse effect on the Company's financial position or results of operations.
The Company believes that its facilities are well-maintained and are in
substantial compliance with environmental laws and regulations.
F-24
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
15. RELATED PARTY TRANSACTIONS
Under the Transfer Agreement, M&F Worldwide will be reimbursed by MCG for
amounts spent in excess of $1.5 during each of the years 1995 (after June 15),
1996, 1997 and 1998 in connection with certain public company costs. The amount
spent for such costs in the 1997, 1996 and 1995 periods did not exceed $1.5;
therefore, no reimbursement was made.
Included in the consolidated statements of income are sales to
Consolidated Cigar Corporation ("Cigar"), an affiliate, of $0.3 for the year
ended December 31, 1997. Sales to Cigar in 1996 from the date of the Flavors
Acquisition were not significant. The Company also purchased inventory of
approximately $0.2 from Cigar during 1997.
16. SIGNIFICANT CUSTOMER
The Company has a significant customer in the tobacco industry, Philip
Morris Companies Inc., which accounted for approximately 30% of 1997 net
revenues and 26% of pro forma net revenues in 1996.
17. GEOGRAPHIC SEGMENTS
As a result of the sale of Aerospace in 1996, the Company has classified
their operations as discontinued in the consolidated financial statements. The
discussion below reflects the results of operations of Flavor's licorice
extract and other flavoring agents business since November 25, 1996, the date
of the Flavors Acquisition. The results of operations data presented below
reflects the application of the purchase method of accounting for the Flavors
Acquisition.
The Company operates in one business segment. Information related to the
Company's geographic segments are presented below with the following
definitions:
Operating profit and identifiable assets are classified as domestic and
corporate, respectively, in 1995.
Operating profit, as indicated below, represents net sales less operating
expenses, amortization of intangibles, foreign currency transaction income
(loss) and other income (expense).
F-25
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Identifiable assets are those used by each geographic segment. Intangible
assets pertain to both foreign and domestic operations and have been included
in domestic and foreign identifiable assets as appropriate. Corporate assets
are principally domestic cash and cash equivalents, a pension asset and
deferred charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
------ ------
<S> <C> <C>
Net Sales:
Domestic - U.S. $ 58.0 $ 4.8
Export 29.8 3.2
Foreign 12.6 1.5
------ -----
$ 100.4 $ 9.5
Operating profit:
Domestic $ 29.6 $ 2.3
Foreign 2.9 0.3
------ -----
32.5 2.6
Interest expense (7.1) (0.9)
Interest, investment and other income, net 0.5 8.9
------ -----
Income from continuing operations before income taxes $ 25.9 $ 10.6
====== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
Identifiable assets:
Domestic (a) $ 259.0 $ 262.5
Foreign 36.2 36.5
Corporate 17.9 19.1
------ ------
$ 313.1 $ 318.1
====== ======
</TABLE>
- ---------------
(a) Includes assets located in foreign countries of $0.8 and $1.6 at
December 31, 1997 and 1996.
F-26
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information
for 1997 and 1996:
<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net Sales $27.2 $24.3 $23.6 $25.3
Net income 5.5 5.6 5.4 6.0
Income per common share (a):
Basic $0.25 $0.25 $0.24 $0.27
Diluted $0.24 $0.24 $0.23 $0.26
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net Sales (b) $ - $ - $ - $9.5(c)
Gross profit (b) - - - 2.9(c)
Income from continuing operations 0.3 2.9 3.5 3.7
Income from discontinued operations 4.4 153.7(d) - -
Net income 4.7 156.6(d) 3.5 3.7
Basic and diluted income per common
share (a):
Income from continuing operations $ - $0.12 $0.15 $0.16
Income from discontinued operations 0.21 7.44(d) - -
------ ------ ------- ------
Net income $0.21 $7.56 $0.15 $0.16
===== ===== ===== =====
</TABLE>
- --------------
(a) All quarterly income per share amounts for 1996 and 1997 have been
restated to conform with the provisions of SFAS 128. The sum of diluted
income per common share for the quarterly periods during 1997 differs
from the diluted income per common share for the year ended December 31,
1997 as reported in the consolidated statements of income due to the
use of an average stock options outstanding calculation for the annual
period.
(b) Quarterly net sales and gross profit reflect the reclassification of
Aerospace to discontinued operations.
(c) Net sales and gross profit reflect the Flavors Acquisition on November 25,
1996.
(d) Reflects the gain of sale of Aerospace in April 1996.
F-27
<PAGE>
M&F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
19. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996(A) 1995(A)
---- ------- -------
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations, net of taxes $ 22.5 $ 10.4 $ (4.0)
Preferred stock dividends (1.6) (1.6) (0.9)
--------- --------- ---------
Numerator for basic earnings per share:
Income available to common stockholders:
Continuing operations 20.9 8.8 (4.9)
Discontinued operations -- 158.1 16.9
Extraordinary item -- -- (1.6)
--------- --------- ---------
Net income $ 20.9 $ 166.9 $ 10.4
========= ========= =========
Numerator for diluted earnings per share:
Income available to common stockholders
Continuing operations $ 22.5 $ 8.8 $ (4.9)
Discontinued operations -- 158.1 16.9
Extraordinary item -- -- (1.6)
--------- --------- ---------
Net income $ 22.5 $ 166.9 $ 10.4
========= ========= =========
Denominator (in millions):
Basic earnings per share-weighted average shares 20.7 20.7 20.3
Effect of dilutive securities:
Convertible preferred stock 2.5 -- --
Employee stock options 0.2 -- --
--------- --------- ---------
Diluted earnings per share-weighted
average shares and assumed conversions 23.4 20.7 20.3
========= ========= =========
Basic earnings per share:
Continuing operations $ 1.01 $ 0.43 $ (0.24)
Discontinued operations -- 7.64 0.83
Extraordinary item -- -- (0.08)
--------- --------- ---------
Available to common stockholders $ 1.01 $ 8.07 $ 0.51
========= ========= =========
Diluted earnings per share:
Continuing operations $ 0.96 $ 0.43 $ (0.24)
Discontinued operations -- 7.64 0.83
Extraordinary item -- -- (0.08)
--------- --------- ---------
Available to common stockholders $ 0.96 $ 8.07 $ 0.51
========= ========= =========
</TABLE>
(a) Basic and diluted earnings per share for the years ended December 31, 1996
and 1995, are equivalent, as the effect of the convertible preferred stock is
antidilutive in 1996 and there is a loss from continuing operations in 1995.
F-28
<PAGE>
Schedule I - Condensed Financial Information of Registrant
Balance Sheet (Parent Only)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 0.1 $ 2.2
Prepaid expenses and other -- 0.2
------ ------
Total current assets 0.1 2.4
Investment in and advances to subsidiaries 200.1 184.6
Receivable from subsidiaries 9.8 7.2
------ ------
$210.0 $194.2
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 0.9 $ 1.0
Deferred cash payments due to MCG 3.5 7.2
------ ------
Total current liabilities 4.4 8.2
Redeemable preferred stock 20.0 20.0
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,656,502 shares issued and outstanding in 1997 and 1996 0.2 0.2
Additional paid-in capital 26.7 26.7
Retained earnings 160.2 139.3
Currency translation adjustment (1.5) (0.2)
------ ------
Total stockholders' equity 185.6 166.0
------ ------
$210.0 $194.2
====== ======
</TABLE>
F-29
<PAGE>
Schedule I - Condensed Financial Information of Registrant
Consolidated Statement of Income (Parent Only)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
----- ------
<S> <C> <C>
General and administrative expenses $ 0.6 $ 1.0
----- ------
Operating loss 0.6 1.0
Interest, investment and other income, net (0.1) (0.9)
----- ------
Loss from continuing operations before taxes 0.5 0.1
Provision (benefit) for income taxes 0.2 (0.1)
----- ------
Loss from continuing operations 0.7 0.0
Equity in income of subsidiaries 23.2 168.5
----- ------
Net income 22.5 168.5
----- ------
Preferred stock dividends (1.6) (1.6)
----- ------
Net income available to common stockholders $20.9 $166.9
===== ======
</TABLE>
Note: There were no restrictions on the transfer of assets during 1995.
F-30
<PAGE>
Schedule I - Condensed Financial Information of Registrant
Consolidated Statement of Cash Flows (Parent Only)
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income $ 22.5 $168.5
Adjustments to reconcile net income to total cash provided by
operating activities:
Equity in income of subsidiaries in excess of cash distributions (22.7) 168.1
Changes in assets and liabilities:
Receivable from subsidiaries 3.3 2.6
Other, net (0.3) 0.8
------ ------
Cash provided by operating activities 2.8 3.8
------ ------
Cash flows from financing activities
Deferred cash payment to MCG (3.7) --
Preferred stock dividends (1.2) (1.6)
------ ------
Cash used in financing activities (4.9) (1.6)
------ ------
Net increase in cash and cash equivalents (2.1) 2.2
Cash and cash equivalents at beginning of period 2.2 0.0
------ ------
Cash and cash equivalents at end of period $ 0.1 $ 2.2
====== ======
</TABLE>
Note: There were no restrictions on the transfer of assets during 1995.
F-31
<PAGE>
Exhibit 10.27
- ------------------------------------------------------------------------------
EXECUTION COPY
PNEUMO ABEX CORPORATION
(D/B/A MAFCO WORLDWIDE CORPORATION)
----------------
CREDIT AGREEMENT
dated as of November 17, 1997
----------------
CHASE SECURITIES INC.,
AS ARRANGER
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
BANKBOSTON, N.A.,
AS DOCUMENTATION AGENT
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.................................................... 1
1.1 Defined Terms................................................. 1
1.2 Other Definitional Provisions................................. 20
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS............................... 20
2.1 Commitments................................................... 20
2.2 Obligations of the Company.................................... 21
2.3 Procedure for Borrowing Loans................................. 21
2.4 Use of Proceeds of Loans...................................... 22
SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT.......................... 22
3.1 L/C Facility.................................................. 22
3.2 Procedure for Issuance of Letters of Credit................... 23
3.3 Fees, Commissions and Other Charges........................... 23
3.4 L/C Participations............................................ 24
3.5 Reimbursement Obligation of the Company....................... 25
3.6 Obligations Absolute.......................................... 25
3.7 Letter of Credit Payments..................................... 26
3.8 Application................................................... 26
3.9 Existing Letters of Credit.................................... 26
SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES AND PAYMENTS ........... 26
4.1 Voluntary Termination or Reduction of Commitments. .......... 26
4.2 Optional Prepayments.......................................... 27
4.3 Mandatory Prepayments. ...................................... 27
4.4 Interest Rate and Payment Dates............................... 28
4.5 Conversion Options, Minimum Tranches and Maximum
Interest Periods............................................. 28
4.6 Inability to Determine Interest Rate.......................... 29
4.7 Illegality.................................................... 30
4.8 Requirements of Law; Changes of Law........................... 30
4.9 Indemnity..................................................... 31
4.10 Taxes........................................................ 32
4.11 Commitment Fees; Other Fees.................................. 34
4.12 Computation of Interest and Fees............................. 34
4.13 Pro Rata Treatment and Payments.............................. 35
4.14 Payments on Account of Loans and Fees........................ 37
SECTION 5. REPRESENTATIONS AND WARRANTIES................................. 37
5.1 Corporate Existence........................................... 37
5.2 Corporate Power............................................... 37
i
<PAGE>
Page
5.3 No Legal Bar to Loans........................................ 38
5.4 No Material Litigation....................................... 38
5.5 No Default................................................... 38
5.6 Ownership of Properties; Liens............................... 39
5.7 Taxes........................................................ 39
5.8 ERISA........................................................ 39
5.9 Financial Condition.......................................... 40
5.10 No Change.................................................... 40
5.11 Federal Regulations.......................................... 40
5.12 Not an "Investment Company".................................. 40
5.13 Intellectual Property........................................ 40
5.14 Environmental Matters........................................ 41
5.15 Models and Pro Forma Balance Sheet........................... 41
5.16 Disclosure................................................... 42
5.17 Solvency..................................................... 42
5.18 Guarantees................................................... 42
5.19 Matters Relating to Subsidiaries............................. 42
5.20 Labor Matters................................................ 42
5.21 Whitman Indemnity............................................ 43
SECTION 6. CONDITIONS PRECEDENT........................................... 43
6.1 Conditions to Initial Extensions of Credit.................... 43
6.2 Conditions to Each Extension of Credit........................ 46
SECTION 7. AFFIRMATIVE COVENANTS.......................................... 47
7.1 Financial Statements.......................................... 47
7.2 Certificates; Other Information............................... 48
7.3 Payment of Obligations........................................ 49
7.4 Conduct of Business and Maintenance of Existence.............. 49
7.5 Maintenance of Property; Insurance............................ 49
7.6 Inspection of Property; Books and Records; Discussions........ 50
7.7 Notices....................................................... 50
7.8 Maintenance of Corporate Identity............................. 51
7.9 Environmental Laws............................................ 51
7.10 Intellectual Property........................................ 52
SECTION 8. NEGATIVE COVENANTS............................................. 53
8.1 Financial Covenants........................................... 53
8.2 Limitation on Liens........................................... 54
8.3 Limitation on Contingent Obligations.......................... 56
8.4 Limitation on Fundamental Changes............................. 56
8.5 Limitation on Sale of Assets.................................. 57
8.6 Limitation on Restricted Payments............................. 58
8.7 Limitation on Investments, Loans and Advances................. 58
ii
<PAGE>
Page
8.8 Sale and Leaseback............................................ 59
8.9 Limitation on Transactions with Affiliates.................... 59
8.10 Accounting Changes........................................... 59
8.11 Indebtedness................................................. 60
8.12 Limitation on Modifications of Tax Allocation Agreement...... 60
8.13 Limitation on Negative Pledge Clauses........................ 60
8.14 Limitation on Lines of Business.............................. 61
8.15 Limitation on Restrictions on Subsidiary Distributions....... 61
8.16 Limitation on Activities of Holdings......................... 61
8.17 Limitation on Subsidiaries................................... 61
SECTION 9. EVENTS OF DEFAULT.............................................. 62
SECTION 10. THE ADMINISTRATIVE AGENT...................................... 64
10.1 Appointment.................................................. 64
10.2 Delegation of Duties......................................... 65
10.3 Exculpatory Provisions....................................... 65
10.4 Reliance by the Administrative Agent......................... 65
10.5 Notice of Default............................................ 66
10.6 Non-Reliance on the Administrative Agent and the Other
Lenders..................................................... 66
10.7 Indemnification.............................................. 67
10.8 The Administrative Agent in Its Individual Capacity.......... 67
10.9 Successor Administrative Agent............................... 68
10.10 Issuing Lender as Issuer of Letters of Credit............... 68
SECTION 11. MISCELLANEOUS................................................. 68
11.1 Amendments and Waivers....................................... 68
11.2 Notices...................................................... 70
11.3 No Waiver; Cumulative Remedies............................... 71
11.4 Survival of Representations and Warranties................... 71
11.5 Payment of Expenses and Taxes................................ 71
11.6 Successors and Assigns; Loan Participations.................. 72
11.7 Adjustments; Set-off......................................... 75
11.8 Severability................................................. 76
11.9 Releases of Guarantee Obligations............................ 76
11.10 Effectiveness; Counterparts................................. 76
11.11 SUBMISSION TO JURISDICTION; WAIVERS......................... 76
11.12 GOVERNING LAW............................................... 77
iii
<PAGE>
SCHEDULES
Schedule 1.1(A) Lenders; Addresses for Notices
Schedule 1.1(B) Commitments
Schedule 3.9 Existing Letters of Credit
Schedule 5.19 Subsidiaries
Schedule 8.2(j) Existing Liens
Schedule 8.9 Transactions with Affiliates
Schedule 8.11(b) Existing Indebtedness
EXHIBITS
Exhibit A Form of Note
Exhibit B-1 Form of Opinion of Paul, Weiss, Rifkind, Wharton &
Garrison
Exhibit B-2 Form of Opinion of General Counsel
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Holdings Guarantee
Exhibit D-2 Form of Subsidiaries Guarantee
iv
<PAGE>
Exhibit 10.27
CREDIT AGREEMENT, dated as of November 17, 1997, among:
PNEUMO ABEX CORPORATION, a Delaware corporation, d/b/a Mafco Worldwide
Corporation (the "Company");
the financial institutions from time to time parties hereto (the
"Lenders");
THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent (in such capacity, the "Administrative Agent")
for the Lenders;
CHASE SECURITIES INC., as arranger;
BANKBOSTON, N.A., a national banking association, as documentation agent
(in such capacity, the "Documentation Agent") for the Lenders; and
CHASE MANHATTAN BANK DELAWARE, as Designated Issuer (as defined below).
W I T N E S S E T H :
WHEREAS, the Company has requested the Lenders to make revolving
extensions of credit to it on the terms and conditions set forth herein in an
aggregate principal amount outstanding at any time not to exceed $120,000,000
to finance the redemption (the "Note Redemption") of all of the Company's
outstanding 11-7/8% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes"), and to finance the working capital needs of the Company
and its Subsidiaries and for other general corporate purposes; and
WHEREAS, the Lenders are willing to make revolving credit
extensions to the Company, but only on and subject to the terms and conditions
hereof;
NOW, THEREFORE in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, the Lenders and the Administrative Agent hereby
agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Adjusted Consolidated Net Income" shall mean Consolidated Net
Income (plus any non-cash taxes to the extent deducted in the calculation
thereof and without giving effect to any push down of purchase accounting
adjustments from Holdings);
"Adjustment Date" shall have the meaning assigned to such term in
the definition of Pricing Grid;
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"Administrative Agent" shall have the meaning assigned to such
term in the preamble hereto;
"Affected Loan" shall have the meaning assigned to such term in
subsection 0;
"Affiliate" of any Person shall mean any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the first Person. For
purposes of this definition, a Person shall be deemed to be "controlled
by" another Person if such other Person possesses, directly or
indirectly, power either to (a) vote 10% or more of the securities having
ordinary voting power for the election of directors of such first Person
or (b) direct or cause the direction of the management and policies of
such first Person whether by contract or otherwise;
"Aggregate Commitment" shall mean $120,000,000, as such amount may
be reduced from time to time pursuant to the terms of this Agreement;
"Aggregate Outstanding Extensions of Credit" shall mean, at any
time, the amount equal to the sum of (a) the aggregate principal amount
of all Loans then outstanding and (b) the aggregate amount of all L/C
Obligations then outstanding;
"Agreement" shall mean this Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time;
"Alternate Base Rate" for any day, shall mean a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base
CD Rate or the Federal Funds Effective Rate, or both, for any reason,
including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms thereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or
both, of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist;
"Alternate Base Rate Loans" shall mean Loans hereunder at such time
as such Loans are made and/or being maintained at a rate of interest
based upon the Alternate Base Rate;
"Applicable Margin" shall mean 0.875% per annum; provided, that on
and after the first Adjustment Date, occurring upon the delivery of the
consolidated financial statements of the Company and the Subsidiaries for
the fiscal period ended December 31, 1997, the Applicable Margin with
respect to Loans, will be determined pursuant to the definition of
Pricing Grid;
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"Application" shall mean an application, in such form as the
Issuing Lender may specify from time to time, requesting the Issuing
Lender to open a Letter of Credit;
"Asset Sale" shall mean any Disposition of Property or series of
related Dispositions of Property (excluding any such Disposition
permitted by clause (a), (b), (c) or (d) of subsection 8.5);
"Assignment and Acceptance" shall have the meaning assigned to
such term in subsection 0;
"Available Commitment" at any date, shall mean the amount equal to
the difference between (a) the Aggregate Commitment at such date and (b)
the Aggregate Outstanding Extensions of Credit at such date;
"Bankruptcy Code" shall mean Title 11, United States Code, as
amended from time to time;
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate;
"Benefitted Lender" shall have the meaning assigned to such term
in subsection 0;
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized
or required by law to close;
"Capital Expenditures" for any period, shall mean all amounts
(whether paid in cash or accrued as liabilities, including all
obligations in respect of Capital Leases), that would in accordance with
GAAP, be set forth as "capital expenditures" on the consolidated
statement of cash flows of the Company and its consolidated Subsidiaries
for such period;
"Capital Lease" shall mean any lease of property (real, personal or
mixed) which in accordance with GAAP is or should be capitalized on the
lessee's balance sheet;
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock
of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants, rights or options to
purchase any of the foregoing.
"Cash Equivalents" shall mean (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of
one year or less from the date of acquisition and overnight bank deposits
of any Lender or of any commercial bank having capital and surplus in
excess of $500,000,000, (c) repurchase obligations of any Lender or of
any commercial bank satisfying the requirements of clause (b) of this
definition having a term of not more than
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30 days with respect to securities issued or fully guaranteed or insured
by the United States Government, (d) commercial paper of a domestic
issuer rated at least A-2 by Standard & Poor's Ratings Group or any
successor ("S&P") or P-2 by Moody's Investors Service, Inc. or any
successor, ("Moody's"), (e) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States or by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's, (f) securities with maturities of one year or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b)
of this definition or (g) shares of money market mutual or similar funds
sponsored by any registered broker dealer or mutual fund distributor;
"C/D Assessment Rate" shall mean, for any day, the net annual
assessment rate (rounded upward to the nearest 1/100th of 1%) determined
by the Administrative Agent to be payable on such day to the Federal
Deposit Insurance Corporation or any successor ("FDIC") for FDIC's
insuring time deposits made in Dollars at offices of the Administrative
Agent in the United States;
"C/D Reserve Percentage" shall mean, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor),
for determining the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits exceeding one
billion Dollars in respect of new non-personal time deposits in Dollars
in New York City having a maturity of three months and in an amount of
$100,000 or more;
"Change of Control" shall have occurred if any "person" (as such
term is used in Section 13(d) or 14(d) of the Exchange Act) other than
(i) Ronald O. Perelman (or in the event of his incompetence or death, his
estate, heirs, executor, administrator, committee or other personal
representative (collectively, "heirs")) or (ii) any Person controlled,
directly or indirectly, by Ronald O. Perelman or his heirs (any such
other Person, an "Unrelated Person") or any Unrelated Persons acting as a
"group" (as such term is defined in Section 13(d)(3) of the Exchange
Act), together with any Affiliates thereof which are Unrelated Persons,
(A) shall acquire "beneficial ownership" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 35%
of the total voting power of all classes of Voting Stock of the Company
then outstanding or (B) shall have elected, or shall have caused to be
elected, a sufficient number of its or their nominees to the board of
directors of the Company such that the nominees so elected (whether new
or continuing directors) shall constitute a majority of the board of
directors of the Company;
"Closing Date" shall have the meaning assigned to such term in
subsection 0;
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time;
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"Commercial Letter of Credit" shall have the meaning assigned to
such term in subsection 3.1;
"Commitment" of any Lender at any date shall mean the obligation of
such Lender at such date to (a) make Loans to the Company or (b) issue or
participate in Letters of Credit on behalf of the Company, in an
aggregate principal amount at any one time outstanding not to exceed the
amount set forth opposite such Lender's name under the caption
"Commitment" on Schedule 1.1(B), as such amount may be reduced from time
to time in accordance with the provisions hereof; collectively, as to all
Lenders, the "Commitments";
"Commitment Fee Rate" shall mean 1/4 of 1% per annum; provided that
on and after the first Adjustment Date, occurring upon the delivery of
the consolidated financial statements of the Company and the Subsidiaries
for the fiscal period ended December 31, 1997, the Commitment Fee Rate
will be determined pursuant to the definition of Pricing Grid;
"Commitment Percentage" for any Lender at any time shall mean the
percentage of the Aggregate Commitment then constituted by such Lender's
Commitment;
"Commitment Period" shall mean the period commencing on the
Closing Date and ending on the Termination Date;
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Company and which is treated as a single employer under Section 414 of
the Code;
"Company" shall have the meaning assigned to such term in the
preamble hereto;
"Consolidated EBITDA" for any fiscal period of the Company shall
mean the Consolidated Net Income or Consolidated Net Loss, as the case
may be, for such fiscal period, (a) after restoring thereto amounts
deducted for (i) extraordinary losses, (ii) depreciation and amortization
(including write-offs or write-downs of amortizable and depreciable
items), (iii) Consolidated Interest Expense, (iv) "provision for taxes"
(or any like caption) on a consolidated statement of earnings of the
Company and its Subsidiaries for such fiscal period and (v) any losses in
respect of currency fluctuations and (b) after deducting therefrom (i)
extraordinary gains (which extraordinary items of gain shall include,
whether or not so includable in accordance with GAAP, any item of gain
resulting from the sale, lease or other disposition of any principal
property of the Company and its Subsidiaries taken as a whole or the
Capital Stock of any material Subsidiary of the Company), (ii) the
portion of net income of the Company and its Subsidiaries allocable to
interests in unconsolidated Persons to the extent that cash dividends or
distributions in respect of such portion of net income have not actually
been received by the Company or any of its domestic Subsidiaries, (iii)
the portion of any extraordinary loss actually paid in cash, but not
including the amount of the premium paid by the Company in connection
with the Note Redemption and (iv) any gains in respect of currency
fluctuations; provided
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any such restorations or deductions shall only be restored or deducted to
the extent included in the determination of Consolidated Net Income or
Consolidated Net Loss;
"Consolidated Interest Expense" for any fiscal period of the
Company shall mean the amount which, in conformity with GAAP, would be
set forth opposite the caption "interest expense" (or any like caption)
on a consolidated statement of earnings of the Company and its
Subsidiaries for such fiscal period;
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal
period of the Company shall mean the amount which, in conformity with
GAAP, would be set forth opposite the caption "net income" (or any like
caption) or "net loss" (or any like caption), as the case may be, on a
consolidated statement of earnings of the Company and its Subsidiaries
for such fiscal period;
"Contingent Obligation" as to any Person shall mean any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, letters of credit or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any
"keep-well" or "make-well" agreement, guarantee of return on equity or
other obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the obligee under any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the obligee under such primary
obligation against loss in respect thereof;
"Contractual Obligation" of any Person shall mean any provision of
any material debt security or of any material preferred capital stock or
other equity interest issued by such Person or of any material indenture,
mortgage, agreement, instrument or undertaking to which such Person is a
party or by which it or any of its material property is bound;
"Credit Documents" shall mean this Agreement, the Notes, the
Applications and the Guarantees, each, a "Credit Document";
"Cross Default" of any Person shall mean (a) default in the payment
of any amount when due (whether at maturity or by acceleration) on any of
its Indebtedness (other than any such default in respect of the Loans,
the Notes or the Reimbursement Obligations) or in the payment of any
matured Contingent Obligation in respect of any Indebtedness of any other
Person (except for any such payments on account of any such Indebtedness
and Contingent Obligations in an aggregate principal amount at any one
time outstanding of up to $2,000,000) or (b) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness (except for any such Indebtedness and Contingent Obligations
in an aggregate principal amount at any one time outstanding of up to
$2,000,000) or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such
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Indebtedness (or a trustee or agent on behalf of such holder or holders)
to cause, with the giving of notice if required, such Indebtedness
(except for any such Indebtedness in an aggregate principal amount at any
one time outstanding of up to $2,000,000) to become due or to be required
to be redeemed or repurchased prior to its stated maturity;
"Default" shall mean any of the events specified in Section 0,
whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied;
"Designated Issuer": Chase Manhattan Bank Delaware as designated
issuer of Letters of Credit;
"Disposition" shall mean with respect to any Property, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof; and the terms "Dispose" and "Disposed of" shall have
correlative meanings;
"Documentation Agent" shall have the same meaning assigned to
such term in the preamble hereto;
"Dollars" and "$" shall mean dollars in lawful currency of the
United States;
"Domestic Subsidiary" shall mean each Subsidiary of the Company
which is organized under the laws of a State within the United States;
"Environmental Laws" shall mean any and all federal, foreign,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority,
and any and all Requirements of Law regulating, relating to or imposing
liability or standards of conduct concerning pollution or protection of
human health or the environment, as now or may at any time hereafter be
in effect;
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time;
"Eurodollar Reserve Requirements" with respect to any Interest
Period for any Eurodollar Loan shall mean the aggregate of the rates
(expressed as a decimal) of reserve requirements current on the date two
Working Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect
thereto), as now and from time to time hereafter in effect, dealing with
reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board)
required to be maintained by a member bank of such System;
"Eurodollar Base Rate" with respect to each Eurodollar Loan of each
Lender for each Interest Period shall mean the rate per annum equal to
the rate at which the Administrative Agent is offered Dollar deposits two
Working Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the foreign currency and
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exchange operations or eurodollar funding operations of the
Administrative Agent are customarily conducted at or about 11:00 A.M.
(London time) for delivery on the first day of such Interest Period for
the number of days contained therein and in an amount equal to a
representative amount of such deposits;
"Eurodollar Loan" shall mean each Loan hereunder at such time as it
is made and/or being maintained at a rate of interest based upon the
Eurodollar Rate;
"Eurodollar Rate" with respect to each Eurodollar Loan for each
Interest Period shall mean the rate per annum (rounded upwards to the
nearest whole multiple of 1/100th of one percent) equal to the following:
Eurodollar Base Rate
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1.00 - Eurodollar Reserve Requirements;
"EVD" shall mean Extraits Vegetaux et Derives, S.A., a company
organized under the laws of France;
"Event of Default" shall mean any of the events specified in
Section 0, provided that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, has been satisfied;
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended;
"Existing Credit Agreement" shall mean the Credit Agreement, dated
as of June 29, 1994, among the Company, the several financial
institutions parties thereto and The Chase Manhattan Bank, as Agent as
amended, supplemented or otherwise modified through the Closing Date;
"Federal Funds Effective Rate" for any day, shall mean 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 on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it;
"Foreign Subsidiary" shall mean any Subsidiary of the Company
which is not a Domestic Subsidiary;
"Fully Satisfied" shall mean, with respect to:
(a) the Payment Obligations as of any date, that, on or
before such date, (i) the principal of and interest accrued to such
date on such Payment Obligations shall have been paid in full in
cash (other than the Undrawn L/C Obligations), (ii) all Undrawn L/C
Obligations shall have been Fully Secured, (iii) all fees, expenses
and other amounts then due and payable which constitute Payment
Obligations
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(other than the Undrawn L/C Obligations) shall have been paid in
full in cash and (iv) the Commitments shall have expired or
irrevocably been terminated; and
(b) the Obligations (as defined in the Guarantees) as of any
date, that, on or before such date, (i) the Payment Obligations
shall have been Fully Satisfied and (ii) all Rate Hedging
Agreements with any of the Lenders or their Affiliates shall have
been terminated or all obligations thereunder (other than for fees,
expenses and indemnities) shall have been cash collateralized and
all fees, expenses and indemnity payments then due and payable
thereunder shall have been paid in full in cash;
"Fully Secured" shall mean, with respect to any Undrawn L/C
Obligations as of any date, that, on or before such date, such Undrawn
L/C Obligations shall have been secured by the grant to the Issuing
Lender by the Company of a first priority, perfected security interest
in, and Lien on, (a) cash or Cash Equivalents in an amount at least equal
to the excess, if any, of the amount of such Undrawn L/C Obligations over
the amount of the Aggregate Commitment on such date or (b) other
collateral security which is acceptable to the Issuing Lender and the
Required Lenders;
"GAAP" shall mean generally accepted accounting principles in the
United States as in effect as of the date of, and used in, the
preparation of the audited consolidated financial statements referred to
in subsection 5.9, except that, with respect to the presentation of
financial statements required to be furnished hereunder, GAAP shall mean
generally accepted accounting principles in the United States as in
effect from time to time;
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government (including, without limitation, any
governmental department, commission, board, bureau, agency or
instrumentality, or other court or arbitrator, in each case whether of
the United States or foreign) and the National Association of Insurance
Commissioners;
"Guarantees" shall be the collective reference to the Holdings
Guarantee, the Subsidiaries Guarantee and each other guarantee delivered
to the Administrative Agent to support the Payment Obligations of the
Company hereunder and under the Notes, as each of the same may be
amended, supplemented or otherwise modified from time to time;
individually, a "Guarantee";
"Guarantors" shall be the collective reference to the guarantors
parties to the Guarantees; individually, a "Guarantor";
"Hazardous Materials" shall mean any hazardous materials, hazardous
wastes, hazardous or toxic substances, defined or regulated as such in or
under any Environmental Law, including without limitation asbestos,
Petroleum Products and material exhibiting the characteristics of
ignitability, corrosivity, reactivity or extraction procedure toxicity,
as such terms are defined in connection with hazardous materials or
hazardous wastes or hazardous or toxic substances in any Environmental
Law;
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"Holdings" shall mean Flavors Holdings Inc., a Delaware
corporation, the direct parent of the Company;
"Holdings Guarantee" shall mean the Guarantee, to be executed and
delivered by Holdings, substantially in the form of Exhibit D-1, as the
same may be amended, supplemented or otherwise modified from time to
time;
"Indebtedness" of a Person shall mean (a) indebtedness of such
Person for borrowed money whether short-term or long-term and whether
secured or unsecured, (b) indebtedness of such Person for the deferred
purchase price of services or property, which purchase price (i) is due
twelve months or more from the date of incurrence of the obligation in
respect thereof or (ii) customarily or actually is evidenced by a note or
other written instrument (including, without limitation, any such
indebtedness which is non-recourse to the credit of such Person but is
secured by assets of such Person), (c) obligations of such Person under
Capital Leases, (d) obligations of such Person arising under acceptance
facilities, (e) the undrawn face amount of, and unpaid reimbursement
obligations in respect of, all letters of credit issued for the account
of such Person, (f) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (g) all obligations of
such Person upon which interest charges are customarily paid, (h) all
obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property), (i) obligations of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any Capital Stock of such
Person (with redeemable preferred capital stock being valued at the
greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends), (j) all executory obligations of such
Person in respect of interest rate agreements and foreign exchange and
other financial hedge contracts (including, without limitation, equity
hedge contracts), (k) all Indebtedness of the types referred to in
clauses (a) through (j) above for which such Person is obligated under a
Contingent Obligation and (l) renewals, extensions, refundings,
deferrals, restructurings, amendments and modifications of any such
indebtedness, obligation or guarantee;
"Indemnification Agreement" shall mean Section 12(b) of the Stock
Purchase Agreement, dated as of April 28, 1988, among the Company and
Whitman, as amended, supplemented or otherwise modified from time to
time;
"Indemnified Liabilities" shall have the meaning assigned to such
term in subsection 0;
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as
used in Section 4245 of ERISA;
"Insolvent" shall pertain to a condition of Insolvency;
"Intellectual Property" shall have the meaning assigned to such
term in subsection 0;
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"Interest Coverage Ratio" at the last day of any fiscal quarter,
shall mean the ratio of (a) (i) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending on such date less (ii) Capital
Expenditures for the period of four consecutive fiscal quarters ending on
such date to (b) Consolidated Interest Expense for the period of four
consecutive fiscal quarters ending on such date;
"Interest Payment Date" shall mean (a) as to any Alternate Base
Rate Loan, the last day of each March, June, September and December,
commencing on the first of such days to occur after such Alternate Base
Rate Loan is made or Eurodollar Loans are converted to Alternate Base
Rate Loans, (b) as to any Eurodollar Loan with an Interest Period of
three months or less, the last day of the Interest Period with respect
thereto, (c) as to any Eurodollar Loan with an Interest Period of six
months, the day which is three months after the first day of such
Interest Period and the last day of such Interest Period and (d) in any
event, the Termination Date;
"Interest Period" shall mean, (a) initially, with respect to any
Eurodollar Loan, the period commencing on the borrowing date or the
initial date of conversion with respect to such Eurodollar Loan and
ending one, two, three or six months thereafter as selected by the
Company in a notice of borrowing or conversion, as the case may be, as
provided herein and (b) thereafter, each period commencing on the last
day of the immediately preceding Interest Period applicable to such
Eurodollar Loan, as the case may be, and ending one, two, three or six
months thereafter, in any such case as selected by the Company in
accordance with the provisions of subsection 0; provided that all of the
foregoing provisions relating to Interest Periods are subject to the
following:
(x) if any Interest Period relating to a Eurodollar Loan
would otherwise end on a day which is not a Working Day, such
Interest Period shall be extended to the next succeeding Working
Day, unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding Working Day;
(y) the Company shall not select an Interest Period relating
to any Eurodollar Loan which extends beyond the Termination Date
and any Interest Period relating to any Eurodollar Loan that would
otherwise extend beyond the Termination Date shall end on such
date; and
(z) if any Interest Period relating to a Eurodollar Loan
begins on the last Working Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period), such Interest Period
shall end on the last Working Day of a calendar month;
"Issuing Lender" with respect to any Letter of Credit issued or
requested to be issued, shall mean The Chase Manhattan Bank, the
Designated Issuer or, subject to the consent of the Company (which
consent shall not be unreasonably withheld or delayed), any other Lender
designated by the Administrative Agent that agrees to serve in such
capacity;
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"L/C Commitment" shall equal $35,000,000;
"L/C Fee Payment Date" shall mean the last day of each March, June,
September and December and, in any event, the Termination Date;
"L/C Obligations" shall mean, at any time, an amount equal to the
sum of (a) the aggregate amount of Undrawn L/C Obligations then
outstanding and (b) the aggregate amount of then unreimbursed
Reimbursement Obligations;
"L/C Participants" shall be the collective reference to all the
Lenders, other than the Issuing Lender (or, to the extent that the
Issuing Lender is an affiliate of a Lender such Lender);
"Lenders" shall have the meaning assigned to such term in the
preamble hereto;
"Letters of Credit" shall have the meaning assigned to such term
in subsection 3.1;
"Leverage Ratio" at the last day of any fiscal quarter, shall mean
the ratio of (a) Total Debt (after giving effect to all prepayments made
on such day) on such day to (b) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending on such day;
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other) or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, (a) any conditional sale or other title retention agreement,
(b) any financing lease having substantially the same economic effect as
any of the foregoing, (c) the filing of any financing statement under the
Uniform Commercial Code (other than any such financing statement filed
for informational purposes only) or comparable law of any jurisdiction to
evidence any of the foregoing and (d) in the case of securities, any
purchase option, call or similar right of a third party with respect to
such securities (other than, in the case of securities other than the
Capital Stock of any Subsidiary of the Company, pursuant to normal
settlement terms));
"Loan" and "Loans" shall have the meanings assigned to such terms
in subsection 2.1;
"Loan Parties" shall mean the Company and the Guarantors;
"Material Adverse Effect" shall mean a material adverse effect upon
(a) the business, assets, operations, condition (financial or otherwise),
performance, properties or prospects of Holdings and its Subsidiaries
taken as a whole, (b) the ability of the Holdings and each of its
Subsidiaries to perform its obligations under the Credit Documents or (c)
the rights and remedies available to the Administrative Agent and/or the
Lenders under any Credit Document;
<PAGE>
13
"Multiemployer Plan" shall mean a Plan (other than a welfare plan
as defined in Section 3(1) of ERISA) which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA;
"Net Cash Proceeds" shall mean, in connection with any Asset Sale
or any Recovery Event, the gross proceeds thereof in the form of cash and
Cash Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of (i) attorneys'
fees, accountants' fees, investment banking fees and other customary fees
and expenses actually incurred in connection therewith, (ii) the amount
of liabilities (other than intercompany liabilities or liabilities owing
to any Affiliate of such Person), if any, which are required to be repaid
at the time or as a result of any Asset Disposition or Recovery Event out
of the proceeds thereof and (iii) taxes paid or reasonably estimated to
be payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements); provided
that the proceeds of a Recovery Event shall not be counted as gross
proceeds for purposes of this definition of Net Cash Proceeds if, within
180 days of the receipt by Holdings, the Company or any of its
Subsidiaries of such proceeds, such recipient commences and thereafter
diligently pursues the repair or replacement of the Property affected by
such Recovery Event, except that any portion of such proceeds not applied
or committed to be applied to such repair or replacement within 180 days
of receipt of such proceeds shall be counted as gross proceeds for
purposes of this definition at that time;
"Note" shall have the meaning assigned to such term in subsection
2.2(c);
"Note Redemption" shall have the meaning assigned to such term in
the recitals hereto;
"Parent" shall have the meaning assigned to such term in
subsection 0;
"Participants" shall have the meaning assigned to such term in
subsection 0;
"Payment Obligations" shall mean (a) all principal, interest, fees,
charges, expenses, attorneys' fees and disbursements, indemnities,
reimbursement obligations and any other amounts payable by any Person
under any Credit Document (including, without limitation, the L/C
Obligations) and (b) any amount in respect of any of the foregoing that
the Administrative Agent or any Lender, in its sole discretion, may elect
to pay or advance under this Agreement on behalf of such Person after the
occurrence and during the continuance of a Default or an Event of
Default;
"Payment Sharing Notice" shall mean a written notice from the
Company or any Lender informing the Administrative Agent that an Event of
Default has occurred and is continuing and directing the Administrative
Agent to allocate payments thereafter received from the Company in
accordance with the provisions of subsection 0;
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA;
<PAGE>
14
"Permitted Exceptions" shall have the meaning assigned to such
term in subsection 8.2;
"Person" shall mean an individual, a partnership, a corporation, a
business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Governmental Authority or any other
entity of whatever nature;
"Petroleum Products" shall mean gasoline, diesel fuel, motor oil,
waste or used oil, heating oil, kerosene and any other petroleum
products, including crude oil or any fraction thereof;
"Plan" shall mean at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Company or a
Commonly Controlled Entity is (or, if such plan was terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA;
"Potential Withdrawal Liability" shall have the meaning assigned
to such term in subsection 0;
"Pricing Grid" shall mean the pricing grid set forth below:
-----------------------------------------------------------------------
Leverage Ratio Applicable Commitment
Margin Fee Rate
-----------------------------------------------------------------------
Greater than or equal to 3.00 to 1.0 1.000% 0.300%
-----------------------------------------------------------------------
Greater than or equal to 2.25 to 1.0 and 0.875% 0.250%
less than 3.00 to 1.0
-----------------------------------------------------------------------
Greater than or equal to 2.00 to 1.0 and 0.750% 0.250%
less than 2.25 to 1.0
-----------------------------------------------------------------------
Greater than or equal to 1.50 to 1.0 and 0.625% 0.200%
less than 2.00 to 1.0
-----------------------------------------------------------------------
Less than 1.50 to 1.0 0.500% 0.200%
=======================================================================
Changes in the Applicable Margin with respect to Eurodollar Loans or in
the Commitment Fee Rate resulting from changes in the Leverage Ratio
shall become effective on the date (the "Adjustment Date") on which
financial statements are delivered to the Lenders pursuant to subsections
7.1(a) and (c) and shall remain in effect until the next change to be
effected pursuant to this paragraph. If any such financial statements are
not delivered within the time periods specified in subsections 7.1(a) and
(c), then from the time such financial statements were due, until such
financial statements are delivered, the Leverage Ratio as at the end of
the fiscal period that would have been covered thereby shall for the
purposes of this definition be deemed to be greater than 3.00 to 1.00. In
addition, at all times while an Event of Default shall have occurred and
be continuing, the Leverage Ratio shall for the purposes of this
definition be deemed to be greater than 3.00 to 1.00. Each
<PAGE>
15
determination of the Leverage Ratio pursuant to this definition shall be
made with respect to the period of four consecutive fiscal quarters of
the Company ending at the end of the period covered by the relevant
financial statements.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its prime rate
in effect at its principal office in New York City (each change in the
Prime Rate to be effective on the date such change is publicly
announced);
"Property" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible
or intangible, including, without limitation, Capital Stock;
"Purchasing Lenders" shall have the meaning assigned to such term
in subsection 0;
"Rate Hedging Agreement" shall mean any (a) interest rate swap,
option, cap, collar or insurance, (b) foreign exchange contract or (c)
any other agreement or arrangement designed to provide protection against
fluctuations in interest rates or currency exchange rates;
"Real Property" shall have the meaning assigned to such term in
subsection 0;
"Recovery Event" shall mean any settlement of or payment in respect
of any property or casualty insurance claim or any condemnation
proceeding relating to any asset (other than inventory) of Holdings, the
Company or any of its Subsidiaries;
"Register" shall have the meaning assigned to such term in
subsection 0);
"Reimbursement Agreement" shall mean the reimbursement agreement,
dated as of February 5, 1996 among the Company, Mafco Consolidated Group
Inc. and The Chase Manhattan Bank (as successor to Chemical Bank), as
amended, supplemented or otherwise modified prior to the Closing Date;
"Reimbursement Obligation" shall mean the obligation of the Company
to reimburse the Issuing Lender pursuant to subsection 3.5 for amounts
drawn under Letters of Credit;
"Reorganization" shall mean with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of
such term as used in Section 4241 of ERISA;
"Reportable Event" shall mean any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the 30-day
notice period is waived by regulation (except for any waiver under PBGC
Reg. ss. 4043.25);
"Required Lenders" at any date, shall mean the holders of at
least a majority of the Aggregate Commitment on such date;
<PAGE>
16
"Requirement of Law" for any Person shall mean the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation, or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its material property
or to which such Person or any of its material property is subject;
"Responsible Officer" shall mean any officer at the level of Vice
President or higher of the Company or, with respect to financial matters,
the Chief Financial Officer, Chief Accounting Officer or
Treasurer of the Company;
"Restricted Payment" shall mean (a) any payment by the Company or
any of its Subsidiaries of a dividend (other than a dividend payable
solely in Capital Stock of the Company) on, or any payment on account of
the purchase, redemption or retirement of, or any other distribution on,
any shares of any class of Capital Stock of the Company (including any
such payment or distribution in cash or in property or obligations of the
Company or any of its Subsidiaries), (b) any loan or advance by the
Company or any of its Subsidiaries to any Affiliate of the Company or (c)
the payment by the Company or any of its Subsidiaries of any management
or administrative fee to any Affiliate of the Company or of any salary,
bonus or other form of compensation other than in the ordinary course of
business to any Person who is a significant stockholder or executive
officer of any Affiliate of the Company;
"Senior Subordinated Notes" shall have the meaning assigned to
such term in the recitals hereto;
"Significant Trademark" shall mean any Trademark which is of such a
nature that the Company or its Subsidiaries in accordance with its
ordinary business practice then obtaining would file an application for
trademark registration in the United States Patent and Trademark Office;
"Single Employer Plan" shall mean any Plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA;
"Standby Letter of Credit" shall have the meaning assigned to
such term in subsection 3.1;
"Subsidiaries Guarantee" shall mean the Guarantee, to be executed
and delivered by EVD Holdings Inc., a Delaware corporation and a direct
Subsidiary of the Company, substantially in the form of Exhibit D-2 as
the same shall be modified and supplemented and in effect from time to
time;
"Subsidiary" of any Person shall mean a corporation or other entity
of which shares of Capital Stock or other ownership interests having
ordinary voting power (other than Capital Stock or other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or
other Persons performing similar functions for such entity, are owned,
directly or indirectly, by such Person; unless otherwise qualified, all
references to a "Subsidiary" or to
<PAGE>
17
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company and all references to a "wholly owned
Subsidiary" in this Agreement shall refer to a Subsidiary or Subsidiaries
of the Company of which the Company directly or indirectly owns all of
the Capital Stock (other than directors' qualifying shares);
"Taxable Lender" shall have the meaning assigned to such term in
subsection 0;
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement
entered into as of November 14, 1996 by and among Power Control
Technologies Inc., a Delaware corporation, the Company, its Subsidiaries
and any entities which become parties thereto pursuant to the terms
thereof, as amended, supplemented or otherwise modified from time to
time.
"Taxes" shall have the meaning assigned to such term in
subsection 0;
"Termination Date" shall mean the earlier of (a) November 18, 2002,
and (b) such earlier date upon which the Commitments shall terminate in
accordance with the terms hereof;
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as
being in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board of Governors of the Federal
Reserve System (the "Board") through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing
selected by it;
"Total Debt" at any time, shall mean the sum (without duplication)
of (a) the aggregate principal amount of all outstanding Indebtedness of
the Company and its Subsidiaries and (b) all outstanding Contingent
Obligations of the Company and its Subsidiaries in respect of
Indebtedness of Persons other than the Company or any of its
Subsidiaries; provided, that Indebtedness of the type described in
clauses (e) and (j) of the definition of the term Indebtedness shall not
be included for the purpose of calculating Total Debt;
"Trademark" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious source of business identifiers
of the Company and its Subsidiaries, and the goodwill associated
therewith, existing as of the Closing Date or thereafter adopted or
acquired, all registrations and recordings thereof, and all applications
in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States,
any State thereof, or any political subdivision thereof, or otherwise,
and (b) all renewals thereof;
<PAGE>
18
"Tranche" shall be the collective reference to Eurodollar Loans the
Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally
have been made on the same day);
"Transaction Agreements" shall have the meaning assigned to such
term in subsection 8.9.
"Transferee" shall have the meaning assigned to such term in
subsection 0;
"Undrawn L/C Obligations" shall mean the portion, if any, of the
Payment Obligations constituting the contingent obligation of the Company
to reimburse the Issuing Lender in respect of the then undrawn and
unexpired portions of the Letters of Credit issued by the Issuing Lender
pursuant to subsection 3.1;
"Unfunded Pension Amount" shall have the meaning assigned to such
term in subsection 0;
"Uniform Commercial Code" and "UCC" shall mean the Uniform
Commercial Code as in effect from time to time in the State of New York;
"Uniform Customs" shall mean the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time;
"United States" the United States of America;
"Voting Stock" shall mean, as to any Person, Capital Stock of such
Person of the class or classes pursuant to which the holders thereof have
the general voting power under ordinary circumstances to elect the board
of directors, managers or trustees of such Person (irrespective of
whether or not at the time Capital Stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency);
"Whitman" shall mean Whitman Corporation (f/k/a ICI Industries).
"Working Day" shall mean any Business Day other than a Business Day
on which commercial banks in London, England are authorized or required
by law to close;
Other Definitional Provisions. (a) All terms defined in this
Agreement shall have the defined meanings when used in any other Credit
Document or any certificate or other document made or delivered pursuant hereto
or thereto unless otherwise defined therein.
As used herein, in the other Credit Documents and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in subsection 0, and accounting terms partly
defined in subsection 0 to the extent not defined, shall have the respective
meanings given to them under GAAP. To the extent that the definitions of
<PAGE>
19
accounting terms herein are inconsistent with the meanings of such terms under
GAAP, the definitions contained herein shall control.
The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement or any other Credit Document shall refer to
this Agreement or such other Credit Document, as the case may be, as a whole
and not to any particular provision of this Agreement or such other Credit
Document, as the case may be; and Section, subsection, Schedule and Exhibit
references contained in this Agreement are references to Sections, subsections,
Schedules and Exhibits in or to this Agreement, unless otherwise specified.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS
2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make loans in Dollars (individually,
a "Loan"; collectively, the "Loans") to the Company from time to time during
the period from the Closing Date to the Termination Date in an aggregate
principal amount at any one time outstanding not to exceed the amount equal to
the Commitment Percentage of such Lender times the Aggregate Commitment as of
such date, but in no event more than the amount which when added to such
Lender's Commitment Percentage of the L/C Obligations then outstanding does not
exceed the amount of such Lender's Commitment. During the period commencing on
the Closing Date and ending on the Termination Date, the Company may use the
Commitments by borrowing, repaying the Loans in whole or in part and
reborrowing, all in accordance with the terms and conditions hereof.
2.2 Obligations of the Company. (a) The Company agrees that each Loan
made by each Lender pursuant hereto shall constitute the promise and obligation
of the Company to pay to the Administrative Agent, for the benefit of such
Lender, at the office of the Administrative Agent, 270 Park Avenue, New York,
New York 10017, in lawful money of the United States and in immediately
available funds the aggregate unpaid principal amount of all Loans made to the
Company by such Lender pursuant to subsection 0, which amounts shall be due and
payable (whether at maturity or by acceleration) as set forth in this Agreement
and, in any event, on the Termination Date.
(b) The Company agrees that each Lender is authorized to record (i)
the date and amount of each Loan made to the Company by such Lender pursuant to
subsection 0, (ii) the date of each interest rate conversion pursuant to
subsection 0 and the principal amount subject thereto, (iii) the date and
amount of each payment or prepayment of principal of each Loan made by the
Company and (iv) in the case of each Eurodollar Loan, the interest rate and
Interest Period, in the books and records of such Lender and in such manner as
is reasonable and customary for such Lender and a certificate of an officer of
such Lender, setting forth in reasonable detail the information so recorded,
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided that the failure to make any such recording shall not in any
way affect the Payment Obligations of the Company hereunder.
(c) The Company agrees that, upon the request to the Administrative
Agent by any Lender at any time, such Lender's Loans shall be evidenced by a
promissory note of the Company, substantially in the form of Exhibit A with
appropriate insertions as to payor, date and principal amount (a "Note"),
payable to the order of such Lender and representing the obligation
<PAGE>
20
of the Company to pay a principal amount equal to the amount of the Commitment
of such Lender or, if less, the aggregate unpaid principal amount of all Loans
made by such Lender to the Company, with interest on the unpaid principal
amount thereof from time to time outstanding under such Note as prescribed in
subsection 0. Upon the request to the Administrative Agent by any Lender at any
time, the Company shall execute and deliver to such Lender two Notes, one of
which shall evidence the portion of such Lender's Loans to the Company
represented by Eurodollar Loans, and the other which shall evidence the portion
of such Lender's Loans to the Company represented by Alternate Base Rate Loans.
2.3 Procedure for Borrowing Loans. (a) The Company may request a
borrowing from time to time under the Aggregate Commitment prior to the
Termination Date on any Business Day (if the Loans to be borrowed are Alternate
Base Rate Loans) or on any Working Day (if the Loans to be borrowed are
Eurodollar Loans) by giving irrevocable notice to the Administrative Agent,
specifying (i) the aggregate principal amount to be borrowed, (ii) the
requested borrowing date, (iii) whether the Loans to be borrowed are to be
Eurodollar Loans or Alternate Base Rate Loans or a combination thereof and, if
a combination, the respective aggregate amount of each type of borrowing and
(iv) if the Loans to be borrowed are Eurodollar Loans, the length of the
Interest Period or Interest Periods applicable thereto. Any such notice of
borrowing must be signed by a Responsible Officer of the Company and be
received by the Administrative Agent prior to 11:00 A.M., New York City time,
three Working Days prior to the requested borrowing date, in the case of
Eurodollar Loans, and one Business Day prior to the requested borrowing date,
in the case of Alternate Base Rate Loans. Each borrowing under the Commitments
shall be in an aggregate principal amount equal to the lesser of (x) $1,000,000
or a whole multiple of $100,000 in excess thereof or (y) the Available
Commitment. Upon receipt of any such notice, the Administrative Agent will
promptly notify each Lender thereof. Each Lender will make available to the
Administrative Agent at the office of the Administrative Agent specified in
subsection 11.2 (or at such other location as the Administrative Agent may
direct), by 1:00 P.M., New York City time, on the requested borrowing date, an
amount equal to the Commitment Percentage of such Lender times the aggregate
amount of Loans requested to be borrowed on such date, in funds immediately
available to the Administrative Agent. The proceeds of Loans received by the
Administrative Agent hereunder shall promptly be made available to the Company
by the Administrative Agent's crediting the account of the Company, at the
office of the Administrative Agent specified in subsection 11.2, with the
aggregate amount actually received by the Administrative Agent from the Lenders
and in like funds as received by the Administrative Agent.
(b) The failure of any Lender to make the Loan to be made by it on
any requested borrowing date shall not relieve any other Lender of its
obligation hereunder to make its Loan on such borrowing date, but no Lender
shall be responsible for the failure of any other Lender to make the Loan to be
made by such other Lender on such borrowing date.
2.4 Use of Proceeds of Loans. The proceeds of the Loans hereunder
shall be used by the Company to finance the Note Redemption of all of the
outstanding Senior Subordinated Notes and to finance the working capital and
general corporate purposes of the Company and its Subsidiaries.
SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT
<PAGE>
21
3.1 L/C Facility. (a) Subject to the terms and conditions hereof, the
Issuing Lender, in reliance on the agreements of the other Lenders set forth in
subsections 3.4(a) and (b), agrees to issue any letter of credit ("Letters of
Credit") requested to be issued by it for the account of the Company on any
Business Day during the Commitment Period in such form as may be approved from
time to time by the Issuing Lender; provided that the Issuing Lender shall have
no obligation to issue any Letter of Credit if, after giving effect to such
issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the
aggregate amount of the Available Commitments would be less than zero. Each
Letter of Credit shall (i) be denominated in Dollars, (ii) be either (x) a
standby letter of credit issued to support obligations of the Company or any of
its Subsidiaries, contingent or otherwise, which are of a type for which Loans
would be available if the obligations were then due and payable (including,
without limitation, to support insurance and workmen's compensation
obligations) (a "Standby Letter of Credit"), or (y) a documentary letter of
credit in respect of the purchase of goods or services by the Company or any of
its Subsidiaries in the ordinary course of business (a "Commercial Letter of
Credit") and (iii) expire no later than the earlier of (x) one year from the
date of issue and (y) five Business Days prior to the Termination Date;
provided that any Letter of Credit with a one-year tenor may provide for the
renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (y)); and provided, further, that the
Undrawn L/C Obligations in respect of each Letter of Credit which expires after
the last day of the Commitment Period shall be Fully Secured from and after
such day.
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Company shall
request the Issuing Lender to issue a Letter of Credit by delivering to the
Issuing Lender at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may reasonably request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Lender and the Company. The Issuing Lender shall (i) in the case of
each Standby Letter of Credit, notify each L/C Participant and the
Administrative Agent promptly following the request for and following the
issuance of the Standby Letter of Credit and furnish a copy of such Standby
Letter of Credit to the Company and to the Administrative Agent promptly
following the issuance thereof and (ii) in the case of Commercial Letters of
Credit, provide to each L/C Participant and the Administrative Agent, promptly
following the end of each calendar month during which it has issued Commercial
Letters of Credit, a monthly activity report of the Commercial Letters of
Credit issued by it during such month.
<PAGE>
22
3.3 Fees, Commissions and Other Charges. (a) The Company shall pay to
the Administrative Agent, for the account of the Issuing Lender and the L/C
Participants with respect to each Letter of Credit, a letter of credit
commission with respect to such Letter of Credit in an amount per annum equal
to (i) the Applicable Margin applicable to Eurodollar Loans on the date of
payment of such letter of credit commission (which fee shall be for the
accounts of the L/C Participants and the Issuing Lender to be shared ratably
among them in accordance with their respective Commitment Percentages) times
(ii) the undrawn face amount of such Letter of Credit. In addition, the Company
shall pay to the Administrative Agent for the account of the Issuing Lender for
its own account a fronting fee of 1/8 of 1% per annum, payable quarterly in
arrears on each L/C Fee Payment Date after the issuance date.
(b) Letter of credit commissions which are payable pursuant to
clause (a) above shall be non-refundable and shall be payable to the
Administrative Agent in arrears on account of the period from the issuance date
with respect thereto through the day immediately preceding the next L/C Fee
Payment Date and on each succeeding L/C Fee Payment Date on account of the
period from such L/C Fee Payment Date through the day immediately preceding the
next L/C Fee Payment Date.
(c) In addition to the foregoing fees and commissions, the Company
shall pay or reimburse the Issuing Lender directly (and not through the
Administrative Agent) in respect of each Letter of Credit for such normal and
customary costs and expenses as are incurred or charged by the Issuing Lender
in issuing, effecting payment under, amending or otherwise administering any
Letter of Credit issued by it.
(d) The Administrative Agent shall pay to each L/C Participant and
the Issuing Lender all fees and commissions (including, without limitation, any
fees and commissions paid to the Administrative Agent for the account of each
L/C Participant and the Issuing Lender on the issuance date of any Letter of
Credit) received from time to time by the Administrative Agent for their
respective accounts pursuant to this subsection 3.3 within one day following
each L/C Fee Payment Date.
3.4 L/C Participations. (a) The Issuing Lender with respect to each
Letter of Credit irrevocably agrees to grant and hereby grants to each L/C
Participant, and, to induce the Issuing Lender to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and purchase, and
hereby accepts and purchases, from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit issued by it for
which the Issuing Lender is not reimbursed in full by the Company in accordance
with the terms of this Agreement, such L/C Participant shall pay to the Issuing
Lender upon demand at the Issuing Lender's address for notices specified herein
an amount equal to such L/C Participant's Commitment Percentage of the amount
of such draft, or any part thereof, which is not so reimbursed.
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23
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit
issued by it is paid to the Issuing Lender within three Business Days after the
date such payment is due, such L/C Participant shall pay to the Issuing Lender
on demand an amount equal to the product of (i) such amount, times (ii) the
daily average Federal Funds Effective Rate, as quoted by the Issuing Lender,
during the period from and including the date such payment is required to the
date on which such payment is immediately available to the Issuing Lender,
times (iii) a fraction the numerator of which is the number of days that elapse
during such period and the denominator of which is 360. If any such amount
required to be paid by any L/C Participant pursuant to subsection 3.4(a) is not
made available to the Issuing Lender by such L/C Participant within three
Business Days after the date such payment is due, the Issuing Lender shall be
entitled to recover from such L/C Participant, on demand, such amount with
interest thereon calculated from such due date at the rate per annum applicable
to Alternate Base Rate Loans hereunder. A certificate of the Issuing Lender
submitted to any L/C Participant with respect to any amounts owing under this
subsection 3.4(b) shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after any Issuing Lender has made payment
under any Letter of Credit issued by it and has received from any L/C
Participant its pro rata share of such payment in accordance with subsection
3.4(a), the Issuing Lender receives any payment related to such Letter of
Credit (whether directly from the Company or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest
on account thereof, the Issuing Lender promptly will distribute to such L/C
Participant its pro rata share thereof; provided, however, that in the event
that any such payment received by the Issuing Lender shall be required to be
returned by the Issuing Lender, such L/C Participant shall return to the
Issuing Lender the portion thereof previously distributed by the Issuing Lender
to it.
3.5 Reimbursement Obligation of the Company. The Company agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Company of the date and amount of a draft presented under any Letter of
Credit issued and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in
lawful money of the United States and in immediately available funds. Interest
shall be payable on any and all amounts remaining unpaid by the Company under
this subsection 3.5 from the date such amounts become payable (whether at
stated maturity, by acceleration or otherwise) until payment in full at the
rate which would be payable on any outstanding Alternate Base Rate Loans which
were then overdue.
3.6 Obligations Absolute. The Company's obligations under this Section
3 shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which the
Company may have or have had against the Issuing Lender or any beneficiary of a
Letter of Credit. The Company also agrees with the Issuing Lender that the
Issuing Lender shall not be responsible for, and the Company's Reimbursement
Obligations under subsection 3.5 shall not be affected by, among other things,
the validity or genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid, fraudulent or forged,
or any dispute between or among the Company and any beneficiary of any Letter
of Credit or any other party to which such Letter of Credit may be
<PAGE>
24
transferred or any claims whatsoever of the Company against any beneficiary of
such Letter of Credit or any such transferee. The Issuing Lender shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit issued by it, except for errors or omissions caused by the
Issuing Lender's gross negligence or willful misconduct. The Company agrees
that any action taken or omitted by the Issuing Lender under or in connection
with any Letter of Credit issued by the Issuing Lender or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Commercial
Code of the State of New York, shall be binding on the Company and shall not
result in any liability of the Issuing Lender to the Company.
3.7 Letter of Credit Payments. If any draft shall be presented for
payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Company of the date and amount thereof. The responsibility of the Issuing
Lender to the Company in connection with any draft presented for payment under
any Letter of Credit issued by it shall, in addition to any payment obligation
expressly provided for in such Letter of Credit, be limited to determining that
the documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are in conformity with such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
3.9 Existing Letters of Credit. Notwithstanding anything to the
contrary contained in this Agreement or any Guarantee, each of the letters of
credit described on Schedule 3.9 shall, from and after the Closing Date, be
deemed to have been issued on the Closing Date pursuant to subsection 3.1(a) of
this Agreement, with the Issuing Lender being deemed to be the Issuing Lender
in respect of such Letter of Credit hereunder and with each other Lender being
deemed to be an L/C Participant with respect to such Letter of Credit for
purposes of this Agreement and the Guarantees. The Company shall pay to the
Administrative Agent, for the accounts of the Issuing Lender and L/C
Participants, the fees and commissions described in subsection 3.3 with respect
to each such Letter of Credit.
SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES
AND PAYMENTS
4.1 Voluntary Termination or Reduction of Commitments. (a) The Company
shall have the right at any time, upon not less than five Business Days' notice
to the Administrative Agent, to terminate or, from time to time, reduce the
Aggregate Commitment, with any such voluntary reduction being in an amount
equal to the lesser of (i) $5,000,000 or a whole multiple of $1,000,000 in
excess thereof and (ii) the Aggregate Commitment then in effect. Any such
termination or reduction shall permanently terminate or reduce, as the case may
be, the Aggregate Commitment then in effect.
(b) Any termination of the Aggregate Commitment pursuant to
subsection 0 shall be accompanied by prepayment in full (together with accrued
interest thereon to such date) by the
<PAGE>
25
Company of any Loans then outstanding and payment of any other amounts
necessary to cause the Payment Obligations with respect to the Loans and the
L/C Obligations to be Fully Satisfied.
(c) Any reduction of the Aggregate Commitment pursuant to
subsection 0 or otherwise shall be accompanied by prepayment by the Company of
an amount equal to the excess, if any, of the Aggregate Outstanding Extensions
of Credit over the amount of the Aggregate Commitment after giving effect to
such reduction and each such reduction shall permanently reduce the Aggregate
Commitment then in effect.
(d) Any prepayment required pursuant to this subsection 4.1 or
otherwise shall be applied, first, to the Loans then outstanding; second, to
the reimbursement of all outstanding Reimbursement Obligations; and, third, to
causing the then outstanding Undrawn L/C Obligations to be Fully Secured.
4.2 Optional Prepayments. The Company may, at any time and from time
to time, prepay the Loans made to it then outstanding, in whole or in part,
without premium or penalty (other than amounts payable pursuant to subsection
0), upon at least three Working Days' irrevocable notice to the Administrative
Agent, in the case of Eurodollar Loans and one Business Day's irrevocable
notice to the Administrative Agent, in the case of Alternate Base Rate Loans,
specifying (a) the Loans to be prepaid, (b) the date and amount of such
prepayment and (c) whether the prepayment is of Eurodollar Loans or Alternate
Base Rate Loans or a combination thereof, and, if of a combination thereof, the
amount of prepayment allocable to each (and, with respect to such Eurodollar
Loans, each Tranche thereof). Upon receipt of any such notice, the
Administrative Agent will promptly notify each Lender thereof. If any such
notice is given, the Company will make the prepayment specified therein, and
such prepayment shall be due and payable on the date specified therein. Each
partial prepayment of the Loans pursuant to this subsection 0 shall be in an
amount equal to the lesser of (x) $1,000,000 or a whole multiple of $100,000 in
excess thereof and (y) the aggregate principal amount of the Loans then
outstanding to the Company.
4.3 Mandatory Prepayments.
(a) If, at any time and from time to time, the Aggregate
Outstanding Extensions of Credit exceed the Aggregate Commitment, the Company
shall immediately, first, repay the Loans and, second, make payments necessary
to cause Payment Obligations in respect of L/C Obligations to be Fully
Satisfied in an aggregate amount equal to such excess.
(b) If on any date Holdings, the Company or any of its Subsidiaries
shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then such
Net Cash Proceeds shall be applied on such date toward the reduction of the
Commitments; provided, that, notwithstanding the foregoing, such Commitments
need not be permanently reduced pursuant to this subsection 4.3(b) until
Holdings, the Company or any of its Subsidiaries shall have received at least
$5,000,000 in Net Cash Proceeds in the aggregate, at which time, such
$5,000,000 in Net Cash Proceeds and all further Net Cash Proceeds from any
Asset Sales or Recovery Event shall be promptly applied to the permanent
reduction of the Commitments upon receipt.
(c) If, as a result of the making of any payment required to be
made pursuant to this subsection 0, the Company would incur costs pursuant to
subsection 0, the Company may
<PAGE>
26
deposit the amount of such payment with the Administrative Agent, for the
benefit of the Lenders, in a cash collateral account, until the end of the
applicable Interest Period at which time such payment shall be made. The
Company hereby grants to the Administrative Agent, for the benefit of the
Lenders, a security interest in all amounts from time to time on deposit in
such cash collateral account and expressly waives all rights (which rights the
Company hereby acknowledges and agrees are vested exclusively in the
Administrative Agent) to exercise dominion or control over any such amounts.
4.4 Interest Rate and Payment Dates. (a) The Eurodollar Loans shall
bear interest on the unpaid principal amount thereof for each day during each
Interest Period with respect thereto at a rate per annum equal to the
Eurodollar Rate for such day plus the Applicable Margin.
(b) The Alternate Base Rate Loans shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the Alternate Base Rate.
(c) If all or a portion of any amount owing hereunder shall not be
paid when due, then, for so long as such amount remains unpaid, (i) if the
overdue amount represents principal, all Loans shall bear interest at a rate
per annum which is 2% above the rate which would otherwise be applicable
pursuant to subsection 0 or (b), as the case may be, and (ii) if the overdue
amount represents overdue interest, fees or other amounts (other than the
amounts described in clause (i) of this paragraph (c)) due under the Credit
Documents, such overdue amount shall bear interest at a rate per annum equal to
the Alternate Base Rate plus 2%. During such time as any principal of or
interest on any Eurodollar Loans remains unpaid, such Eurodollar Loans shall be
converted to Alternate Base Rate Loans at the end of the respective Interest
Periods applicable thereto.
(d) Interest on each Loan accrued to but not including each
Interest Payment Date applicable thereto shall be payable in arrears on such
Interest Payment Date; provided, however, that interest accruing on the
principal of or (to the extent permitted by applicable law) interest or any
other amount payable in connection with any Loan not paid when due (whether at
stated maturity, by acceleration or otherwise), shall be payable from time to
time upon demand of the Administrative Agent.
4.5 Conversion Options, Minimum Tranches and Maximum Interest Periods.
(a) The Company may elect from time to time to convert outstanding Loans from
Eurodollar Loans to Alternate Base Rate Loans by giving the Administrative
Agent at least one Business Day's prior irrevocable notice of such election.
The Company may elect from time to time and at any time to convert outstanding
Loans from Alternate Base Rate Loans to Eurodollar Loans by giving the
Administrative Agent at least three Working Days' irrevocable notice of such
election; provided that no Loans may be converted to Eurodollar Loans when any
Default or Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined that such a
conversion is not appropriate. Upon receipt of such notice, the Administrative
Agent shall promptly notify each Lender. On the date on which such conversion
is being made, each Lender shall take such action as is necessary to effect
such conversion. All or any part of the outstanding Eurodollar Loans or
Alternate Base Rate Loans may be converted as provided herein.
<PAGE>
27
(b) Any Eurodollar Loans may be continued as such upon the
expiration of an Interest Period with respect thereto by the Company giving the
Administrative Agent at least three Working Days' irrevocable notice for
continuation thereof; provided that no Eurodollar Loan may be continued as such
when any Default or Event of Default has occurred and is continuing and the
Agent has or the Required Lenders have determined that such a conversion is not
appropriate, and, instead, such Eurodollar Loans shall be automatically
converted to an Alternate Base Rate Loan on the last day of the Interest Period
for which a Eurodollar Rate was determined by the Administrative Agent prior to
the Administrative Agent's obtaining knowledge of such Default or Event of
Default. The Administrative Agent shall notify the relevant Lenders promptly
that such automatic conversion shall occur.
(c) In the event that a timely notice of conversion or continuation
with regard to Eurodollar Loans is not given in accordance with this subsection
0, then, unless the Administrative Agent shall have received timely notice in
accordance with subsection 0 that the Company elects to prepay such Eurodollar
Loans on the last day of such Interest Period, the Company shall be deemed
irrevocably to have requested that such Eurodollar Loans be converted into
Alternate Base Rate Loans on the last day of such Interest Period.
(d) Any borrowing or continuation of Eurodollar Loans, or
conversion to or from Eurodollar Loans, or payments or prepayments of
Eurodollar Loans, shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, (i) the aggregate principal
amount of each Tranche of Eurodollar Loans shall be $1,000,000 or a whole
multiple (to the extent possible) of $100,000 in excess thereof, (ii) the
aggregate principal amount of all Alternate Base Rate Loans shall be $1,000,000
or a whole multiple (to the extent possible) of $100,000 in excess thereof and
(iii) there shall not be more than six Tranches of Eurodollar Loans in the
aggregate at any one time outstanding.
4.6 Inability to Determine Interest Rate. (a) In the event that the
Administrative Agent shall have determined (which determination, in the absence
of manifest error, shall be conclusive and binding upon the Company) that by
reason of circumstances affecting the relevant interbank eurocurrency market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for any Interest Period with respect to (i) proposed Loans that the Company has
requested be made as Eurodollar Loans, (ii) a Eurodollar Loan that will result
from the requested conversion of all or part of the Alternate Base Rate Loans
into Eurodollar Loans or (iii) the continuation of a Eurodollar Loan as such
for an additional Interest Period (any such Loan described in clauses (i), (ii)
or (iii) of this subsection 0 being herein called an "Affected Loan"), the
Administrative Agent shall forthwith give telecopy or telephonic notice of such
determination, confirmed in writing, to the Company and the Lenders at least
two Business Days prior to the borrowing date for such Loan, the conversion
date for such Alternate Base Rate Loan or the last day of the Interest Period
applicable to such Loan, as the case may be. Unless the Company shall have
notified the Administrative Agent promptly upon receipt of such telecopy or
telephonic notice that it wishes to rescind or modify its request regarding
such Affected Loans, then any requested Eurodollar Loan shall be made as,
continued as, or converted into an Alternate Base Rate Loan, as the case may
be. Until any such notice has been withdrawn by the Administrative Agent, no
further Affected Loans shall be made.
(b) In the event that the Required Lenders determine that the rate
quoted by the Administrative Agent does not accurately reflect the cost of
making or maintaining any Loans that
<PAGE>
28
the Company has requested be made or continued as or converted to Eurodollar
Loans the Administrative Agent shall forthwith give telecopy or telephonic
notice of such determination to the Company on or before the requested
borrowing, conversion or continuation date for such Loans or the next
succeeding Interest Period for such Loans. Unless the Company shall have
notified the Administrative Agent promptly after receipt of such telecopy or
telephonic notice that it wishes to rescind or modify its request regarding
such Loans, then any such Eurodollar Loans shall be made as or converted to
Alternate Base Rate Loans.
4.7 Illegality. Notwithstanding any other provision herein, if any
change in law, rule, regulation, treaty or directive or in the interpretation
or application thereof, shall make it unlawful for any Lender to make or
maintain Eurodollar Loans as contemplated by this Agreement or to accept
deposits in order to make or maintain such Eurodollar Loans, (a) such Lender
shall promptly notify the Administrative Agent and the Company thereof, (b) the
agreements of such Lender hereunder to make or convert to Eurodollar Loans
shall be suspended forthwith and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall automatically become Alternate Base Rate Loans
for the duration of the respective Interest Periods applicable thereto (or, if
permitted by applicable law, at the end of such Interest Periods). The Company
agrees promptly to pay to any Lender any additional amounts necessary to
compensate such Lender for any costs incurred by such Lender as a consequence
of the Company making any conversion in accordance with this subsection 0,
including, without limitation, any interest or fees payable by such Lender to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Loans. A certificate as to any such costs payable pursuant to this subsection 0
submitted by an officer of any Lender, through the Administrative Agent, to the
Company shall be conclusive, in the absence of manifest error.
4.8 Requirements of Law; Changes of Law. (a) In the event that the
adoption of or any change in law, rule, regulation, treaty or directive or in
the interpretation or application thereof, or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
date hereof from any central bank or other Governmental Authority:
(i) imposes upon any Lender any tax of any kind whatsoever
with respect to this Agreement, its Notes, any Letter of Credit, any
Application or any Loan, or changes the basis of taxation of payments to
such Lender of principal, commitment fee, interest or any other amount
payable hereunder (except for (x) income and franchise taxes imposed on
such Lender by the jurisdiction under the laws of which such Lender is
organized or any political subdivision or taxing authority thereof or
therein, or by any jurisdiction in which such Lender is located or any
political subdivision or taxing authority thereof or therein, and (y)
taxes imposed by way of deduction or withholding, which shall be
exclusively governed by subsection 0);
(ii) imposes, modifies or holds applicable any reserve,
special deposit, compulsory loan or similar requirement against any Loan
made, or assets held by, or credit extended by, or deposits or other
liabilities in or for the account of, or acquisition of funds by or for
the account of, any office of such Lender, which is not otherwise
included in the determination of the Eurodollar Rate hereunder; or
(iii) imposes on such Lender any other condition;
<PAGE>
29
and the result of any of the foregoing is to increase the cost to such Lender
of making, renewing, maintaining or participating in advances or extensions of
credit or issuing or participating in Letters of Credit or to reduce any amount
receivable by it in respect of its Eurodollar Loans, then, in any such case,
the Company shall promptly pay such Lender any additional amounts necessary to
compensate such Lender for such additional cost or reduced amount receivable as
reasonably determined by such Lender with respect to this Agreement (including,
without limitation, its participating interests in Letters of Credit), its
Notes or its Loans after taking into account any amounts paid or payable
pursuant to subsection 0. If a Lender becomes entitled to claim any additional
amounts pursuant to this subsection 0, it shall promptly notify the Company,
through the Administrative Agent, of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by an officer of a Lender, through the
Administrative Agent, to the Company shall be conclusive, in the absence of
manifest error.
(b) In the event that any Lender shall have determined that the
adoption of any law, rule, regulation or guideline adopted pursuant to or
arising out of the International Convergence of Capital Measurement and Capital
Standards or of any Requirement of Law otherwise regarding capital adequacy, or
any change therein or in the interpretation or application thereof or
compliance by any Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) issued after the date hereof
from any central bank or Governmental Authority, does or shall have the effect
of reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount which is
reasonably deemed by such Lender to be material, then from time to time,
promptly after submission by such Lender, through the Administrative Agent, to
the Company of a written request therefor, the Company shall promptly pay to
such Lender such additional amount or amounts as will compensate such Lender
for such reduction.
(c) The agreements in this subsection 0 shall survive the
termination of this Agreement and payment of the Loans and the Notes and all
other amounts payable hereunder.
4.9 Indemnity. The Company agrees to promptly pay and indemnify each
Lender for, and to hold such Lender harmless from, any loss or expense which
such Lender may sustain or incur in its reemployment of funds obtained in
connection with the making or maintaining of, or converting to, Eurodollar
Loans, as a consequence of (a) any default by the Company in borrowing such
Eurodollar Loans or in converting Alternate Base Rate Loans to Eurodollar Loans
after the Company has given a notice in respect thereof or (b) any failure by
the Company to prepay Eurodollar Loans after the Company has given notice in
respect thereof or (c) any payment, prepayment (whether optional or mandatory)
or conversion (whether optional or mandatory) of any Eurodollar Loan on a day
which is not the last day of an Interest Period with respect thereto. Without
limiting the effect of the foregoing, the Company agrees to pay to each Lender
an amount equal to the excess, if any, of (i) the amount of interest which
otherwise would have accrued on the principal amount paid, prepaid or not
borrowed for (A) the period from the date of such payment or prepayment to the
last day of the Interest Period applicable to such Eurodollar Loan or (B) in
the case of a failure to borrow or to convert, the Interest Period applicable
to such Eurodollar Loan, which would have commenced on the date specified for
such borrowing or conversion, at the applicable rate of interest for such
Eurodollar Loan provided for
<PAGE>
30
herein exclusive of any margin applicable thereto minus (ii) the interest
component of the amount such Lender would have bid in the London interbank
market in respect of such Loan if such Loan were to be made on the date of such
payment, prepayment, failure to borrow or failure to convert, as the case may
be. A certificate as to any additional amounts payable pursuant to this
subsection 0 submitted by an officer of a Lender, through the Administrative
Agent, to the Company shall be conclusive, absent manifest error. The
agreements in this subsection 0 shall survive termination of this Agreement and
payment of the Loans and the Notes and all other amounts payable hereunder.
4.10 Taxes. (a) All payments made by the Company under this Agreement
shall be made free and clear of, and without reduction for or on account of,
any present or future income, stamp, documentary, property, excise or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Administrative Agent and
each Lender, income and franchise taxes imposed on the Administrative Agent or
such Lender by the jurisdiction under the laws of which the Administrative
Agent or such Lender is organized or any political subdivision or taxing
authority thereof or therein, or by any jurisdiction in which such Lender is
located or any political subdivision or taxing authority thereof or therein
(such non-excluded taxes being called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to the Administrative Agent or any Lender
hereunder or under the Notes, the amounts so payable to the Administrative
Agent or such Lender shall (without any obligation on the part of the Company
to pay such amounts ratably in accordance with the provisions of subsection 0)
be increased to the extent necessary to yield to the Administrative Agent or
such Lender (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement
and the Notes. Whenever any Taxes are payable by the Company, as promptly as
possible thereafter, the Company shall send to the Administrative Agent, for
its own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt or other evidence reasonably
satisfactory to the Administrative Agent showing payment thereof. If the
Company fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Administrative Agent the required receipts or other
required documentary evidence, the Company shall indemnify the Administrative
Agent and the Lenders for any incremental taxes, interest or penalties that may
become payable by the Administrative Agent or any Lender as a result of any
such failure. If any Taxes are paid by the Administrative Agent or any Lender
to any Governmental Authority, the Company shall indemnify the Administrative
Agent or such Lender, as the case may be (within 30 days after demand therefor
upon the Company), for any amounts so paid.
(b) Except as the Company shall otherwise consent, each Lender
hereby severally (but not jointly) represents that, under applicable law and
treaties in effect on the date of this Agreement, no United States federal
taxes will be required to be withheld by the Administrative Agent or the
Company with respect to any payments to be made to such Lender in respect of
this Agreement. Each Lender which itself is not incorporated under the laws of
the United States or a state thereof or which is lending from an office that is
not incorporated under the laws of the United States or a state thereof agrees
severally (but not jointly) that, prior to the Closing Date, it will deliver to
the Company and the Administrative Agent two duly completed copies of either
United States Internal Revenue Service Form 1001 or 4224, or, in the case of a
Lender claiming exemption from U.S. federal withholding tax under Section
871(h) or 881(c) of the Code with respect to payments of "portfolio interest",
a Form W-8, or any subsequent versions thereof or successors thereto (and, if
such Lender delivers a Form W-8, a statement under the penalties of
<PAGE>
31
perjury that such Lender (i) is not a "bank" under Section 881(c)(3)(A) of the
Code, is not subject to regulatory or other legal requirements as a bank in any
jurisdiction, and has not been treated as a bank for purposes of any tax,
securities law or other filing or submission made to any Governmental
Authority, any application made to a rating agency or qualification for any
exemption from tax, securities law or other legal requirements, (ii) is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Company and (iii) is not a controlled foreign corporation related to the
Company (within the meaning of Section 864(d)(4) of the Code)), certifying in
each case that such Lender is entitled to receive all payments under this
Agreement and the Notes payable to it, without deduction or withholding of any
United States federal income taxes. Each Lender which delivers to the Company
and the Administrative Agent any form pursuant to the immediately preceding
sentence further undertakes to deliver to the Company and the Administrative
Agent two further completed copies of said form, or successor applicable form,
or other manner of certification, as the case may be, on or before the date
that any such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form previously delivered by it to
the Company and the Administrative Agent, and such extensions or renewals
thereof as may reasonably be requested by the Company and the Administrative
Agent, certifying that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, unless in any such case any change in law, rule, regulation, treaty or
directive, or in the interpretation or application thereof, has occurred prior
to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form with respect to it and such Lender
advises the Company that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax. Notwithstanding
any provision of subsection 0 to the contrary, the Company shall not have any
obligation to pay any amount to or for the account of any Lender on account of
any Taxes pursuant to subsection 0 (including, without limitation, the second
sentence thereof) to the extent that such amount results from (i) the failure
of any Lender to comply with its obligations pursuant to this subsection 0 (or,
in the case of any Transferee, pursuant to subsection 0) or (ii) any
representation or warranty made or deemed to be made by any Lender pursuant to
this subsection 0 (or, in the case of any Transferee pursuant to subsection 0)
proving to have been incorrect, false or misleading when so made or deemed to
be made.
(c) Each Lender agrees to use reasonable efforts (including
reasonable efforts to change the office in which it is booking its Loans) to
avoid or to minimize any amounts which might otherwise be payable pursuant to
this subsection 0; provided, however, that such efforts shall not cause the
imposition on such Lender of any additional costs or legal or regulatory
burdens deemed by such Lender to be material or otherwise be deemed by such
Lender to be disadvantageous to it or contrary to its policies.
(d) In the event that such reasonable efforts pursuant to
subsection 0 are insufficient to avoid all withholding taxes which would be
payable pursuant to this subsection 0, then such Lender (the "Taxable Lender")
shall use its best efforts to transfer to any other Lender (which is not
subject to such withholding taxes) its Loans and Commitment hereunder;
provided, however, that such transfer shall not be deemed by such Taxable
Lender, in its sole discretion, to be disadvantageous to it or contrary to its
policies. In the event that the Taxable Lender is unable, or otherwise is
unwilling, so to transfer its Loans and Commitment, the Company may designate
an alternate bank to purchase the Taxable Lender's Loans and Commitment and,
subject to the
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32
approval of the Administrative Agent (which approval shall not be unreasonably
withheld), the Taxable Lender shall transfer its Loans and Commitments to such
alternate bank and such alternate bank shall become a Lender hereunder.
(e) The agreements in this subsection 0 shall survive the
termination of this Agreement and the payment of the Loans and Notes, and all
other amounts payable hereunder.
4.11 Commitment Fees; Other Fees. (a) The Company agrees to pay to the
Administrative Agent, for the account of the Lenders, a commitment fee from and
including the Closing Date in the amount equal to the Commitment Fee Rate times
the average daily Available Commitment, in each case during the period for
which such fee is payable. Such commitment fee shall be payable in arrears on
the last day of each March, June, September and December and (iii) the
Termination Date.
(b) The Company agrees to pay to Chase Securities Inc. and The
Chase Manhattan Bank, in each case for its own account the fees set forth in
the Fee Letter dated September 30, 1997 between the Company, Chase Securities
Inc. and The Chase Manhattan Bank on the dates and in the amounts set forth in
such Fee Letter.
4.12 Computation of Interest and Fees. (a) Interest in respect of
Alternate Base Rate Loans bearing interest at a rate based upon the Prime Rate
shall be calculated on the basis of a 365 or 366-day year, as the case may be,
for the actual days elapsed. Interest in respect of Alternate Base Rate Loans
bearing interest at a rate based upon the Federal Funds Effective Rate, the
Base CD Rate and the Eurodollar Rate and commitment fees shall be calculated on
the basis of a 360-day year for the actual days elapsed. The Administrative
Agent will, as soon as practicable, notify the Company and the Lenders of each
determination of a Eurodollar Rate and of any change in the Alternate Base Rate
and the effective date thereof. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate shall be effective on the effective day of such change in
the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
(b) Except as set forth in subsection 0, each determination of an
interest rate by the Administrative Agent pursuant to any provision of this
Agreement shall be conclusive and binding on the Company and the Lenders, in
the absence of manifest error.
4.13 Pro Rata Treatment and Payments. (a) Each borrowing by the
Company of Loans shall be made ratably by the Lenders in accordance with the
respective Commitment Percentages of the Lenders.
(b) Whenever any payment received by the Administrative Agent under
this Agreement or any Note is insufficient to pay in full all amounts then due
and payable to the Administrative Agent and the Lenders under this Agreement
and the Notes:
(i) If the Administrative Agent has not received a Payment
Sharing Notice (or if the Administrative Agent has received a Payment
Sharing Notice but the Event of Default specified in such Payment Sharing
Notice has been cured or waived pursuant to subsection 0), such payment
shall be distributed by the Administrative Agent and applied
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33
by the Administrative Agent and the Lenders in the following order:
first, to the payment of fees and expenses due and payable to the
Administrative Agent under and in connection with this Agreement; second,
to the payment of all expenses due and payable under subsection 0,
ratably among the Lenders in accordance with the aggregate amount of such
payments owed to each such Lender; third, to the payment of fees due and
payable under subsections 0 and 0, and ratably among the Lenders in
accordance with the Commitment Percentage of each Lender of the
Commitment for which such payment is owed; fourth, to the payment of
interest then due and payable on the Loans and under the Notes and in
respect of the Reimbursement Obligations, ratably in accordance with the
aggregate amount of interest owed to each such Lender; fifth, to the
payment of the principal amount of the Loans and the Notes and the
Reimbursement Obligations which is then due and payable and, in the case
of payments under any guarantee, to the payment of any other obligations
to any Lender (or Affiliate) not covered in first through fourth above
ratably guaranteed under any such guarantee, ratably among the Lenders in
accordance with the aggregate principal amount and, in the case of
payments under any guarantee, the obligations secured or guaranteed
thereby owed to each such Lender (or Affiliate); and sixth, to the
payment of any other outstanding Payment Obligations, ratably among the
Lenders in accordance with the aggregate amount owed to each Lender; and
any balance remaining after payment in full of all Payment Obligations
shall be returned to the Company; or
(ii) If the Administrative Agent has received a Payment
Sharing Notice which remains in effect (or, if the Event of Default
specified therein has been waived pursuant to subsection 0), all payments
received by the Administrative Agent under this Agreement or any Note
shall be distributed by the Administrative Agent and applied by the
Administrative Agent and the Lenders in the following order: first, to
the payment of all amounts described in clauses "first" through "third"
of the foregoing clause (i), in the order set forth therein; second, to
the payment of the interest accrued on all Loans and Notes regardless of
whether any such amount is then due and payable, and the Reimbursement
Obligations then due and owing ratably among the Lenders in accordance
with the aggregate accrued interest owed to each such Lender; and third,
to the payment of the principal amount of all Loans and Notes and in
respect of the Reimbursement Obligations and, in the case of payments
under any guarantee, to the payment of any other obligations to any
Lender (or Affiliate) not covered in first and second above ratably
guaranteed under any such guarantee, regardless of whether any such
amount is then due and payable, ratably among the Lenders in accordance
with the aggregate principal amount and, in the case of payments under
any guarantee, the obligations guaranteed thereby owed to each such
Lender (or Affiliate); and fourth, to the payment of any other Payment
Obligations, ratably among the Lenders in accordance with the aggregate
amount owed to each Lender; and any balance remaining after payment in
full of all Payment Obligations shall be returned to the Company.
(c) All payments (including prepayments) to be made by the Company
on account of principal, interest and fees shall be made without set-off or
counterclaim and shall be made to the Administrative Agent for the account of
the Lenders at the office of the Administrative Agent specified in subsection
11.2, or at such other location as the Administrative Agent may direct on or
prior to 1:00 P.M., New York City time, in lawful money of the United States
and in
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34
immediately available funds. The Administrative Agent shall distribute
such payments in accordance with the provisions of subsection 0 promptly upon
receipt in like funds as received.
(d) If any payment hereunder (other than payments on Eurodollar
Loans) becomes due and payable on a day other than a Business Day, such payment
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension. If any payment hereunder on a Eurodollar Loan
becomes due and payable on a day other than a Working Day, the maturity thereof
shall be extended to the next succeeding Working Day unless the effect of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Working Day.
(e) Unless the Administrative Agent shall have been notified by
telephone, confirmed in writing, by any Lender prior to a borrowing date that
such Lender will not make the amount which would constitute its Commitment
Percentage of the borrowing to be made on such date available to the
Administrative Agent, on such borrowing date the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent and, in reliance upon such assumption, make available to the Company a
corresponding amount. If such amount is made available to the Administrative
Agent on a date after such borrowing date, such Lender shall pay to the
Administrative Agent on demand an amount equal to the product of (i) the daily
average Federal Funds Effective Rate during such period as determined by the
Administrative Agent times (ii) such amount times (iii) a fraction of which the
numerator is the number of days from and including such borrowing date to the
date on which such amount becomes immediately available to the Administrative
Agent and of which the denominator is 360. A certificate of the Administrative
Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive, in the absence of manifest error. If such
amount is not in fact made available to the Administrative Agent by such Lender
within three Business Days after such borrowing date, the Administrative Agent
shall be entitled to recover such amount, with interest thereon at the rate per
annum then applicable to Alternate Base Rate Loans hereunder, within eight
Business Days after demand, from the Company.
4.14 Payments on Account of Loans and Fees. All payments and
prepayments hereunder shall be made in accordance with subsection 0(c).
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Administrative Agent to
enter into this Agreement and to make the Loans hereunder, the Company hereby
represents and warrants to each of them that:
5.1 Corporate Existence. Each of the Company and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own its assets
and to transact the business in which it is presently engaged, is duly
qualified as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, except where all such failures to so
qualify and be in good standing would not, in the aggregate, be reasonably
likely to have a Material Adverse Effect and is in
<PAGE>
35
compliance with all Requirements of Law except to the extent that the failure
to comply therewith would not, in the aggregate be reasonably likely to have a
Material Adverse Effect.
5.2 Corporate Power. (a) The Company has the corporate power, authority
and legal right to execute, deliver and perform this Agreement and the other
Credit Documents to which it is a party and to borrow hereunder. The Company
has taken as of the Closing Date all necessary corporate action to authorize
the borrowings on the terms and conditions of this Agreement and the other
Credit Documents. The Company has taken as of the Closing Date all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and the other Credit Documents to which it is a party.
(b) No consent of any other Person (including, without limitation,
stockholders or creditors of the Company or any of its Subsidiaries), and no
consent, license, permit, approval or authorization of, exemption by, or
registration, filing or declaration with, any Governmental Authority is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, the Applications and the Notes and the
Guarantees other than (i) those which have been obtained or made and remain in
full force and effect and (ii) those which, in the aggregate, would not be
reasonably likely to have a Material Adverse Effect if not obtained or made.
(c) This Agreement and the other Credit Documents to which it is a
party have been executed and delivered by a duly authorized officer of the
Company and constitute the legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms except as enforceability
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and except as enforceability
may be limited by general principles of equity.
5.3 No Legal Bar to Loans. The execution, delivery and performance by
the Company of this Agreement, the Applications and the Notes will not violate
any Contractual Obligation or material Requirement of Law to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their respective material properties or assets may be
bound, and will not result in the creation or imposition of any Lien on any of
their respective material properties or assets pursuant to the provisions of
any Contractual Obligation except pursuant to the Credit Documents.
5.4 No Material Litigation. No litigation, suit, action, investigation,
inquiry or other proceeding is presently pending or, to the knowledge of the
Company, threatened against Holdings or any of its Subsidiaries or any of its
or their properties or assets, by or before any arbitrator or any Governmental
Authority and no preliminary or permanent injunction or order by a state or
federal court has been entered in connection with any Credit Document or any of
the transactions contemplated hereby or thereby, which in any of such cases
would be reasonably likely to have a Material Adverse Effect, and all
applicable waiting periods have expired without any action being taken or
threatened by any Governmental Authority which would restrain, prevent or
otherwise impose material adverse conditions on the transactions contemplated
hereby or which would be reasonably likely to have a Material Adverse Effect.
5.5 No Default. Neither Holdings nor any of its Subsidiaries is in
default in the payment or performance of any obligations or in the performance
of any Contractual Obligation to
<PAGE>
36
which it is a party or by which it or any of its properties or assets may be
bound, except to the extent that such defaults, in the aggregate, would not be
reasonably likely to have a Material Adverse Effect. No Default hereunder has
occurred and is continuing. Neither Holdings nor any of its Subsidiaries is in
default under any order, award or decree of any court, arbitrator or
Governmental Authority binding upon or affecting it or by which any of its
material properties or assets is bound or affected, and no such order, award or
decree or any default thereunder would be reasonably likely to have a Material
Adverse Effect.
5.6 Ownership of Properties; Liens. Except as is or would be permitted
pursuant to subsection 8.2, each of the Company and its Subsidiaries has good
and marketable title to all its owned real properties, subject to no Lien
(other than Permitted Exceptions), and has good title to all its personal
properties and assets, subject to no Lien (other than Permitted Exceptions).
5.7 Taxes. Each of the Company and its Subsidiaries has timely filed or
caused to be timely filed all material tax returns (including, without
limitation, information returns) which to the knowledge of the Company or any
of its Subsidiaries are required to be filed, and has paid all taxes shown to
be due and payable on said returns or on any assessments made against them
(other than those being contested in good faith by appropriate proceedings for
which adequate reserves (in accordance with GAAP) have been provided on the
books of the Company or such Subsidiary, as the case may be), and no tax liens
have been filed (other than those relating to taxes which are not yet due and
payable or which are being contested as aforesaid). The Tax Allocation
Agreement is in full force and effect.
5.8 ERISA. No Reportable Event has occurred during the immediately
preceding six-year period with respect to any Plan that resulted or would be
reasonably likely to result in any unpaid liability that would be reasonably
likely to have a Material Adverse Effect, and each Plan (other than any
Multiemployer Plan or any multiemployer health or welfare plan) has complied
and has been administered in all material respects with the applicable
provisions of ERISA and the Code. The amount by which the present value of all
accrued benefits under each Single Employer Plan maintained by the Company or
any of its Subsidiaries or any Commonly Controlled Entity (based on those
assumptions used to fund the Plans), as of the last annual valuation date
applicable thereto, exceeds the value of the assets of each such Plan allocable
to such benefits, in the aggregate for all such Plans as to which such present
value of benefits exceeds the value of its assets (the "Unfunded Pension
Amount"), is less than $5,000,000, when aggregated with the Potential
Withdrawal Liability. Neither the Company nor any of its Subsidiaries nor any
Commonly Controlled Entity has during the immediately preceding six-year period
had a complete or partial withdrawal from any Multiemployer Plan that resulted
or would be reasonably likely to result in any unpaid withdrawal liability
under Section 4201 of ERISA that would be reasonably likely to have a Material
Adverse Effect, and the withdrawal liability under Section 4201 of ERISA to
which the Company or any of its Subsidiaries or any Commonly Controlled Entity
would become subject under ERISA if the Company or any of its Subsidiaries or
any such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the most recent valuation date applicable thereto
(the "Potential Withdrawal Liability") is not in excess of $5,000,000, when
aggregated with the Unfunded Pension Amount. Neither the Company nor any of its
Subsidiaries nor any Commonly Controlled Entity has received notice that any
Multiemployer Plan is in Reorganization or Insolvent where such Reorganization
or Insolvency has resulted, or would be reasonably likely to result in an
unpaid liability that would be reasonably likely to have a Material Adverse
Effect nor, to the best knowledge of the Company or
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37
any of its Subsidiaries, is any such Reorganization or Insolvency reasonably
likely to occur. The obligations of the Company and each of its Subsidiaries
and each Commonly Controlled Entity for post retirement benefits to be provided
to their current and former employees under Plans which are welfare benefits
plans (as defined in Section 3(l) of ERISA) are not reasonably likely to have a
Material Adverse Effect, when aggregated with their obligations with respect to
the Unfunded Pension Amount and the Potential Withdrawal Liability.
5.9 Financial Condition. The consolidated balance sheet of the
Company as of December 31, 1996 and the related consolidated statements of
earnings and stockholders' equity and cash flows for the fiscal year ended on
such date, certified by Ernst & Young LLP, present fairly the consolidated
financial position of the Company and its Subsidiaries as at such date, and the
consolidated results of their operations and cash flows for the fiscal year
then ended. The unaudited consolidated balance sheet of the Company as at June
30, 1997, and the related unaudited consolidated statements of earnings and
stockholders' equity and cash flows for the fiscal period ended on such date
present fairly the consolidated financial position of the Company and its
Subsidiaries as of such date, and the consolidated results of their operations
and cash flows for the fiscal period then ended (subject to normal year-end
audit adjustments and subject to the absence of footnotes). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved except as disclosed in the notes thereto. Neither the Company nor any
of its Subsidiaries has any material Contingent Obligation or any material
obligation, liability or commitment, direct or contingent (including, without
limitation, any liability for taxes or any material forward or long-term
commitment), which is not (a) reflected in the foregoing statements or in the
notes thereto or (b) permitted to be incurred under this Agreement.
5.10 No Change. Since December 31, 1996, there has been no material
adverse change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of either of (i) the Company or (ii) the
Company and its Subsidiaries taken as a whole.
5.11 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" in violation of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. If requested by any
Lender or the Administrative Agent at any time or from time to time, the
Company will furnish to the Administrative Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of FR Form U-1 or G-3
referred to in said Regulations U and G, respectively.
5.12 Not an "Investment Company". Neither the Company nor any of its
Subsidiaries is an "investment company," or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. Neither the Company nor any of its Subsidiaries is subject to
regulation under any federal or state statute or regulation which limits its
ability to incur indebtedness.
5.13 Intellectual Property. Each of the Company and its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights, patents,
technology, know-how and processes necessary for the conduct of its business as
currently conducted that are material to the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company and
its Subsidiaries taken as a whole (the "Intellectual Property"). No claim has
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38
been asserted and is pending by any Person with respect to the use of any such
Intellectual Property, or challenging or questioning the validity or
effectiveness of any such Intellectual Property and the Company and its
Subsidiaries do not know of any valid basis for any such claim, nor does the
use of such Intellectual Property by the Company and its Subsidiaries infringe
on the rights of any Person, except to the extent of such claims and
infringements which would not (including, without limitation, any liability
arising therefrom), in the aggregate, be reasonably likely to have a Material
Adverse Effect.
5.14 Environmental Matters. Except to the extent that the failure of
the representations and warranties set forth in this subsection 0 to be true
and correct would not be reasonably likely to have a Material Adverse Effect,
to the best knowledge of the Company and its Subsidiaries:
(i) each parcel of real property owned or leased by the
Company or any of its Subsidiaries (the "Real Property") does not contain
any Hazardous Materials in concentrations which violate any applicable
Environmental Laws governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials;
(ii) the Real Property is in compliance with all
Environmental Laws, including, without limitation, all applicable
federal, state and local standards and requirements regarding the
generation, treatment, storage, handling, use or disposal of Hazardous
Materials at the Real Property, and there is no Hazardous Materials
contamination which could materially interfere with the continued
operation of the Real Property or materially impair the fair saleable
value thereof;
(iii) neither the Company nor any of its Subsidiaries has
received any notice of violation or advisory action by any Governmental
Authority regarding environmental control matters or permit compliance
with regard to the Real Property, nor is the Company nor any Subsidiary
aware that any Governmental Authority is contemplating delivering to the
Company or any of its Subsidiaries any such notice;
(iv) Hazardous Materials have not been transferred from the
Real Property to any other location in violation of any applicable
Environmental Laws; and
(v) there are no governmental administrative actions or
judicial proceedings pending or, threatened under any Environmental Laws
to which the Company or any of its Subsidiaries is or will be named as a
party with respect to the Real Property.
5.15 Models and Pro Forma Balance Sheet. The financial models
(including projections for the period from the Closing Date through the
Termination Date) and the pro forma financial statements adjusted to give
effect to the Note Redemption and the financings contemplated hereby contained
in the confidential information memorandum delivered to the Lenders in October
1997 were prepared in good faith on the basis of the assumptions stated
therein, which assumptions (a) were reasonable in light of conditions existing
at the time of delivery of such models and pro forma financial statements and,
in all material respects, on the Closing Date, and (b) represented, at the time
of delivery and on the Closing Date, the Company's best estimate of future
financial performance.
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39
5.16 Disclosure. No information, schedule, exhibit or report or other
document furnished by the Company or any of its Subsidiaries to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or pursuant to the terms of this Agreement, as such information,
schedule, exhibit or report or other document has been amended, supplemented or
superseded by any other information, schedule, exhibit or report or other
document later delivered to the same parties receiving such information,
schedule, exhibit or report or other document, contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein, in light of the circumstances when
made, not materially misleading; provided that in the case of information,
schedules, exhibits or reports or other documents made, delivered or prepared
by Persons other than the Company, its Subsidiaries and their agents, such
representation and warranty is subject to the qualification that it is true and
correct only to the knowledge of the Company and its Subsidiaries.
5.17 Solvency. The aggregate value of all of the assets of the Company
and its Subsidiaries on a consolidated basis, at a fair valuation, exceeds the
total liabilities of the Company and its Subsidiaries on a consolidated basis
(including contingent, subordinated, unmatured and unliquidated liabilities).
Each of the Company and its Subsidiaries has the ability to pay its debts as
they mature and each of the Company and its Subsidiaries does not have
unreasonably small capital with which to conduct its business. For purposes of
this subsection 0, the "fair valuation" of such assets shall be determined on
the basis of that amount which may be realized within a reasonable time, in any
manner through realization of the value of or dispositions of such assets at
the regular market value, conceiving the latter as the amount which could be
obtained for the properties in questions within such period by a capable and
diligent business person from an interested buyer who is willing to purchase
under ordinary selling conditions.
5.18 Guarantees. The provisions of each Guarantee are effective to
create a legal, valid, binding and enforceable guarantee of the obligations
described therein, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
5.19 Matters Relating to Subsidiaries. The Company has no Subsidiaries
on the Closing Date, other than those set forth on Schedule 5.19. The Company
has notified the Administrative Agent in writing of each Subsidiary created or
acquired after the Closing Date and has complied with the provisions of
subsection 8.17 with respect to each such Subsidiary.
5.20 Labor Matters. There are no strikes or other labor disputes
against the company or any of its Subsidiaries pending or, to the knowledge of
the Company, threatened that (individually or in the aggregate) would be
reasonably likely to have a Material Adverse Effect. Hours worked by and
payment made to employees of the Company and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement
of Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Company or any of its Subsidiaries on account of employee health and
welfare insurance that (individually or in the aggregate) would be reasonably
likely to have a Material Adverse Effect if not paid, have been paid or accrued
as a liability on the books of the Company or the relevant Subsidiary.
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40
5.21 Whitman Indemnity. The Indemnification Agreement is in full force
and effect and constitutes a legal, valid and binding obligation of Whitman in
favor of the Company, enforceable in accordance with its terms.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extensions of Credit. The agreement of each
Lender to make the initial extensions of credit (regardless of whether such
extensions of credit are to be made in the form of Loans or Letters of Credit)
requested to be made by it shall be subject to the satisfaction or waiver by
such Lender of the following conditions precedent (the date on which said
conditions are satisfied or waived, being herein called the "Closing Date") on
or before November 17, 1997:
(a) Credit Agreement. The Administrative Agent shall have
received this Agreement duly executed and delivered by a duly
authorized officer of the Company, each Lender and the Administrative
Agent;
(b) Notes. The Administrative Agent shall have received, for the
account of each Lender which has so requested, a Note conforming to the
requirements hereof and executed and delivered by a duly authorized
officer of the Company;
(c) Guarantees. The Administrative Agent shall have received each
Guarantee (other than the Guarantees delivered pursuant to subsection
8.17), duly executed and delivered by a duly authorized officer of the
Guarantor or Guarantors parties thereto;
(d) Lien Searches. The Administrative Agent shall have received the
results of Lien searches, conducted by a search service reasonably
satisfactory to the Administrative Agent, and the Administrative Agent
shall be satisfied that no Liens are outstanding on the property or
assets of the Company and its Domestic Subsidiaries, other than any such
Liens (i) which are permitted pursuant to the terms of the Credit
Documents or (ii) as to which the Administrative Agent has received
documentation reasonably satisfactory to it evidencing the termination of
such Liens;
(e) Corporate Proceedings of Loan Parties. The Administrative Agent
shall have received (a) certified copies of the Charter and by-laws of
each Loan Party and (b) the resolutions, in form and substance reasonably
satisfactory to the Administrative Agent, of the Board of Directors of
each Loan Party, authorizing in each case the execution, delivery and
performance of this Agreement, the Notes and the other Credit Documents
to which such Loan Party is a party, in each case certified by the
Secretary or an Assistant Secretary of such Loan Party as of the Closing
Date and each such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the
date of such certificate;
(f) Incumbency Certificates for Loan Parties. The Administrative
Agent shall have received a certificate of the Secretary or an Assistant
Secretary (or analogous officer) of each Loan Party dated the Closing
Date, as to the incumbency and signature of the officers of such Loan
Party executing each of this Agreement, the Notes and each other Credit
Document to which such Loan Party is a party, and any certificate or
other
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41
documents to be delivered by it pursuant thereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary as the case
may be;
(g) Certain Legal Opinions. The Administrative Agent shall have
received executed legal opinions of:
(i) Paul, Weiss, Rifkind, Wharton & Garrison, as counsel
to the Company, substantially in the form of Exhibit B-1; and
(ii) the General Counsel (or other person reasonably
acceptable to the Administrative Agent) of the Company,
substantially in the form of Exhibit B-2.
Each of the foregoing legal opinions shall be accompanied by copies of
the legal opinions, if any, upon which such counsel rely, and in each
case shall contain such changes thereto as may be approved by, and as
shall otherwise be in form and substance reasonably satisfactory to, the
Administrative Agent and shall cover such other matters incident to the
transactions contemplated by the Credit Documents as the Administrative
Agent may reasonably require. Each of the counsel delivering the
foregoing legal opinions is expressly instructed to deliver its opinion
for the benefit of each of the Administrative Agent and each other holder
of the Payment Obligations;
(h) Existing Credit Agreement. The Company shall have given
irrevocable notice pursuant to the terms of the Existing Credit
Agreement, terminating in whole the loan commitments of the lenders
thereunder. All principal and interest, if any, outstanding under, and
all fees or other amounts then due under, the Existing Credit Agreement
shall have been paid in full, or the payment thereof shall have been
arranged in a manner reasonably acceptable to the Administrative Agent
(and such payment in full shall be made within one Business Day following
the Closing Date); and the Administrative Agent shall have received a
certificate of the Company to the foregoing effect;
(i) Termination of Existing Security Documents. The Administrative
Agent shall have received evidence satisfactory to it that (i) all
"Security Documents" (as defined in the Existing Credit Agreement) have
been terminated and (ii) all collateral security delivered under such
Security Documents has been released and returned;
(j) Reimbursement Agreement. The Reimbursement Agreement and
any agreements, instruments or other documents executed or outstanding
in connection therewith shall have been terminated in all respects and
any amounts thereunder shall have been paid in full;
(k) Fees. The Administrative Agent shall have received, for the
accounts of the Lenders and the Administrative Agent, all accrued fees
and expenses owing hereunder or in connection herewith to the
Administrative Agent and the Lenders (including, without limitation,
accrued fees and disbursements of counsel to the Administrative Agent),
to the extent that such fees and expenses have been presented for payment
a reasonable time prior to the Closing Date;
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42
(l) Financial Statements. The Lenders shall have received (i)
satisfactory audited consolidated financial statements of the Company for
the two most recent fiscal years ended prior to the Closing Date as to
which such financial statements are available and (ii) satisfactory
unaudited interim consolidated financial statements of the Company
certified by a senior officer of the Company for each fiscal month and
quarterly period ended subsequent to the date of the latest financial
statements delivered pursuant to clause (i) of this paragraph as to which
such financial statements are available;
(m) Legal Investment. The making of the Loans and other extensions
of credit hereunder shall be permitted on the Closing Date as a legal
investment by the laws, rules and regulations of the State of New York
and by each jurisdiction to which the Lenders may be subject (without
resort to any or any so-called "basket" provision of such laws, including
without limitation Section 1405(8) of the New York Insurance Laws); and
the Lenders shall have received such certificates or other evidence as
they may reasonably request demonstrating the legality of such purchase
under such laws, rules and regulations;
(n) Financial Models and Pro Forma Balance Sheet. The
Administrative Agent shall have received financial models and pro forma
balance sheet referenced in subsection 5.15;
(o) Consents and Approvals. The Administrative Agent shall have
received true and correct copies (in each case, certified as to
authenticity on such date by a duly authorized officer of the Company) of
all documents and instruments necessary or reasonably advisable under any
Requirement of Law or by Contractual Obligation of the Company or any of
its Subsidiaries, in connection with the execution, delivery,
performance, validity and enforceability of any Credit Document and the
continuing operations of the Company and its Subsidiaries, other than any
consents, authorizations and filings for which the failure to make or
obtain would not be reasonably likely to have a Material Adverse Effect;
such consents, authorizations and filings shall be reasonably
satisfactory in form and substance to the Administrative Agent and shall
be in full force and effect. The Administrative Agent shall have received
a certificate of a Responsible Officer of the Company stating that such
consents, licenses and approvals are in full force and effect;
(p) Redemption of Senior Subordinated Notes. The Note
Redemption of the Senior Subordinated Notes shall have been consummated
concurrently with the initial funding of the Loans at a redemption
price of 105.9375%;
(q) No Litigation. No litigation, suit, action, investigation,
inquiry or other proceeding by or before any arbitrator or any
Governmental Authority shall be pending and no preliminary or permanent
injunction or order by a state or federal court shall have been entered
in connection with any Credit Document or any of the transactions
contemplated hereby or thereby or otherwise which in any of such cases
would be reasonably likely to have a material adverse effect on (a) the
business, assets, operations, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole, (b) their
ability to perform their obligations under the Credit Documents or (c)
the rights and remedies of the Lenders, and all applicable waiting
periods shall have expired without any action being taken or threatened
by any Governmental Authority which would
<PAGE>
43
restrain, prevent or otherwise impose material adverse conditions on the
transactions contemplated hereby;
(r) No New Information. The Lenders shall not have become aware
of any previously undisclosed information which would be reasonably
likely to have a Material Adverse Effect;
(s) No Defaults. There shall exist no event of default (or
condition which would constitute an event of default with the giving of
notice or the passage of time) under any Capital Stock, financing
agreements, lease agreements or other contracts of Holdings or any of its
Subsidiaries which event of default or condition, in the aggregate with
all other then-existing events of default and conditions, would be
reasonably likely to (i) have a Material Adverse Effect or (ii)
materially adversely affect the ability of the Company to consummate the
Note Redemption;
(t) Related Agreements. The Administrative Agent shall have
received true and correct copies of the Tax Allocation Agreement and
the Transaction Agreements; and
(u) Additional Matters. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by the Credit Documents shall be reasonably
satisfactory in form and substance to the Administrative Agent and its
counsel.
6.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any Loan requested to be made by it on any date and the
agreement of the Issuing Lender to issue any Letter of Credit to be issued by
it on any date (including, without limitation, its initial extension of credit)
is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by each party to each Credit Document in or pursuant to
this Agreement or any other Credit Document, or contained in any
certificate or financial statement furnished at any time under or in
connection with this Agreement or any other Credit Document shall be true
and correct in all material respects on and as of such date as if made on
and as of such date, both before and after giving effect to such Loan,
and to all other extensions of credit to be made on such date and the use
of the proceeds thereof; and
(b) No Default. No Event of Default and no Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
Each borrowing by the Company or issuance of a Letter of Credit hereunder shall
constitute a representation and warranty by the Company, as of the date of such
borrowing or issuance, that the conditions contained in paragraphs (a) and (b)
of this subsection 0 have been satisfied.
SECTION 7 AFFIRMATIVE COVENANTS
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44
The Company hereby agrees that, until the Payment Obligations have
been Fully Satisfied:
7.1 Financial Statements. The Company will furnish to each Lender,
through the Administrative Agent:
(a) as soon as available, but in any event within 105 days after
the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year and the related consolidated statements of earnings and
stockholders' equity and cash flows for such year, setting forth in each
case in comparative form the figures for the previous year, certified
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by independent
certified public accountants of nationally recognized standing not
unacceptable to the Required Lenders;
(b) as soon as available, but in any event within 105 days after
the end of each fiscal year of the Company, a copy of the consolidating
balance sheet of the Company and its Subsidiaries as at the end of such
year and the related consolidating statements of earnings for such year,
setting forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer;
(c) as soon as available, but in any event within 50 days after the
end of each of the first three fiscal quarters in each fiscal year of the
Company, a copy of the unaudited consolidated balance sheet of the
Company and its Subsidiaries as at the end of each such quarter and the
related unaudited consolidated statements of earnings and stockholders'
equity and cash flows for such quarterly period and the portion of the
fiscal year through such date, setting forth in each case in comparative
form the figures for the previous year, certified by a Responsible
Officer (subject to normal year-end audit adjustments); and
(d) as soon as available, but in any event within 50 days after the
end of the first three fiscal quarters in each fiscal year of the
Company, a copy of the unaudited consolidating balance sheet of the
Company and its Subsidiaries as at the end of each such quarter and the
related unaudited consolidating statements of earnings for such quarterly
period and the portion of the fiscal year through such date, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer (subject to normal year-end audit
adjustments).
All financial statements referred to in this subsection 0 shall be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as approved by such
accountants or Responsible Officer, as the case may be, and disclosed therein).
<PAGE>
45
7.2 Certificates; Other Information. The Company will furnish to
each Lender, through the Administrative Agent:
(a) concurrently with the delivery of the financial statements
referred to in subsection 0, a certificate of the independent certified
public accountants certifying such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 0 through (d), a certificate of a Responsible
Officer (i) stating that, to the best of such Responsible Officer's
knowledge, the Company during such period has observed or performed in
all material respects all of its covenants and other agreements, and
satisfied in all material respects every condition, contained in the
Credit Documents to be observed, performed or satisfied by it, and that
such officer has obtained no knowledge of any Default or Event of
Default, except as specified in such certificate, and (ii) showing in
detail the calculations supporting such statement in respect of
subsection 0;
(c) within 60 days following the commencement of each fiscal year,
the budget for the Company and its Subsidiaries for such fiscal year,
showing each quarter separately;
(d) promptly upon receipt thereof, copies of all audit reports
submitted to the Company by independent public accountants in connection
with each interim or special audit of the books of the Company or any of
its Subsidiaries made by such accountants;
(e) within five days after the same are sent, copies of all
financial statements and reports which Holdings sends to its stockholders
or holders of its publicly traded equity securities or Indebtedness
pursuant to Section 13 or 15(d) of the Exchange Act, and within five days
after the same are filed, copies of all financial statements and reports
which the Company or Holdings may make to, or file with, the Securities
and Exchange Commission; and
(f) promptly, such additional documents and financial and other
information with respect to Holdings and its Subsidiaries as the
Administrative Agent or any Lender may from time to time reasonably
request.
7.3 Payment of Obligations. The Company will, and will cause each of
its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity
or before they become delinquent, as the case may be, all its Indebtedness and
other material obligations of whatever nature, except when the amount or
validity thereof is then being contested in good faith by appropriate
proceedings and reserves with respect thereto to the extent, if any, required
by GAAP have been provided on the books of the Company or such Subsidiary, as
the case may be. Notwithstanding anything to the contrary in the foregoing
sentence, the Company shall not be in default under this subsection 0 unless
the aggregate amount of non-contested Indebtedness or obligations which it and
its Subsidiaries have so failed to pay, discharge or satisfy before they become
delinquent and which remain delinquent at the time of determination is more
than $2,000,000 in the aggregate.
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46
7.4 Conduct of Business and Maintenance of Existence. Except as
permitted by this Agreement, the Company and its Subsidiaries will continue to
engage in business of the same general type as now conducted by the Company and
its Subsidiaries; and, except as permitted by this Agreement, the Company will,
and will cause each of its Subsidiaries to, preserve, renew and keep in full
force and effect its corporate existence and take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable in the
normal conduct of its business, except as otherwise permitted pursuant to
subsections 0 and 0 and except that the Company and its Subsidiaries may fail
to maintain any such rights, privileges and franchises which in the Company's
business judgment are not necessary in the best interests of the Company to be
maintained, and comply with all Contractual Obligations and Requirements of Law
except to the extent that all failures to comply therewith would not in the
aggregate, be reasonably likely to have a Material Adverse Effect. The Company
and its Subsidiaries will not make any material change in its present method of
conducting business.
7.5 Maintenance of Property; Insurance. The Company will, and will
cause each of its Subsidiaries to, (a) keep all property useful and necessary
in its business in good working order and condition, except where the failure
to do so would not, in the aggregate, be reasonably likely to have a Material
Adverse Effect and (b) maintain with financially sound and reputable insurance
companies insurance on such of its property and against such liabilities in at
least such amounts and against at least such risks as are customarily insured
against in the same general area by companies engaged in the same or a similar
business and furnish to the Administrative Agent, upon written request, and to
each Lender which makes a written request through the Administrative Agent,
reasonable information as to the insurance carried.
7.6 Inspection of Property; Books and Records; Discussions. The
Company will, and will cause each of its Subsidiaries to, (a) keep proper books
of accounts and records in which entries in conformity in all material respects
with all Requirements of Law shall be made of all dealings and transactions in
relation to its businesses and activities and which shall permit the
preparation of financial statements in conformity with GAAP and (b) permit
representatives of any Lender to visit and inspect such of its properties as
such Lender may request through the Administrative Agent and (during such visit
or inspection, or otherwise upon request through the Administrative Agent)
examine and make abstracts from such of its books and records as it may
reasonably request at any reasonable time and as often as may reasonably be
desired, and to discuss the business, condition (financial or otherwise),
performance, properties and prospects of the Company and its Subsidiaries with
officers and employees of the Company and its Subsidiaries and with its then
independent certified public accountants.
7.7 Notices. The Company will promptly give notice to each Lender,
through the Administrative Agent, and the Administrative Agent:
(a) of the occurrence of any Default or Event of Default;
(b) of any default or event of default by Holdings or any of its
Subsidiaries under any Contractual Obligation of Holdings or any of its
Subsidiaries or the institution of, or the occurrence of any material
adverse change in the status or likely result of, any litigation,
investigation or proceeding which may exist at any time between Holdings
or any of its Subsidiaries and any Governmental Authority or any other
Person which, in any of the foregoing cases, would be reasonably likely
to have a Material Adverse Effect;
<PAGE>
47
(c) of (i) any violation or noncompliance by Holdings or any of its
Subsidiaries or, to the best of its knowledge, any other Person of any
Environmental Laws which would be reasonably likely to have a Material
Adverse Effect or (ii) any liability or potential liability to Holdings
or any of its Subsidiaries or, to the best of its knowledge, to any other
Person under, any Environmental Laws which would be reasonably likely to
have a Material Adverse Effect;
(d) of any of the following events, as soon as possible, and in any
event, within 30 days after the Company knows or has reason to know
thereof:
(i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan; or
(ii) the institution of proceedings or the taking or
expected taking of any other action by PBGC or the Company or any
Commonly Controlled Entity to terminate, withdraw or partially
withdraw from any Plan and with respect to a Multiemployer Plan,
the Reorganization or Insolvency of such Plan;
if such Reportable Event, termination, withdrawal or partial withdrawal
(and, in the case of any Multiemployer Plan, its Reorganization or
Insolvency) would be reasonably likely to result in liability to the
Company and its Subsidiaries, in the aggregate, in excess of $5,000,000;
and
(e) of a material adverse change in the business, condition
(financial or otherwise), operations, performance, properties or
prospects of the Company and its Subsidiaries taken as a whole, or of any
event which would be reasonably likely to have a Material Adverse Effect.
Each notice pursuant to this subsection 7.7 shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.
7.8 Maintenance of Corporate Identity. The Company will operate its
businesses and those of its Subsidiaries, and maintain their records,
independently from any Person (a "Parent") which, directly or indirectly, is in
control (as defined in Rule 12b-2 under the Exchange Act) of the Company and
independently from any Subsidiary of such Parent other than the Company and its
Subsidiaries; and the Company will maintain bank accounts separate from the
bank accounts of each Parent of the Company and act solely in its own corporate
name and through its own authorized officers and agents.
7.9 Environmental Laws. The Company will, and will cause each of its
Subsidiaries to:
(a) comply with and require compliance by all tenants and
subtenants, if any, with all Environmental Laws and obtain and comply in
all respects with and maintain, and require that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, registrations or permits required by Environmental Laws,
except to
<PAGE>
48
the extent that the failure to do so would not be reasonably likely to
have a Material Adverse Effect;
(b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all respects with all lawful
orders and directives of all Governmental Authorities respecting
Environmental Laws, except (i) to the extent that the failure to perform
any of the obligations contained in this clause (b) would not be
reasonably likely to have a Material Adverse Effect or (ii) to the extent
that such obligations are being contested in good faith by appropriate
proceedings and the pendency of such proceedings would not be reasonably
likely to have a Material Adverse Effect; and
(c) defend, indemnify and hold harmless the Administrative Agent
and the Lenders, and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of, or in
any way relating to the violation of or noncompliance with any
Environmental Laws by the Company or any of its Subsidiaries, or any
orders, requirements or demands of Governmental Authorities related
thereto, including without limitation reasonable attorney and consultant
fees, investigation and laboratory fees, court costs and litigation
expenses, except to the extent that any of the foregoing arise out of the
gross negligence or willful misconduct of the party seeking
indemnification therefor. The agreements in this subsection 0 shall
survive the payment of the Loans, the Notes, and all other amounts
payable hereunder.
7.10 Intellectual Property. (a) The Company will, to the extent
permitted by Title 15 of the United States Code, submit, and will cause each of
its Domestic Subsidiaries to submit, to the United States Patent and Trademark
Office for registration or recordation, as applicable:
(i) a completed application for trademark registration, in such
class or classes as is in conformity with its ordinary business practice
then obtaining, of each Trademark acquired or adopted and used or
intended to be used by it, with respect to any mark which, in the
Company's reasonable judgment, is a Significant Trademark; and
(ii) with respect to any interest acquired after the date hereof by
the Company or any of its Subsidiaries in a Significant Trademark, any
appropriate assignment to the Company or such Domestic Subsidiary of the
interest acquired by it in the United States in such Significant
Trademark, including, without limitation, all previously unrecorded
assignments to the Company's or such Domestic Subsidiary's
predecessors-in-interest of which the Company or any Domestic Subsidiary
is or becomes aware.
The Company will, and will cause each of its Domestic Subsidiaries to, use its
respective best efforts to comply with all requirements of the Lanham Act and
the rules and regulations thereunder, as from time to time in effect, or other
applicable law necessary in order to validly register and maintain the
registration of any such Significant Trademark with the United States Patent
and Trademark Office, except as permitted pursuant to subsections 7.4, 8.4 and
8.5.
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49
(b) The Company will, to the extent permitted by Title 35 of the
United States Code, submit, and will cause each of its Domestic Subsidiaries to
submit, to the United States Patent and Trademark Office for issuance or
recordation, as applicable:
(i) an application for letters patent for each patentable
invention acquired by or invented by or for it which invention is of such
a nature that the Company or its Subsidiaries in accordance with its
ordinary business practice then obtaining would file an patent
application in the United States Patent and Trademark Office with respect
to it; and
(ii) with respect to any interest acquired after the date hereof by
the Company or any of its Subsidiaries in a material Patent, any
appropriate assignment to the Company or such Domestic Subsidiary of the
interest acquired by it in the United States in such Patent, including,
without limitation, all previously unrecorded assignments to the
Company's or such Domestic Subsidiary's predecessors-in-interest of which
the Company or any Domestic Subsidiary is or becomes aware.
The Company will, and will cause each of its Domestic Subsidiaries to, use its
respective best efforts to comply with all requirements of the United States
Patent Act and the rules and regulations thereunder, as from time to time in
effect, or other applicable law necessary in order to validly obtain and
maintain any material Patent with the United States Patent and Trademark
Office, except as permitted pursuant to subsections 7.4, 8.4 and 8.5.
(c) Notwithstanding anything to the contrary contained in this
subsection 7.10, the Company and its Subsidiaries shall have the right to
license their respective Patents and Trademarks to third parties on an arms'
length basis.
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that, until the Payment Obligations are
Fully Satisfied:
8.1 Financial Covenants. The Company will not:
(a) Leverage. Permit the Leverage Ratio as of the last day of any
fiscal quarter set forth below to exceed the ratio set forth below opposite
such fiscal quarter:
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50
Fiscal Quarter Leverage Ratio
-------------- --------------
December 31, 1997 3.50 to 1.00
March 31, 1998 3.50 to 1.00
June 30, 1998 3.50 to 1.00
September 30, 1998 3.50 to 1.00
December 31, 1998 3.00 to 1.00
March 31, 1999 3.00 to 1.00
June 30, 1999 3.00 to 1.00
September 30, 1999 3.00 to 1.00
Thereafter 2.75 to 1.00
(b) Interest Coverage. Permit the Interest Coverage Ratio as of the
last day of any fiscal quarter to be less than 3.00 to 1.00; provided that for
the purposes of determining the Interest Coverage Ratio for the fiscal quarters
of the Company ending December 31, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998, Consolidated Interest Expense for the relevant period shall
equal the product of (I) Consolidated Interest Expense for the period (the
"Interim Period") between the Closing Date and such fiscal quarter end date,
and (II) a fraction the numerator of which is 365 and the denominator of which
is the number of days in such Interim Period.
8.2 Limitation on Liens. The Company will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of their properties, assets (including shares of Capital Stock) or
revenues, whether now owned or hereafter acquired, except for the following
(collectively, "Permitted Exceptions"):
(a) Liens for taxes not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of the Company or any of its
Subsidiaries, as the case may be, in accordance with GAAP;
(b) carriers', warehousemen', mechanics', materialmen', repairmen'
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being
contested in good faith and by appropriate proceedings;
(c) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), government contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred and statutory or contractual
bankers' Liens on monies held in bank accounts in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not in
any case materially detract from the
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51
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(f) Liens in favor of the United States for amounts paid by the
Company or any of its Subsidiaries as progress payments under government
contracts entered into by them;
(g) attachment, judgment or other similar Liens arising in
connection with court or arbitration proceedings, provided that the same
are discharged, or that execution or enforcement thereof is stayed
pending appeal, within 30 days or (in the case of any execution or
enforcement pending appeal) such lesser time during which such appeal may
be taken;
(h) Liens granted in the ordinary course of business of the Company
or any of its Subsidiaries in favor of issuers of documentary or trade
letters of credit for the account of the Company or such Subsidiary which
support the purchase and/or importation of inventory of the Company and
its Subsidiaries, which Liens secure the reimbursement obligations of the
Company or such Subsidiary on account of such letters of credit; provided
that each such Lien is limited to (i) the assets acquired or shipped with
the support of such letter of credit and (ii) any assets of the Company
or such Subsidiary which are in the care, custody or control of such
issuer in the ordinary course of business;
(i) possessory Liens in favor of brokers and dealers arising in
connection with the acquisition or disposition of investments of the type
permitted by subsection 8.7(a)(ii); provided that such Liens (i) attach
only to such investments and (ii) secure only obligations incurred in the
ordinary course and arising in connection with the acquisition or
disposition of such investments and not any obligation in connection with
margin financing;
(j) Liens set forth in Schedule 8.2(j);
(k) Liens on the assets of any Foreign Subsidiary securing
obligations of such Foreign Subsidiary permitted hereunder;
(l) Liens securing Indebtedness in an aggregate amount at any one
time outstanding not in excess of $1,000,000 incurred to purchase or
finance the purchase of real or personal property; provided that (i) such
Liens shall be created substantially simultaneously with the purchase of
such property, (ii) such Liens do not at any time encumber any property
other than the property financed by such Indebtedness, (iii) the amount
of Indebtedness is not increased and (iv) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 100% of the
purchase price of such property;
(m) Liens on the property or assets of a corporation which becomes
a Subsidiary after the date hereof securing Indebtedness of such
Subsidiary or Contingent Obligations permitted by subsection 8.3(d),
provided that (i) such Liens and Indebtedness or Contingent Obligations
existed at the time such corporation became a Subsidiary and were not
created in anticipation thereof, (ii) any such Lien is not spread to
cover any other property or assets of such corporation after the time
such corporation becomes a
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52
Subsidiary, (iii) the amount of Indebtedness or Contingent Obligation
secured thereby is not increased and (iv) immediately after giving effect
to the incurrence of such Lien, no Default or Event of Default shall have
occurred and be continuing; and
(n) any extension, renewal or replacement of the foregoing;
provided that the Liens permitted by this paragraph shall not extend to
or cover any additional Indebtedness or Property (other than a
substitution of like Property).
8.3 Limitation on Contingent Obligations. The Company will not, and
will not permit any of its Subsidiaries to, agree to, or assume or incur, or
otherwise in any way be or become responsible or liable, directly or
indirectly, with respect to, any Contingent Obligation other than:
(a) the guarantees made by the Domestic Subsidiaries pursuant to
the Subsidiaries Guarantee;
(b) Contingent Obligations of any Subsidiary of the Company in the
nature of a guarantee of Indebtedness or other obligations of the Company
or any other wholly-owned Subsidiary of the Company (including, without
limitation, any wholly-owned Subsidiary incurring such Contingent
Obligations);
(c) Contingent Obligations of the Company in the nature of
guarantees of Indebtedness or other obligations of any of its
wholly-owned Subsidiaries to the extent such Indebtedness or other
obligations, as the case may be, is not prohibited by this Agreement; and
(d) Contingent Obligations of a corporation which becomes a
Subsidiary after the date hereof, provided that (i) such Contingent
Obligations existed at the time such corporation became a Subsidiary and
were not created in anticipation thereof and (ii) immediately after
giving effect to the acquisition of such corporation no Default or Event
of Default shall have occurred and be continuing.
8.4 Limitation on Fundamental Changes. The Company will not, and will
not permit any of its Subsidiaries to, enter into any transaction in the nature
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), convey, sell, lease, assign,
transfer or otherwise dispose of, in one transaction or a series of related
transactions, all or a substantial part of the business or assets of the
Company, or enter into any such transaction or series of related transactions
with regard to a group of Subsidiaries which, if merged into a single
Subsidiary, would constitute a substantial part of the business or assets of
the Company, or acquire by purchase or otherwise all or substantially all the
business or assets of, or Capital Stock or other evidences of beneficial
ownership of, any Person, except that:
(a) any Subsidiary of the Company (i) may be merged or consolidated
with or into, or its assets liquidated and distributed to, the Company,
provided that the Company shall be the continuing or surviving
corporation or (ii) may be merged or consolidated with or into, or its
assets liquidated and distributed to, any one or more wholly-owned
Subsidiaries of the Company; provided that no Domestic Subsidiary may be
merged or
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53
consolidated with or into a Foreign Subsidiary unless a Domestic
Subsidiary is the continuing or surviving entity and no Domestic
Subsidiary may have its assets liquidated and distributed to any Foreign
Subsidiary;
(b) any Subsidiary of the Company may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to the Company or a wholly-owned Subsidiary of the Company;
provided that no Domestic Subsidiary may sell, lease transfer or
otherwise dispose of any of its assets to any Foreign Subsidiary other
than in the ordinary course of business; and
(c) the Company and its Subsidiaries may make acquisitions and
purchases permitted by subsection 8.7.
8.5 Limitation on Sale of Assets. The Company will not, and will not
permit any of its Subsidiaries to, sell, lease, assign, transfer or otherwise
dispose of any of its assets (including, without limitation, receivables and
leasehold interests), whether now owned or hereafter acquired, or, in the case
of any of the Subsidiaries of the Company, issue any shares of Capital Stock
(other than any director's qualifying shares), to any Person other than the
Company or any of its Subsidiaries, except:
(a) as permitted by subsections 8.2 or 8.4;
(b) the sale or other disposition (including abandonment) of any
property (including intellectual property rights) which has become
uneconomic, obsolete or worn out and which is disposed of in the ordinary
course of business;
(c) the sale of inventory in the ordinary course of business;
(d) licensing agreements entered into with respect to Trademarks,
Patents, trade secrets or know-how in the ordinary course of business;
and
(e) from the Closing Date sales and other dispositions of property
not having a value together with all other sales and dispositions
pursuant to this clause (e) in excess of the lesser of (i) 5% of the
consolidated assets of the Company as of the last day of the most recent
fiscal period for which financial statements have been delivered pursuant
to subsection 7.1 and (ii) $5,000,000.
8.6 Limitation on Restricted Payments. The Company will not, and will
not permit any of its Subsidiaries to, make any Restricted Payment, except that
the following Restricted Payments may be made:
(i) Restricted Payments to Holdings in amounts equal to the amounts
required for Holdings to pay franchise and similar taxes and other fees
required to maintain its corporate existence;
(ii) Restricted Payments necessary for Holdings, the Company and
any of its Subsidiaries to pay federal, state and local taxes to the
extent such taxes are attributable to the operations of the Company and
its Subsidiaries;
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54
(iii) So long as no Default or Event of Default has occurred and is
continuing at the time such Restricted Payment is made or would result
therefrom, commencing with the 1998 fiscal year, Restricted Payments in
an aggregate amount not to exceed an amount equal to 25% of Adjusted
Consolidated Net Income for the prior fiscal year; and
(iv) Dividend by the Company to Holdings of all of the issued and
outstanding capital stock of Jensen-Kelly Corporation.
8.7 Limitation on Investments, Loans and Advances. The Company will
not, and will not permit any of its Subsidiaries to, make or commit to make any
advance, loan, extension of credit or capital contribution to, or purchase any
Capital Stock, bonds, notes, debentures or other securities of, or make any
other investment in, any Person (other than the Company or any of its
Subsidiaries), except that:
(a) investments by the Company and its Subsidiaries in (i)
accounts, contract rights and chattel paper (as defined in the Uniform
Commercial Code), put and call foreign exchange options and foreign
exchange forwards and futures to the extent necessary to hedge foreign
exchange exposures and notes receivable, arising or acquired in the
ordinary course of business and in Rate Hedging Agreements and (ii) Cash
Equivalents;
(b) investments by Foreign Subsidiaries in investments of a type
similar to Cash Equivalents made outside of the United States;
(c) extensions of trade credit in the ordinary course of
business;
(d) the Company and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers or in settlement
of delinquent obligations of, and other disputes with, customers and
suppliers arising out of the ordinary course of business; provided that
the Company and its Subsidiaries have paid no new consideration (other
than forgiveness of Indebtedness or other obligations) therefor;
(e) advances to suppliers in the ordinary course of business in an
amount not exceeding in the aggregate $1,000,000 at any time outstanding
to any one supplier or an aggregate for the Company and its Subsidiaries
of $2,000,000 at any time outstanding; provided that each such advance,
is required to be repaid within 180 days of the making of such advance;
(f) so long as no Default or Event of Default shall have occurred
and be continuing, or would result therefrom (including, without
limitation, compliance with subsection 8.14), other investments in
Persons not to exceed $5,000,000 in the aggregate at any time (and such
investments to be measured by their fair market value at the time of the
investment); and
(g) loans and advances to officers, directors and employees in the
ordinary course of business not to exceed $1,000,000 in the aggregate at
any time outstanding.
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55
8.8 Sale and Leaseback. The Company will not, and will not permit any
of its Subsidiaries to, enter into any arrangement with any Person whereby the
Company shall sell or transfer any property, real or personal, whether now
owned or hereafter acquired, and thereafter rent or lease such property.
8.9 Limitation on Transactions with Affiliates. The Company will not,
and will not permit any of its Subsidiaries to, enter into any transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any Affiliate of the Company
unless such transactions are not otherwise prohibited under this Agreement, are
in the ordinary course of business and are upon fair and reasonable terms no
less favorable to the Company or such Subsidiary, as the case may be, than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate; provided that nothing contained in this subsection shall be deemed
to prohibit any transaction described in or contemplated by the agreements (the
"Transaction Agreements") listed on Schedule 8.9 (as such agreements may be
amended, supplemented or otherwise modified from time to time with, to the
extent that such amendment, supplement or modification would be reasonably
likely to have a material adverse effect on the rights or interests of the
Administrative Agent or the Lenders, the consent of the Required Lenders).
8.10 Accounting Changes. (a) The Company will not, and will not permit
any of its Subsidiaries to, make or permit to be made any change in accounting
policies affecting the presentation of financial statements or reporting
practices from those employed by it on the date hereof, unless (i) such changes
are required or permitted by GAAP, (ii) such changes are disclosed to the
Lenders through the Administrative Agent or otherwise and (iii) if requested by
the Administrative Agent, relevant prior financial statements are reconciled
(in form and detail satisfactory to the Administrative Agent) to show
comparative results and reconciliations.
(b) Notwithstanding anything to the contrary contained herein,
compliance with the financial covenants contained in subsection 0 shall be
determined based upon GAAP as in effect on the date of this Agreement.
(c) The Company will not permit its fiscal year to end on a date
other than December 31.
8.11 Indebtedness. The Company will not, and will not permit any of
its Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
(a) Indebtedness to the Lenders hereunder and under the other
Credit Documents;
(b) Indebtedness outstanding on the date hereof and listed in
Schedule 8.11(b), and other Indebtedness outstanding on the date hereof
in an aggregate principal amount not to exceed $250,000;
(c) Indebtedness of (i) Subsidiaries to the Company or to other
Subsidiaries and (ii) the Company to any of its Subsidiaries;
(d) Indebtedness of the Company and its Subsidiaries secured by
Liens permitted by subsection 8.2(l) hereof;
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56
(e) Indebtedness of EVD in an aggregate principal amount not to
exceed $3,500,000 at any time; provided that no such Indebtedness has a
term in excess of one year;
(f) Indebtedness of Foreign Subsidiaries, other than EVD, in an
aggregate principal amount not to exceed $250,000 at any time; and
(g) obligations arising under Capital Leases in an aggregate
principal amount not to exceed $500,000.
8.12 Limitation on Modifications of Tax Allocation Agreement. The
Company will not and will not permit any of its Subsidiaries to modify or waive
any provision of the Tax Allocation Agreement to the extent such amendment,
modification or waiver would be reasonably likely to have a material adverse
effect on the interests of the Lenders hereunder and under the other Loan
Documents.
8.13 Limitation on Negative Pledge Clauses. The Company will not, and
will not permit any of its Subsidiaries to, enter into with any Person any
agreement, other than this Agreement, which prohibits or limits the ability of
the Company or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired; provided that any of the Company and its Subsidiaries
may enter into any such agreement to the extent that such agreement is in
connection with a Lien permitted by subsection 8.2 or a sale of assets
permitted by section 8.5 and any such prohibitions or limitations apply only to
the Property encumbered by such Lien or subject to such sale.
8.14 Limitation on Lines of Business. The Company will not, and will
not permit any of its Subsidiaries to, principally engage in any business or
activity other than the business conducted by the Company and its Subsidiaries
on the Closing Date and businesses and activities reasonably related thereto.
8.15 Limitation on Restrictions on Subsidiary Distributions. The
Company will not, and will not permit any of its Subsidiaries to, enter into or
suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary of the Company to (a) pay dividends or make
any other distributions in respect of any Capital Stock of such Subsidiary held
by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the
Company, (b) make loans or advances to the Company or any other Subsidiary of
the Company or (c) transfer any of its assets to the Company or any other
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Credit
Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement which has been entered into in connection with the disposition
of all or substantially all of the Capital Stock or assets of such Subsidiary
or (iii) any restrictions with respect to the Company or any of its
Subsidiaries imposed pursuant to an agreement which has been entered into in
connection with a Lien permitted by subsection 8.2 or a sale of assets
permitted by subsection 8.5 and any such prohibitions or limitations apply only
to the Property encumbered by such Lien or subject to such sale.
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57
8.16 Limitation on Activities of Holdings. In the case of Holdings,
notwithstanding anything to the contrary in this Agreement or any other Credit
Document, (a) conduct, transact or otherwise engage in, or commit to conduct,
transact or otherwise engage in, any business or operations other than those
incidental to its ownership of the Capital Stock of the Company, (b) incur,
create, assume or suffer to exist any Indebtedness or other liabilities or
financial obligations, except (i) nonconsensual obligations imposed by
operation of law, (ii) pursuant to the Credit Documents to which it is a party
and (iii) obligations with respect to its Capital Stock, or (c) own, lease,
manage or otherwise operate any properties or assets (other than cash and Cash
Equivalents) other than the ownership of shares of Capital Stock of the
Company.
8.17 Limitation on Subsidiaries. The Company will not, and will not
permit any of its Subsidiaries to, create, acquire or otherwise suffer to exist
any Domestic Subsidiary unless such Domestic Subsidiary is party to a guarantee
substantially in the form of the Subsidiaries Guarantee and the Administrative
Agent has received such legal opinions and other such documents, instruments
and agreements (including, without limitation, any board resolutions and
incumbency certificates) as the Administrative Agent reasonably may request to
evidence the enforceability of such guarantee.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the
following events:
(a) Payments. Failure by the Company to pay any principal of or
interest on any Loan or Note or any Reimbursement Obligation when due in
accordance with the terms thereof and hereof, or failure by the Company
to pay any fee or other amount payable in connection with any Credit
Document within five days after the date when due; or
(b) Representations and Warranties. Any representation or warranty
made or deemed made by the Company or any Guarantor in any Credit
Document or which is contained in any certificate or financial statement
furnished at any time under or in connection herewith or therewith shall
prove to have been incorrect, false or misleading in any material respect
on or as of the date when made or deemed to have been made; or
(c) Negative Covenants. Default by the Company or any of its
Subsidiaries in the observance or performance of any negative covenant
or agreement contained in Section 0; or
(d) Other Covenants. Default by the Company or any Subsidiary in
the observance or performance of any other covenant or agreement
contained or incorporated by reference in this Agreement other than as
provided in clauses (a) through (c) above, and such default shall
continue unremedied for a period of 30 days; or
(e) Cross Default. Holdings or any of its Subsidiaries shall
Cross Default; or
(f) Commencement of Bankruptcy or Reorganization Proceeding. (i)
Holdings or any of its Subsidiaries shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered
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58
with respect to it, or seeking to adjudicate it as bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, wind-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets;
or, (ii) there shall be commenced against Holdings or any of its
Subsidiaries any such case, proceeding or other action referred to in
subsection (i) which results in the entry of an order for relief or any
such adjudication or appointment remains undismissed, undischarged or
unbonded for a period of 60 days, provided that the Company, for itself
and on behalf of each of its Subsidiaries, hereby expressly authorizes
the Administrative Agent and each Lender to appear in any court
conducting any such case, proceeding or other action during said 60-day
period to preserve, protect and defend their rights under the Credit
Documents; or (iii) there shall be commenced against Holdings or any of
its Subsidiaries any case, proceeding or other action seeking issuance of
a warrant of attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) Holdings or any of its Subsidiaries shall take any
action authorizing, or in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth above in this
paragraph (h); or (v) Holdings or any of its Subsidiaries shall generally
not, or shall be unable to, or shall admit in writing its inability to,
pay its debts as they become due; or
(g) ERISA. (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled
Entity of the Company shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist, with respect to a
Plan; provided that, in each case in clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if
any, would be reasonably likely to have a Material Adverse Effect; or
(h) Change of Control. At any time on or after the Closing Date,
Holdings shall fail to own, beneficially and of record, and control all
of the issued and outstanding capital stock of the Company; or any Change
of Control shall occur; or
(i) Material Judgments. (i) One or more judgments or decrees shall
be entered against Holdings or any of its Subsidiaries involving in the
aggregate a liability (not covered by insurance) of $2,000,000 or more or
(ii) any non-monetary judgment or order shall be rendered against
Holdings or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect, and in the case of either clause (i) or (ii),
there shall be
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59
any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect unless such judgment or order shall have been vacated,
satisfied, discharged or bonded pending appeal; or
(j) Effectiveness of the Guarantees. On or after the Closing Date,
(i) for any reason (other than any act on the part of the Administrative
Agent or any Lender or by its terms) any Guarantee ceases to be or is not
in full force or (ii) the Company or any Guarantor shall assert in
writing that any Guarantee has ceased to be or is not in full force and
effect;
then, and in any such event, (x) if such event is an Event of Default specified
in clause (i), (ii) or (iii) of paragraph (f) of this Section with respect to
the Company, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters
of Credit shall have presented the documents required thereunder) and the other
Credit Documents shall immediately become due and payable, and (y) if such
event is any other Event of Default, either or both of the following actions
may be taken: (i) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative
Agent shall, by notice to the Company, declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and/or (ii)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to the Company, declare all or any part of the Loans (with accrued interest
thereon) and any other amounts owing under this Agreement and the other Credit
Documents to be due and payable forthwith, whereupon the same shall immediately
become due and payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Company shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal to
the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Company hereunder and under the Notes. After all such
Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Company hereunder and under the Notes then due and payable shall have
been paid in full, the balance, if any, in such cash collateral account shall
be returned to the Company. The Company hereby grants to the Administrative
Agent, for the ratable benefit of the Lenders, as collateral security for the
payment in full of the Payment Obligations, a security interest in all amounts
from time to time held in the cash collateral account maintained pursuant to
this paragraph.
Except as expressly provided above in this Section 0, presentment,
demand, protest and all other notices of any kind are hereby expressly waived
to the maximum extent permitted by applicable law.
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60
SECTION 10. THE ADMINISTRATIVE AGENT
10.1 Appointment. Each Lender hereby irrevocably designates and
appoints The Chase Manhattan Bank (and each successor thereto which is
appointed in accordance with the provisions of subsection 0) as the
Administrative Agent under the Credit Documents and hereby irrevocably
authorizes The Chase Manhattan Bank (and any such successors thereto), as the
Administrative Agent for such Lender, to take such action, in the
Administrative Agent's discretion, on such Lender's behalf under the provisions
of the Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of the Credit
Documents, together with such other powers as are reasonably incidental
thereto. The Chase Manhattan Bank hereby accepts its appointment as the
Administrative Agent and the authorization set forth above. Notwithstanding any
provision to the contrary in the Credit Documents, the Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
in the Credit Documents, nor any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into the Credit Documents or otherwise exist against
the Administrative Agent in such capacity.
10.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under the Credit Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
10.3 Exculpatory Provisions. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (a) liable to any of the Lenders for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with the Credit
Documents (except for its or such Person's own gross negligence or willful
misconduct) or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Company or any
officer thereof contained in the Credit Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by it under or in connection with, the Credit Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of the
Credit Documents (other than with respect to its own due execution and delivery
thereof) or the perfection of any security interest contemplated thereby or for
any failure of any party thereto (other than the Administrative Agent in such
capacity) to perform its obligations thereunder. The Administrative Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Credit Documents, or to inspect the properties, books or records of any
party to any thereof.
10.4 Reliance by the Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note or on account of any Loan as the owner thereof for all
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61
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Administrative Agent (in its capacity as such).
The Administrative Agent shall be fully justified in failing or refusing to
take any action under any Credit Document unless it shall have received such
advice or concurrence of the Required Lenders as it deems appropriate or it
shall have been expressly indemnified to its satisfaction by the Lenders or, at
its option, the Required Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action (except that no such indemnification need include any indemnification
for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Administrative Agent). Each of
the Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall in all cases be fully protected in
acting, or in refraining from acting, under the Credit Documents upon advice of
counsel or in accordance with a request of the Required Lenders (except in
cases in which a greater number of Lenders is required, in which case the
Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall in all cases be fully protected in
acting, or in refraining from acting, under the Credit Documents in accordance
with a request of such Lenders), and such request, and any action taken or
failure to act pursuant thereto, shall be binding upon all the Lenders and all
future holders of the Loans and the Notes.
10.5 Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of
Default unless, the Administrative Agent has received notice from a Lender or
the Company referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event
that the Administrative Agent receives any such notice, it shall promptly give
notice thereof to the Lenders. The Administrative Agent shall take such action
with respect to any Default or Event of Default as shall be reasonably directed
by the Required Lenders, provided that, unless and until the Administrative
Agent shall have received any such directions, it may (but shall not be
obligated to) take such action (other than any such action under clause (y) of
Section 0), or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
10.6 Non-Reliance on the Administrative Agent and the Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by
it hereinafter taken, including any review of the affairs of the Company or any
Subsidiary or any Affiliate of any of the foregoing, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has or will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed or will
deem appropriate, made and will make its own appraisal of and investigation
into the business, operations, property, financial and other condition and
creditworthiness of the Company and its Subsidiaries and Affiliates and made
and will make its own decision to make its Loans and enter into the Credit
Documents to which it is or will be a party. Each Lender also represents that
it will, independently and without reliance upon the Administrative Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under the Credit Documents, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
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62
creditworthiness of the Company and its Subsidiaries and Affiliates. Each
Lender acknowledges that no action on the part of the Administrative Agent
shall relieve such Lender from performing its own credit analysis and making
its own determination prior to, and from time to time after, its entering into
this Agreement with respect to the nature of the transaction contemplated
hereby and assuming any risks or disadvantages to it that may arise out of any
such determination. Except for notices, reports and other documents expressly
required to be furnished to the Lenders, or obtained, by the Administrative
Agent, under the Credit Documents, the Administrative Agent in such capacity
shall have no duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property, financial and
other condition or creditworthiness of the Company and its Subsidiaries and
Affiliates which may come into its possession or the possession of any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent (in its capacity as such) and its officers, directors,
employees, agents, attorneys-in-fact or affiliates, to the extent not
reimbursed by the Company and without limiting the obligation of the Company to
do so, ratably according to the respective amounts of their pro rata shares of
the Aggregate Commitment in effect on the date upon which indemnity is sought,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever (including, without limitation, legal fees and disbursements)
which may at any time (including, without limitation, at any time following the
payment of the Loans or the Notes) be imposed on, incurred by or asserted
against the Administrative Agent, in such capacity, in any way relating to or
arising out of the Credit Documents, or any documents contemplated by or
referred to therein or the transactions contemplated thereby or any action
taken or omitted by the Administrative Agent, in such respective capacities,
thereunder or in connection therewith, provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Administrative
Agent, in such capacity, or, in the case of a claim against the Administrative
Agent, in such capacity, arising from a lawsuit against the Administrative
Agent if such Lender was not given notice of said lawsuit and an opportunity to
participate in the defense thereof at its own expense. The agreements in this
subsection 0 shall survive the payment of the Loans, the Notes, and all other
amounts payable hereunder.
10.8 The Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Company and any of their
Subsidiaries or Affiliates as though it were not the Administrative Agent. With
respect to its Loans and any Notes or other promissory note issued to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. The Administrative Agent may
resign as the Administrative Agent upon 30 days' notice to the Lenders and the
Company. If it shall resign as Administrative Agent, then the Required Lenders
shall appoint from among the Lenders a successor Administrative Agent for the
Lenders, which successor Administrative Agent shall be approved by the Company,
such approval not to be unreasonably withheld (or, if the Required Lenders and
the Company are unable to select such successor Administrative Agent within
such
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63
30-day period, a successor Administrative Agent shall be selected by the
Administrative Agent), whereupon such successor agent shall succeed to the
rights, powers and duties of the resigning Administrative Agent under all of
the Credit Documents, and the term "Administrative Agent" shall mean such
successor Administrative Agent effective upon its appointment, and the former
Administrative Agent's rights, powers and duties as the Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans or the Notes. After any retiring Administrative Agent's
resignation hereunder or as Administrative Agent, as the case may be, the
provisions of this Section 10 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was the Administrative Agent under
the Credit Documents.
Issuing Lender as Issuer of Letters of Credit. Each Lender hereby
acknowledges and agrees that the provisions of this Section 11 shall apply to
the Issuing Lender, in its capacity as issuer of the Letters of Credit, in the
same manner as such provisions are expressly stated to apply to the
Administrative Agent.
10.11 Documentation Agent. The Documentation Agent, in its capacity
as such, shall not have any duties or any responsibilities hereunder nor any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise against the Documentation Agent in its capacity as such.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. (a) Except as set forth in the next
succeeding sentence, the Administrative Agent, on the one hand and the Company
or the Guarantors, as the case may be, as party thereto, on the other hand, may
from time to time with the written consent of the Required Lenders enter into
written amendments, supplements or modifications for the purpose of adding,
deleting or modifying any provision of any Credit Document or changing in any
manner the rights, remedies, obligations and duties of the parties thereto, and
the Administrative Agent, on behalf of the Lenders, may, with the written
consent of the Required Lenders, execute and deliver a written instrument
waiving, on such terms and conditions as may be specified in such instrument,
any of the requirements applicable to the Company or Guarantors party to any
Credit Document, or any Default or Event of Default and its consequences. No
such waiver, amendment, supplement or modification shall:
(i) without the written consent of each Lender directly
affected thereby, extend the final scheduled maturity of any of the Loans
or the Notes or any scheduled installment thereof, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal
amount thereof, or change the amount or terms (including, without
limitation, fees and commissions) of any Commitment, or consent to the
assignment or transfer by the Company of any of its rights and
obligations under this Agreement, or reduce the percentages specified in
the definitions of "Required Lenders" in Section 0, or amend, modify or
waive any provision of this subsection 11.1;
(ii) without the written consent of Lenders holding 100% of
the Aggregate Commitment, take any action having the effect of releasing
any of the material guarantee obligations provided for in a Guarantee,
except as set forth therein or in Section 11.9;
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64
(iii) without the prior written consent of the Issuing Lender
amend, supplement or otherwise modify Section 3 or any provisions of or
directly applicable to any Letter of Credit; or
(iv) without the written consent of the then Administrative
Agent and Issuing Lender, amend, modify or waive any provision of Section
0.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Lenders and all
future holders of any of the Loans and the Notes. In the case of such waiver,
the parties to the Credit Documents, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the
Notes, and any Default or any Event of Default waived shall, to the extent
provided in such waiver, be deemed to be cured and not continuing; but, no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon. The Administrative Agent shall, as soon as
practicable, furnish a copy of each such amendment, supplement, modification or
waiver to each Lender.
(b) To the extent that the execution, delivery or performance of
any Credit Document constitutes a Default or an Event of Default under (and as
defined in) the Existing Credit Agreement, each Lender hereunder which is a
party to the Existing Credit Agreement hereby waives such Default or Event of
Default.
(c) To the extent that the existence or performance of any Basic
Document (as defined in the Existing Credit Agreement) constitutes a Default or
an Event of Default hereunder, each Lender hereunder hereby waives such Default
or Event of Default; provided that the Existing Credit Agreement is terminated
in the manner and at the time contemplated by subsection 6.1(h) hereof.
(d) Each Lender hereby agrees that any Security Document under (and
as defined in) the Existing Credit Agreement, and any financing statement or
similar filing on account thereof, which remains in effect after the date
hereof shall be deemed not to constitute a "Lien" for purposes of this
Agreement; provided that such Security Documents are terminated in the manner
and at the time contemplated by subsection 6.1(i) hereof and the Company shall
use best efforts to terminate or cause to be terminated such filings upon the
termination of the Existing Credit Agreement.
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65
11.2 Notices. All notices, consents, requests and demands to or upon
the respective parties hereto to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered by hand, or three Business Days after being deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when sent, addressed as follows in the case of the
Company and the Administrative Agent, and as set forth in Schedule 1.1(A)
hereto in the case of each of the other parties hereto, or to such address or
other address as may be hereafter notified by any of the respective parties
hereto or any future holders of the Loans or the Notes:
The Company: Pneumo Abex Corporation
(d/b/a Mafco Worldwide Corporation)
Third Street and Jefferson Avenue
Camden, New Jersey 08104
Attention: Senior Vice President - Finance
Telecopy: (609) 964-6029
The Administrative
Agent and Issuing
Lender: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Neil Boylan
Telecopy: (212) 270-1129
with a copy to:
The Chase Manhattan Bank Agency
Services Corporation
Chase Manhattan Plaza
New York, New York 10081
Attention: Sandra Miklave
Telecopy: (212) 552-5658
provided that any notice, request or demand to or upon the Administrative Agent
or the Issuing Lender pursuant to Sections 2, 3 and 4 shall not be effective
until received.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant
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66
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the Notes.
11.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or
reimburse the Administrative Agent for all of its reasonable out-of-pocket
costs and expenses incurred in connection with the preparation, execution and
delivery of, and any amendment, supplement or modification to, any Credit
Document and any other documents prepared in connection herewith, and the
consummation of the transactions contemplated hereby and thereby (including,
without limitation, the fees and disbursements of counsel to the Administrative
Agent, but not including any fees and expenses of counsel to the Lenders), (b)
to pay or reimburse each Lender, the Issuing Lender and the Administrative
Agent for all its reasonable costs and expenses incurred in connection with the
enforcement or preservation of any rights under the Credit Documents and any
such other documents, including, without limitation, fees and disbursements of
counsel to the Administrative Agent, the Issuing Lender and to the Lenders, (c)
to pay, indemnify, and to hold each Lender, the Issuing Lender and the
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other similar taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
the Credit Documents and any such other documents, and (d) to pay, indemnify,
and hold each Lender, the Issuing Lender, the Administrative Agent, the
Documentation Agent and the officers, directors, employees and agents thereof,
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
consummation, enforcement, performance and administration of the Credit
Documents and the use by the Company of the proceeds of the Loans and other
extensions of credit hereunder (all of the foregoing, collectively, the
"indemnified liabilities"), provided that the Company shall have no obligation
hereunder with respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of any such Lender, the Issuing Lender or of
the Administrative Agent, (ii) legal proceedings commenced against any such
Lender, the Issuing Lender or against the Administrative Agent by any security
holder or creditor (other than the Company, its Subsidiaries and its
Affiliates) thereof arising out of and based upon rights afforded any such
security holder or creditor solely in its capacity as such, (iii) legal
proceedings commenced against any such Lender or the Issuing Lender by any
other Lender or by the Administrative Agent or (iv) amounts of the types
referred to in clauses (a) through (c) above except as provided therein. The
agreements in this subsection 0 shall survive repayment of the Loans and the
Notes and all other amounts payable hereunder.
11.6 Successors and Assigns; Loan Participations. (a) This Agreement
shall be binding upon and inure to the benefit of the Company, the
Administrative Agent, the Lenders, all future holders of the Loans and the
Notes, and their respective successors and assigns, except that the Company may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder or
under any other Credit Document. In the event of any such sale by a
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67
Lender of participating interests to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such Loan or Note for all
purposes under this Agreement and the Company and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement. The Company agrees
that if amounts outstanding under this Agreement and the Notes are due and
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to have
the right of setoff in respect of its participating interest in amounts owing
under this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or any Note; provided, that such right of set-off shall be subject to
the obligation of such Participant to share with the Lenders, and the Lenders
agree to share with such Participant, as provided in subsection 0. The Company
also agrees that each Participant shall be entitled to the benefits of
subsections 0, 0 and 0 with respect to its participation in the Loans and
Commitments outstanding from time to time; provided, that no Participant shall
be entitled to receive any greater amount pursuant to such subsections than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred. Notwithstanding anything to the contrary
contained herein, no Participant shall have any right to consent to any
amendment, supplement or other modification to this Agreement or the other
Credit Documents, other than any such amendment, supplement or other
modification which would (i) extend the final scheduled maturity of any of the
Loans or the Notes, (ii) reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof, (iii) increase the
amount of such Participant's participating interest in the Loans or the Notes
or (iv) except in accordance with their terms, release any of the material
guarantee obligations provided for in any Guarantee.
(c) Any Lender may, in accordance with applicable law:
(i) at any time sell all or any part of its rights and
obligations under this Agreement and any of the Loans or the Notes and
any other Credit Document to any Lender or any Affiliate thereof; and
(ii) with the consent of the Company and the Administrative
Agent (which consent shall not be unreasonably withheld) sell to one or
more additional banks or financial institutions ("Purchasing Lenders")
which are not Lenders or Affiliates thereof, all or any part of its
rights and obligations under this Agreement and the Loans and the Notes
and any other Credit Document, provided that, unless the Company and the
Administrative Agent otherwise consent (which consent shall not be
unreasonably withheld), each such sale pursuant to this clause (ii) shall
be in an amount of $5,000,000 or more;
provided that, after giving effect to such sale, if the transferor Lender
retains any Commitment hereunder, such Commitment shall, unless the Company
otherwise consents (which consent shall not be unreasonably withheld), be not
less than $5,000,000. Any such sale pursuant to clause (ii) or (iii) shall be
made pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit C (an "Assignment and Acceptance"), executed by the Administrative
Agent, such Purchasing Lender and such transferor Lender (and, in the case of
any such transfer which
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68
requires the Company's consent, by the Company), and delivered to the
Administrative Agent for its acceptance and recording in the Register (as
defined below). Upon such execution, delivery, acceptance and recording, from
and after the effective date set forth in such Assignment and Acceptance, (x)
the Assignee thereunder (and as defined therein) shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with Commitments as set forth therein, and
(y) the Assignor thereunder (and as defined therein) shall, to the extent of
the interest transferred, as reflected in such Assignment and Acceptance, be
released from its obligations under this Agreement and the other Credit
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an Assignor's rights and obligations under this Agreement
and the other Credit Documents, such Assignor shall cease to be a party
hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement
to the extent, and only to the extent, necessary to reflect the addition of
such Assignee and the resulting adjustment of the relevant Commitment
Percentages arising from the purchase by such Assignee of all or a portion of
the rights and obligations of such Assignor under this Agreement and the Loans
and the Notes. On or prior to the effective date of such Assignment and
Acceptance, the Company (at its own expense and upon the request of such
Assignee or the Assignor) shall execute and deliver to the Administrative Agent
in exchange for any surrendered Note a new Note to the order of such Assignee
in an amount equal to the relevant Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the Assignor has retained such a Commitment
hereunder (and has previously requested a Note evidencing its Loans
thereunder), a new Note to the order of the Assignor in an amount equal to the
relevant Commitment retained by it hereunder. Any such new Note shall be dated
the date of the original Note and shall otherwise be in the form of the Note
replaced thereby. Any Note surrendered by the Assignor shall be returned by the
Administrative Agent to the Company marked "canceled."
(d) The Administrative Agent shall maintain at its address referred
to in subsection 11.2 a copy of each Assignment and Acceptance delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Lenders and the Commitments and Commitment Percentages of the Loans
owing to each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Company, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loan recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in the case of any transfer which requires the
Company's consent, by the Company and the Administrative Agent), together with
payment to the Administrative Agent of a registration and processing fee of
$3,500 ($1,000 if the Purchasing Lender is then a Lender or an Affiliate
thereof), the Administrative Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date thereof record the information
contained therein in the Register and give notice of such acceptance and
recordation to the Lenders and the Company.
(f) The Company authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning
Holdings, the Company and its Subsidiaries which has been delivered to such
Lender by or on behalf of the Company pursuant to this Agreement or any
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69
other Credit Document, or which has been delivered to such Lender by or on
behalf of the Company in connection with such Lender's credit evaluation of the
Company, its Subsidiaries and its Affiliates prior to becoming a party to this
Agreement; provided that such Transferee or potential Transferee agrees to take
normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information provided to it concerning the Company or any
of its Subsidiaries.
(g) Unless the Company shall otherwise consent, if, pursuant to
this subsection 0, any interest in this Agreement or any Loan or Note is
transferred to any Transferee (which, for purposes of this subsection 0, shall
include an Affiliate of a Lender to which a sale is made pursuant to subsection
0) which is organized under the laws of any jurisdiction other than the United
States or any State thereof, the transferor Lender shall cause such Transferee,
concurrently with the effectiveness of such transfer, (i) to represent to the
transferor Lender (for the benefit of the transferor Lender, the Administrative
Agent, and the Company) that under applicable law and treaties at the time in
effect no taxes will be required to be withheld by the Administrative Agent,
the Company or the transferor Lender with respect to any payments to be made to
such Transferee in respect of the Loans under this Agreement, (ii) to furnish
to the transferor Lender (and, in the case of any Purchasing Lender registered
in the Register, the Administrative Agent and the Company) either United States
Internal Revenue Service Form 4224 or United States Internal Revenue Service
Form 1001 or any successor applicable form, as the case may be (wherein such
Transferee claims entitlement to complete exemption from United States federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Lender, the Administrative Agent and the Company) to
be bound by the provisions of subsections 0, (c) and (d) as if such Transferee
were a Lender hereunder.
(h) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection 11.6 concerning assignments
of Loans and Notes relate only to absolute assignments and that such provisions
do not prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
11.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender")
shall at any time receive any payment of all or part of any of the Loans or
Reimbursement Obligations owing to it, or interest thereon, pursuant to a
guarantee or otherwise, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off or otherwise), in a greater proportion
than any such payment to and collateral received by any other Lender, if any,
in respect of such other Lender's Loans or Reimbursement Obligations, as the
case may be, owing to it or interest thereon, such Benefitted Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Loans or Reimbursement Obligations, as the case may be, owing to such
other Lender, or shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or
any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest. The Company agrees that each Lender so purchasing a portion of
another Lender's Loans or Reimbursement Obligations may exercise all rights of
payment (including, without limitation, rights of set-off) with respect to such
portion as fully as if such purchasing Lender were the direct holder of such
portion.
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(b) In addition to any rights and remedies of the Lenders provided
by law, upon both the occurrence of an Event of Default and acceleration of the
obligations owing in connection with this Agreement, each Lender shall have the
right, without prior notice to the Company, any such notice being expressly
waived to the extent permitted by applicable law, to set off and apply against
any indebtedness, whether matured or unmatured, of the Company to such or any
other Lender, any amount owing from such Lender to the Company at, or at any
time after, the happening of both of the above mentioned events, and such right
of set-off may be exercised by such Lender against the Company or against any
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, custodian or execution, judgment or attachment creditor of
the Company, or against anyone else claiming through or against the Company or
such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receivers, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender prior to the making, filing or issuance, or service
upon such Lender of, or of notice of, any such petition, assignment for the
benefit of creditors, appointment or application for the appointment of a
receiver, or issuance of execution, subpoena, order or warrant. Each Lender
agrees promptly to notify the Company and the Administrative Agent after any
such set-off and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
11.8 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.9 Releases of Guarantee Obligations. Notwithstanding anything to
the contrary contained herein or in any Guarantee, upon request of the Company,
the Administrative Agent shall (without any notice to or vote or consent of any
Lender) take action having the effect of releasing any guarantee obligations
provided for in any Guarantee to the extent necessary to permit the
consummation of any transactions not prohibited hereunder, by the relevant
Person in accordance with the provisions of this Agreement and the other Credit
Documents.
11.10 Effectiveness; Counterparts. This Agreement shall become binding
upon the parties hereto when the Administrative Agent shall have received one
or more counterparts of this Agreement, executed by a duly authorized officer
of each party hereto or, in the case of any Lender, telex or telecopier
confirmation to the Administrative Agent that a duly authorized officer of such
Lender has executed a counterpart of this Agreement and that such counterpart
has been sent to the Administrative Agent. This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Company and the
Administrative Agent.
11.11 SUBMISSION TO JURISDICTION; WAIVERS.
(A) THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY:
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71
(I) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT
IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(II) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(III) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION 0 OR AT SUCH OTHER
ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO; AND
(IV) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(B) EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT, THE ISSUING
LENDER AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered in New York, New York by their proper and
duly authorized officers as of the day and year first above written.
PNEUMO ABEX CORPORATION
By:/s/ Peter W. Grace
-----------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent,
as Issuing Lender
By:/s/ Neil R. Boylan
-----------------------------
Title: Vice President
CHASE MANHATTAN BANK DELAWARE,
as Designated Issuer
By:/s/ Michael P. Handago
-----------------------------
Title: Vice President
BANKBOSTON, N.A.
By: /s/ John K. Hood
-----------------------------
Title: Managing Director
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Elliot J. Jaffee
-----------------------------
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By: /s/ Teiji Teramoto
-----------------------------
Title: Vice President & Manager
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ROYAL BANK OF CANADA
By: /s/ Steven Yoon
-----------------------------
Title: Senior Manager
CREDIT AGRICOLE INDOSUEZ
By: /s/ Craig Welch
-----------------------------
Title: First Vice President
By: /s/ Cheryl A. Solometo
-----------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK Plc
By: /s/ Andrew S. Weinberg
-----------------------------
Title: Senior Vice President
BANQUE PARIBAS
By: /s/ John J. McCormick, III
-----------------------------
Title: Vice President
By: /s/ Mary T. Finnegan
-----------------------------
Title: Director
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
LOS ANGELES AGENCY
By: /s/ Teiji Sakata
-----------------------------
Title: Joint General Manager
<PAGE>
74
NATEXIS BANQUE BFCE
By: /s/ William Maier
-----------------------------
Title: Vice President
<PAGE>
Exhibit 10.27
Annex A
<PAGE>
Exhibit 10.28
CONTRACT
BETWEEN
MAFCO WORLDWIDE CORPORATION
AND
LICORICE & PAPER
EMPLOYEES ASSOCIATION
OF
CAMDEN, NEW JERSEY
Effective May 31, 1997
to May 31, 2001
<PAGE>
TABLE OF CONTENTS
Section Page
Purpose............................................I 3
Recognition and Unit Covered.......................II 4
Good Faith and Bargaining..........................III 4
Coercion of Employees..............................IV 5
Impartial Representation...........................V 5
Grievances.........................................VI 5-7
Holidays...........................................VII 8-9
Hours..............................................VIII 9-10
Vacations..........................................IX 11-14
Wages..............................................X 14-16
Deduction of Union Dues............................XI 16
Government Regulations.............................XII 16
Management.........................................XIII 16-17
Seniority..........................................XIV 18-20
New Employees......................................XV 20-21
Employee Benefits..................................XVI 21-26
Operations of Company..............................XVII 27
Union Shop Provision...............................XVIII 27-28
Bulletin Boards & Rent of Room.....................XIX 28
Safety and Health..................................XX 28-29
Amendments.........................................XXI 29
Duration...........................................XXII 30
Successors and Assigns.............................XXIII 30
Addenda to
Collective Bargaining Agreement................... 31-32
A. Overtime Procedure..................... 31-32
B. Paychecks/Adjustments.................. 32
<PAGE>
CONTRACT
--------
THIS CONTRACT entered into the 31st day of MAY, 1997 for and MAFCO
WORLDWIDE CORPORATION, a Delaware Corporation, hereinafter referred to as the
"Company" and LICORICE AND PAPER EMPLOYEES ASSOCIATION OF CAMDEN, NEW JERSEY,
AFL-CIO, hereinafter referred to as the "Union."
SECTION I
PURPOSE
WITNESSETH, whereas the parties hereto have reached agreement as a result of
collective bargaining for the purpose of facilitating the peaceful adjustment
of differences which may arise from time to time between this Company and the
Union, and to promote harmony and efficiency and to the end that the employees
and the Company and the general public may mutually benefit, the parties hereto
contract and agree with each other as follows:
SECTION II
RECOGNITION AND UNIT COVERED
The Company agrees to recognize the Union, which has been certified by
the National Labor Relations Board by its orders dated April 28, 1942, May 20,
1943, and May 9, 1944 and October 30, 1946 (Nos. 4-R-797, 4-R-1112, 4-R-1387,
and 4-R-2364 respectively) to be the exclusive representative for collective
bargaining under the National Labor Relations Act for all production and
maintenance employees, of the employer, including factory laboratory employees,
storing and shipping employees and employees in the boiler, turbine and pump
shops, except executives, office employees, first aid attendant, general
foremen, executive foremen and all other supervisory employees with the
authority to hire, discharge, promote, discipline or otherwise effect changes
in the status of employees or effectively recommend such action (which group is
hereinafter called the "Unit") as the exclusive bargaining agency for the
employees of the Company in said Unit by virtue of the majority of said
employees having chosen said Union as their representative for collective
bargaining under said Act.
(3)
<PAGE>
SECTION III
GOOD FAITH AND BARGAINING
The Union and the Company both acknowledge and declare that they have
negotiated this Agreement with each other in good faith under the terms of the
National Labor Relations Act.
SECTION IV
COERCION OF EMPLOYEES
The Company agrees not to discriminate against any employee, first,
coming under this Contract; second, for representing any other employee; third,
for presenting any grievance. The Company further agrees that it shall not
interfere with, restrain or coerce said employees in the exercise of their
right to bargain collectively in accordance with the terms of this Contract.
SECTION V
IMPARTIAL REPRESENTATION
The Union agrees that its representation of employees of the Company
hereunder will be faithful and impartial and without discrimination for or
against any employee. The Union further agrees that only joint labor management
activities will be upon Company time. The Company agrees to keep on file with
the Company an accurate list of its officers and shop stewards.
SECTION VI
GRIEVANCES
Should any employee believe himself unjustly dealt with or any provision
of this Contract violated, earnest efforts will be made to settle the matter as
follows:
First. Between the employee affected and his Foreman, who may not be a
part of the Unit, or the Superintendent. In every case, the grievance must be
entered within five (5) working days of the event which is the subject of the
complaint or within five (5) days from the date the employee knew, or
reasonably should have known, of such event. The Union will be
(4)
<PAGE>
notified in advance of such first step meeting and an accredited representative
of the Union may be present.
Second. Between the Union Grievance Committee and representatives of the
Management of the plant, within five (5) weekdays, excluding holidays, of
receipt of notice by the Management. Such meeting may or may not be during
working hours except that no overtime is to be paid for Grievance Procedure
after working hours. A written and comprehensive statement of the Grievance and
those affected is to be made by the Union. The Company's answer shall be
reduced to writing by Management. A signed copy of such answer shall be
furnished the Union within ten (10) calendar days following the aforementioned
meeting.
Third. If no satisfactory adjustment is made under the second step, then
it shall be submitted to a Board of Review of two (2) members, one (1)
designated by the Union and one (1) designated by the Company, within five (5)
weekdays, excluding holidays, of receipt of notice by the Management, and an
answer submitted to the Union within five (5) weekdays, excluding holidays,
following the meeting.
In the event that no satisfactory solution shall have been reached at
the Board of Review, the question may be presented for arbitration provided a
demand for arbitration is received by the Company from the Union within two (2)
calendar weeks from receipt of the Company's answer. On questions proceeding to
arbitration, an Arbitrator shall be selected under the rules for voluntary
labor arbitration of the American Arbitration Association then obtaining.
All costs of the arbitrator, administration charges and other charges
made by the American Arbitration Association shall be equally divided between
the Company and the Union. The parties agree to abide by the award subject to
such rulings as any federal agency having jurisdiction may impose.
Either party shall have the option to waive any particular step in the
grievance procedure and proceed to the next step or waive any further steps in
the grievance procedure and proceed directly to arbitration under the rules and
regulations of the American Arbitration Association.
(5)
<PAGE>
Sufficient procedures having been established for dealing with all
disputes concerning wages, hours and working conditions, there shall be no
strike or lockout during the term of this agreement.
SECTION VII
HOLIDAYS
All of the employees in the Unit who have completed their 60 day
probationary period shall receive a bonus of eight (8) straight time pay for
each of the following holidays: New Year's Day, Easter Monday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, the Day after Thanksgiving,
December 24, Christmas Day and three (3) personal holidays per calendar year,
the date for which shall be mutually agreed upon by the employee and his
Foreman or Superintendent. However, when New Year's Day, Memorial Day,
Independence Day or Christmas Day fall on a Sunday, but are observed generally
on a Monday, then the Monday shall be considered to be the holiday for purposes
of this section. Any hourly paid employees who work on such holidays shall be
paid one and one-half times straight time pay. For non-probationary employees,
the foregoing time and one-half rate shall be in addition to the holiday
bonus.. All process employees will be guaranteed time off without work for five
(5) of the listed holidays as they occur in the course of any year of this
contract.
If an employee is absent on his last scheduled work day before a holiday
or his first scheduled work day after a holiday and such absence is for a
period of less than three (3) continuous days, then such employee shall not be
entitled to the Holiday Pay; provided, however, that the employer shall have
the right to waive this requirement in any particular situation.
The wellness program shall continue under which an employee who
completes three (3) out of four (4) Quarters in a calendar year, without
missing a regularly scheduled workday, shall be entitled to an additional
personal holiday in the following calendar year; and effective January 1, 1998,
any employee who completes four (4) out of four (4) quarters in a calendar year
without missing a regularly scheduled workday shall be entitled to a second
additional personal holiday in the following calendar year. Effective 1/1/98
any two (2) lateness incurred
(6)
<PAGE>
in any calendar quarter shall be considered as constituting the missing of a
"regularly scheduled work day" in that quarter for purposes of the Wellness
Program.
SECTION VIII
HOURS
For the purpose of this Contract, the work week shall be from 6:00 A.M.,
Monday until the following Monday at 6:00 A.M. The work day shall be from 6:00
A.M. until 6:00 A.M. the following morning. Eight (8) hours of each work day
shall constitute straight time hours. All work performed in excess of eight (8)
straight time hours in one (1) day shall be at one and one-half times the
straight time rate. In consideration for working 10:00 P.M. to 6:00 A.M. shift
and continuing to work the 6:00 A.M. to 2:00 P.M. shift, one and one-half times
the straight time rate shall be paid for the 6:00 A.M. to 2:00 P.M. shift,
provided the employee does not work the regular 10:00 P.M. to 6:00 A.M. shift
in the same work day. All work performed on Saturday of a regularly scheduled
work week shall be paid at one and one-half times the straight time rate. All
work performed on Sunday of a regular scheduled work week shall be paid for at
twice the straight time rate.
In the event a normal day operation is rescheduled to night operation,
the related rates of pay will be adjusted upward by fifteen cents (15(cent))
per hour starting at 2:00 P.M. and continuing until 10:00 P.M.; an additional
upward adjustment of ten cents (10(cent)) per hour for a total of twenty-five
cents (25(cent)) per hour will be made starting at 10:00 P.M. and continuing
until 6:00 A.M. the following morning.
In the event a maintenance employee is called back to work his basic
rate of pay shall be adjusted by the applicable shift differential premium pay.
For all repair work, whether straight time or overtime, or both, shop
men shall have the first call to the extent of their availability. In the event
that enough shop men are not available to do the necessary work, process men
may be called to the extent of their capability and availability, with the
advance knowledge of the Union. In the further event that there are not enough
shop men and process men available to do the necessary work, outside men may be
called in with the advance knowledge of the Union. The Company will, to the
best of its ability, award overtime repair work on an equitable basis.
(7)
<PAGE>
SECTION IX
VACATIONS
Hourly paid employees who have been continuously on the payroll for one
(1) full year and less than three (3) full years shall receive the greater of
forty (40) hours pay or two percent (2%) of their annual income for vacation
purposes, and will be entitled to one (1) week's leave for that purpose.
All hourly paid employees who have been continuously on the payroll for
three (3) full years and less than ten (10) full years shall receive the
greater of eighty (80) hours pay or four percent (4%) of their annual income
for vacation purposes and will be entitled to two (2) weeks' leave for that
purpose.
All hourly paid employees who have been continuously on the payroll for
ten (10) full years and less than (20) full years shall receive the greater of
one-hundred twenty (120) hours or six percent (6%) of their annual income for
vacation purposes, and will be entitled to three (3) weeks' leave for that
purpose.
All hourly paid employees who have been continuously on the payroll for
twenty (20) or more full years shall receive the greater of one-hundred sixty
(160) hours or eight percent (8%) of their annual income for vacation purposes,
and will be entitled to four (4) weeks' leave for that purpose.
Any employee who on December 31 has completed one (1) full year of
continuous service will be entitled to vacation pay in the following calendar
year.
Current accrued vacation shall be pro-rated on the basis of full weeks
of completed service and shall be paid to retiring employees and the estate of
deceased employees on the occasion of the retirement or death. Current accrued
vacation shall be pro-rated on the basis of full weeks of completed service and
shall be paid to a laid-off employee on March 1 following his layoff.
Income for vacation percentage payments will be based on the year ending
December 31st immediately prior to vacations, during any year of this Contract,
and shall be deemed to include only amounts payable as wages.
Regular vacation checks will not be available before March 1 of the
following year.
(8)
<PAGE>
In the event of an employee's termination of service prior to March 1,
vacation pay will be paid to such former employee within ten (10) days
following termination.
An employee who has filed application for retirement may complete his
regular vacation entitlement before retiring, or if the employee desires, he
may receive equivalent pay in lieu of vacation time off at his retirement date.
There shall be no vacation payment in any amount under any circumstances
other than specifically provided for herein above.
All application forms for vacation must be submitted to the
Superintendent of the employee's department no later than June 1 of any year of
this contract.
When the company publishes on or before March 1 a notice of shutdown
during July or August, an employee must reserve one (1) week of vacation
eligibility in July and one (1) week of eligibility in August to be taken
during the periods of shutdown occurring during these months. Employees will
not be required to take their vacation prior to July 1. Any employee who would
suffer extreme hardship from this requirement shall be permitted to make
alternate mutually agreeable vacation arrangements; however, such employees
shall not exceed in number five percent (5%) of the bargaining unit as of March
1. Exceptions to this requirement may also occur where essential employee
services are needed during the shutdown period. Such essential employees will
be notified on or before March 1.
In advance of each announced shutdown period, the Company shall post
bulletin board notices requesting that process employees who desire to work
during the shutdown period indicate their desire to their Superintendent.
Employees who indicate their desire for such work will be assigned an
eligibility priority for such work by the Company. The Union will be given
advance knowledge of this eligibility priority determination.
An employee may be permitted by agreement with his Superintendent, to
work during the period that would otherwise have been scheduled as vacation,
provided such permission is not inconsistent with the other provisions of this
Section.
The other provisions of this Section having been satisfied, every effort
will be made to grant the employee vacation leave at the time and to the extent
of the employee's choice, having proper regard, however, for the operating
requirements of the department. Seniority shall be controlling in resolving
employee vacation schedule conflicts.
(9)
<PAGE>
SECTION X
WAGES
The basic rates of pay shall be increased by the amount shown at
6:00 A.M. on each of the following indicated dates:
Effective Date Amount
June 1, 1997 $ .45
June 1, 1998 $ .42
June 1, 1999 $ .43
June 1, 2000 $ .45
A premium pay of fifteen cents (15(cent)) per hour, in addition to the
basic rates, shall be paid for all shift work performed during the second shift
which is from 2:00 P.M. to 10:00 P.M., and a premium pay of twenty-five cents
(25(cent)) per hour, in addition to the basic rates, shall be paid for all
shift work performed during the third shift which is from 10:00 P.M. to 6:00
A.M.
SENIORITY PAY
Employees shall be entitled to seniority pay as follows:
Three cents (3(cents)) per hour shall be added to each employee's basic
rate of pay on and after his fifth (5th) anniversary of continuous employment.
An additional three cents (3(cents)) or a total six cents (6(cents)) per
hour shall be added to the basic rate of each employee on and after the
anniversary of his fifteenth (15th) year of continuous employment.
CALL-BACK PAY
In the event an employee has left the plant and is called back to work,
after the expiration of his regular assignment, he shall be compensated for all
time so worked at the proper rate, and in no case shall he receive less than
five (5) hours straight time pay or the equivalent.
In the event a regular day work shift maintenance employee is called
back to work or work or held over and his work is not completed until after
1:00 A.M., he shall not work his
(10)
<PAGE>
regular shift on the following day and shall be compensated eight (8) straight
time hours for that day, provided the following date was a scheduled workday
for such employee.
LONGSHORE RATE
A longshore rate is established and shall be paid for the first time
unloading of licorice root importation only as follows:
Effective June 1, 1997 $18.42/HR.
Effective June 1, 1998 $18.84/HR.
Effective June 1, 1999 $19.27/HR.
Effective June 1, 2000 $19.72/HR.
An employee who is assigned to "longshore work" and who commences such
"longshore work" on any given day shall be guaranteed a minimum of four (4)
hours pay at the longshore rate that day for work associated with the unloading
of cargo ships only. This provision shall in no way affect the Company's right
to return such employee to his regular work.
SECTION XI
DEDUCTION OF UNION DUES
The Company, upon receipt of written assignments (which shall be
irrevocable for a period of one (1) year or the termination date of this
Contract, whichever is sooner) from employees, shall deduct from the weekly
wages of each assigning employee (except where instructed by letter by an
officer of the Union) the membership dues in the Union, and shall pay said dues
to the Treasurer of the Union within five (5) days from the end of each month,
and at the same time deliver to the said Treasurer a list of names of persons
from whom collection were made stating amounts collected from each.
SECTION XII
GOVERNMENT REGULATIONS
All provisions of this Contract shall be subject to the rules,
regulations and statutes of the United States Government, the State of New
Jersey or appropriate agencies thereof.
(11)
<PAGE>
SECTION XIII
MANAGEMENT
Except as expressly set forth in this contract, it is agreed that the
Management of the plant and the direction and control of its operations and
working forces are vested exclusively in the Company, and that this includes
the hire, promotion, increase, decrease, layoff, transfer, leave of absence and
discharge of such working forces in all departments or divisions of
departments.
When an employee is transferred temporarily from one job to another, he
shall continue to receive his regular job rate of pay or the job rate of the
new job, whichever is higher, unless such transfer becomes permanent and the
Union notified in writing.
Before imposing any discipline involving a suspension or discharge,
management shall be required to notify and consult with an appropriate Union
officer. Said Union officers shall be notified in writing by a Management
representative of all changes of personnel of his members of their discipline
or discharge, at least eight (8) hours in advance of the general knowledge of
this change or discharge and the reasons therefor.
Foremen and other salaried employees will not do the work of hourly rate
employees, except under the following conditions:
1. Instructing workers and
2. Doing necessary work when production difficulties are encountered.
3. In the event a violation of this provision is established in accordance
with Section VI, herein, such violation shall be remedied by the
payment of a minimum of four (4) hours of pay at time and one-half.
SECTION XIV
SENIORITY
Departmental seniority shall govern in the promotion, increase, decrease
and transfer of employees provided, due regard is taken of qualifications to do
the work, and ability to advance as the occasion requires. Employees
transferred to other departments will retain all seniority as outlined above.
However, an employee once transferred to another department after completion of
six (6) months service in the new position will have his plant seniority
(12)
<PAGE>
become his departmental seniority. In the event of layoff, the last employee
hired in the plant will be the first to be laid off. Departments for the
purposes of this Section XIV are:
Licorice
Boiler & Power Plant
Repair & Maintenance
Job vacancies shall be posted in the Department where the vacancy exists
for three (3) regular weekdays. For purposes of the foregoing posting of jobs,
temporary vacancies of more than ninety (90) calendar days shall be considered
as subject to posting.
Opportunities to accept positions in the Repair and Maintenance
Department and the Boiler and Power Plant shall be given to the Licorice
Department. Notice of Repair and Maintenance and Power House position openings
shall be posted on the Licorice Department bulletin board. Applicants who have
equal ability, skill, mechanical aptitude, mechanical experience with this
Company or elsewhere will be selected on the basis of seniority with the
Company.
In all Departments, job vacancies which are filled through the posting
procedure shall be probationary for three (3) months. During such period, the
employee's former job shall remain available for his return.
In the event of layoff, all Union officers, shop stewards, and shop
committee men shall have seniority during their terms of office only, over
other employees of the Company provided they have at least two (2) years
service with the Company.
Layoffs shall not affect seniority. Absence by reason of accidents or
ill health shall not affect seniority.
Seniority shall govern rights to job assignments except in situations in
which the most senior man is not qualified, in which event the most senior
qualified man shall have the right to the assignment.
If there are any claims on the part of the Union that any employee has
been discharged without just cause, these claims shall be made within five (5)
working days in the manner provided for presenting grievances, and thereupon
investigation shall be made and if reinstatement results, the employee in
question shall be recompensated for the time off at his then rate of pay and
seniority shall not be affected.
(13)
<PAGE>
It is further agreed that no disciplinary offense older than one (1) year
may be utilized in the administration of discipline.
Any employee shall be removed from the payroll and shall also cease to
have seniority rights if (1) he quits, (2) he is discharged, and (3) he is
absent for seven (7) consecutive working days without legitimate explanation.
Voluntary Demotion - Employees wishing to bid on an equal or lower rated
job may do so on the basis of departmental seniority, if an opening exists and
provided Management approves such move. Such approval shall not be unreasonably
withheld.
Military Service - All employees coming under this Contract are
guaranteed reemployment rights to full extent provided for by all applicable
laws of the United States and the State of New Jersey relating to the
reemployment of discharged veterans of military service.
SECTION V
NEW EMPLOYEES
New employees shall be considered probationary employees and shall not
rank for seniority until they shall have been in the employ of the Company for
sixty (60) calendar days, unless otherwise extended by mutual agreement. After
the expiration of the sixty (60) day period, they shall cease to be
probationary employees and rates of pay and all other provisions of this
contract shall be applicable to them. They shall then rank for seniority from
the date of original hiring in the plant. During the probationary period, the
Company may pay the employee the regular job wage rate.
An employee previously discharged and later rehired will be considered a
new employee.
All new employees at the time of the expiration of their probationary
period, shall be assigned to three-shift work except under unusual conditions.
Recognizing that uninterrupted production is a prime objective of both
Company and Union, it is specifically agreed the temporary employees as may be
needed for replacement during vacation period may be hired at the Company's
discretion and with knowledge of the Union for purpose of avoiding
interruptions of production.
(14)
<PAGE>
SECTION XVI
EMPLOYEE BENEFITS
The benefits as shown in this section shall continue in effect during
the life of this Contract.
MEDICAL INSURANCE
The Company agrees to continue the group hospitalization, surgical,
major medical, vision and dental insurance for employees and their qualified
dependents during the life of this Agreement. All such coverage shall be
provided at the expense of the Company except that for dental insurance, the
Company's contribution shall be limited to fifteen dollars ($15.00) per covered
employee and any excess costs shall be made up by employee contributions.
Employees who retire from the employ of the Company shall be provided
the option to purchase at their full expense the group medical insurance that
was in effect for them and their qualified dependents immediately prior to
retirement.
LIFE INSURANCE
A group life insurance policy will be purchased by the Company so that
each employee with one (1) or more years of continuous service with the Company
shall have life insurance protection in the amount of twenty thousand dollars
($20,000), in the event such employee shall die while employed by the Company
and before such employee's retirement. Effective January 1, 1998, this amount
will increase to twenty-five thousand dollars ($25,000). Beneficiary
designations shall be made by each employee in accordance with the provisions
of the group policy.
CHANGE OF INSURANCE CARRIER
The foregoing medical and life insurance benefits shall be provided by
any responsible insurance company or companies selected by the Employer to
furnish the coverage. In the event the Employer shall elect to change the
company or companies providing such coverage, there shall be no diminution of
benefits as a result of such change.
SICK BENEFITS
(15)
<PAGE>
Provision is made for the payment of Sick Benefits to hourly paid
employees who have been on the payroll for not less than one (1) year
immediately prior to the event of sickness.
The plan, known as a Private Plan, has been approved by the State of New
Jersey under legislation enacted in 1948 known as the New Jersey Temporary
Disability Law.
On presentation of a licensed physician's, dentist's, chiropodist's,
optometrist's, or chiropractor's certificate, an employee who has been ill five
(5) or more consecutive regularly scheduled work days is entitled to an amount
equal to sixty percent (60%) of his regular eight (8) hour daily base rate of
pay (maximum of 40 hours weekly) or the amount to which the employee would be
entitled under the New Jersey Temporary Disability Law, whichever is greater,
from the day he became ill, for a period not in excess of twenty-six (26) weeks
in any twelve (12) month period. This period may be extended by the Beneficiary
Committee, when unusual circumstances warrant it.
Sick benefits have no connection with illness due to injury in the
plant. Disabilities due to injuries in the plant are compensated for under
Employer's Liability Insurance in accordance with State Regulations.
FEDERAL AND STATE LAWS
In the event that any Federal or State law is enacted during the
existence of this Contract which provides for the payment of death or sick
benefits, then the Company will pay the difference between such Federal or
State plan and the amount so paid at present.
DEATH IN FAMILY
Should death occur to the Spouse or Children of any employee, he shall
be entitled to a four (4) day leave of absence. Should death occur to the
Mother, Father, Stepmother, Stepfather, Stepchildren, Sister or Brother of any
employee, he shall be entitled to a three (3) day leave of absence. Should
death occur to the Grandparent, Mother-In-Law, Father-In-Law, Brother-In-Law or
Sister-In-Law of any employee, he shall be entitled to a one (1) day leave of
absence. For all such leaves of absence he will be paid at his straight time
rate provided the leave is taken during the normal work week (i.e. Monday
through Friday).
JURY DUTY
The Company agrees to pay to any employee who shall serve on a bona fide
jury panel an amount equal to the difference between his earnings from such
service and his regular
(16)
<PAGE>
eight (8) hours straight time pay for the days, not in excess of fifteen (15)
days for any single period of jury service, during which he shall be absent and
on jury duty service.
CHRISTMAS GIFT
All employees coming under the terms of this Contract shall be given a
Christmas gift preceding the Christmas holiday of two hundred dollars
($200.00).
SUPPER MONEY
Any production employee who shall be required to work a second shift of
either four (4) or eight (8) hours duration immediately following his regular
shift shall be provided with a meal allowance of five dollars ($5.00). The
employee shall suffer no loss of time, not exceeding thirty (30) minutes, for
procuring and eating such meal. If the employee cannot leave his job unattended
while procuring this meal, the Foreman will arrange for its delivery at the job
and ample time to eat.
Day work employees who shall be required to work a minimum of four (4)
hours overtime will be provided with a meal allowance consisting of five
dollars ($5.00).
RETIREMENT
All employees covered by this Contract are also covered by the Pension
Plan which went into operation July 1, 1960, as amended. This is a funded
pension plan.
A copy of the Summary Plan Description will be regularly furnished to
each new employee. Additional copies may be obtained upon request at the
Personnel Office.
Modified benefits are available for those who elect early retirement
after age 55 with fifteen (15) or more full years of credited service. For
those who elect early retirement after age 62 there shall be no actuarial
reduction in benefits. The plan also affords liberal benefits for employees
with ten (10) or more full years of credited service where retirement is due to
disability and occurs at or after age 45.
Joint and Survivor Benefits may be elected in lieu of other pension
benefits. Employees shall become entitled to an optional actuarially reduced
lump sum payment of pension entitlement which amount may, at the employee's
option be transferred directly to another tax deferred or exempt fund or taken
as a cash payout subject to applicable tax legislation.
The surviving spouse of an employee who dies after having attained age
55 and fifteen (15) or more full years of credited service, but before
retirement, shall receive for life one-half
(17)
<PAGE>
of the early retirement pension to which the employee was entitled immediately
prior to his death.
Effective June 1, 1997, normal pension benefits for all MacAndrews &
Forbes Company employees who retire after such date shall be computed on the
basis of $23.25 per month multiplied by the number of years of credited service
of the employee. Effective June 1, 1998, normal pension benefits for all
MacAndrews & Forbes Company employees who retire after such date shall be
computed on the basis of $24.25 per month multiplied by the number of years of
credited service of the employee. Effective June 1, 1999, normal pension
benefits for all MacAndrews & Forbes Company employees who retire after such
date shall be computed on the basis of $25.25 per month multiplied by the
number of years of credited service of the employee. Effective June 1, 2000,
normal pension benefits for all MacAndrews & Forbes Company employees who
retire after such date shall be computed on the basis of $26.25 per month
multiplied by the number of years of credited service of the employee.
NOTE: The foregoing description of pension benefits is for general
information only and shall not be deemed to modify or enlarge in any
way the provisions of the plan. All rights regarding pensions are
governed by the plan, to which reference is hereby made.
PENSIONER'S FUNERAL EXPENSE BENEFIT
Upon receipt by the Company of proof satisfactory to it within sixty
(60) days after death of any person then on the pension rolls of the Company,
who was formerly an employee of the Company within the territorial limits of
the United States, the Company will make available on account of the payment of
the funeral expense of said deceased pensioner up to the sum of $750.
SECTION XVII
OPERATIONS OF COMPANY
The right of the Company in its sole discretion to diminish operations,
or to take such other action with respect to the business as conditions may
require is expressly recognized.
The severance plan shall be continued under which, in the eventis
adopted under which, in the event of a permanent discontinuance of plant
operations, the employer will give the Union and the employees six (6) months
prior written notice of its intent to discontinue
(18)
<PAGE>
operations. A Human Resources consultant will be retained and made available by
the employer, in order to assist employees during the six (6) month period in
relocating or obtaining employment. These obligations shall not prejudice the
parties' right to negotiate such severance payments as may be appropriate.
SECTION XVIII
UNION SHOP PROVISION
A condition of employment at the plant shall be membership in the Union
for those in the Unit (Union Shop Certification No. 4-UA-2) which membership
must be established by payment of the initiation fee within thirty (30)
calendar days from the date of employment. Full membership in the Union shall
be established at the end of sixty (60) calendar days following the date of
employment and shall be continued throughout the life of this contract by the
full payment of membership dues in the Union, which dues shall be paid to
within one (1) month's delinquency. Any member of the Union who ceases to
maintain his membership dues in the Union, upon certification by the proper
officers of the Union, will be discharged.
SECTION XIX
BULLETIN BOARDS AND RENT OF ROOM
The Company agrees to rent bulletin boards to the Union in three (3)
conspicuous places in the plant where the Union shall have the privilege of
posting notices pertaining to Union business. The Company also agrees to rent a
room in the Club House to the Union for its use at a rent to be agreed upon.
The Company shall have the right, upon the giving of thirty (30) days notice,
to cancel the lease on the room in the Club House, provided the Company
provides suitable on the premises substitute leased facilities upon such
cancellation.
The Company agrees to print and distribute one (1) copy of this Contract
to each member of the Unit, and in addition to deliver one hundred (100) copies
to the proper officers of the Union for their use.
SECTION XX
SAFETY AND HEALTH
(19)
<PAGE>
The Company agrees that it will, at its own costs, and expense, maintain
and promote the safety, health, welfare and sanitary working conditions of the
employees in the course and scope of their employment to conform with the laws
of the State of New Jersey. The Union will cooperate with the Company in the
interest and welfare of the employees, and the Union shall have the right to
appoint a representative to sit with the Safety Committee of the Company.
First Aid for injuries incurred by employees in the course of employment
shall be provided on a 24-hour basis by persons suitably trained in providing
such treatment. Such persons may be, but need not necessarily be, employees of
the Company, but shall be available in the Gate House or the First Aid Room and
shall have direct access to First Aid supplies and equipment located in the
First Aid Room and/or elsewhere in the Plant.
Where an employee is injured in the course of employment and the Company
determines that the employee cannot complete the regular shift, such employee
shall be paid either eight (8) straight time hours pay or for the hours
actually worked, whichever is greater. If the Company further determines that
the employee cannot work, as a result of the injury, the next regularly
scheduled shift, the employee shall be paid eight (8) straight time hours for
the shift. If the Company further determines that the employee cannot work, as
a result of the injury, the second regularly scheduled shift following the
injury, the employee shall be paid eight (8) straight time hours for the shift.
SECTION XXI
AMENDMENTS
This Contract is subject to amendment only in the event of the mutual
agreement of the Union and the Company.
SECTION XXII
DURATION
This Contract shall remain in full force and effect until 6:00 A.M.,
May 31, 2001.
SECTION XXII
(20)
<PAGE>
SUCCESSORS AND ASSIGNS
This Contract shall be binding upon the successors and assigns of the
parties hereto.
IN WITNESS WHEREOF, the Company and the Union have caused these presents to be
executed by their duly authorized representatives the day and the date above
written.
(21)
<PAGE>
MAFCO WORLDWIDE CORPORATION
LICORICE AND PAPER EMPLOYEES ASSOCIATION
of Camden, New Jersey
AFL-CIO
LICORICE AND PAPER MAFCO WORLDWIDE
EMPLOYEES ASSOCIATION CORPORATION
HOWARD AYRES GUY A. DIETRICH, SR.
GEORGE BEADLING ROGER W. GRAHAM
TERRY KIRSHNER FRANK ADAO
JIM MC FADDEN STEPHEN G. TAUB
TED STANLEY
ROY QUINN
(22)
<PAGE>
ADDENDA TO COLLECTIVE BARGAINING
AGREEMENT
A. OVERTIME PROCEDURE FOR UNSCHEDULED
OVERTIME/ROTATING SHIFTS
The first opportunity to work unscheduled overtime will be
given to Permanent Classified Employees and then to Temporary
Classified Employees on the preceding shift in order of their
Seniority. In the event there are no Voluntary Employees, whether
Permanent or Temporary, Qualified Employees on the preceding shift
will then be offered the opportunity in order of their Seniority.
If there are no Voluntary Employees, Permanent, Temporary or
Qualified, then the unscheduled overtime will be assigned on the basis
of Reverse Seniority to Qualified Employees from the preceding shift.
Once an employee is forced to work on an unscheduled shift,
he may not be involuntarily assigned again during the same week. So
long as this procedure is followed, the employee in whose
classification the job opening has occurred is not to abandon the job
until a relief employee has been assigned according to the above
procedure.
In the event an employee becomes ill during his work shift
such that he may be unable to work overtime, he will be responsible to
notify his supervisor as soon as possible but no later than one (1)
hour before the end of this shift.
In the event the employees becomes ill one (1) hour before the end of
the shift or his illness becomes worse during the last hour of the shift and
the employee declines overtime, the Company, at its expense, shall have the
right to have the employee examined by a doctor or a
(23)
<PAGE>
hospital. In such an event, the employee will be compensated for any time lost
during his scheduled shift as a result of the examination.
B. PAYCHECKS / ADJUSTMENTS
1. Paychecks for the 2:00 P.M. to 10:00 P.M. shift will be distributed
to these employees at the end of the shift on Wednesday evening.
2. Payroll Adjustments - Any errors in an employee's check amounting to four
(4) or more hours of pay will be paid by the Company by no later than 2:00
P.M. on the Friday following the issuing of paychecks provided the error
is promptly brought to the attention of management.
(24)
<PAGE>
Exhibit 21
SUBSIDIARIES
------------
Domestic Subsidiaries of the Company:
- -------------------------------------
Name of Subsidiary State of Incorporation
------------------ ----------------------
PCT International, Inc. Delaware
Flavors Holdings, Inc. Delaware
Pneumo Abex Corporation Delaware
Concord Pacific Corporation Maine
EVD Holdings Inc. Delaware
Foreign Subsidiaries of the Company:
- ------------------------------------
Name of Subsidiary Jurisdiction
------------------ ------------
Mafco Establishment Liechtenstein
EVD Holdings S.A. France
Extraits Vegetaux Et Derives, S.A. France
Xianyang Concord National Products Co. Ltd. Peoples Rep. of China
Mafco Weihai Green Industry of Science and
Technology Co. Ltd. (50% owned) Peoples Rep. of China
Rishmac Produce & Export Co. (45% owned) Iran
Boam Produce (Europe) Est. (45% owned) Liechtenstein
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG
We consent to the reference to the incorporation by reference in the
Registration Statements (Form S-8, No. 33-99740 and Form S-8, No. 333-40365)
pertaining to the Power Control Technologies Inc. 1995 Stock Option Plan and
the M&F Worldwide 1997 Stock Option Plan of M&F Worldwide Corp. of our report
dated February 5, 1998, with respect to the consolidated financial statements
and schedule of M&F Worldwide Corp. included in its Annual Report on Form 10-K
for the year ended December 31, 1997.
Ernst & Young LLP
March 20, 1998
New York, New York
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K of M&F Worldwide Corp. (formerly
Power Control Technologies Inc.) for the year ended December 31, 1997,
into the Company's previously filed Registration Statement File Nos. 33-99740
and 333-40365.
ARTHUR ANDERSEN LLP
Detroit, Michigan
March 23, 1998
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Barry F.
Schwartz or any of them ' each acting alone, his true and lawful
attorney-infact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the M & F
WORLDWIDE CORP. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the unde as signed these presents this
21st day of January 1998.
/s/ Paul M. Meister
-------------------
/s/ Ronald O. Perelman
----------------------
/s/ Jaymie A. Durnan
--------------------
/s/ Irwin Engelman
------------------
/s/ Theo W. Folz
----------------
/s/ Howard Gittis
-----------------
/s/ J. Eric Hanson
------------------
/s/ E. Gregory Hookstratten
---------------------------
/s/ Lance Liebman
-----------------
/s/ James G. Roche
------------------
/s/ Bruce Slovin
----------------
/s/ Laurence Winoker
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the M&F
Worldwide Corp. (formerly Power Control Technologies Inc.) Consolidated Balance
Sheet and Statement of Income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000945235
<NAME> M&F WORLDWIDE CORP. (FORMERLY POWER CONTROL TECHNOLOGIES INC.)
<MULTIPLIER> 1,000,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 10
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</TABLE>
