<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998 Commission file number 1-804
SEQUA CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1885030
- ---------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
200 Park Avenue, New York, New York 10166
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 986-5500
------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ---------------------------
Class A Common Stock, no par value New York Stock Exchange
Class B Common Stock, no par value New York Stock Exchange
$5.00 Cumulative Convertible
Preferred Stock, $1.00 Par Value New York Stock Exchange
9-5/8% Senior Notes, Due
October 15, 1999 New York Stock Exchange
8-3/4% Senior Notes, Due
December 15, 2001 New York Stock Exchange
9-3/8% Senior Subordinated Notes,
Due December 15, 2003 New York Stock Exchange
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of registrant's voting stock (Common and Preferred)
held by nonaffiliates as of March 1, 1999 was $206,443,431.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
Class Outstanding at March 1, 1999
----- -----------------------------
Class A Common Stock, no par value 7,061,204
Class B Common Stock, no par value 3,329,780
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for its annual meeting of
stockholders scheduled to be held on May 6, 1999 are incorporated by reference
into Part III.
<PAGE>
SEQUA CORPORATION
FORM 10-K
* * * * * * *
PART I
------
ITEM 1. BUSINESS
- ------- --------
(a) General development of business. Sequa Corporation
--------------------------------
("Sequa"), which was incorporated in 1929, is a diversified
industrial company that produces a broad range of products
through operating units in five business segments: Aerospace,
Propulsion, Metal Coating, Specialty Chemicals, and Other
Products. Information with respect to material acquisitions and
dispositions is included in Note 15 to the Consolidated Financial
Statements on page 60 of this Annual Report on Form 10-K and is
incorporated by reference.
(b) Financial information about business segments. Segment
----------------------------------------------
information is included in Note 20 to the Consolidated Financial
Statements on pages 63 through 65 of this Annual Report on Form
10-K and is incorporated by reference.
(c) Narrative description of business. The following is a
----------------------------------
narrative description of the business segments of Sequa:
Aerospace
- ---------
The Aerospace segment consists solely of Sequa's largest
operating unit, Chromalloy Gas Turbine. Gas Turbine repairs and
manufactures components for jet aircraft engines. A major
independent supplier in the repair market, Gas Turbine provides
domestic and international airlines with technologically advanced
repairs and coatings for turbine airfoils and other critical
engine components. The unit also supplies components to the
manufacturers of jet engines and serves both the general aviation
and military markets.
Gas Turbine has built on its metallurgical process
technologies to develop procedures that permit the repair and
reuse of turbine engine components. Management believes Gas
Turbine has played a key role in the development of the repair
market for certain jet engine parts. Over the years, Gas Turbine
has continued to invest in research and development projects that
have led to ceramic coatings, vacuum plasma coatings, advanced
laser drilling and welding, and diffused precious metal/aluminide
coatings. Gas Turbine has introduced a series of innovative and
<PAGE>
in some cases proprietary processes that allow engines to perform
at improved efficiency levels, at higher operating temperatures
and under severe environmental conditions.
Propulsion
- ----------
The Propulsion segment consists solely of ARC Propulsion, a
supplier of solid rocket fuel propulsion systems since 1949. ARC
Propulsion is a leading developer and manufacturer of advanced
rocket propulsion systems, gas generators and auxiliary rocket
motors and engages in research and development relating to new
rocket propellants and advanced engineered materials. For the
military contract market, ARC Propulsion produces propulsion
systems primarily for tactical weapons. For space applications,
ARC Propulsion produces small liquid fuel rocket engines designed
to provide attitude and orbit control for a number of satellite
systems worldwide.
ARC Propulsion's strategy has been to pursue opportunities
to develop products for commercial markets in order to reduce its
reliance on defense-related business. ARC pioneered the
development of hybrid inflators for automotive airbags and has
produced energetic materials for airbag deployment. In early
1998, ARC moved to further its role in the automotive market
through the purchase of its partner's share of a venture that
produces airbag inflators.
Metal Coating
- -------------
The Metal Coating segment consists solely of Precoat Metals,
which is a leader in the application of protective and decorative
coatings to continuous steel and aluminum coil. Precoat's
principal market is the building products industry, where coated
steel is used for the construction of pre-engineered building
systems, and as components in the industrial, commercial,
agricultural and residential sectors. Precoat also serves the
container industry, where the division has established a position
in the application of coatings to steel and aluminum stock used
to fabricate metal cans and can lids. In addition, the division
has established a presence in other product markets, including
heating, ventilating and air conditioning units, truck trailer
panels and office equipment.
Specialty Chemicals
- -------------------
The Specialty Chemicals segment is composed solely of
Warwick International, which is a leading producer and supplier
of TAED, a bleach activator for powdered laundry and dishwasher
detergent products. TAED is primarily used in oxygen-based
bleaching systems to increase the cleaning power of detergent at
low wash temperatures. These bleaching systems are used
primarily in international markets, principally in Europe. The
unit is extending its TAED capabilities to large industrial
markets, such as textile bleaching and pulp and paper processing,
and continues to expand a network of European chemical
distributors that supply specialty products for use in plastics,
resins, paints and cosmetics.
<PAGE>
Other Products
- --------------
This segment is composed of four ongoing businesses: MEGTEC
Systems, Sequa Can Machinery, Casco Products, and the Men's
Apparel unit. This segment also includes two operations which
were divested prior to December 31, 1998: Sequa Chemicals and
Northern Can Systems.
MEGTEC Systems. MEGTEC, which was formed in 1997 following
the acquisition of TEC systems and its integration with Sequa's
existing MEG operation, supplies equipment for the web offset
printing industry, including pasters and splicers, web guides,
infeeds, chill stands and related equipment for high-speed web
presses. MEGTEC's products also include air flotation dryers for
paper, printing and other uses and emission control systems for
industrial applications.
Sequa Can Machinery. Sequa Can Machinery designs and
manufactures equipment for the two-piece can industry. At a
facility on the East Coast, Sequa Can Machinery manufactures
high-speed equipment to coat and decorate two-piece beverage
cans. With the largest installed base of equipment in the field,
Sequa Can Machinery also supplies upgrade kits and spare parts
and maintains an extensive support service program. The
division's product development team has improved the technology
of precision printing to achieve higher speeds without
compromising quality. The current generation of equipment runs
at a rate of 2,000 cans per minute, applying an even base coat
and printing crisp, clear images in up to eight colors. At its
West Coast plant, Sequa Can Machinery produces equipment used to
form the cup and body of two-piece metal cans. The latest
generation of cupping equipment supports two high speed can
lines, producing up to 4,000 shallow cups per minute. The
company's newest bodymaker operates at a rate up to 450 strokes
per minute.
Casco Products. Casco, which has been serving the
automotive products market since 1921, is the world's leading
supplier of automotive cigarette lighters and power outlets.
Casco also offers a growing line of automotive accessories, led
by a series of electronic devices to monitor automotive fluid
levels. These products are presently used as gauges for engine
oil and engine coolant and may also be used to monitor brake,
transmission and power steering fluids.
Men's Apparel. The men's apparel unit designs and
manufactures men's formalwear and accessories marketed under the
After Six, Oscar de la Renta and Raffinati labels, all three of
which are registered trademarks.
<PAGE>
Sequa Chemicals. Sequa Chemicals, which was sold in October
1998, manufactured performance-enhancing chemicals for the paper,
textile and other industries.
Northern Can Systems (NCS). NCS, which was sold in December
1997, supplied the domestic and international food processing
market with easy-open lids for cans.
Markets and Methods of Distribution
-----------------------------------
The Aerospace segment markets its gas turbine engine
component manufacturing and repair services primarily to the
major airlines of the world, to the manufacturers of commercial
jet engines, and to the military. Gas Turbine's products and
services are marketed directly and through sales representatives
working on a commission basis. A portion of Gas Turbine's sales
is made pursuant to contracts with various agencies of the United
States Government, particularly the Department of the Air Force,
with which Gas Turbine has had a long-term relationship.
The Propulsion segment markets its rocket propulsion systems
generally on a subcontract basis under various defense programs
of the United States Government. Among the programs currently in
production are the Army Extended Range Multiple Launch Rocket
System, Extended Range Army Tactical Rocket System, Javelin,
Stinger, Tomahawk, Standard Missile, Sidewinder, and Trident. In
addition, the Propulsion segment markets it automotive airbag
components to 15 automotive customers in the US and overseas.
Sequa's Metal Coating segment sells its coating services to
regional steel and aluminum producers, building product
manufacturers, merchant can makers and manufacturers of other
diverse products.
The Specialty Chemicals segment sells TAED-based detergent
chemicals directly to major producers of household and industrial
cleaning products. Specialty products for use in plastics,
resins, paints and cosmetics are sold through a network of
wholly-owned European chemical distributors.
Businesses in the Other Products segment serve distinct
markets and have individual methods of distribution. MEGTEC
Systems sells auxiliary press equipment directly to international
web printing customers and markets emission control equipment and
industrial drying systems directly to customers in the coating,
converting and metal finishing industries. Sequa Can Machinery
sells its can forming and decorating equipment directly to the
international container manufacturing industry. Casco sells
cigarette lighters, power outlets and various electronic
monitoring devices directly to the automotive industry. The
<PAGE>
men's apparel unit sells its formalwear to rental and retail
customers, primarily through independent sales representatives.
Competition
-----------
There is significant competition in the industries in which
Sequa operates, and, in several cases, the competition consists
of larger companies having substantially greater resources than
those of Sequa.
Sequa believes that it is currently the world's largest
manufacturer of cylindrical can decorating and can forming
equipment; the world's largest supplier of automotive cigarette
lighters and power outlets; and the largest supplier of men's
formalwear coats and pants in the United States.
Sequa, through its Gas Turbine operations, is a leader in
the development and use of advanced metallurgical and other
processes to manufacture, repair and coat blades, vanes and other
components of gas turbine engines used for commercial and
military jet aircraft. Gas Turbine's divisions compete for
turbine engine repair business with a number of other companies,
including the original equipment manufacturers (OEMs). Such OEMs
generally have obligations (contractual and otherwise) to approve
vendors to manufacture components for their engines and/or
perform repair services on their engines and components. Gas
Turbine has a number of such approvals, including licensing
agreements, which allow it to manufacture and repair certain
components of flight engines. The loss of approval by one of the
major OEMs to manufacture or repair components for such OEM's
engines could have an adverse effect on Gas Turbine, although
management believes it has certain actions available to it to
mitigate the adverse effect.
Sequa's rocket propulsion business competes with several
other companies for defense business. In some cases, these
competitors are larger than Sequa and have substantially greater
resources. Government contracts in this area are generally
awarded on the basis of proven engineering capability and price.
Sequa's ability to compete is enhanced by the US Government's
need for alternative sources of supply under these contracts.
The liquid propulsion unit operates primarily in the commercial
satellite market and competes on the technical capabilities of
its products, and price.
ARC Automotive Products is a second tier automotive supplier
that supplies airbag inflators to first tier airbag module
(airbag, inflator and related sensors) suppliers, many of whom
have their own inflator capabilities. The unit competes on
product capabilities, energetic expertise, quality and price.
The unit has a long term supply agreement with its major
customer, Breed Technologies.
<PAGE>
Sequa's Precoat Metals operation is the leading independent
domestic coil coater of steel for metal building panels. Precoat
competes in all its markets based on price, quality, customer
service and technical capabilities.
Sequa's Specialty Chemicals segment competes in each of its
markets with a number of other manufacturers, some of which are
larger and have greater resources than Sequa. This segment
competes in the detergent additive market with its TAED products
based on breadth of product offerings and performance
characteristics, quality, and price. In the European chemical
distribution market it competes primarily on the technical
expertise of its sales force, and the breadth of its product
offerings.
MEGTEC is a major international supplier of auxiliary press
equipment, air flotation dryers and emission control equipment.
This unit has several major competitors (including certain press
manufacturers in the graphic arts market) in each of its main
product areas. It competes on the basis of price, quality and
technical capabilities. Sequa's cylindrical can decorating and
can forming equipment operations are world leaders in their
markets. Sequa Can Machinery has one or two major competitors in
each major product area, and the unit competes on the basis of
price, quality, technical capabilities and equipment speed.
Sequa's automotive products manufacturer is the world's leading
producer of cigarette lighters for both the original equipment
market and the auto aftermarket and competes on the basis of
price, quality, and customer service. The men's apparel unit is
the leading domestic producer of men's formalwear and competes on
the basis of design, quality of manufacturing and price.
Raw Materials
-------------
Sequa's businesses use a wide variety of raw materials and
supplies. Generally, these have been available in sufficient
quantities to meet requirements, although occasional shortages
have occurred.
Seasonal Factors
----------------
With the exception of the men's apparel business, which has
stronger sales in the first six months of the year, Sequa's
business is not considered seasonal to any significant extent.
Patents and Trademarks
----------------------
Sequa owns and is licensed to manufacture and sell under a
number of patents, including patents relating to its
metallurgical processes. These patents and licenses were secured
over a period of years and expire at various times. Sequa has
also created and acquired a number of trade names and trademarks.
<PAGE>
While Sequa believes its patents, patent licenses, trade names
and trademarks are valuable, it does not consider its business as
a whole to be materially dependent upon any particular patent,
license, trade name, or trademark. Sequa regards its technical
and managerial knowledge and experience as more important to its
business.
Major Customers
---------------
No single customer accounted for more than 10% of
consolidated sales during the past three years. However, one
customer, accounted for approximately a quarter of the Propulsion
segment's 1998 sales. Further information with respect to this
customer is included in the discussion appearing on pages 21 and
22 of this Annual Report on Form 10-K under the heading
"Risk/Concentration of Business," which is incorporated by
reference. In the Specialty Chemicals segment, one customer
accounted for approximately 33% of the segment's 1998 sales, and
the top three customers accounted for approximately 56% of the
segment's 1998 sales. All of these customers are well knwon
international consumer products companies that Warwick has been
doing business with for many years.
Backlog
-------
Backlog information is included in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations on page 28 of this Annual Report on Form 10-K and is
incorporated by reference.
Research and Development
------------------------
Research and development costs, charged to expense as
incurred, amounted to approximately $21.4 million in 1998, $13.3
million in 1997 and $12.9 million in 1996. The increase during
1998 primarily resulted from research and development related to
new automotive airbag inflator products.
Environmental Matters
---------------------
Sequa has been notified that it has been named as a
potentially responsible party under Federal and State Superfund
laws and/or has been named as a defendant in suits by private
parties (or governmental suits including private parties as co-
defendants) with respect to sites currently or previously owned
or operated by Sequa or to which Sequa may have sent hazardous
wastes. Sequa is not presently aware of other such lawsuits or
notices contemplated or planned by any private parties or
environmental enforcement agencies. The aggregate liability with
respect to these matters, net of liabilities already accrued in
<PAGE>
the Consolidated Balance Sheet, will not, in the opinion of
management, have a material adverse effect on the results of
operations or the financial position of Sequa. These
environmental matters include the following:
A number of claims have been filed in connection with
alleged groundwater contamination in the vicinity of a
predecessor corporation site which operated during the 1960s and
early 1970s in Dublin, Pennsylvania. In October 1987, a class
action was filed by residents of Dublin against Sequa and two
other defendants. The Borough of Dublin also filed suit seeking
remediation of alleged contamination of the Borough's water
supply and damages in an unspecified amount. A settlement
was reached in the class action in which Sequa paid $1.8 million
in 1997. The Borough action was settled in 1998 when Sequa
agreed to transfer to the Borough the water treatment system it
constructed and $2.0 million was paid to the Borough.
The Pennsylvania Department of Environmental Protection
entered into a Consent Decree with Sequa in 1990 providing for
the performance of a remedial investigation and feasibility study
with respect to the same alleged groundwater contamination in
Dublin. The US Environmental Protection Agency (EPA) also placed
the site on the Superfund List in 1990 and, in conjunction
therewith, entered into a Consent Agreement with Sequa on
December 31, 1990. The investigation for the final remedy is
still in progress.
The State of Florida issued an Administrative Order in 1988
requiring TurboCombustor Technology, Inc. (TCT), a subsidiary of
Gas Turbine, to investigate and to take appropriate corrective
action in connection with alleged groundwater contamination in
Stuart, Florida. The contamination is alleged to have arisen
from a 1985 fire which occurred at TCT's former facility in
Stuart. The City of Stuart has subsequently constructed and is
operating a groundwater remediation system. Sequa negotiated a
conditional settlement with the City of Stuart in October 1994
whereby it would contribute its ratable share of the capital and
operating costs for the groundwater treatment system. Sequa
estimates the amount to be paid in settlement plus additional
groundwater sampling and analysis will be approximately $2
million to be paid over a ten-year period beginning when the
Order is unconditionally entered.
In September 1993, fourteen homeowners residing in West
Nyack, New York served a complaint on Gas Turbine and others
alleging, among other things, that contamination from a former
Gas Turbine site caused the plaintiffs' alleged property damage.
Gas Turbine believes it has strong defenses under New York law to
the plaintiffs' complaint. Gas Turbine entered into a Consent
Order with the New York Department of Environmental Conservation
(DEC) on February 14, 1994, to undertake the remedial
<PAGE>
investigation and feasibility study (RI/FS) relating to the
alleged contamination in the vicinity of the former Gas Turbine
site. The RI/FS was submitted to the DEC for its review in 1998.
It is Sequa's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. At December 31, 1998, the potential exposure for such
future costs is estimated to range from $17 million to $33
million, and Sequa's balance sheet includes accruals for
remediation costs of $25.4 million. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. Actual costs to be incurred at
identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental
exposures.
With respect to all known environmental liabilities, Sequa's
actual cash expenditures for remediation of previously
contaminated sites were $8.2 million in 1998, $9.7 million in
1997 and $10.0 million in 1996. Sequa anticipates that remedial
cash expenditures will be between $6 million and $10 million
during 1999 and between $4 million and $8 million during 2000.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $2.3 million, $4.6 million and $1.7
million 1998, 1997 and 1996, respectively. Sequa anticipates
annual environmental-related capital expenditures to be
approximately $6 million during 1999 and 2000. Sequa's operating
expenses to eliminate, control and dispose of pollutants have
averaged approximately $11 million per year during the last three
years. Sequa anticipates that environmental operating expenses
will be approximately $11 million per year during 1999 and 2000.
Employment
----------
At December 31, 1998, Sequa employed approximately 11,050
people of whom approximately 2,800 were covered by union
contracts.
The approximate number of employees attributable to each
reportable business segment as of December 31, 1998 was:
<TABLE>
<CAPTION>
Approximate
Segment Number of Employees
------- -------------------
<S> <C>
Aerospace 6,750
Propulsion 1,100
Metal Coating 700
Specialty Chemicals 400
Other Products 2,000
Corporate 100
------
Total 11,050
======
</TABLE>
<PAGE>
Sequa considers its relations with employees to be generally
satisfactory. Sequa maintains a number of employee benefit
programs, including life, medical and dental insurance, pension
and 401(k) plans.
(d) Foreign Operations. Sequa's consolidated foreign operations
------------------
include Gas Turbine's operations in England, France, Israel,
Mexico, Netherlands and Thailand within the Aerospace Segment;
ARC Propulsion's liquid rocket motor business in England within
the Propulsion segment; detergent chemicals operations in
Wales and chemical distribution operations in France, Italy,
Spain and Portugal within the Specialty Chemicals segment; the
auxiliary press equipment suppliers in France, Germany,
Singapore, Sweden and the United Kingdom, and the automotive
products operations in Italy and Brazil in the Other Products
segment. Sales and long-lived assets attributable to foreign
countries are set forth in Note 20 to the Consolidated Financial
Statements on page 66 of this Annual Report on Form 10-K and are
incorporated by reference.
ITEM 2. PROPERTIES
- ------- ----------
Aerospace
- ---------
Gas Turbine operates over 40 plants in eleven states and six
foreign countries, which have aggregate floor space of 3,150,000
square feet, of which 1,500,000 square feet is owned and
1,650,000 square feet is leased. The leases covering facilities
used in this business have various expiration dates, and some
have renewal or purchase options.
Facilities in this segment are adequate and suitable for the
business being conducted and operate at a moderate level of
utilization.
Propulsion
- ----------
ARC Propulsion operates eight manufacturing and research
facilities in six states and one manufacturing facility in the
United Kingdom with aggregate floor space of 1,750,000 square
feet. The segment owns 150,000 square feet and leases 1,600,000
square feet. The largest lease, expiring in 2002 with renewal
options through 2014, is for a 937,000 square foot facility in
Arkansas. The segment also holds a lease on a 270,000 square
foot facility in Virginia that expires in 2012. Other leased
production facilities are located in Tennessee, New York,
California and the United Kingdom.
Facilities in this segment are suitable and adequate for the
business. Utilization at various facilities ranges from moderate
to high.
<PAGE>
Metal Coating
- -------------
The Precoat Metals operation owns seven manufacturing
facilities in six states with a total of 1,250,000 square feet of
manufacturing and office space. An additional 142,000 square
feet of office space and warehouse space is leased in Illinois
and Missouri.
The properties in this segment are suitable and adequate for
the business presently being conducted. Facilities within this
segment operate at a moderate utilization rate.
Specialty Chemicals
- -------------------
Warwick International owns a plant in the United Kingdom with
floor space of 203,000 square feet on 55 acres of land. The
segment also leases 62,000 square feet of office and warehouse
space in seven separate locations in Europe.
Facilities in this segment are adequate and suitable for the
business being conducted. Facilities within this segment operate
at a high utilization rate.
Other Products
- --------------
MEGTEC owns manufacturing and office facilities in De Pere,
Wisconsin with aggregate floor space of 314,000 square feet and a
facility in France with aggregate floor space of 62,000 square
feet. MEGTEC also leases a manufacturing plant and four sales
offices and owns a storage facility in Europe with a total of
93,000 square feet and leases a 2,500 square foot sales office in
Singapore.
The Sequa Can Machinery operation owns two plants in the
United States with aggregate floor space of 228,000 square feet
and leases manufacturing and office space of 16,000 square feet.
The automotive products subsidiary, Casco Products, leases a
168,000 square foot plant in Connecticut, a 1,600 square foot
sales office in Michigan, a 30,000 square foot manufacturing
facility in Italy, and a 9,700 square foot facility in Brazil.
Casco owns a 39,000 square foot plant in Kentucky.
The men's apparel unit owns manufacturing and office
facilities in Athens, Georgia with aggregate floor space of
138,000 square feet. This unit also leases 1,250 square feet of
office space in Hackensack, New Jersey.
Facilities in this segment are adequate and suitable for the
business being conducted. Casco Products and men's apparel
facilities operate at high utilization rates, while MEGTEC and
Sequa Can Machinery facilities operate at moderate utilization
rates.
<PAGE>
Corporate
- ---------
Sequa leases 53,000 square feet of corporate office space in
New York, New York and Hackensack, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Information with respect to Sequa's legal proceedings is
included in Note 21 to the Consolidated Financial Statements on
pages 66 through 69 of this Annual Report on Form 10-K and is
incorporated by reference. Additional information on
environmental matters is covered in the Environmental Matters
section on pages 8 through 10 of this Annual Report on Form 10-K
and is incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following information is furnished pursuant to General
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K with respect to the executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Norman E. Alexander 84 Chairman of the Board, Chief
Executive Officer, Director and
member of the Executive
Committee
John J. Quicke 49 President, Chief Operating
Officer, Director and member of
the Executive Committee
Stuart Z. Krinsly 81 Senior Executive Vice President
- General Counsel, Director and
member of the Executive
Committee
Gerald S. Gutterman 70 Executive Vice President and
Chief Financial Officer
Martin Weinstein 63 Senior Vice President - Gas
Turbine Operations
</TABLE>
Sequa is not aware of any family relationship among any of
the above-named executive officers. All of the above-named
executive officers have been employed by Sequa in the same or a
similar capacity for at least five years. Each of such officers
holds his office until his successor shall have been chosen and
qualified by the Board of Directors at it's annual meeting,
<PAGE>
subject to the provisions of Section 4 of Article IV of the
Company's By-Laws relative to resignation of officers and Section
5 of Article IV of the Company's By-Laws relative to removal of
officers.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
--------------------
(a) Market Information.
The following table sets forth the high and low sales prices
of Sequa Class A common stock and Sequa Class B common stock for
the calendar periods indicated on the Exchange Composite Tape, as
reported by the National Quotation Bureau Incorporated:
<TABLE>
<CAPTION>
SEQUA CLASS A SEQUA CLASS B
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1998
First Quarter 75 7/8 63 7/8 80 73 7/8
Second Quarter 75 1/4 65 7/16 85 3/4 78 3/4
Third Quarter 74 56 1/8 81 1/2 73 1/8
Fourth Quarter 66 3/8 45 3/4 75 1/2 68
1997
First Quarter 46 7/8 36 1/4 52 46 1/2
Second Quarter 56 5/8 44 5/8 62 1/4 50
Third Quarter 57 3/4 50 3/4 63 57 1/4
Fourth Quarter 67 15/16 55 7/16 74 11/16 62 1/2
</TABLE>
Shares of Sequa Class A common stock and Sequa Class B
common stock are listed on the New York Stock Exchange. There
were approximately 2,400 holders of record of the Sequa Class A
common stock and approximately 510 holders of record of the Sequa
Class B common stock at March 1, 1999.
(c) Dividends.
During the years ended December 31, 1998 and 1997, no
dividends were declared on Sequa Class A common shares or Class B
common shares. Sequa has no present intent to pay cash dividends
on its common shares.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth selected financial information for, and as of
the end of, each of the five years in the period ended December 31, 1998. Such
information should be read in conjunction with Sequa's Consolidated Financial
Statements and Notes thereto, filed herewith.
<CAPTION>
(Amounts in millions, except per share data)
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- --------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales $1,802.4 $1,595.1 $1,459.0 $1,414.1 $1,419.6
Operating income 105.5 84.7 65.2 67.9 39.8
Income (loss) before
extraordinary item 63.9 19.6 9.6 8.8 (24.7)
Extraordinary loss - - (0.4) - (1.1)
-------- -------- -------- -------- --------
Net income (loss) $ 63.9 $ 19.6 $ 9.2 $ 8.8 $ (25.8)
======== ======== ======== ======== ========
BASIC EARNINGS
(LOSS) PER SHARE
Income (loss) before
extraordinary item $ 6.01 $ 1.66 $ .65 $ .57 $ (2.87)
Extraordinary loss - - (.04) - (.11)
-------- ------- -------- ------- --------
Net income (loss) $ 6.01 $ 1.66 $ .61 $ .57 $ (2.98)
======== ======== ======== ======= ========
DILUTED EARNINGS
(LOSS) PER SHARE
Income (loss) before
extraordinary item $ 5.87 $ 1.66 $ .65 $ .57 $ (2.87)
Extraordinary loss - - (.04) - (.11)
-------- ------- -------- ------- --------
Net income (loss) $ 5.87 $ 1.66 $ .61 $ .57 $ (2.98)
======== ======= ======== ======= ========
CASH DIVIDENDS DECLARED
Preferred $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 7.50*
FINANCIAL POSITION
Current assets $ 715.9 $ 695.8 $ 612.2 $ 621.2 $ 604.3
Total assets 1,624.1 1,591.7 1,548.2 1,622.0 1,648.2
Current liabilities 337.9 366.7 302.7 324.7 321.3
Long-term debt 500.7 508.7 531.9 563.2 586.6
Shareholders' equity 665.5 594.4 590.8 576.6 566.5
<FN>
* Includes $2.50 of dividends in arrears for the third and fourth quarters of
1993.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
------------------------------------
OPERATING RESULTS 1998 - 1997
SALES
The Aerospace segment, which consists of Chromalloy Gas Turbine,
posted a sales increase of 8% in 1998, as sales to both the
engine component repair aftermarket and to the original equipment
market moved higher. The increase reflects strong demand from
the international airline industry, tempered by the ongoing
effect of intense competition from the jet engine manufacturers
for aftermarket repair.
In February 1999, the US Air Force awarded a seven-year
aircraft engine maintenance contract valued at $10.1 billion to a
consortium that includes the Gas Turbine unit. This award, which
is related to the privatization of facilities at Kelly Air Force
Base in San Antonio, Texas, ensures Gas Turbine's existing
business providing repairs for the T-39 and
F-100 military engines. Moreover, the contract offers
significant new business potential, particularly in the later
years of the contract, which has eight one-year award term
options. Also in February, the unit was awarded a seven-year
repair service and inventory management contract with a major
airline. This award continues current repair work with the
customer and should begin to add to repair revenues in the second
half of 1999.
Sales of the Propulsion segment, which consists of ARC
Propulsion, increased 51% in 1998, due entirely to the inclusion
of airbag inflator sales following the January 1998 purchase of
the 50% interest in a domestic airbag inflator joint venture
(BAICO) that was not previously owned by Sequa. Until January
28, 1998, ARC Propulsion consolidated only the sales of energetic
materials and other components provided to the joint venture.
Since January 28, 1998, sales of inflators and inflator
components by BAICO -- which has been combined with a portion of
the propulsion operations in Camden, Arkansas and renamed
Atlantic Research Automotive Products (ARAP) -- have been
reported on a consolidated basis. Military sales of solid
propellant rocket motors for tactical and strategic weapons
increased 3% in 1998, while sales of liquid propellant rocket
motors used primarily for satellite station keeping declined 42%,
primarily due to reduced demand from commercial customers and
lower funding on a US Government contract. In late 1998, ARC
acquired the liquid propellant rocket motor product line of Royal
Ordnance, a United Kingdom-based company. This newly acquired
operation, which broadens ARC's product offerings and customer
base, is expected to add sales of approximately $5 million in
1999.
<PAGE>
SALES (cont'd)
Sales of the Metal Coating segment (Precoat Metals)
decreased 3%, as declines in the large building products line and
the smaller container coating product line more than offset an
increase in other manufactured products. In building products,
the decline was due entirely to reduced demand from two major
customers. Both customers brought work in-house that was
previously handled by Precoat -- one due to the late-1997
settlement of a strike, and the other due to the acquisition of
coating capacity in the second quarter of 1998. The latter will
continue to have an unfavorable effect on Precoat's sales
comparisons in the first half of 1999. Excluding the impact of
the lower sales from these two customers, sales for both the
building products line and the entire segment would have advanced
in 1998.
Sales of the Specialty Chemicals segment (Warwick
International) advanced 17% in 1998, due primarily to the early
1998 acquisition of an Italian specialty chemicals distribution
business and to the strong performance of existing specialty
chemical distribution units. Sales of the detergent additive
TAED to the international market recorded a small decline, as
higher volumes were offset by continued unfavorable currency
movements.
Sales of the Other Products segment increased 13% in 1998.
On a pro forma basis -- excluding the results of the domestic
chemicals and Northern Can Systems (NCS) units, which were sold
in 1998 and 1997, respectively -- the sales of ongoing businesses
in the segment increased 36% in 1998. The advance was driven
primarily by a $79.2 million increase at the MEGTEC unit,
following the acquisition of TEC Systems in the third quarter of
1997 and its integration with Sequa's existing MEG operation.
The increase reflects overall strength in the combined unit's
graphic arts product line; strong performance of its European
emission control business; and the addition of a zero-speed
paster product line acquired in 1998. In 1999, sales of this
unit will benefit from the February 1999 acquisition of Thermo
Wisconsin Inc., which supplies the US printing and processing
industries with products complementary to the MEGTEC product
lines. Thermo Wisconsin posted 1998 sales of approximately $19
million. Sales of the can machinery unit increased 6% in 1998,
primarily due to higher sales to the domestic food can market.
Based on this unit's year-end backlog, and in view of continuing
economic uncertainties in Asia and South America, management
currently anticipates a substantial decline in sales in the first
half of 1999. Sales of the automotive products unit declined 1%,
as increased European volume and sales from a Brazilian operation
added in the second quarter of 1998 largely offset a decline in
domestic volume.
<PAGE>
SALES (cont'd)
Sales of the men's apparel unit increased 13% in 1998, with
the improvement derived largely from sales of tuxedos under the
After Six label which was acquired in 1997. With a year-end
backlog slightly above the comparable 1997 level, this unit is
expected to continue to generate strong sales in the first half
of 1999. For the ten months prior to its October 28, 1998
disposition, the domestic chemicals unit recorded $74.0 million
in sales; 1997 sales were $82.3 million. The NCS unit had sales
of $32.9 million prior to its disposition in late 1997.
OPERATING INCOME
Operating income in the Aerospace segment increased 29% in 1998,
with units operating in both the repair and original equipment
manufacture (OEM) markets registering advances. The units
operating primarily in the repair market benefited from increased
volume, programs to reduce manufacturing costs, and controls over
operating expenses. The group of units operating primarily in
the OEM arena benefited from increased sales, tighter controls on
operating expenses, improved labor efficiencies and better
performance at the castings unit. The segment also benefited
from a lower level of legal expenses related to ongoing
litigation with the Pratt & Whitney division of United
Technologies Corporation (expense of $5.5 million in 1998 versus
$9.9 million in 1997). The positive movement in litigation
expense was partially offset by the absence in 1998 of $2.7
million in operating income derived from the settlement of a
dispute with the Egyptian government in 1997.
Operating income advanced 18% in the Propulsion segment,
with the automotive airbag operation and the solid propellant
rocket motor product lines moving higher and the liquid rocket
motor business declining. The benefits of $96.5 million of sales
added in automotive airbags were largely offset by several
factors, including a $10.0 million increase in research and
development costs and costs related to the start-up of new
products and new production lines. This segment is expected to
report significantly lower first quarter profits in 1999, largely
due to lower revenues, lower profits on a major government
program, lower profits on automotive products, and costs related
to the integration of a recently acquired liquid rocket motor
business (Royal Ordnance).
Operating income of the Metal Coating segment declined 27%
in 1998, primarily due to lower sales, an unfavorable sales mix
shift, lower margins brought about by increased manufacturing,
scrap and claims costs, and a weak market for non-prime metal.
Profits in the Specialty Chemicals segment increased 21% in
1998, reflecting a favorable pension comparison of the unit's
<PAGE>
OPERATING INCOME (cont'd)
overfunded plan; the additional profits from the newly acquired
Italian specialty chemicals distribution business; and
improvements at the other European specialty chemicals
distribution units and in the TAED product line. The
improvements in the TAED product line reflect the benefits of
aggressive cost reduction efforts which more than offset the
currency related effect on pricing.
Operating income in the Other Products segment advanced 65%
in 1998. On a pro forma basis -- excluding the results of
operations divested in 1998 and 1997 -- segment operating income
more than quadrupled, rising to $19.0 million in 1998. The
advance was driven by the significant turnaround at MEGTEC. This
unit, which had incurred a significant loss in 1997, posted a
profit in 1998 -- a swing of $15.0 million for the year. This
improvement was derived from higher sales; the realization of
acquisition synergies; lower warranty and bad debt costs; and the
absence of significant one-time charges incurred to effect the
combination of MEG and TEC. Importantly, the improvement was
after a $2.0 million severance provision recorded by the unit in
the first quarter of 1998. Profits at the can machinery
operation increased 27%, due to reduced warranty expense and cost
reduction measures instituted in late 1997 and to the benefits of
higher sales. These favorable factors were partially offset by
losses and shutdown costs at a Texas facility. Management
currently anticipates that this unit will record significantly
lower profits in the first half of 1999 due to the expected drop
in sales. The automotive products unit recorded an 11% decline
in operating income, primarily due to start-up costs at new
facilities in Kentucky and Brazil; to lower margins resulting
from continued pressure on prices; and to the impact of the
General Motors strike. The men's apparel unit recorded a 7%
increase in operating income in 1998 due to increased sales.
Profits of the domestic chemicals unit -- which was sold in
October 1998 -- totaled $3.1 million in the first ten months of
the year (after a $3.0 million provision to remediate ground
water pollution) and $8.0 million for the full year 1997. NCS
recorded operating income of $1.8 million prior to its disposal
in 1997.
INTEREST EXPENSE
The increase in interest expense of approximately $1.5 million
was due to an increase in average borrowings outstanding under
Sequa's revolving credit agreement.
<PAGE>
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
During 1998 and 1997, Sequa had investments in two unconsolidated
joint venture partnerships which were formed to develop, produce
and market hybrid inflators for automotive airbags: BAICO, a
50/50 joint venture formed with AlliedSignal; and BAG SpA, an
Italian company formed with AlliedSignal and a subsidiary of Fiat
Avio, with each participant owning a one-third interest in the
venture. In the fourth quarter of 1997, AlliedSignal sold its
automotive safety restraints business and its one-third interest
in BAG SpA to Breed Technologies Inc. (Breed). Following these
transactions, Breed became the largest customer of BAICO and BAG
SpA. In late January 1998, Sequa increased its ownership in
BAICO to 100% with the purchase of AlliedSignal's share of the
joint venture.
Sequa's share of the losses of the unconsolidated airbag
businesses was an equity loss of $3.7 million in 1998, which
included one month of BAICO's results, and an equity loss of $1.8
million in 1997.
The carrying value of Sequa's one-third equity interest in
BAG SpA at December 31, 1998 was $0.9 million. In addition,
Sequa has guaranteed, with letters of credit, $7.4 million of BAG
SpA's $24.0 million of debt at December 31, 1998. Sequa
currently anticipates that it will increase its investment in BAG
SpA in 1999 by a minimum of $8.8 million in either cash or loan
guarantees or a combination of the two, to pay its share of
contractual and legal obligations.
In the fourth quarter of 1998, Sequa booked a permanent
impairment write-down of $2.1 million related to its investment
in a joint venture to produce advanced titanium matrix composite
fibers. This write-down was triggered by Sequa's partner's
decision to withdraw from the business, which had the effect of
dramatically reducing the demand for the fibers produced by the
joint venture, and resulted in future cash flow projections which
required the write-down in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121. Total equity losses in this
joint venture, including the impairment write-down, were $2.8
million in 1998 and $0.2 million in 1997.
Sequa has other ownership interests in joint ventures, one
of the largest of which is a 50/50 partnership with United
Technologies Corporation in Advanced Coatings Technologies (ACT),
a joint venture which owns and operates an electron beam ceramic
coater for the application of Pratt & Whitney coatings to jet
engine parts. Sequa's equity share of the earnings of ACT was
income of $1.8 million in 1998 and $2.3 million in 1997.
<PAGE>
OTHER, NET
In 1998, Other, net included a $2.0 million provision related to
the potential loss of funds advanced to a vendor engaged to
implement a freight consolidation program; $1.2 million in
charges for the amortization of capitalized debt issuance costs;
$1.0 million of income on the cash surrender value of corporate-
owned life insurance; and letters of credit and commitment fees
of $0.9 million.
In 1997, Other, net included gains on the sale of assets of
$2.5 million; letters of credit and commitment fees of $1.6
million; $1.4 million in charges for the amortization of
capitalized debt issuance costs; and $1.3 million of income on
the cash surrender value of corporate-owned life insurance.
RISK/CONCENTRATION OF BUSINESS
Sequa is engaged in the automotive airbag inflator business
through both the Atlantic Research Automotive Products unit
(ARAP) in the Propulsion segment and its equity investment in BAG
SpA, an Italian joint venture. Breed is the major customer of
ARAP, accounting for 26% of the Propulsion segment's 1998 sales.
Breed is also the sole customer of, and a one-third equity
partner in, BAG SpA. BAG SpA, which purchases inflator
components from ARAP, accounted for 9.9% of the Propulsion
segment's 1998 sales. (See the Equity in Income (Loss) of
Unconsolidated Joint Ventures section of this MD&A for further
information on BAG SpA.)
In Breed's Form 10-Q for the quarter ended December 31,
1998, filed with the Securities and Exchange Commission, it
disclosed it has certain financial issues, including negotiation
of an amendment to a loan agreement to address an existing
financial covenant violation and an existing event of default
(both covered by waiver through March 30, 1999) and to prevent
other financial covenant violations anticipated to occur by June
30, 1999. Breed stated in the above-mentioned Form 10-Q that,
while it believes it can negotiate the necessary amendments with
its lenders, there can be no assurance that it will be able to do
so. For more detailed information on Breed's financial issues,
the reader is encouraged to review Breed's December 31, 1998 Form
10-Q and other recent filings with the Securities and Exchange
Commission. If Breed is unable to resolve these issues, it could
be a serious impediment to its ability to meet its financial
obligations to ARAP and BAG SpA, and could have a serious impact
on future sales of ARAP and BAG SpA.
<PAGE>
RISK/CONCENTRATION OF BUSINESS (cont'd)
At December 31, 1998, ARAP had trade accounts receivable of
$14.0 million due from Breed and $8.3 million due from BAG SpA.
BAG SpA had trade accounts receivable of $20.7 million due from
Breed and an additional $0.8 million of non-trade receivables due
from Breed. As of early March 1999, Breed was substantially
current in its payment of receivables to both ARAP and BAG SpA.
At December 31, 1998, neither ARAP nor BAG SpA had any
significant reserves related to the Breed accounts receivable.
Management continues to monitor this situation closely.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Sequa is exposed to market risk from changes in foreign currency
exchange rates which impact its earnings, cash flows and
financial condition. Sequa manages its exposure to this market
risk through its regular operating and financial activities and,
when appropriate, through the use of derivative financial
instruments. Sequa has well-established policies and procedures
governing the use of derivative financial instruments as risk
management tools and does not buy, hold or sell derivative
financial instruments for trading purposes. Sequa's primary
foreign currency exposures relate to British pounds, French
francs, German marks and Italian lira. To mitigate the short-
term effect of changes in currency exchange rates, Sequa utilizes
forward foreign exchange contracts and foreign currency options
to hedge certain existing assets and liabilities, firm
commitments and anticipated transactions denominated in
currencies other than the functional currency.
As of December 31, 1998, a hypothetical 10% uniform
decrease in all foreign currency exchange rates relative to the
US dollar would decrease the fair value of Sequa's financial
instruments by approximately $10.8 million. This sensitivity
analysis relates only to Sequa's exchange rate sensitive
financial instruments, which include cash and debt amounts
denominated in foreign currencies and all open foreign forward
exchange contracts at December 31, 1998. The effect of the
hypothetical change in exchange rates ignores the effect this
movement may have on the value of net assets, other than
financial instruments, denominated in foreign currencies and does
not consider the effect this movement may have on anticipated
foreign currency cash flows.
At December 31, 1998, substantially all of Sequa's debt is
at fixed rates and Sequa currently does not hold interest rate
derivative contracts. Accordingly, a change in market interest
rates would not impact Sequa's interest expense, but would affect
the fair value of Sequa's debt. Generally, the fair market value
of fixed-rate debt will increase as interest rates fall and
decrease as interest rates rise. The estimated fair value of
<PAGE>
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS (cont'd)
Sequa's total debt at December 31, 1998 was approximately $521
million. A hypothetical 1% increase in interest rates at
December 31, 1998 would decrease the fair value of Sequa's total
debt by approximately $12.4 million. A hypothetical 1% decrease
in interest rates at December 31, 1998 would increase the fair
value of Sequa's total debt by approximately $12.8 million. The
fair value of Sequa's total debt at December 31, 1998 is
primarily based upon quoted market prices of Sequa's publicly
traded securities. The estimated changes in fair values of
Sequa's debt are based upon changes in the present value of
future cash flows as impacted by the hypothetical changes in
market interest rates.
YEAR 2000 COMPUTER ISSUE
Certain of Sequa's computer systems process transactions based on
storing two digits for the year of a transaction rather than the
full four digits. Such systems may not be programmed to consider
the start of a new century and will encounter significant
processing difficulties in the year 2000, unless they are fixed
or replaced. During 1997, Sequa began an internal awareness
program to ensure that all of its operating units were attuned to
the millennium issue, and resources were devoted to identify
critical business processes, to evaluate the extent of Sequa's
Year 2000 (Y2K) issues and to implement required remedial
actions.
Many of Sequa's operating units utilize purchased software,
and related software maintenance agreements provide for upgrades
which have addressed, or will address, the Y2K issue. Sequa's
estimate to become Y2K compliant includes the entire cost of new
software, including software purchased primarily for reasons
other than to address the Y2K issue. The costs of data
processing personnel on staff are not included in the estimate,
but outside consultants are included. Management currently
estimates that the total cost of hardware, software, training,
testing and other costs related to Y2K issues will be
approximately $27 million. To date, $11.4 million of these costs
has been incurred, with $7.6 million capitalized and the balance
of approximately $3.8 million expensed. Sequa anticipates that
approximately 67% of the $15.6 million of estimated future costs
will be capitalized. Future costs will be funded from Sequa's
sources of funds, as discussed in the Liquidity and Capital
Resources section of this MD&A.
Sequa is a decentralized organization. Consequently,
compliance with the Y2K issue is the responsibility of individual
operating units. Corporate systems are the responsibility of the
individual staff departments. Sequa's senior management is
monitoring the progress of the various units and corporate
departments.
<PAGE>
YEAR 2000 COMPUTER ISSUE (cont'd)
In evaluating Sequa's progress related to Y2K issues, the
following five major areas have been reviewed in detail:
APPLICATION SYSTEMS Broadly used business applications
which are supported by internal management information
systems (MIS) employees.
TECHNICAL INFRASTRUCTURE MIS-supported hardware and
software, including standard commercial packages on local
PCs.
FACILITIES & EQUIPMENT Manufacturing equipment and
building equipment, such as HVAC and telephones, plus any
other logic-based equipment.
THIRD-PARTY RELATIONSHIPS Entire supply chain, including
suppliers, customers, financial institutions and
necessary regulatory agencies.
END-USER COMPUTING End-user developed coding (for
example, in tools such as Microsoft Access and Microsoft
Excel) plus items purchased by end users outside of the
MIS support structure. This area was found to have no
critical applications; therefore, no further reporting
will be done on it.
Each unit's progress in the four critical major areas is
categorized in one of four life cycles defined below:
INVENTORY & ASSESSMENT (I&A) Awareness of problem,
detailed inventory creation, evaluation of the Y2K status
of each item, and remediation plan.
RENOVATION/REPLACEMENT (R) Any repair efforts.
TESTING & IMPLEMENTATION PROGRAM (T&I) Technical and Y2K
acceptance testing plus reintroduction into the
production environment.
PRODUCTION SUPPORT (PS) Ongoing execution of the item
after repair.
Following is the assessment of each operating unit and the
corporate departments reviewed for each of the four critical
major areas at December 31, 1998. While the Y2K remediation
efforts are ongoing, the assessments provide a snapshot at a
given point in time; they will be updated in each of Sequa's
future filings. Note: In all tables in this Y2K section, the X
in the status column means that this was the life cycle stage
<PAGE>
YEAR 2000 COMPUTER ISSUE (cont'd)
primarily being worked on at the time of the review. In the case
of Gas Turbine, the figures in the status columns represent the
number of units that are doing work in each of the life cycle
stages. Blank spaces to the left of each X signify that these
life cycle stages were complete at the time of the review. Blank
spaces to the right of the X signify that significant work had
not yet started on these stages at the time of the review.
<TABLE>
<CAPTION>
Status
------------------------
Application systems I&A R T&I PS
------------------- --- - --- --
<S> <C> <C> <C> <C>
Gas Turbine 1 18 3 1
Atlantic Research X
Precoat Metals X
Warwick X
MEGTEC Systems X
Can Machinery X
Casco Products X
Men's Apparel X
Corporate X
</TABLE>
Many of Sequa's operating units and corporate departments
utilize purchased software. Significant progress in the
applications systems area is expected over the next two quarters,
as software upgrades that address the Y2K issue are received from
vendors under ongoing maintenance agreements.
<TABLE>
<CAPTION>
Status
------------------------
Technical infrastructure I&A R T&I PS
------------------------ --- - --- --
<S> <C> <C> <C> <C>
Gas Turbine 3 14 5 1
Atlantic Research X
Precoat Metals X
Warwick X
MEGTEC Systems X
Can Machinery X
Casco Products X
Men's Apparel X
Corporate X
</TABLE>
Sequa has a variety of technical infrastructures at its
units and is working with the vendors of these systems to repair
or replace system hardware and software to ensure Y2K compliance.
Based upon the results of a review performed by an international
consulting firm in the third quarter of 1998, Sequa does not
believe this to be an area of high risk.
<PAGE>
<TABLE>
YEAR 2000 COMPUTER ISSUE (cont'd)
<CAPTION>
Status
------------------------
Facilities & equipment I&A R T&I PS
---------------------- --- - --- --
<S> <C> <C> <C> <C>
Gas Turbine 2 17 2 2
Atlantic Research X
Precoat Metals X
Warwick X
MEGTEC Systems X
Can Machinery X
Casco Products X
Men's Apparel X
Corporate X
</TABLE>
<TABLE>
<CAPTION>
Status
---------
Third-party relationships I&A R
------------------------- --- -
<S> <C> <C>
Gas Turbine 7 16
Atlantic Research X
Precoat Metals X
Warwick X
MEGTEC Systems X
Can Machinery X
Casco Products X
Men's Apparel X
Corporate X
</TABLE>
Sequa's individual operating units have, for the most part,
not yet developed contingency plans to handle any disruption that
may result from the Y2K issue. The need for and extent of such
plans is being evaluated by each of the units, and plans will be
developed to the extent needed based on various factors,
including: the unit's ongoing progress; the extent of significant
identified problems or unknowns; overall evaluation of risk, etc.
There can be no guarantee that Sequa's effort to be Y2K compliant
will prevent a material adverse impact on its results of
operations, financial condition or cash flows. If Sequa and/or
third parties upon which Sequa relies are not fully Y2K
compliant, the possible consequences could include: temporary
plant closings; delays in the delivery of finished products;
delays in the receipt of key purchased materials and services;
invoice and collection errors; customer and vendor relations
problems, etc. These consequences could possibly have a material
adverse impact on Sequa's results of operations, financial
condition and cash flows if Sequa is unable to conduct its
business in the ordinary course. Sequa believes that its
readiness program will reduce the likelihood, severity and
duration of any possible disruptions.
Sequa expects that its Y2K compliance program will be
largely completed before December 31, 1999. Individual units and
corporate departments will be completing their work starting in
the first quarter of 1999.
<PAGE>
EURO CONVERSION
On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing
currencies and the European Union's common currency (Euro). The
transition period for the introduction of the Euro will extend to
January 1, 2002. Sequa, in conjunction with its Y2K efforts, has
begun to identify Euro conversion compliance issues and work on
remediation of anticipated problems.
Based on its evaluation to date, management believes that the
introduction of the Euro, including the total costs for the
conversion, will not have a material adverse impact on Sequa's
financial position, results of operations or cash flows.
However, uncertainty exists as to the effects the Euro will have
on the marketplace, and there is no guarantee that all problems
will be foreseen and corrected or that third parties will address
the conversion successfully.
ENVIRONMENTAL MATTERS
Sequa's environmental department, under senior management's
direction, manages all activities related to Sequa's involvement
in environmental clean-up. This department establishes the
projected range of expenditures for individual sites with respect
to which Sequa may be considered a potentially responsible party
under applicable federal or state law. These projected
expenditures, which are reviewed periodically, include: remedial
investigation and feasibility studies; outside legal, consulting
and remediation project management fees; the projected cost of
remediation activities; and site closure and post-remediation
monitoring costs. The assessments take into account known
conditions, probable conditions, regulatory requirements, past
expenditures, and other potentially responsible parties and their
probable level of involvement. Outside legal, technical and
scientific consulting services are used to support management's
assessments of costs at significant individual sites.
It is Sequa's policy to accrue environmental remediation
costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably
estimated. At December 31, 1998, the potential exposure for such
costs is estimated to range from $17 million to $33 million.
During the fourth quarter of 1998, Sequa recorded a $5.0 million
pre-tax charge to earnings to increase accruals for remediation
costs to $25.4 million at December 31, 1998, a level management
considers appropriate to the newly revised range of estimates.
These accruals are at undiscounted amounts and are included in
accrued expenses and other noncurrent liabilities. Actual costs
to be incurred at identified sites in future periods may vary
from the estimates, given inherent uncertainties in evaluating
environmental exposures.
<PAGE>
ENVIRONMENTAL MATTERS (cont'd)
With respect to all known environmental liabilities, Sequa's
actual cash expenditures for remediation of previously
contaminated sites were $8.2 million in 1998, $9.7 million in
1997 and $10.0 million in 1996. Sequa anticipates that remedial
cash expenditures will be between $6 million and $10 million
during 1999 and between $4 million and $8 million during 2000.
Sequa's capital expenditures for projects to eliminate, control
or dispose of pollutants were $2.3 million, $4.6 million and $1.7
million in 1998, 1997 and 1996, respectively. Sequa anticipates
annual environmental-related capital expenditures to be
approximately $6 million during 1999 and 2000. Sequa's operating
expenses to eliminate, control and dispose of pollutants have
averaged approximately $11 million per year during the last three
years. Sequa anticipates that environmental operating expenses
will be approximately $11 million per year during 1999 and 2000.
BACKLOG
The businesses of Sequa for which backlogs are significant are
the Turbine Airfoils, Caval Tool, Turbocombustor Technology and
Castings units of the Aerospace segment; the Propulsion segment;
and the can machinery, MEGTEC and men's apparel units of the
Other Products segment. The aggregate dollar amount of backlog
in these units at December 31, 1998 was $305.4 million ($387.2
million at December 31, 1997). The decline reflects reductions
in the Aerospace segment and the MEGTEC and can machinery units
of the Other Products segment. Sales of the men's apparel unit
are seasonal, with stronger sales in the first six months of the
year; accordingly, this unit's backlog is normally higher at
December 31 than at any other time of the year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $47.4 million in
1998, compared with $100.6 million in 1997. The major reasons
for the 1998 decline were the higher levels of working capital
requirements at existing businesses, and the $24.0 million
deposit paid to the Internal Revenue Service (IRS) related to a
tax dispute involving the 1989 restructuring of two subsidiaries.
Net cash used for investing activities was $6.5 million in 1998,
compared with $94.6 million in 1997. The major factors in the
1998 decline were the significantly higher level of proceeds from
businesses and other assets sold, partially offset by the $34.6
million increase in capital expenditures. Net cash used for
financing activities increased $51.1 million in 1998, primarily
due to the higher level of debt repayment.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
In October 1998, Sequa filed a shelf registration statement
with the Securities and Exchange Commission for the issuance of
up to $500 million aggregate principal amount of senior unsecured
debt securities. Sequa anticipates that securities will be sold
under the shelf registration during the second or third quarter
of 1999, and the net proceeds will be used to repay the remaining
$138.5 million of Sequa's senior unsecured notes due in October
1999, to refinance other existing debt and for general corporate
purposes.
In November 1998, Sequa entered into a five-year Receivables
Purchase Agreement to sell up to $90 million of Sequa's trade
receivables without recourse through a bank sponsored facility.
No receivables were sold under this agreement at December 31,
1998.
Sequa has an issue with the IRS involving the 1989
restructuring of two subsidiaries. While management believes its
tax position in this matter is appropriate, it has taken the
conservative position of providing reserves to cover an adverse
outcome. At December 31, 1998, the net amount involved was
approximately $59 million, composed of the potential liability
associated with the restructuring and related tax issues;
interest expense, net of tax benefit, from the date of the
resulting tax refund; and deferred tax assets for portions of tax
loss and credit carryforwards which could be utilized in a
settlement. Management has had preliminary settlement
discussions with the IRS, and on October 1, 1998, Sequa made a
deposit of $24 million with the IRS against the expected
liability for additional tax and interest that may be assessed
against Sequa related to certain of these tax matters. The
deposit stops the running of interest with respect to the amounts
deposited. Discussions have continued, and management believes
there is a possibility for final resolution of this matter by the
end of 1999, and that, in the event of an unfavorable resolution,
Sequa will have sufficient resources available to make any
additional negotiated or adjudicated payment.
Capital expenditures amounted to $103.5 million in 1998, with
spending concentrated in the Aerospace, Propulsion and Metal
Coating segments. These funds were primarily used to upgrade
existing facilities and equipment and to expand capacity. Sequa
currently anticipates that capital spending in 1999 will be
approximately $125 million and will again be concentrated in the
same segments.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
Management currently anticipates that cash flow from
operations, proceeds from the divestiture of assets, the $115.7
million of credit available at March 5, 1999 under the revolving
credit agreement, the $35.0 million of available financing under
the Receivables Purchase Agreement at March 5, 1999, proceeds
from debt securities which may be sold under Sequa's shelf
registration and the $84.9 million of cash and cash equivalents
on hand at December 31, 1998 will be sufficient to fund Sequa's
operations, niche acquisitions, and airline spare parts inventory
purchases for the next two years, and to repay the remaining
$138.5 million principal balance of Sequa's 9 5/8% senior
unsecured notes due in October 1999.
OTHER INFORMATION
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. This statement requires
companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Depending on the use of
a derivative and whether it has been designated and qualifies as
a hedge, gains or losses resulting from changes in the values of
those derivatives would be recognized currently in earnings or
reported as a component of other comprehensive income. This
statement is not expected to have a material impact on Sequa's
consolidated financial statements. This statement is effective
for the fiscal years beginning after June 15, 1999, with earlier
adoption encouraged. Sequa will adopt this accounting standard
as required by January 1, 2000.
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements made under the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on management's
current expectations, estimates and projections that are subject
to risks and uncertainties, including, but not limited to:
political, currency, regulatory, competitive and technological
developments. Consequently, actual results could differ
materially from these forward-looking statements.
<PAGE>
OPERATING RESULTS 1997 - 1996
SALES
Sales for 1997 were 9% higher than a year earlier, with all
segments except Specialty Chemicals registering advances.
Sales in the Aerospace segment were ahead 13% in 1997, as
sales to both the repair market and the original equipment
manufacturers moved higher, a reflection of the strong demand
generated by the international airline industry. Competition
from the engine manufacturers for aftermarket repair business
remained intense.
In the Propulsion segment, sales advanced 18% in 1997, with
increases in each of the three main product areas: solid rocket
motors, automotive airbag components and liquid rocket motors.
Sales of the Metal Coating segment advanced 10% in 1997, with
increases in each of its three product areas: building products,
containers and manufactured products.
Sales of the Specialty Chemicals segment declined 8% in 1997.
Local currency sales for this overseas unit declined 12%,
primarily because of the continued strengthening of the British
pound sterling against other European currencies. The reported
US dollar sales decline was tempered by a 5% average increase in
the dollar value of the pound sterling in the same period.
Sales of the Other Products segment advanced 5% in 1997.
Late in the third quarter of 1997, Sequa acquired the TEC Systems
unit of W.R. Grace, combined it with MEG, and named the combined
operation MEGTEC Systems. The TEC acquisition bolstered the
auxiliary press equipment product line, increased technical
expertise, reduced the combined cost structure and significantly
expanded product offerings beyond MEG's traditional graphic arts
market. This unit registered a 10% decline in 1997, as the sales
generated by TEC in the final four months of the year did not
fully offset the substantial decline in MEG sales for the year.
Sales of the can machinery operation declined 22% in 1997,
reflecting a cyclical downturn in the worldwide container
industry. Despite the sharp drop in the number of can line
installations in 1997, the unit improved its already strong
market position, particularly in can forming equipment. The
automotive products unit recorded a 6% increase in sales,
primarily due to strong demand in the domestic market for
cigarette lighters and power outlets. In 1997, this segment
benefited from inclusion of sales from the men's apparel unit
which was recontinued in January 1997. At the domestic chemicals
unit, sales advanced 11% in 1997, due largely to the May 1997
acquisition of Sedgefield Specialties, a supplier to the textile
market. Sales of the can lid unit advanced 26%, primarily a
reflection of a 53% gain in export sales. On December 17, 1997,
Sequa divested the can lid business.
<PAGE>
OPERATING INCOME
Operating income increased 30% in 1997, due primarily to
improvement in the Aerospace segment.
The Aerospace segment achieved substantially higher results
in 1997. In addition to the improved operating performance of
Gas Turbine units serving both OEM and repair markets, results
for 1997 benefited from two factors: substantially lower costs in
connection with litigation involving the Pratt & Whitney division
of United Technologies Corporation ($9.9 million in 1997 versus
$33.0 million in 1996) and the favorable settlement of a dispute
with the Egyptian government, which added $2.7 million to
operating income. Year-to-year comparisons were also affected by
the 1996 reversal of $8.2 million of workers' compensation
insurance reserves, which were actuarially determined to be in
excess of requirements. The Gas Turbine units serving the
original equipment market operated at a profit in 1997 versus a
loss in 1996, as sales rose substantially in response to overall
vigor in the marketplace and the strong position held by Gas
Turbine. In addition, 1997 results for these units benefited
from the late 1996 disposal of an under-performing unit.
Improvement at the Gas Turbine repair units primarily reflected
the higher sales to an expanding commercial aviation market.
The Propulsion segment recorded a 5% profit advance,
primarily a reflection of higher sales, tempered by the impact of
start-up costs on several new programs related to automotive
airbag inflators, and cost increases on certain government
programs.
Operating income in the Metal Coating segment was on a par
with the prior year, as the benefits of increased sales were
offset by lower operating margins.
Operating income in the Specialty Chemicals segment declined
37%. The unit's profit decline was attributable to the strength
of the British pound sterling against other European currencies,
a situation that began in the fourth quarter of 1996.
Profits in the Other Products segment declined 50%. The loss
at the new MEGTEC Systems unit was double the loss reported in
1996, due entirely to increased losses at MEG. The increased MEG
loss was primarily due to: sharply lower sales to the graphic
arts market, increased warranty costs, increased bad debt
provisions, and significant one-time costs incurred to effect the
combination of MEG and TEC. The sharp decline in profits at the
can machinery operation was primarily related to the significant
cyclical downturn in sales. Profits of the automotive products
unit declined as the benefits of increased sales were more than
offset by lower margins. The 1997 results of this segment
benefited from the inclusion of the profits from the men's
apparel unit which was recontinued in January 1997. At the
domestic chemicals unit, profits registered a small decline, as
the benefits of higher sales and the 1997 change to the FIFO
method of inventory valuation, which primarily benefited this
<PAGE>
OPERATING INCOME (cont'd)
unit, cushioned the impact of the 1996 one-time favorable effect
of a legal settlement and lower margins. The can lid unit, which
reported a 77% increase in operating income, primarily benefited
from the 26% increase in sales.
INTEREST EXPENSE
The decrease in interest expense of approximately $1.5 million in
1997 was due to a decrease in average borrowings attributable to
scheduled principal payments and early retirement of debt in the
third quarter of 1996.
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES
Sequa's share of the earnings or losses of the unconsolidated
airbag businesses was an equity loss of $1.8 million in 1997 and
equity income of $1.4 million in 1996. Sequa's equity share of
the earnings of ACT, an engine parts coating joint venture, was
income of $2.3 million in 1997 and $3.2 million in 1996.
OTHER, NET
In 1997, Other, net included gains on the sale of assets of $2.5
million; letters of credit and commitment fees of $1.6 million;
$1.4 million in charges for the amortization of capitalized debt
issuance costs; and $1.3 million of income on the cash surrender
value of corporate-owned life insurance.
In 1996, Other, net included gains on the sale of assets of
$8.3 million; letters of credit and commitment fees of $2.0
million; and $2.1 million in charges for the amortization of
capitalized debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $100.6 million in
1997, compared with $105.8 million in 1996. Net cash used for
investing activities was $94.6 million in 1997, compared with
$34.0 million in 1996. The major differences in 1997 were the
$36.1 million spent on acquisitions, a $25.0 million
participation in loans made by a group of banks for the benefit
of one of Sequa's joint ventures, and the higher level of capital
expenditures, partially offset by higher proceeds from the sale
of businesses and fixed assets. Net cash used for financing
activities was $0.9 million in 1997, compared with $47.5 million
in 1996, and primarily reflects a lower level of debt repayment
in 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- -------- -----------------------------------------------------
RISK
----
See discussion appearing on pages 22 and 23 of this Annual
Report on Form 10-K under the heading "Derivative and Other
Financial Instruments," which is incorporated by reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
the Board of Directors of
Sequa Corporation:
We have audited the accompanying consolidated balance sheet
of Sequa Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Sequa Corporation and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
February 26, 1999
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands)
At December 31, 1998 1997
- -------------------------- -------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 84,889 $ 93,743
Short-term investments (Note 2) 11,475 25,000
Trade receivables (less allowances
of $15,635 and $15,816) 292,152 282,602
Unbilled receivables, net (Note 3) 38,795 27,777
Inventories (Note 4) 262,765 246,449
Other current assets 25,792 20,272
--------- ---------
Total current assets 715,868 695,843
--------- ---------
INVESTMENTS
Net assets of discontinued operations
(Note 5) 105,152 109,723
Other investments 28,130 24,217
--------- ---------
133,282 133,940
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET
(Note 6) 451,443 435,480
--------- ---------
OTHER ASSETS
Excess of cost over net assets of
companies acquired 307,051 305,540
Deferred charges and other 16,503 20,872
--------- ---------
323,554 326,412
--------- ---------
TOTAL ASSETS $1,624,147 $1,591,675
========== ==========
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Amounts in thousands, except share data)
AT DECEMBER 31, 1998 1997
- ---------------------------------------- -------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
(Note 7) $ 8,659 $ 24,510
Accounts payable 137,981 136,003
Taxes on income (Note 8) 16,499 42,370
Accrued expenses (Note 9) 174,800 163,845
---------- ----------
Total current liabilities 337,939 366,728
---------- ----------
NONCURRENT LIABILITIES
Long-term debt (Note 7) 500,685 508,735
Deferred taxes on income (Note 8) 40,422 19,078
Other noncurrent liabilities 79,649 102,740
---------- ----------
Total noncurrent liabilities 620,756 630,553
---------- ----------
SHAREHOLDERS' EQUITY (Notes 7, 12, 13 and 14)
Preferred stock--$1 par value,
1,825,000 shares authorized; 797,000
shares of $5 cumulative convertible
stock issued at December 31, 1998
and 1997 (involuntary liquidation
value--$17,181 at December 31, 1998) 797 797
Class A common stock--no par value,
25,000,000 shares authorized; 7,273,000
shares issued at December 31, 1998
and 7,188,000 shares issued at
December 31, 1997 7,273 7,188
Class B common stock--no par value,
5,000,000 shares authorized; 3,727,000
shares issued at December 31, 1998
and 1997 3,727 3,727
Capital in excess of par value 288,379 283,339
Accumulated other comprehensive
loss (1,016) (6,794)
Retained earnings 444,669 382,945
---------- ----------
743,829 671,202
Less: cost of treasury stock 78,377 76,808
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 665,452 594,394
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,624,147 $1,591,675
========== ==========
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------- -------- -------- --------
<S> <C> <C> <C>
SALES $1,802,393 $1,595,125 $1,459,029
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 1,444,914 1,285,829 1,160,192
Selling, general and administrativ 252,016 224,589 233,679
---------- ---------- ----------
1,696,930 1,510,418 1,393,871
---------- ---------- ----------
OPERATING INCOME 105,463 84,707 65,158
OTHER INCOME (EXPENSE)
Interest expense (51,776) (50,298) (51,794)
Interest income 5,868 6,052 4,271
Gain on sale of businesses
(Note 15) 56,542 - -
Equity in income (loss) of
unconsolidated joint ventures (4,876) 223 4,038
Other, net (Note 16) (3,224) 1,143 4,283
---------- ---------- ----------
2,534 (42,880) (39,202)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 107,997 41,827 25,956
Income tax provision (Note 8) (44,100) (22,200) (16,400)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 63,897 19,627 9,556
Extraordinary loss on early retirement
of debt, net of tax benefit of $199 - - (369)
----------- ---------- ----------
NET INCOME 63,897 19,627 9,187
Preferred dividends (2,173) (3,051) (3,108)
---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
STOCK $ 61,724 $ 16,576 $ 6,079
========= ========== ==========
Basic earnings per share (Note 18)
Income before extraordinary item $ 6.01 $ 1.66 $ .65
Extraordinary loss - - (.04)
---------- ---------- ----------
Net income $ 6.01 $ 1.66 $ .61
========== ========== ==========
DILUTED EARNINGS PER SHARE (Note 18)
Income before extraordinary item $ 5.87 $ 1.66 $ .65
Extraordinary loss - - (.04)
---------- ---------- ----------
Net income $ 5.87 $ 1.66 $ .61
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income taxes $ 107,997 $ 41,827 $ 25,956
Adjustments to reconcile income to
net cash provided by operating activities:
Depreciation and amortization 89,321 85,815 91,587
Provision for losses on receivables 4,276 8,316 5,927
Gain on sale of businesses (56,542) - -
Gain on sale of assets (82) (2,465) (8,268)
Equity in (income) loss of unconsolidated
joint ventures 4,876 (223) (4,038)
Other items not requiring (providing) cash (2,521) (2,008) 129
Changes in operating assets and liabilities,
net of businesses acquired and sold:
Receivables (12,512) (23,088) (3,208)
Inventories (12,998) (15,783) 15,788
Other current assets (4,997) 156 14,808
Accounts payable and accrued expenses (22,634) 25,836 (4,984)
Other noncurrent liabilities (1,331) (8,404) (28,802)
--------- --------- --------
Net cash provided by continuing operations
before income taxes 92,853 109,979 104,895
Net cash provided by discontinued operations
before income taxes 1,322 3,929 6,970
Income taxes paid, net (46,793) (13,358) (6,057)
--------- --------- --------
Net cash provided by operating activities 47,382 100,550 105,808
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (103,524) (68,960) (50,228)
Sale of property, plant and equipment 12,386 8,511 15,475
Sale of businesses, net of cash sold 121,333 28,178 1,558
Businesses purchased, net of cash acquired (40,662) (36,058) -
Short-term investments 11,234 (25,000) -
Other investing activities (7,294) (1,228) (806)
--------- --------- --------
Net cash used for investing activities (6,527) (94,557) (34,001)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt - 2,275 512
Payments of debt (52,576) (3,312) (16,833)
Early retirement of debt - - (27,900)
Dividends paid (2,173) (3,051) (3,108)
Proceeds from exercise of stock options 2,831 3,226 1,474
Purchase of treasury stock - - (1,680)
--------- --------- --------
Net cash used for financing activities (51,918) (862) (47,535)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents 2,209 (3,467) 5,140
--------- --------- --------
Net increase (decrease) in cash and
cash equivalents (8,854) 1,664 29,412
Cash and cash equivalents at beginning of year 93,743 92,079 62,667
--------- --------- --------
Cash and cash equivalents at end of year $ 84,889 $ 93,743 $ 92,079
========= ========= ========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
SEQUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' Equity
<CAPTION>
Accumulated
Class A Class B Capital in Other Total
(Amounts in thousands, Preferred Common Common Excess of Comprehensive Retained Treasury Shareholders'
except per share data) Stock Stock Stock Par Value Income (Loss) Earnings Stock Equity
- --------------------- -------- ------- ------- --------- ------------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $797 $7,188 $3,727 $287,204 $ 2,333 $360,290 $(84,944)$ 576,595
Net income - - - - - 9,187 - 9,187
Foreign currency
translation adjustment - - - - 8,179 - - - 8,179
Comprehensive income 17,366
Amortization of
restricted stock grant - - - - - - 223 223
Stock grants forfeited - - - 307 - - (401) (94)
Stock options exercised - - - (1,599) - - 3,073 1,474
Purchase of treasury
stock - - - - - - (1,680) (1,680)
Cash dividends:
Preferred - $5.00 per share - - - - - (3,108) - (3,108)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1996 797 7,188 3,727 285,912 10,512 366,369 (83,729) 590,776
Net income - - - - - 19,627 - 19,627
Foreign currency
translation adjustment - - - - (17,306) - - (17,306)
Comprehensive income 2,321
Amortization of
restricted stock grant - - - - - - 165 165
Stock grants forfeited - - - 46 - - (71) (25)
Stock options exercised - - - (3,601) - - 6,827 3,226
Tax benefits on stock
options and grants - - - 982 - - - 982
Cash dividends:
Preferred - $5.00 per share - - - - - (3,051) - (3,051)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1997 797 7,188 3,727 283,339 (6,794) 382,945 (76,808) 594,394
Net income - - - - - 63,897 - 63,897
Foreign currency
translation adjustment - - - - 7,267 - - 7,267
Unrealized loss on marketable
securities - - - - (2,291) - - (2,291)
Tax benefit for unrealized
loss on marketable
securities - - - - 802 - - 802
Comprehensive income 69,675
Stock options exercised - 85 - 2,023 - - 723 2,831
Stock grants - - - (10) - - 10 -
Exchange of common
stock for preferred - - - 2,302 - - (2,302) -
Tax benefits on stock
options - - - 725 - - - 725
Cash dividends:
Preferred - $5.00 per share - - - - - (2,173) - (2,173)
----- ------- ------ -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1998 $ 797 $ 7,273 $3,727 $288,379 $ (1,016) $444,669 $ (78,377)$665,452
===== ======= ====== ======== ======== ======== ========= ========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SEQUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Sequa Corporation
(Sequa) include the accounts of all majority-owned subsidiaries.
Investments in 20% to 50% owned joint ventures are accounted for
on the equity method. All material accounts and transactions
between the consolidated subsidiaries have been eliminated in
consolidation. Certain prior year amounts have been reclassified
to conform to the 1998 presentation.
Sequa made a decision not to sell the men's apparel unit.
Accordingly, as of January 1, 1997, this unit has been
reclassified from discontinued operations to continuing
operations in the Consolidated Balance Sheet and Statements of
Income and Cash Flows. Prior years' results of operations were
not restated due to immateriality.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, Sequa
considers time deposits, certificates of deposit and marketable
securities with original maturities of three months or less to be
cash equivalents. Where the right of set-off exists, Sequa has
netted overdrafts with unrestricted cash and cash equivalents.
MARKETABLE SECURITIES
Investments in common stock classified as available-for-sale
securities are carried at fair value as determined by the most
recently traded price of such securities, with the unrealized
gains and losses, net of tax, reported in Accumulated Other
Comprehensive Income (Loss), a separate component of
shareholders' equity.
INVENTORIES AND CONTRACT ACCOUNTING
Inventories are stated at the lower of cost or market. As of
December 31, 1996, Sequa's non-contract inventories were valued
primarily on a first-in, first-out (FIFO) basis. During 1997,
Sequa changed its basis of those inventories formerly valued
using the last-in, first-out (LIFO) method to the FIFO method to
conform all non-contract inventories to the same method of
valuation. The effect of the accounting change, which was
immaterial, was recorded as a reduction of cost of sales in the
third quarter of 1997 and previously reported results of
operations were not restated. Inventoried costs relating to
long-term contracts are stated at actual or average costs,
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
INVENTORIES AND CONTRACT ACCOUNTING (cont'd)
including engineering and manufacturing labor and related
overhead incurred, reduced by amounts identified with sales. The
costs attributable to sales reflect the estimated costs of all
items to be produced under the related contract.
PROPERTY, PLANT AND EQUIPMENT, NET
For financial reporting purposes, depreciation and amortization
are computed using the straight-line method to amortize the cost
of assets over their estimated useful lives. Accelerated
depreciation methods are used for income tax purposes.
Sequa reviews properties for impairment whenever events or
changes in circumstances indicate that the carrying value of an
asset may not be fully recoverable. If the undiscounted future
cash flows expected to result from the use of an asset and its
eventual disposition are less than the carrying amount of the
asset, the property is written down to its fair market value.
Upon sale or retirement of properties, the related cost and
accumulated depreciation are removed from the accounts, and any
gain or loss is reflected currently. Expenditures for
maintenance and repairs of $50,715,000 in 1998, $50,862,000 in
1997 and $45,030,000 in 1996 were expensed as incurred, while
betterments and replacements were capitalized.
EXCESS OF COST OVER NET ASSETS OF COMPANIES ACQUIRED
Excess of cost over net assets of companies acquired (goodwill)
is being amortized on a straight-line basis over periods not
exceeding forty years. The recoverability of goodwill is
evaluated at the operating unit level by an analysis of operating
results and consideration of other significant events or changes
in the business environment. If an operating unit has current
operating losses, and, based upon projections, there is a
likelihood that such operating losses will continue, Sequa
evaluates whether impairment exists on the basis of undiscounted
expected future cash flows from operations before interest during
the remaining amortization period. If impairment exists, the
carrying amount of the goodwill is reduced to market value.
Amortization and write-downs charged against earnings in 1998,
1997 and 1996 were $11,637,000, $10,919,000 and $11,337,000,
respectively. Accumulated amortization at December 31, 1998 and
1997 was $128,611,000 and $116,974,000, respectively.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of Sequa's
foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of operations
denominated in foreign currencies are translated into US dollars
at exchange rates in effect at year-end, while revenues and
expenses are translated at weighted average exchange rates
prevailing during the year. The resulting translation gains and
losses are charged or credited directly to Accumulated Other
Comprehensive Income (Loss), a separate component of
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
FOREIGN CURRENCY TRANSLATION (cont'd)
shareholders' equity, and are not included in net income until
realized through sale or liquidation of the investment. Foreign
exchange gains and losses incurred on foreign currency
transactions are included in net income.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized to manage foreign
exchange risks and, to a lesser extent, to manage natural gas
price risks. Sequa has established a control environment which
includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial
instrument activities. Sequa does not buy, hold or sell
derivative financial instruments for trading purposes.
Gains and losses on forward exchange contracts designated as
hedges of existing assets and liabilities and anticipated
transactions are recognized in income as exchange rates change.
Gains and losses on forward exchange contracts that hedge firm
commitments are deferred and included in the basis of the
transactions when they are completed. The cost of foreign
currency options purchased to hedge anticipated transactions is
amortized to expense on a straight-line basis over the life of
the option. Gains or losses on purchased options are deferred
and included in the basis of the anticipated transactions if, and
when, the options are exercised.
Unrealized changes in the market values of outstanding
natural gas swaps designated as hedges are deferred, and the
monthly payments received from, or paid to, the counterparties of
the swaps are included in earnings during the period in which
settlements are made.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
It is Sequa's policy to accrue environmental remediation costs
for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated.
Accrued environmental remediation and compliance costs include
remedial investigation and feasibility studies, outside legal,
consulting and remediation project management fees, projected
cost of remediation activities, site closure and post-remediation
monitoring costs. At December 31, 1998, the potential exposure
for such costs is estimated to range from $17,000,000 to
$33,000,000, and Sequa's balance sheet includes accruals for
remediation costs of $25,404,000. These accruals are at
undiscounted amounts and are included in accrued expenses and
other noncurrent liabilities. Actual costs to be incurred at
identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental
exposures.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
REVENUE RECOGNITION
Generally, sales are recorded when products are shipped or when
services are rendered. Long-term contracts are accounted for
under the percentage-of-completion method whereby sales are
primarily recognized based upon costs incurred as a percentage of
estimated total costs, and gross profits are recognized under a
more conservative "efforts-expended" method primarily based upon
direct labor costs incurred as a percentage of estimated total
direct labor costs. Changes in estimates for sales, costs and
gross profits are recognized in the period in which they are
determinable using the cumulative catch-up method. Any
anticipated losses on contracts are charged to current operations
as soon as they are determinable.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred
and amounted to approximately $21,353,000 in 1998, $13,259,000 in
1997 and $12,856,000 in 1996.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. Sequa has
chosen to continue to account for stock-based compensation under
Accounting Principles Board (APB) Opinion No. 25, which measures
compensation cost for stock options as the excess, if any, of the
quoted market price of a company's stock at the grant date over
the amount an employee must pay to acquire the stock. As Sequa's
stock option plans require the option price to be no less than
the fair market value of the stock at the date of grant, no
compensation expense is recognized for stock options granted.
INCOME TAXES
Income taxes are recognized during the year in which transactions
enter into the determination of financial statement income, with
deferred taxes provided for temporary differences between
amounts of assets and liabilities recorded for tax and financial
reporting purposes.
No provision has been made for US or additional foreign taxes
on $245,619,000 of undistributed earnings of foreign
subsidiaries, as those earnings are intended to be permanently
reinvested. Such earnings would become taxable upon the sale or
liquidation of these foreign subsidiaries or upon the remittance
of dividends.
<PAGE>
Note 1. Summary of Significant Accounting Policies (cont'd)
COMPREHENSIVE INCOME
Effective January 1, 1998, Sequa adopted SFAS No. 130, "Reporting
Comprehensive Income." The new rules establish standards for the
reporting of comprehensive income and its components in financial
statements. Comprehensive income consists of net income and
other gains and losses affecting shareholders' equity that, under
generally accepted accounting principles, are excluded from net
income. For Sequa, these items consist of foreign currency
translation adjustments and unrealized gains and losses on
marketable securities. Since undistributed earnings of Sequa's
foreign subsidiaries are intended to be permanently reinvested,
taxes have not been provided for foreign currency translation
adjustments. The adoption of SFAS No. 130 did not have a
material effect on Sequa's primary financial statements, but did
affect the presentation of the accompanying Consolidated
Statement of Shareholders' Equity.
SEGMENT INFORMATION
On December 31, 1998, Sequa adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This
statement requires Sequa to report financial and descriptive
information about its reportable operating segments on the same
basis that is used internally for evaluating segment performance
and deciding how to allocate resources to segments. Sequa has
changed its reported business segments to comply with this
statement and at December 31, 1998, Sequa's operating business
segments are: Aerospace, Propulsion, Metal Coating, Specialty
Chemicals, and Other Products. Prior years' information has been
restated for consistency with the 1998 presentation.
NOTE 2. SHORT-TERM INVESTMENTS
At December 31, 1998, the $11,475,000 short-term investment
represents the market value of Sequa's investment in the common
stock of a publicly traded company. At December 31, 1997, the
$25,000,000 short-term investment represents Sequa's
participation in loans made by a group of banks for the benefit
of one of Sequa's joint ventures.
NOTE 3. UNBILLED RECEIVABLES, NET
Unbilled receivables, net consist of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- ------------------------------- ---- ----
<S> <C> <C>
Fixed-price contracts $33,923 $24,128
Cost-reimbursement contracts 4,872 3,649
------- -------
$38,795 $27,777
======= =======
</TABLE>
<PAGE>
NOTE 3. UNBILLED RECEIVABLES, NET (cont'd)
Unbilled receivables on fixed-price contracts arise as revenues
are recognized under the percentage-of-completion method. These
amounts are billable at specified dates, when deliveries are made
or at contract completion, which is expected to occur within one
year. All amounts included in unbilled receivables are related
to long-term contracts and are reduced by appropriate progress
billings.
Unbilled amounts on cost-reimbursement contracts represent
recoverable costs and accrued profits not yet billed. These
amounts are billable upon receipt of contract funding, final
settlement of indirect expense rates, or contract completion.
Allowances for estimated nonrecoverable costs are primarily to
provide for losses which may be sustained on contract costs
awaiting funding and for the finalization of indirect expenses.
Unbilled amounts at December 31, 1998 and 1997 are reduced by
allowances for estimated nonrecoverable costs of $879,000 and
$2,073,000, respectively.
NOTE 4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- ----------------------------- ---- ----
<S> <C> <C>
Finished goods $ 78,000 $ 68,570
Work in process 78,728 89,442
Raw materials 105,430 89,579
Long-term contract costs 9,249 11,599
Customer deposits (8,642) (12,741)
-------- --------
$262,765 $246,449
======== ========
</TABLE>
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS
During 1991, Sequa adopted a formal plan to divest Sequa
Capital's investment portfolio and classified it as a
discontinued operation. As of December 31, 1998, approximately
$363,000,000 of Sequa Capital's investment portfolio had been
sold, written down or otherwise disposed of since 1991. During
the same period, Sequa repaid approximately $367,000,000 of Sequa
Capital's debt. Sequa Capital's investment in leveraged leases
will be liquidated over the next 16 years as rentals are received
and residual values are realized. Debt of discontinued
operations at December 31, 1998 represents the accreted principal
<PAGE>
NOTE 5. NET ASSETS OF DISCONTINUED OPERATIONS (cont'd)
amount of the $25,000,000 in proceeds received from the non-
recourse securitization of Sequa Capital's leveraged lease
portfolio in 1994. The leveraged lease cash flow stream will
service the payment of principal and interest until the loan is
paid off. To the extent that the leveraged lease cash flow
stream during the next several years is less than the amount
necessary to service the debt, the loan will increase.
Net assets of discontinued operations approximate net
realizable value and have been classified as noncurrent. The
amounts Sequa Capital will ultimately realize from the leveraged
lease portfolio and other investments could differ materially
from management's best estimates of their realizable value. A
summary of the net assets of discontinued operations follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1998 1997
- -------------------------------- ------ ------
<S> <C> <C>
Investment in leveraged leases and
other investments $142,433 $144,292
Other assets, net 970 445
Debt (38,251) (35,014)
-------- --------
Net assets of discontinued operations $105,152 $109,723
======== ========
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- -------------------------------- ---- ----
<S> <C> <C>
Land and improvements $ 41,588 $ 43,580
Buildings and improvements 223,752 225,161
Machinery and equipment 790,481 751,364
Construction in progress 37,506 30,097
---------- ----------
1,093,327 1,050,202
Accumulated depreciation (641,884) (614,722)
---------- ----------
$ 451,443 $ 435,480
========== ==========
</TABLE>
Depreciation expense was $74,891,000 in 1998, $72,443,000 in 1997
and $76,537,000 in 1996.
<PAGE>
<TABLE>
NOTE 7. INDEBTEDNESS
Long-term debt is as follows:
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- -------------------------------- ---- ----
<S> <C> <C>
Senior unsecured notes, at 9 5/8%,
due 1999 $138,519 $138,519
Senior unsecured notes, at 8 3/4%, due 2001 109,948 109,948
Medium-term notes, at a weighted average
interest rate of 10.1%, due 2001 66,425 86,275
Senior subordinated notes, at 9 3/8%,
due 2003 174,000 175,000
Capital lease obligations, at weighted
average interest rates of 8.5% and 8.6%,
respectively, payable in varying amounts
through 2000 12,189 14,438
Other, at weighted average interest rates of
4.5% and 6.3%, respectively, payable in
varying amounts through 2004 8,263 9,065
-------- --------
509,344 533,245
Less current maturities (8,659) (24,510)
-------- --------
Total long-term debt $500,685 $508,735
======== ========
</TABLE>
In October 1997, Sequa entered into a $150,000,000 revolving
credit agreement with a group of banks that extends through
October 2002. The rate of interest payable under the agreement
is, at Sequa's option, a function of the prime rate or the
Eurodollar rate. The agreement requires Sequa to pay a
commitment fee, which is subject to adjustment based upon the
ratio of debt to EBITDA (earnings before interest, taxes,
depreciation and amortization), at an initial annual rate of
.275% of the unutilized amount available under the credit line.
At December 31, 1998, there were no borrowings outstanding under
this facility; however, $7,827,000 of the available credit line
was designated for the issuance of letters of credit, leaving
$142,173,000 of unused credit available.
<PAGE>
NOTE 7. INDEBTEDNESS (cont'd)
In October 1998, Sequa filed a shelf registration statement
with the Securities and Exchange Commission for the issuance of
up to $500,000,000 principal amount of senior unsecured debt
securities. Sequa anticipates that securities will be sold under
the shelf registration during the second or third quarter of
1999. The proceeds will be used to repay the remaining
$138,519,000 of Sequa's senior unsecured notes due in October
1999 and to refinance other existing public debt. If new public
debt is not issued during 1999, then Sequa intends to draw down
on its revolving credit agreement to repay the senior unsecured
notes due in October 1999.
Sequa has the intent and ability, supported by the terms and
amount of credit available under its revolving credit loan
agreement, to refinance, on a long-term basis, the senior
unsecured notes due in October 1999. Accordingly, the
$138,519,000 principal amount of this indebtedness continues to
be classified as long-term at December 31, 1998.
The aggregate maturities of total long-term debt during the
next five years are $8,659,000 in 1999, $5,053,000 in 2000,
$176,539,000 in 2001, $138,525,000 in 2002 and $174,007,000 in
2003. The $138,519,000 principal amount of the senior unsecured
notes, to be refinanced on a long-term basis, is included in debt
maturing in 2002, the year in which Sequa's revolving credit
agreement will expire.
Sequa's revolving credit loan agreement and indentures
contain covenants which, among other matters, limit its ability
to pay dividends, incur indebtedness, make capital expenditures,
repurchase common and preferred stock, and repurchase the 9 3/8%
senior subordinated notes due 2003. Sequa must also maintain a
minimum net worth and certain ratios regarding interest coverage
and debt to EBITDA, among other restrictions.
<PAGE>
<TABLE>
NOTE 8. INCOME TAXES
The components of income (loss) before income taxes were:
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $ 55,197 $ 17,863 $ (5,097)
Foreign 52,800 23,964 31,053
-------- -------- --------
$107,997 $ 41,827 $ 25,956
======== ======== ========
</TABLE>
The income tax provision (benefit) consisted of:
<TABLE>
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------- ---- ---- ----
<S> <C> <C> <C>
United States Federal
Current $ 865 $ 142 $ (374)
Deferred 20,281 9,283 3,087
State and local 5,155 1,569 1,128
Foreign 17,799 11,206 12,559
-------- -------- --------
$ 44,100 $ 22,200 $ 16,400
======== ======== ========
</TABLE>
The income tax provision is different from the amount computed by
applying the US Federal statutory income tax rate of 35% to
income before income taxes. The reasons for this difference are
as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Computed income taxes at statutory
rate $37,799 $ 14,639 $ 9,085
State and local taxes, net of
Federal income tax benefit 3,351 1,020 733
Goodwill amortization 3,584 3,424 3,691
Foreign subsidiaries at different
tax rates (2,586) (1,370) (410)
Foreign losses not benefited 1,555 4,189 2,100
Other, net 397 298 1,201
------- -------- --------
$44,100 $ 22,200 $ 16,400
======= ======== ========
</TABLE>
The deferred tax provision represents the change in deferred
tax assets and liabilities from the beginning of the year to the
end of the year resulting from changes in the temporary
differences between the financial reporting basis and the tax
basis of Sequa's assets and liabilities.
<PAGE>
<TABLE>
NOTE 8. INCOME TAXES (cont'd)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities are as follows:
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable allowances $ 3,472 $ -
Inventory valuation differences 23,916 4,002
Recognition of income on
long-term contracts 4,497 4,522
Depreciation 9,934 43,294
Lease and finance transactions - 120,634
Accruals not currently deductible
for tax purposes 68,378 -
Tax net operating loss carryforward 47,318 -
Alternative minimum tax (AMT)
credit carryforward 24,733 -
Other tax credit carryforwards 8,209 -
All other 22,421 12,588
-------- --------
Subtotal 212,878 185,040
Valuation allowance (9,999) -
------- --------
Total deferred taxes $202,879 $185,040
======== ========
</TABLE>
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1997
- ------------------------- --------------------
Deferred Deferred
Tax Tax
Assets Liabilities
------ -----------
<S> <C> <C>
Accounts receivable allowances $ 3,184 $ -
Inventory valuation differences 21,975 6,408
Recognition of income on
long-term contracts 3,754 5,697
Depreciation 11,181 49,909
Lease and finance transactions - 124,639
Accruals not currently deductible
for tax purposes 78,755 -
Tax net operating loss carryforward 74,275 -
Alternative minimum tax (AMT)
credit carryforward 20,680 -
Other tax credit carryforwards 10,681 -
All other 19,573 15,065
-------- --------
Subtotal 244,058 201,718
Valuation allowance (9,409) -
-------- --------
Total deferred taxes $234,649 $201,718
======== ========
</TABLE>
<PAGE>
NOTE 8. INCOME TAXES (cont'd)
Sequa has an issue with the Internal Revenue Service (IRS)
involving the 1989 restructuring of two subsidiaries. While
management believes its tax position in this matter is
appropriate, it has taken the conservative position of providing
reserves to cover an adverse outcome. At December 31, 1998, the
net amount involved was approximately $59,000,000, composed of
the potential liability associated with the restructuring and
related tax issues; interest expense, net of tax benefit, from
the date of the resulting tax refund; and deferred tax assets for
portions of tax loss and credit carryforwards which could be
utilized in a settlement. Management has had preliminary
settlement discussions with the IRS, and on October 1, 1998,
Sequa made a deposit of $24,000,000 with the IRS against the
expected liability for additional tax and interest that may be
assessed against Sequa related to certain of these tax matters.
The deposit stops the running of interest with respect to the
amounts deposited. Discussions have continued, and management
believes there is a possibility for final resolution of this
matter by the end of 1999.
At December 31, 1998, net current deferred tax assets of
$58,261,000 are netted against $74,760,000 of current taxes
payable and net noncurrent deferred tax liabilities of
$40,422,000 are presented as a single amount in the Consolidated
Balance Sheet. At December 31, 1997, net current deferred tax
assets of $52,009,000 are netted against $94,379,000 of current
taxes payable and net noncurrent deferred tax liabilities of
$19,078,000 are presented as a single amount in the Consolidated
Balance Sheet.
A valuation allowance has been established to reduce the
deferred tax asset recorded for certain tax credits that may
expire unutilized in 1999 through 2012 and to reduce the tax
benefit recorded for a portion of the cumulative losses of
Sequa's French subsidiaries. The AMT credit carryforward does
not expire and can be carried forward indefinitely. Sequa has a
domestic tax net operating loss carryforward of $135,194,000 at
December 31, 1998 that expires in 2008 through 2011.
Although Sequa experienced book and tax domestic losses prior
to 1997, Sequa was profitable domestically during 1998 and 1997,
and management believes that its domestic net operating loss
carryforwards will be utilized before their expiration through
future reversals of existing taxable temporary differences and
future earnings. The domestic losses prior to 1997 were largely
attributable to loss provisions recorded during 1991 and 1992 for
Sequa Capital, a discontinued leasing unit, and operating losses
incurred by Gas Turbine from 1993 through 1995. Sequa has
divested itself of a significant portion of Sequa Capital's
<PAGE>
NOTE 8. INCOME TAXES (cont'd)
assets and has decreased interest expense by significantly
reducing debt levels. In addition, Gas Turbine has been
profitable during the past three years due to decreased
litigation costs, rising demand from the commercial airline
market for jet engine component repair and increased demand from
the manufacturers of jet engines.
Sequa's ability to generate the expected amounts of domestic
taxable income from future operations is dependent upon general
economic conditions, the state of the airline industry and other
major markets, competitive pressures on sales and margins, and
other factors beyond management's control. There can be no
assurance that Sequa will meet its expectations for future
domestic taxable income in the carryforward period; however,
management has considered the above factors in reaching the
conclusion that it is more likely than not that future domestic
taxable income will be sufficient to fully realize the net
domestic deferred tax assets at December 31, 1998. The amount of
the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future domestic taxable
income during the carryforward period are reduced.
<TABLE>
NOTE 9. ACCRUED EXPENSES
Sequa's accrued expenses consist of the following items:
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- ------------------------------- ---- ----
<S> <C> <C>
Salaries and wages $ 47,825 $ 42,997
Current portion of environmental
liabilities 10,000 10,000
Current portion of self-insurance
liabilities 4,800 5,500
Current portion of pension liabilities 1,040 1,625
Warranty 18,806 14,315
Customer rebates 10,224 10,036
Legal fees 3,314 4,508
Royalties 9,474 7,964
Interest 5,171 5,590
Insurance 6,075 5,435
Taxes other than income 5,046 4,164
Other 53,025 51,711
-------- --------
$174,800 $163,845
======== ========
</TABLE>
<PAGE>
NOTE 10. FINANCIAL INSTRUMENTS
Sequa utilizes forward foreign exchange contracts and purchased
foreign currency options to reduce exposure to foreign currency
fluctuations on certain existing assets and liabilities, firm
commitments and anticipated transactions. To a lesser extent,
Sequa also utilizes natural gas swap agreements to convert a
portion of certain subsidiaries' estimated natural gas
requirements to fixed rates. Sequa's accounting policies with
respect to these financial instruments are described in Note 1.
At December 31, 1998, Sequa had forward foreign exchange
contracts outstanding with notional amounts of $56,605,000 and
natural gas swaps outstanding with notional amounts of
$3,779,000. At December 31, 1997, Sequa had forward foreign
exchange contracts outstanding with notional amounts of
$22,511,000.
The following table presents the carrying amounts and fair
values of Sequa's derivative and non-derivative financial
instruments:
<TABLE>
<CAPTION>
(Amounts in thousands)
At December 31, 1998 1997
- ---------------------- ------------ ------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 84,889 $ 84,889 $ 93,743 $ 93,743
Short-term investments 11,475 11,475 25,000 25,000
Forward foreign exchange
contracts 35 35 309 309
Liabilities
Current and long-term
debt 509,344 521,120 533,245 552,664
Forward foreign exchange
contracts 815 815 192 192
Natural gas swaps - 175 - -
</TABLE>
The fair value of cash and cash equivalents approximates the
carrying amount due to the short maturity of those instruments.
The fair value of short-term investments and Sequa's debt is
primarily based upon quoted market prices of publicly traded
securities. The fair value of forward foreign exchange contracts
is based on year-end exchange rates. The fair value of Sequa's
natural gas swap agreements is based upon the amounts that Sequa
could settle with the counterparties to terminate the natural gas
swaps outstanding at December 31, 1998.
At December 31, 1998, Sequa was contingently liable for
outstanding letters of credit, not reflected in the accompanying
consolidated financial statements, in the aggregate amount of
$49,760,000. Sequa is not currently aware of any existing
conditions that would cause risk of loss relative to outstanding
letters of credit.
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS
Sequa sponsors various noncontributory defined benefit pension
plans covering certain hourly and most salaried employees. The
defined benefit plans provide benefits based primarily on the
participants' years of service and compensation. Sequa's pension
plans are funded to accumulate sufficient assets to provide for
accrued benefits. Sequa also has several unfunded supplemental
executive retirement plans for certain key executives. These
plans provide for benefits that supplement those provided by
Sequa's other retirement plans.
The status of all of Sequa's significant domestic and foreign
defined benefit plans was as follows:
<TABLE>
<CAPTION>
Unfunded
Funded Defined Supplemental
Benefit Pension Retirement
(Amounts in thousands) Plans Plans
-------------- -------------
AT DECEMBER 31, 1998 1997 1998 1997
- ------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning
of year $265,442 $241,364 $ 15,050 $11,426
Service cost 10,005 7,886 (76) 79
Interest cost 19,208 17,966 1,121 989
Actuarial loss 34,962 11,198 1,716 1,157
Plan amendments 2,767 1,025 186 1,613
Curtailments (1,401) 402 245 -
Benefits paid (16,136) (13,479) (295) (214)
Translation adjustment 208 (920) - -
-------- -------- -------- -------
Benefit obligation at end of year $315,055 $265,442 $ 17,947 $15,050
-------- -------- -------- -------
Change in Plan Assets
- ---------------------
Fair value of plan assets at
beginning of year $292,085 $244,902 $ - $ -
Actual return on plan assets 24,825 57,657 - -
Employer contributions 4,160 3,929 295 214
Benefits paid (16,136) (13,479) (295) (214)
Translation adjustment 245 (924) - -
-------- -------- -------- -------
Fair value of plan assets at end
of year $305,179 $292,085 $ - $ -
-------- -------- -------- -------
Reconciliation of Funded Status
- -------------------------------
Funded status $ (9,876) $ 26,643 $(17,947)$(15,050)
Unrecognized net actuarial
(gain) loss 12,032 (23,572) 258 (1,458)
Unrecognized prior service cost 5,475 4,063 1,649 1,673
Unrecognized transition obligation (1,745) (2,469) - -
Translation adjustment (21) - - -
-------- -------- -------- --------
Net amount recognized $ 5,865 $ 4,665 $(16,040)$(14,835)
======== ======== ======== ========
Included in:
- ------------
Deferred charges $ 10,626 $ 8,846 $ - $ -
Accrued expenses (1,040) (1,625) - -
Other noncurrent liabilities (3,721) (2,556) (16,040) (14,835)
-------- -------- -------- --------
Net amount recognized $ 5,865 $ 4,665 $(16,040)$(14,835)
======== ======== ======== ========
</TABLE>
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
The funded plans' assets consist primarily of listed common
stock, pooled equity funds, index funds, debt instruments and
real estate funds. At December 31, 1998 and 1997, the plans'
assets included Sequa stock with market values of $32,109,000 and
$34,889,000, respectively.
Assumptions used in accounting for all of Sequa's significant
domestic and foreign defined benefit plans were:
<TABLE>
<CAPTION>
At December 31, 1998 1997 1996
- --------------- ---- ---- ----
<S> <C> <C> <C>
Discount rate for obligations 6.5% 7.25% 7.5%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0% 9.0%
</TABLE>
The periodic net pension cost of all of Sequa's significant
domestic and foreign defined benefit plans includes the following
components:
<TABLE>
<CAPTION>
Funded Defined
(Amounts in thousands) Benefit Pension Plans
---------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ 10,005 $ 7,886 $ 6,886
Interest cost 19,208 17,966 16,147
Expected return on assets (25,847) (21,588) (18,109)
Amortization of net transition amount (730) (734) (715)
Amortization of prior service cost 929 733 638
Recognized net (gain) loss (353) 3 7
------- ------- -------
Net periodic pension cost 3,212 4,266 4,854
(Gain) loss due to curtailments (961) 402 -
------- ------- -------
Total amount reflected in earnings $ 2,251 $ 4,668 $ 4,854
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Unfunded Supplemental
(Amounts in thousands) Retirement Plans
--------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $ (76) $ 79 $ 47
Interest cost 1,121 989 766
Amortization of prior service cost 211 302 1,310
Recognized net gain - (49) (175)
------- ------- -------
Net periodic pension cost 1,256 1,321 1,948
Loss due to curtailments 245 - -
------- ------- -------
Total amount reflected in earnings $ 1,501 $ 1,321 $ 1,948
======= ======= =======
</TABLE>
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (cont'd)
Employees not covered by the defined benefit plans discussed
above generally are covered by multiemployer plans as part of
collective bargaining agreements or by small local plans.
Pension expense for these multiemployer plans and small local
plans was not significant in the aggregate.
Sequa's domestic non-union employees are eligible to
participate in Sequa's 401(k) plans. Expenses recorded for
Sequa's matching contributions under these plans were $5,335,000
in 1998, $4,991,000 in 1997 and $4,314,000 in 1996.
Postretirement health care and other insurance benefits are
provided to certain retirees. The actuarial and recorded
liabilities for these postretirement benefits, none of which have
been funded, are as follows:
<TABLE>
<CAPTION>
Other
(Amounts in thousands) Postretirement Benefits
----------------------
AT DECEMBER 31, 1998 1997
---- ----
Change in Benefit Obligation
- ----------------------------
<S> <C> <C>
Benefit obligation at beginning
of year $2,306 $2,531
Service cost 184 142
Interest cost 157 189
Actuarial (gain) loss 685 (335)
Plan amendments - (54)
Participant contributions 174 181
Benefits paid (479) (348)
------ ------
Benefit obligation at end of year $3,027 $2,306
====== ======
</TABLE>
Net periodic postretirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
Other
(Amounts in thousands) Postretirement Benefits
-----------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost $ 184 $ 142 $ 139
Interest cost 157 189 223
Amortization of net (gain) loss 123 159 (22)
Amortization of unrecognized prior
service cost (164) (151) 28
Amortization of transition obligation 77 77 154
----- ----- -----
Net periodic postretirement benefit cost $ 377 $ 416 $ 522
===== ===== =====
</TABLE>
<PAGE>
NOTE 11. PENSION PLANS AND POSTRETIREMENT BENEFITS (con't)
The accumulated postretirement benefit obligation was
determined using a discount rate of 6.5% at December 31, 1998,
7.25% at December 31, 1997 and 7.5% at December 31 1996, and an
average health care cost trend rate of approximately 9%
progressively decreasing to approximately 5% in the year 2006 and
thereafter.
A one percentage point change in the assumed health care cost
trend rate would not have a material effect on the postretirement
benefit obligation or on the aggregate service cost and interest
cost components.
NOTE 12. CAPITAL STOCK
Sequa's capital stock consists of Class A and Class B common
stock and $5.00 cumulative convertible preferred stock. Holders
of Class A common stock have one vote per share; holders of Class
B common stock have ten votes per share; and preferred
stockholders have one vote per share. Holders of Class B common
stock are entitled to convert their shares into Class A common
stock at any time on a share-for-share basis. Each share of
$5.00 cumulative convertible preferred stock is convertible into
1.322 shares of Class A common stock. The preferred stock is
redeemable, at the option of Sequa, at $100 per share.
At December 31, 1998, 4,327,880 shares of Sequa Class A
common stock were reserved for the conversion of preferred and
Class B common stock, and for the exercise of outstanding stock
options.
The following table summarizes shares held in treasury:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998 1997 1996
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Class A common stock 215,104 512,643 614,100
Class B common stock 397,283 397,283 396,283
Preferred stock 383,990 186,690 186,690
</TABLE>
During 1998, 286,199 shares of Class A common stock were issued
out of treasury in exchange for 197,300 shares of cumulative
convertible preferred stock. The average exchange ratio was 1.45
shares of Class A common stock for each share of preferred.
<PAGE>
NOTE 13. STOCK OPTIONS
Sequa has three incentive and nonqualified stock option plans in
effect: the 1986 Stock Option Plan, the 1988 Stock Option Plan
and the 1998 Stock Option Plan. These plans provide for the
granting of options of Sequa's Class A common stock to key
employees. The option price per share may not be less than the
fair market value of the Class A common stock on the date the
option is granted, and the maximum term of an option may not
exceed ten years. Options primarily vest in three equal annual
installments, commencing on the first anniversary of the grant
date. Under the terms of the 1998 Stock Option Plan, Sequa is
authorized to grant to officers and other key employees options
to purchase up to a total of 500,000 shares of Class A common
stock. Authority to grant options under the 1986 Stock Option
Plan expired during 1996 and authority to grant options under the
1988 Stock Option Plan expired during 1998. The following table
summarizes the activity related to Sequa's stock options for the
three years ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Options Price
------- -----
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995 293,000 $32.18
Granted 1,800 $43.40
Expired or Cancelled (16,334) $35.28
Exercised (46,121) $32.33
--------
OUTSTANDING AT DECEMBER 31, 1996 232,345 $32.02
Granted 16,000 $50.38
Expired or Cancelled (3,010) $32.25
Exercised (104,237) $32.31
--------
OUTSTANDING AT DECEMBER 31, 1997 141,098 $33.91
Granted 428,000 $58.07
Expired or Cancelled (13,200) $40.05
Exercised (103,531) $32.36
--------
OUTSTANDING AT DECEMBER 31, 1998 452,367 $56.95
========
EXERCISABLE AT
December 31, 1996 221,578 $32.15
December 31, 1997 120,631 $31.88
December 31, 1998 17,000 $33.54
AVAILABLE FOR FUTURE GRANT 76,000 -
</TABLE>
<PAGE>
NOTE 13. STOCK OPTIONS (cont'd)
Under the provisions of APB Opinion No. 25, Sequa has
recognized no compensation expense for stock options granted.
Under SFAS No. 123, compensation cost is measured at the grant
date based on the value of the award and is recognized over the
vesting period. Had compensation cost for Sequa's stock option
plans been determined under SFAS No. 123, based on the fair
market value at the grant dates, Sequa's net earnings and
earnings per share would have been affected as shown in the
following pro forma presentation:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME
As reported $63,897 $19,627 $9,187
Pro forma 63,518 19,572 9,181
BASIC EARNINGS PER SHARE
As reported $6.01 $1.66 $0.61
Pro forma 5.97 1.66 0.61
DILUTED EARNINGS PER SHARE
As reported $5.87 $1.66 $0.61
Pro forma 5.83 1.65 0.61
</TABLE>
The fair value of each option is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions: risk free interest rate of 4.55%, expected
life of four years, expected volatility of 22.2% and expected
dividend yield of 0%.
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances for each classification of other
comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
AT DECEMBER 31, 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
Cumulative translation adjustment $ 473 $(6,794)
Unrealized loss on marketable
securities, net of tax benefits (1,489) -
------- -------
$(1,016) $(6,794)
======= =======
</TABLE>
<PAGE>
NOTE 15. ACQUISITIONS AND DISPOSITIONS
In October 1998, Sequa sold substantially all of the business and
operating assets of Sequa Chemicals, its US-based chemicals
division, for net cash proceeds of $107,275,000. The sale
resulted in a pre-tax gain of $49,867,000. Sequa Chemicals had
sales of $74,004,000 in 1998, $82,293,000 in 1997 and $74,069,000
in 1996 and operating income of $3,082,000 in 1998, $8,004,000 in
1997 and $8,261,000 in 1996. The consolidated financial
statements and accompanying notes reflect the operating results
of Sequa Chemicals as a continuing operation in the Other
Products segment. Also during 1998, Sequa sold a Gas Turbine
manufacturing facility in the United Kingdom for net cash
proceeds of $14,058,000. The sale resulted in a pre-tax gain of
$6,675,000.
In January 1998, Sequa purchased the remaining 50% interest
in a domestic airbag inflator joint venture (BAICO) that was not
previously owned for $22,736,000. Sequa assumed $25,000,000 of
BAICO's debt and repaid it during 1998. In 1998, Sequa also
purchased an Italian specialty chemicals distribution unit, a
liquid propellant rocket motor product line of Royal Ordnance and
made other small niche acquisitions for purchase prices
aggregating $17,926,000. These acquisitions have been accounted
for as purchases; accordingly, operating results are included in
the Consolidated Statement of Income from the dates of purchase.
Pro forma combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
In December 1997, Sequa sold Northern Can Systems, a
supplier of metal lids, for cash proceeds of $28,178,000. No
pre-tax gain or loss resulted from the sale. Northern Can
Systems had sales of $32,904,000 in 1997 and $26,179,000 in 1996
and operating income of $1,781,000 in 1997 and $1,005,000 in
1996. The consolidated financial statements and accompanying
notes reflect the operating results of Northern Can Systems as a
continuing operation in the Other Products segment.
In August 1997, Sequa purchased TEC Systems, a manufacturer
of dryers and environmental equipment for paper, printing and
other industrial applications, for $18,839,000. In May 1997,
Sequa purchased Sedgefield Specialties, a chemicals supplier to
the textile industry, for $13,853,000 and merged it into Sequa
Chemicals. These acquisitions have been accounted for as
purchases; accordingly, operating results are included in the
Consolidated Statement of Income from the dates of purchase. Pro
forma combined results of operations giving effect to these
acquisitions would not vary materially from historical results.
<PAGE>
<TABLE>
NOTE 16. OTHER, NET
Other, net includes the following income (expense) items:
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
Gain on sale of assets, net $ 82 $ 2,465 $ 8,268
Amortization of capitalized
debt issuance costs (1,220) (1,381) (2,145)
Letters of credit and commitment
fees (901) (1,596) (2,019)
Uninsured loss (2,000) - -
Income (loss) on cash surrender
value of corporate-owned
life insurance 986 1,321 (150)
Other (171) 334 329
------- ------- --------
$(3,224) $ 1,143 $ 4,283
======= ======= ========
</TABLE>
<PAGE>
NOTE 17. OPERATING LEASES
Certain businesses of Sequa utilize leased premises or equipment
under noncancelable agreements having initial or remaining terms
of more than one year. The majority of the real property leases
require Sequa to pay maintenance, insurance and real estate
taxes. Rental expense totaled $17,260,000, $17,083,000 and
$18,065,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998, future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
<S> <C>
1999 $13,702
2000 11,321
2001 9,353
2002 7,908
2003 6,164
After 2003 16,435
-------
$64,883
=======
</TABLE>
NOTE 18. EARNINGS PER SHARE
Basic earnings per share (EPS) for each of the respective years
have been computed by dividing the net earnings, after deducting
dividends on cumulative convertible preferred stock, by the
weighted average number of common shares outstanding during the
year.
<PAGE>
NOTE 18. EARNINGS PER SHARE (cont'd)
Diluted EPS reflects the potential dilution that could occur
if each share of the cumulative convertible preferred stock
outstanding were converted into 1.322 shares of Class A common
stock and the outstanding options to purchase shares of Class A
common stock were exercised.
The computation of basic and diluted EPS from continuing
operations is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------ ---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $63,897 $19,627 $ 9,556
Less: Preferred dividends (2,173) (3,051) (3,108)
------- ------- ------
Income available to common
stock--basic 61,724 16,576 6,448
Extraordinary loss - - (369)
------- ------- -------
Net income available to common
stock--basic 61,724 16,576 6,079
Convertible preferred stock
dividend requirements 2,173 - -
------- ------- ------
Net income available to common
stock--diluted $63,897 $16,576 $ 6,079
======= ======= =======
Weighted average number of common
shares outstanding--basic 10,275 9,967 9,880
Conversion of convertible
preferred stock 599 - -
Exercise of stock options 20 47 41
------- ------- -------
Weighted average number of common
shares outstanding--diluted 10,894 10,014 9,921
======= ======= =======
Basic earnings per share
Income before extraordinary item $ 6.01 $ 1.66 $ 0.65
Extraordinary loss - - (0.04)
------- ------- -------
Net income $ 6.01 $ 1.66 $ 0.61
======= ======= =======
Diluted earnings per share
Income before extraordinary item $ 5.87 $ 1.66 $ 0.65
Extraordinary loss - - (0.04)
------- ------- -------
Net income $ 5.87 $ 1.66 $ 0.61
======= ======= =======
</TABLE>
<PAGE>
NOTE 18. EARNINGS PER SHARE (cont'd)
The conversion of each share of preferred stock into 1.322
shares of common stock was not included in the computation of
diluted earnings per share for 1997 and 1996 because inclusion
would have had an anti-dilutive effect on EPS.
NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by discontinued operations primarily represents
the net proceeds from the divestiture and run-off of Sequa
Capital's investment portfolio.
Selected noncash activities and cash payments were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
Year ended December 31, 1998 1997 1996
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Noncash activities:
Acquisitions of businesses:
Fair value of assets acquired $85,572 $58,804 $ -
Cash paid 40,662 36,058 -
------- ------- -------
Liabilities assumed 44,910 22,746 -
Interest paid 52,195 50,350 52,417
</TABLE>
NOTE 20. SEGMENT INFORMATION AND GEOGRAPHIC DATA
At December 31, 1998, Sequa adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which
changes the way Sequa reports information about its operating
segments. The information for 1997 and 1996 has been restated
from the prior years' presentation in order to conform to the
five newly constituted operating segments: Aerospace, Propulsion,
Metal Coating, Specialty Chemicals and Other Products.
The Aerospace segment consists solely of Sequa's largest
operating unit, Chromalloy Gas Turbine Corporation. Gas Turbine
manufactures and repairs gas turbine engine components,
principally for domestic and international airlines, original
equipment manufacturers and the US military.
The Propulsion segment consists solely of ARC Propulsion, which
manufactures solid rocket propulsion systems for use primarily in
tactical military weapons sold to the US Government, automotive
airbag inflators and inflator components and liquid propellant
motors for use on commercial satellites.
<PAGE>
NOTE 20. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
The Metal Coating segment consists solely of Precoat Metals,
which applies polymer coatings to continuous steel and aluminum
coil for the nationwide building products market, the container
market and the diverse markets for manufactured products.
The Specialty Chemicals segment consists solely of Warwick
International, which produces bleach activators for powdered
laundry detergent products sold principally in European markets
and distributes specialty chemicals in Europe through a network
of distribution companies.
The Other Products segment is composed of four ongoing
businesses: MEGTEC Systems, Sequa Can Machinery, Casco Products,
and the Men's Apparel unit. MEGTEC Systems provides auxiliary
press equipment for web offset printing, and dryers and
environmental control equipment for the international industrial,
paper and printing markets. Sequa Can Machinery produces high
speed equipment to form and decorate two-piece metal cans for the
worldwide container industry.Casco Products manufactures
cigarette lighters, power outlets and electronic monitoring
devices primarily for North American automobile manufacturers.
The Men's Apparel unit designs and manufactures men's formalwear
and accessories for the North American market. This segment also
includes the results of two operations which were divested prior
to December 31, 1998. Sequa Chemicals, which produces a broad
range of chemicals primarily for domestic textile, paper, graphic
arts and building products markets, was sold in October 1998.
Northern Can Systems, which produces easy-open steel lids for the
domestic and international food processing industry, was sold in
December 1997.
The accounting policies of the reportable segments are the same
as those described in Note 1. Segment information amounts
presented are the same measures reported internally to management
for purposes of making decisions about allocating resources to
the segments and assessing their performance. Operating profit,
the measure of profit reported in the segment information,
represents income before income taxes, interest, equity in
unconsolidated joint ventures and other income (expense). The
expenses and assets attributable to corporate activities are not
allocated to the operating segments. Assets of corporate
activities include cash and cash equivalents, investments and net
assets of discontinued operations.
<PAGE>
<TABLE>
NOTE 20. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
Operation by business segment is presented below:
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
AEROSPACE
Sales $ 782,339 $ 727,346 $ 643,195
Operating income 65,154 50,341 4,843
Total assets 612,543 582,374 584,523
Capital expenditures 50,007 30,143 20,105
Depreciation and amortization 37,982 39,879 45,498
PROPULSION
Sales $ 268,615 $ 177,653 $ 150,423
Operating income 13,415 11,389 10,815
Total assets 355,955 282,092 286,133
Capital expenditures 19,949 10,909 6,415
Depreciation and amortization 20,146 14,172 15,013
METAL COATING
Sales $ 193,652 $ 200,037 $ 182,118
Operating income 14,859 20,334 20,393
Total assets 132,953 125,296 117,355
Capital expenditures 15,416 9,236 7,767
Depreciation and amortization 7,919 7,411 7,686
SPECIALTY CHEMICALS
Sales $ 155,301 $ 132,828 $ 143,993
Operating income 22,565 18,662 29,764
Total assets 104,772 89,693 98,775
Capital expenditures 3,090 4,171 3,971
Depreciation and amortization 9,114 9,841 9,214
OTHER PRODUCTS
Sales $ 402,486 $ 357,261 $ 339,300
Operating income 22,103 13,387 26,782
Total assets 173,984 236,099 201,781
Capital expenditures 14,795 12,698 11,396
Depreciation and amortization 12,418 12,631 11,604
CORPORATE
Expenses $ (32,633) $ (29,406) $ (27,439)
Total assets (a) 243,940 276,121 259,595
Capital expenditures 267 1,803 574
Depreciation and amortization 1,742 1,881 2,572
TOTALS
Sales $1,802,393 $1,595,125 $1,459,029
Operating income 105,463 84,707 65,158
Total assets 1,624,147 1,591,675 1,548,162
Capital expenditures 103,524 68,960 50,228
Depreciation and amortization 89,321 85,815 91,587
<FN>
(a) Includes cash, investments and net assets of discontinued
operations.
</TABLE>
<PAGE>
<TABLE>
NOTE 20. SEGMENT INFORMATION AND GEOGRAPHIC DATA (cont'd)
GEOGRAPHIC DATA
Sales are attributable to countries based on location of the
customer. Long-lived assets, which include property, plant and
equipment and goodwill, are based on physical location.
<CAPTION>
(Amounts in thousands)
YEAR ENDED DECEMBER 31, 1998 1997 1996
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
SALES
- -----
United States $ 956,479 $ 916,796 $ 804,633
United Kingdom 106,526 103,956 92,075
Canada 102,890 39,465 36,055
Italy 95,335 54,185 51,736
France 82,577 79,718 77,909
Germany 52,087 50,041 48,416
Japan 50,651 24,095 21,140
Other countries 355,848 326,869 327,065
---------- ---------- ----------
Total $1,802,393 $1,595,125 $1,459,029
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998 1997 1996
- ------------------- ---- ---- ----
<S> <C> <C> <C>
LONG-LIVED ASSETS
- -----------------
United States $ 640,103 $ 628,531 $ 637,833
United Kingdom 77,336 75,723 85,441
Other countries 41,055 36,766 42,189
---------- ---------- ----------
Total $ 758,494 $ 741,020 $ 765,463
========== ========== ==========
</TABLE>
No single commercial customer accounted for more than 10% of
sales in any year. The largest single contract with any one US
Government agency accounted for approximately 1% of sales in
1998, 1997 and 1996. Prime and subcontracts with all government
agencies accounted for approximately 9% of sales in 1998, and 10%
of sales in 1997 and 1996.
NOTE 21. CONTINGENCIES
Sequa is involved in a number of claims, lawsuits and proceedings
(environmental and otherwise) which arose in the ordinary course
of business. Other litigation is pending against Sequa involving
allegations that are not routine and include, in certain cases,
compensatory and punitive damage claims. Included in this other
class of litigation is an action commenced on July 11, 1995 by
United Technologies Corporation (UTC), through its Pratt &
Whitney division, against Chromalloy Gas Turbine Corporation
(Chromalloy) in the United States District Court for the District
of Delaware. The complaint sought unspecified monetary damages
and injunctive relief based on alleged breaches of certain
license agreements, alleged infringement of patents and misuse of
<PAGE>
NOTE 21. CONTINGENCIES (cont'd)
Pratt & Whitney intellectual property. Chromalloy answered the
complaint denying UTC's claims, and Chromalloy filed
counterclaims against UTC seeking monetary, declaratory and
injunctive relief based on UTC's breaches of license agreements,
failure to return royalty overpayments, patent invalidity, and
patent misuse. For a detailed report on earlier developments in
this matter, please see Sequa's Report on Form 10-K for the year
ended December 31, 1997, Reports on Form 10-Q for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998, and
Report on Form 8-K, filed on September 10, 1998.
The most recent significant events and the current status
follow. On August 14, 1998, the Court issued a Memorandum Opinion
and Order relating to Chromalloy's claim under the parties' 1985
Repair Agreement. The Court ordered UTC to provide Chromalloy
with updated technical data on an ongoing basis and to evaluate
and grant repair approvals to Chromalloy to repair components for
the most advanced models of several Pratt & Whitney engine
families, including the PW 4000 series, the PW 2000 series, and
the V2500 series. The Court identified eight separate contract
breaches by UTC and granted Chromalloy all the relief it had
requested. The Court also held that UTC had violated the 1985
Repair Agreement by failing to notify Chromalloy of the more
favorable licensing terms, including lower royalty rates, that
Pratt & Whitney negotiated with other component repair suppliers
and to give Chromalloy the opportunity to accept the same terms.
The trial on the monetary damages and other remedies being sought
by Chromalloy on that claim currently is scheduled for July 1999.
On February 19, 1999, Chromalloy moved for summary judgment with
regard to the damages and remedies being sought on this claim.
UTC has filed a Notice of Appeal to the United States Court
of Appeals for the Federal Circuit (the Federal Circuit) and UTC
also sought a stay of the August 14, 1998 Order from the federal
district court. On December 4, 1998, the district court denied
UTC's stay application. On December 7, 1998, UTC filed with the
Federal Circuit a motion for stay of the August 14, 1998 order
pending the court's decision on UTC's appeal. On March 1, 1999,
the Federal Circuit denied UTC's stay application stating that
UTC "has not shown a strong likelihood of success" on the merits
of its appeal. UTC's appeal to the Federal Circuit is now fully
briefed and pending.
Additional claims by both UTC and Chromalloy had been
scheduled for trials in November 1998 and March 1999. On
December 18, 1998, the parties agreed to resolve all of these
remaining claims, except for one of Chromalloy's counterclaims
and the issues scheduled for trial in July 1999 discussed above.
The settlement does not affect the issues tried during the five-
day bench trial in July 1998 on Chromalloy's claim for equitable
<PAGE>
NOTE 21. CONTINGENCIES (cont'd)
relief under one of the parties' licensing agreements. It would
be premature at this stage for management to make an evaluation
of the likely outcome of Chromalloy's remaining claims or UTC's
appeal.
On August 29, 1995, Chromalloy filed suit against UTC in the
131st District Court of Bexar County, Texas. This suit sought
unspecified damages and injunctive relief for violations by UTC
of the Texas Free Enterprise and Antitrust Act. UTC filed
counterclaims against Chromalloy for alleged breach of contract
and unfair competition. For a detailed report on earlier
developments in this matter, please see Sequa's previous filings
listed in the first paragraph of this Note. The only remaining
issue in this case is Chromalloy's appeal of the trial court's
denial of injunctive relief. On October 14, 1998, the Fourth
Court of Appeals issued its decision refusing to overturn the
trial court's denial of Chromalloy's request for injunctive
relief. Although the Court of Appeals acknowledged the October
1996 jury finding that Pratt & Whitney "willfully" or
"flagrantly" attempted to monopolize the market, causing harm to
Chromalloy, the Court held that, under the record presented on
appeal, "the trial court was not required, as a matter of law, to
conclude that ongoing, illegal conduct threatened Chromalloy with
injury." Chromalloy disagrees with the decision and has filed a
motion for reconsideration, both to the three-judge panel that
decided the case and also to the entire Court of Appeals for EN
BANC consideration. Those motions are still pending.
On October 17, 1996, Chromalloy filed suit against UTC in
the United States District Court for the District of Delaware.
The suit sought unspecified damages for, and injunctive relief
against, alleged infringement of Chromalloy patents. UTC filed
its answer asserting certain affirmative defenses and four
counterclaims. For a detailed report on earlier developments in
this matter, please see the reports listed in the first paragraph
of this Note. The Court initially set the trial date for
September 3, 1998 and (on UTC's motion) moved the trial date to
October 13, 1998. Prior to trial, the parties agreed to resolve
all of Chromalloy's claims and UTC's counterclaims, and, on
December 18, 1998, the parties finalized the settlement
documents.
Chromalloy's divisions compete for turbine engine repair
business with a number of other companies, including the original
equipment manufacturers (OEMs). The OEMs generally have
obligations (contractual and otherwise) to approve vendors to
manufacture components for their engines and/or perform repair
services on their engines and components. Chromalloy has a
number of such approvals, including licensing agreements, which
allow it to manufacture and repair certain components of flight
<PAGE>
NOTE 21. CONTINGENCIES (cont'd)
engines. The loss of a major OEM's approval to manufacture or
repair components for the OEM's engines could have an adverse
effect on Chromalloy, although management believes it has certain
actions available to it to mitigate the adverse effect.
The ultimate legal and financial liability of Sequa in
respect to all claims, lawsuits and proceedings referred to above
cannot be estimated with any certainty. However, in the opinion
of management, based on its examination of these matters, its
experience to date and discussions with counsel, the ultimate
outcome of these contingencies, net of liabilities already
accrued in Sequa's Consolidated Balance Sheet, is not expected to
have a material adverse effect on Sequa's consolidated financial
position, although the resolution in any reporting period of one
or more of these matters could have a significant impact on
Sequa's results of operations for that period.
<PAGE>
<TABLE>
NOTE 22. QUARTERLY FINANCIAL INFORMATION (Unaudited)
<CAPTION>
(Amounts in thousands, except per share data)
1998 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Sales $439,853 $457,666 $458,954 $445,920 $1,802,393
Cost of sales 352,839 363,387 366,750 361,938 1,444,914
Operating income 24,767 29,510 28,263 22,923 105,463
Net income $ 4,818 $ 11,914 $ 10,556 $ 36,609 $ 63,897
======== ======== ======== ======== ==========
Basic earnings per share $ 0.42 $ 1.11 $ 0.97 $ 3.48 $ 6.01
======== ======== ======== ======== ==========
Diluted earnings per share $ 0.41 $ 1.10 $ 0.97 $ 3.35 $ 5.87
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter ended March 31 June 30 Sept. 30 Dec. 31 Year
- ------------------ -------- ------- -------- ------- ----------
<S> <C> <C> <C> <C>
Sales $373,328 $393,458 $391,333 $437,006 $1,595,125
Cost of sales 303,609 317,319 313,738 351,163 1,285,829
Operating income 14,389 23,895 23,359 23,064 84,707
Net income $ 1,525 $ 4,555 $ 6,649 $ 6,898 $ 19,627
======== ======== ======== ======== ==========
Basic and diluted earnings per share $ 0.08 $ 0.38 $ 0.59 $ 0.61 $ 1.66
======== ======== ======== ======== ==========
<FN>
The following unusual items are included in the quarterly financial information:
Net income for the fourth quarter of 1998 includes an after-tax gain on the sale of Sequa Chemicals of
$30,917,000 or $2.97 per basic share. As a result of the large gain recorded in the fourth quarter of
1998 and increased common shares outstanding attributable to the exercise of stock options and the
issuance of common shares in exchange for preferred shares, quarterly earnings per share are not
additive for 1998.
Operating income for the fourth quarter of 1998 includes a $5,000,000 provision for environmental
expenses to raise accruals to an appropriate level relative to newly revised estimates of likely future
remediation costs. The after-tax effect of the charge is to reduce basic earnings per share by $0.30.
</TABLE>
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
None.
PART III
--------
ITEMS 10. THROUGH 13.
- ---------------------
The information required by Item 10 with respect to
executive officers is contained on page 13 of this Annual Report
on Form 10-K and is incorporated by reference.
Sequa has filed a preliminary proxy statement with the
Securities and Exchange Commission and intends to file a
definitive proxy statement pursuant to Regulation 14A involving
the election of directors not later than 120 days after the end
of its fiscal year ended December 31, 1998. Accordingly, the
information required by Part III (Items 10, concerning Sequa's
directors and disclosure pursuant to Item 405 of Regulation S-K,
and items 11, 12 and 13) is incorporated herein by reference to
such definitive proxy statement in accordance with General
Instruction G(3) to Form 10-K.
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
- -------- --------------------------------------------------------
FORM 8-K.
---------
(a) 1. Financial Statements:
---------------------
The following consolidated financial statements are included
in Part II of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Page Numbers
in this Annual
Report on Form
10-K
----------
<S> <C>
Report of Independent Public Accountants. 34
Consolidated Balance Sheet as of December 31,
1998 and 1997. 35-36
Consolidated Statement of Income for the three
years ended December 31, 1998. 37
Consolidated Statement of Cash Flows for the three
years ended December 31, 1998. 38
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1998. 39
Notes to Consolidated Financial Statements. 40-70
2. Financial Statement Schedules:
------------------------------
Financial statement schedules are omitted due to the absence of
conditions under which they are required.
<PAGE>
3. Exhibits
--------
Exhibit No. (Referenced to Item 601(b) of Regulation S-K)
- -----------
3.1 - Restated Certificate of Incorporation of Sequa and two
Certificates of Amendment of the Restated Certificate of
Incorporation of Sequa (incorporated by reference to
Exhibit 4(a) of Sequa's Registration Statement No.
33-12420 on Form S-8 filed on March 6, 1987).
3.2 - Certificate of Amendment of Certificate of Incorporation
of Sequa, dated May 7, 1987 (incorporated by reference
to Exhibit 3(b) of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1988,
filed on March 28, 1989).
3.3 - Restated and amended (as of August 26, 1993) By-laws of
Sequa, (incorporated by reference to Exhibit 3.3 of
Sequa's Registration Statement No. 33-50843 on Form S-1,
filed on October 29, 1993).
4.1 - Indenture, dated as of December 15, 1993, by and between
Sequa and Bankers Trust Company, as Trustee, and Form of
9 3/8% Senior Subordinated Note due December 15, 2003
(incorporated by reference to Exhibits 4.7 and 4.3,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.2 - Indenture, dated as of December 15, 1993, by and between
Sequa and IBJ Schroder Bank & Trust Company, as Trustee,
and Form of 8 3/4% Senior Note due December 15, 2001
(incorporated by reference to Exhibits 4.6 and 4.2,
respectively, of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.3 - Indenture, dated as of September 1, 1989, by and between
Sequa and The First National Bank of Chicago, as
Trustee, with respect to an aggregate of $250 million of
senior debt (incorporated by reference to Exhibit 4.1 of
Sequa's Form S-3 Registration Statement No. 33-30959,
filed on September 12, 1989).
4.4 - First Supplemental Indenture, dated as of October 15,
1989, by and between Sequa and The First National Bank
of Chicago, as Trustee (incorporated by reference to
Exhibit 4.5 of Sequa's Registration Statement on Form
8-A, File No. 1-804, filed on January 25, 1994).
4.5 - Prospectus Supplement, dated October 19, 1989, for $150
million of senior unsecured 9 5/8% Notes due October 15,
1999 (incorporated by reference to Sequa's filing under
Rule 424 (b)(2) on October 20, 1989).
<PAGE>
4.6 - Purchase Agreement, dated October 19, 1989, by and
between Sequa and certain Underwriters, and Form of
Supplemental Indenture, dated as of October 15, 1989,
both with respect to $150 million of senior unsecured
9 5/8% Notes due October 15, 1999 (incorporated by
reference to Sequa's Report on Form 8-K, File No. 1-804,
filed on October 25, 1989) and Form of 9 5/8% Note
(incorporated by reference to Exhibit 4.1 of Sequa's
Registration Statement on Form 8-A, File No. 1-804,
filed on January 25, 1994).
4.7 - Prospectus and Prospectus Supplement, both dated April
22, 1991, with respect to $100 million of medium-term
notes (incorporated by reference to Sequa's filing under
Rule 424 (b)(5) on April 23, 1991).
4.8 - Sales Agency and Distribution Agreement, executed as of
April 22, 1991, by and among Sequa and Bear, Stearns &
Co., Inc. and Merrill Lynch & Co., with respect to $100
million of medium-term notes, and Forms of Notes
thereunder (incorporated by reference to Exhibits 4.1
and 12.1 of Sequa's Report on Form 8-K, File No. 1-804,
filed on April 25, 1991).
4.9 - Instruments with respect to other long-term debt of
Sequa and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the amount of debt authorized under each such omitted
instrument does not exceed 10 percent of the total
assets of Sequa and its subsidiaries on a consolidated
basis. Sequa hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange
Commission upon request.
10.1 - $150 Million Credit Agreement, dated as of October 10,
1997, among Sequa, certain Subsidiary Guarantors of
Sequa, certain Lenders, The Chase Manhattan Bank as
Swingline Lender, Issuing Bank and Administrative Agent
and The Bank of New York, as Issuing Bank (incorporated
by reference to Exhibit 10.1 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1997, filed on March 20, 1998).
10.2 - Amendment No. 1 to Credit Agreement constituting Exhibit
10.1 hereto dated as of April 13, 1998 among Sequa,
certain Subsidiary Guarantors of Sequa, certain Lenders
and The Chase Manhattan Bank, as Administrative Agent
(filed herewith).
<PAGE>
10.3 Consent and Second Amendment Agreement to Credit
Agreement constituting Exhibit 10.1 hereto dated as of
September 28, 1998 among Sequa, certain Lenders and The
Chase Manhattan Bank, as Administrative Agent (filed
herewith).
10.4 Receivables Purchase Agreement dated as of November 13,
1998 among Sequa Receivables Corp., Sequa, Liberty
Street Funding Corp. and The Bank of Nova Scotia, as
administrator (filed herewith).
10.5 Purchase and Sale Agreement dated as of November 13,
1998 among the Originators named therein, Sequa and
Sequa Receivables Corp. (filed herewith).
10.6 Asset and Share Purchase Agreement dated October 29,
1998 by and among Sequa, Sequa Chemicals, Inc. and
GenCorp Inc. pursuant to which Sequa sold substantially
all of the business and operating assets of Sequa
Chemicals, Inc. and Sequa Chemicals S.A. (incorporated
by reference to Exhibit 2.1 of Sequa's Current Report on
Form 8-K, File No. 1-804, filed on November 6, 1998).
COMPENSATORY PLANS OR ARRANGEMENTS
10.7 - 1998 Key Employees Stock Option Plan (incorporated by
reference to Exhibit 10.2 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1997, filed on March 20, 1998).
10.8 - Sequa Corporation Management Incentive Bonus Program for
Corporate Executive Officers (Revised for 1998)
(incorporated by reference to Exhibit 10.3 of Sequa's
Annual Report on Form 10-K, File No. 1-804, for the year
ended December 31, 1997, filed on March 20, 1998).
10.9 - Sequa's Supplemental Executive Retirement Plans I, II,
and III, effective as of January 1, 1990 (incorporated
by reference to Exhibit 10(c) of Sequa's Annual Report
on Form 10-K, File No. 1-804, for the year ended
December 31, 1990, filed on April 1, 1991) and
amendments thereto (incorporated by reference to Exhibit
10(c) of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1991, filed
on March 30, 1992).
10.10 - Sequa Corporation Management Incentive Bonus Program for
Corporate Non-Executive Officers and Corporate Staff
(Revised for 1998) (incorporated by reference to Exhibit
10.5 of Sequa's Annual Report on Form 10-K for the year
ended December 31, 1997, filed on March 20, 1998).
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
10.11 - Letter Agreements, dated May 24, 1984, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10(h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1989, filed on March 30,
1990).
10.12 - Letter Agreements, dated April 30, 1990, by and between
Norman E. Alexander and Sequa, and Stuart Z. Krinsly and
Sequa (incorporated by reference to Exhibit 10 (h) of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1990, filed on April 1,
1991).
10.13 - Employment Agreement, dated April 1, 1993, by and
between John J. Quicke and Sequa, (incorporated by
reference to Exhibit 10(k) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1992, filed on March 31, 1993); Amendment thereto,
dated March 1, 1995 (incorporated by reference to
Exhibit 10.11 of Sequa's Annual Report on Form 10-K,
File No. 1-804, for the year ended December 31, 1994,
filed on March 30, 1995); and Amendment thereto, dated
September 26, 1996 (incorporated by reference to Exhibit
10.9 of Sequa's Annual Report on Form 10-K, File
No. 1-804, for the year ended December 31, 1996, filed
on March 24, 1997).
10.14 - Employment Agreement, dated as of October 1, 1991, by
and between Martin Weinstein and Chromalloy Gas Turbine
Corporation, (incorporated by reference to Exhibit 10(n)
of Sequa's Annual Report on Form 10-K, File No. 1-804
for the year ended December 31, 1991, filed on March 30,
1992); Amendment thereto, dated as of June 1, 1993
(incorporated by reference to Exhibit 10.14 of Sequa's
Registration Statement No. 33-50843 on Form S-1 filed on
October 29, 1993); Amendment thereto, dated as of
February 23, 1995 (incorporated by reference to Exhibit
10.12 of Sequa's Annual Report on Form 10-K, File No. 1-
804, for the year ended December 31, 1995, filed on
March 28, 1996); and Amendment thereto, dated as of June
1, 1996 (incorporated by reference to Exhibit 10.11 of
Sequa's Annual Report on Form 10-K, File No. 1-804, for
the year ended December 31, 1996, filed on March 24,
1997).
10.15 - Executive Life Insurance Plan of Sequa, (incorporated by
reference to Exhibit 10(o) of Sequa's Annual Report on
Form 10-K, File No. 1-804 for the year ended December
31, 1991, filed on March 30, 1992).
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS (cont'd)
10.16 - Key Employee Medical Insurance Plan of Sequa,
(incorporated by reference to Exhibit 10(p) of Sequa's
Annual Report on Form 10-K, File No. 1-804 for the year
ended December 31, 1991, filed on March 30, 1992).
10.17 - Sequa Corporation Management Incentive Bonus Program for
Operating Divisions (Revised 1997) (incorporated by
reference to Exhibit 10.18 of Sequa's Annual Report on
Form 10-K, File No. 1-804, for the year ended December
31, 1996, filed on March 24, 1997).
END OF COMPENSATORY PLANS OR ARRANGEMENTS
18.1 - Accountants letter regarding change in accounting
principle (incorporated by reference to Exhibit 18.1 of
Sequa's Quarterly Report on Form 10-Q, File No. 1-804,
for the quarterly period ended September 30, 1997, filed
on November 14, 1997).
21.1 - List of subsidiaries of Sequa, filed herewith.
23.1 - Consent of Independent Public Accountants, filed
herewith.
27.1 - Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
-------------------
Sequa filed a current Report on Form 8-K, dated November
6, 1998, in connection with the sale of Sequa Chemicals
to GenCorp Inc.
<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 Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SEQUA CORPORATION
Date: March 23, 1999 By: /S/ GERALD S. GUTTERMAN
---------------- -------------------------
Gerald S. Gutterman
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 23, 1999.
</TABLE>
<TABLE>
<S> <C>
By: /S/ NORMAN E. ALEXANDER Chairman of the Board, Chief
- -----------------------------
Norman E. Alexander Executive Officer and Director
By: /S/ JOHN J. QUICKE President, Chief Operating Officer
- -----------------------------
John J. Quicke and Director
By: /S/ STUART Z. KRINSLY Senior Executive Vice President,
- -----------------------------
Stuart Z. Krinsly General Counsel and Director
By: /S/ GERALD S. GUTTERMAN Executive Vice President and Chief
- -----------------------------
Gerald S. Gutterman Financial Officer
By: /S/ WILLIAM P. KSIAZEK Vice President and Controller
- -----------------------------
William P. Ksiazek (Chief Accounting Officer)
By: /S/ LEON D. BLACK Director
- -----------------------------
Leon D. Black
By: /S/ALVIN DWORMAN Director
- -----------------------------
Alvin Dworman
By: /S/ DAVID S. GOTTESMAN Director
- -----------------------------
David S. Gottesman
By: /S/ DONALD D. KUMMERFELD Director
- -----------------------------
Donald D. Kummerfeld
By: /S/ RICHARD S. LEFRAK Director
- -----------------------------
Richard S. LeFrak
By: /S/ MICHAEL I. SOVERN Director
- -----------------------------
Michael I. Sovern
By: /S/ FRED R. SULLIVAN Director
- -----------------------------
Fred R. Sullivan
By: /S/ GERALD TSAI Director
- -----------------------------
Gerald Tsai, Jr.
</TABLE>
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
dated as of November 13, 1998
among
SEQUA RECEIVABLES CORP.
SEQUA CORPORATION
LIBERTY STREET FUNDING CORP.
and
THE BANK OF NOVA SCOTIA
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE I.AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility 1
Section 1.2. Making Purchases 2
Section 1.3. Purchased Interest Computation 3
Section 1.4. Settlement Procedures 3
Section 1.5. Fees 8
Section 1.6. Payments and Computations, Etc 8
Section 1.7. Dividing or Combining Portions of the
Capital of the Purchased Interest 8
Section 1.8. Increased Costs 9
Section 1.9. Requirements of Law 9
Section 1.10. Inability to Determine Eurodollar Rate 10
ARTICLE II.REPRESENTATIONS AND WARRANTIES;
COVENANTS;TERMINATION EVENTS
Section 2.1. Representations and Warranties; Covenants 11
Section 2.2. Termination Events 11
ARTICLE III.INDEMNIFICATION
Section 3.1. Indemnities by the Seller 11
Section 3.2. Indemnities by the Servicer 13
ARTICLE IV.ADMINISTRATION AND COLLECTIONS
Section 4.1. Appointment of the Servicer 14
Section 4.2. Duties of the Servicer 15
Section 4.3. Lock-Box Arrangements 16
Section 4.4. Enforcement Rights 17
Section 4.5. Responsibilities of the Seller 18
Section 4.6. Servicing Fee 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE V.MISCELLANEOUS
Section 5.1. Amendments, Etc. 19
Section 5.2. Notices, Etc. 19
Section 5.3. Assignability 19
Section 5.4. Costs, Expenses and Taxes 20
Section 5.5. No Proceedings; Limitation on Payments 21
Section 5.6. GOVERNING LAW AND JURISDICTION 21
Section 5.7. Execution in Counterparts 21
Section 5.8. Survival of Termination 22
Section 5.9. WAIVER OF JURY TRIAL 22
Section 5.10. Entire Agreement 22
Section 5.11. Headings 22
Section 5.12. Issuer's Liabilities 22
EXHIBIT I Definitions
EXHIBIT II Conditions of Purchases
EXHIBIT III Representations and Warranties
EXHIBIT IV Covenants
EXHIBIT V Termination Events
SCHEDULE I Credit and Collection Policy
SCHEDULE II Lock-box Banks and Lock-box Accounts
SCHEDULE III Trade Names
ANNEX A Form of Monthly Report
ANNEX B Form of Purchase Notice
ANNEX C Special Obligors and Special Concentration
Percentages
</TABLE>
<PAGE>
This RECEIVABLES PURCHASE AGREEMENT (as amended,
supplemented or otherwise modified from time to time, this
"Agreement") is entered into as of November 13, 1998, among SEQUA
RECEIVABLES CORP., a New York corporation, as seller (the
"Seller"),SEQUA CORPORATION, a Delaware corporation ("Sequa"), as
initial servicer (in such capacity, together with its successors
and permitted assigns in such capacity, the "Servicer"), LIBERTY
STREET FUNDING CORP., a Delaware corporation (together with its
successors and permitted assigns, the "Issuer"), and THE BANK OF
NOVA SCOTIA, a Canadian chartered bank acting through its New
York Agency ("BNS"), as administrator (in such capacity, together
with its successors and assigns in such capacity, the
"Administrator").
PRELIMINARY STATEMENTS. Certain terms that are capitalized
and used throughout this Agreement are defined in Exhibit I.
References in the Exhibits hereto to the "Agreement" refer to
this Agreement, as amended, supplemented or otherwise modified
from time to time.
The Seller desires to sell, transfer and assign an undivided
variable percentage interest in a pool of receivables, and the
Issuer desires to acquire such undivided variable percentage
interest, as such percentage interest shall be adjusted from time
to time based upon, in part, reinvestments made by the Issuer.
In consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:
I.ARTICLE
AMOUNTS AND TERMS OF THE PURCHASES
1. Section PURCHASE FACILITY. On the terms and
conditions hereinafter set forth, the Issuer hereby agrees to
purchase, and make reinvestments in, undivided percentage
ownership interests with regard to the Purchased Interest from
the Seller from time to time from the date hereof to the Facility
Termination Date. Under no circumstances shall the Issuer make
any such purchase or reinvestment if, after giving effect to such
purchase or reinvestment, the aggregate outstanding Capital of
the Purchased Interest would exceed the Purchase Limit.
1. The Seller may, upon at least 30 days' written notice
to the Administrator, terminate in whole or reduce in part the
unused portion of the Purchase Limit; provided, that each partial
reduction shall be in the amount of at least $5,000,000, or an
integral multiple of $1,000,000 in excess thereof, and that,
unless terminated in whole, the Purchase Limit shall in no event
be reduced below $20,000,000.
1. Section MAKING PURCHASES. Each purchase (but not
reinvestment) of undivided percentage ownership interests with
<PAGE>
regard to the Purchased Interest hereunder shall be made upon the
Seller's irrevocable written notice in the form of Annex B
delivered to the Administrator in accordance with Section 5.2
(which notice must be received by the Administrator before 11:00
a.m., New York City time): (i) at least three Business Days
before the requested purchase date, in the case of a purchase to
be funded at the Alternate Rate and based upon the Eurodollar
Rate, (ii) at least two Business Days before the requested
purchase date, in the case of a purchase to be funded at the
Alternate Rate and based upon the Base Rate, and (iii) at least
two Business Day before the requested purchase date, in the case
of a purchase to be funded at the CP Rate, which notice shall
specify: (A) the amount requested to be paid to the Seller (such
amount, which shall not be less than $1,000,000, being the
Capital relating to the undivided percentage ownership interest
then being purchased), (B) the date of such purchase (which shall
be a Business Day), and (C) the desired funding basis for such
purchase (which shall be based upon the Eurodollar Rate, the Base
Rate or the CP Rate). If the Seller has requested that the
purchase be funded at the CP Rate, the Administrator shall
promptly thereafter notify the Seller whether the Issuer has
exercised its discretion not to fund such purchase with the
issuance of Notes because such purchase with the issuance of
Notes would be economically inadvisable to the Issuer, the
Administrator, the Seller or any other similarly situated Person,
or otherwise not permitted, in which case the Seller shall be
deemed to have requested that the purchase be funded at the
Alternate Rate and be based upon the Base Rate.
1. On the date of each purchase (but not reinvestment) of
undivided percentage ownership interests with regard to the
Purchased Interest hereunder, the Issuer shall, upon satisfaction
of the applicable conditions set forth in Exhibit II, make
available to the Seller in same day funds, at The Bank of New
York, account number 8900209887, ABA 021000018, an amount equal
to the Capital relating to the undivided percentage ownership
interest then being purchased.
1. Effective on the date of each purchase pursuant to
this Section and each reinvestment pursuant to Section 1.4, the
Seller hereby sells and assigns to the Issuer an undivided
percentage ownership interest in: (i) each Pool Receivable then
existing, (ii) all Related Security with respect to such Pool
Receivables, and (iii) all Collections with respect to, and other
proceeds of, such Pool Receivables and Related Security.
1. To secure all of the Seller's obligations (monetary or
otherwise) under this Agreement and the other Transaction
Documents to which it is a party, whether now or hereafter
existing or arising, due or to become due, direct or indirect,
absolute or contingent, the Seller hereby grants to the Issuer a
security interest in all of the Seller's right, title and
interest (including any undivided interest of the Seller) in, to
and under all of the following, whether now or hereafter owned,
<PAGE>
existing or arising: (i) all Pool Receivables, (ii) all Related
Security with respect to such Pool Receivables, (iii) all
Collections with respect to such Pool Receivables, (iv) the Lock-
Box Accounts, the Concentration Accounts and the Liquidation
Account and all amounts on deposit therein, and all certificates
and instruments, if any, from time to time evidencing such Lock-
Box Accounts, Concentration Accounts and Liquidation Account and
amounts on deposit therein, (v) all rights (but none of the
obligations) of the Seller under the Sale Agreement, and (vi) all
proceeds of, and all amounts received or receivable under any or
all of, the foregoing (collectively, the "Pool Assets"). The
Issuer shall have, with respect to the Pool Assets, and in
addition to all the other rights and remedies available to the
Issuer, all the rights and remedies of a secured party under any
applicable UCC.
A. Section PURCHASED INTEREST COMPUTATION. The Purchased
Interest shall be initially computed on the date of the initial
purchase hereunder. Thereafter, until the Facility Termination
Date, the Purchased Interest shall be automatically recomputed
(or deemed to be recomputed) on each Business Day other than a
Termination Day. The Purchased Interest as computed (or deemed
recomputed) as of the day before the Facility Termination Date
shall thereafter remain constant. The Purchased Interest shall
become zero when the Capital thereof and Discount thereon shall
have been paid in full, all the amounts owed by the Seller and
the Servicer hereunder to the Issuer, the Administrator and any
other Indemnified Party or Affected Person are paid in full, and
the Servicer shall have received the accrued Servicing Fee
thereon.
1. Section SETTLEMENT PROCEDURES. The collection of the
Pool Receivables shall be administered by the Servicer in
accordance with this Agreement. The Seller shall provide to the
Servicer on a timely basis all information needed for such
administration, including notice of the occurrence of any
Termination Day and current computations of the Purchased
Interest.
1. The Servicer shall, on each Business Day on which
Collections of Pool Receivables are received (or deemed received)
by the Seller or Servicer or are deposited into the Lock-Box
Accounts, transfer such Collections therefrom and deposit such
Collections into the Concentration Accounts. With respect to
such Collections on such day, the Servicer shall:
a. transfer from the Concentration Accounts to
the Liquidation Account for the benefit of the Issuer,
out of the percentage of such Collections represented
by the Purchased Interest, FIRST an amount equal to the
Discount accrued through such day for each Portion of
Capital and not previously transferred, SECOND, an
amount equal to the fees set forth in the Fee Letter
accrued through such day for the Purchased Interest and
<PAGE>
not previously transferred, and THIRD, to the extent
funds are available therefor, an amount equal to the
Issuer's Share of the Servicing Fee accrued through
such day and not previously transferred; and
a. subject to Section 1.4(f), if such day is
not a Termination Day, remit to the Seller, on behalf
of the Issuer, the remainder of the percentage of such
Collections, represented by the Purchased Interest, to
the extent representing a return on the Capital; such
Collections shall be automatically reinvested in Pool
Receivables, and in the Related Security and
Collections and other proceeds with respect thereto,
and the Purchased Interest shall be automatically
recomputed pursuant to SECTION 1.3; IT BEING
UNDERSTOOD, that prior to remitting to the Seller the
remainder of such Collections by way of reinvestment in
Pool Receivables, the Servicer shall have calculated
the Purchased Interest on such day, and if such
Purchased Interest shall exceed 100% of the Net
Receivables Pool Balance on such day, such Collections
shall not be remitted to the Seller but shall be
transferred to the Liquidation Account for the benefit
of the Issuer in accordance with paragraph (iii) below;
a. if such day is a Termination Day,
(A) transfer to the Liquidation Account for the benefit
of the Issuer the entire remainder of the percentage of
the Collections represented by the Purchased Interest;
provided that so long as the Facility Termination Date
has not occurred if any amounts are so transferred to
the Liquidation Account on any Termination Day and
thereafter, the conditions set forth in Section 2 of
Exhibit II are satisfied or are waived by the
Administrator, such previously transferred amounts
shall, to the extent representing a return on the
Capital, be reinvested in accordance with the preceding
paragraph (ii) on the day of such subsequent
satisfaction or waiver of conditions, and (B) transfer
to the Liquidation Account for the benefit of the
Issuer the entire remainder of the Collections in the
Concentration Accounts represented by the Seller's
Share of the Collections, if any; provided that so long
as the Facility Termination Date has not occurred if
any amounts are so set aside on any Termination Day and
thereafter, the conditions set forth in Section 2 of
Exhibit II are satisfied or are waived by the
Administrator, such previously set aside amounts shall
be distributed to the Seller on the day of such
subsequent satisfaction or waiver of conditions; and
a. if such day is not a Termination Day,
release to the Seller (subject to Section 1.4(f)) for
its own account any Collections (including amounts
<PAGE>
representing Collections with respect to Receivables
that are not Eligible Receivables) in excess of (x) any
amounts that are required to be reinvested in
accordance with the foregoing paragraph (ii) or the
proviso to paragraph (iii), (y) the amounts that are
required to be transferred to the Liquidation Account
pursuant to paragraph (i) above and (z) in the event
the Seller is not the Servicer, all reasonable and
appropriate out-of-pocket costs and expenses of such
Servicer of servicing, collecting and administering the
Pool Receivables.
1. The Servicer shall deposit into the
Administrator's Account (or such other account designated by
the Administrator), on each Settlement Date relating to a
Portion of Capital or the payment of Fees:
a. Collections held on deposit in the
Liquidation Account for the benefit of the Issuer
pursuant to Section 1.4(b)(i) in respect of accrued
Discount on such Portion of Capital and accrued and
unpaid Fees;
a. Collections held on deposit in the
Liquidation Account for the benefit of the Issuer
pursuant to Section 1.4(f) with respect to such Portion
of Capital; and
a. the lesser of (x) the amount of Collections
then held on deposit in the Liquidation Account for the
benefit of the Issuer pursuant to Section 1.4(b)(iii)
and (y) such Portion of Capital.
The Servicer shall deposit to its own account from
Collections held on deposit in the Liquidation Account
pursuant to Section 1.4(b)(i) in respect of the accrued
Servicing Fee, an amount equal to such accrued Servicing
Fee.
1. Upon receipt of funds deposited into the
Administration Account pursuant to clause (c), the
Administrator shall cause such funds to be distributed as
follows:
a. if such distribution occurs on a day that is
not a Termination Day and the Purchased Interest does
not exceed 100%, FIRST to the Issuer in payment in full
of all accrued Discount with respect to each Portion of
Capital and accrued and unpaid Fees, and SECOND, if the
Servicer has set aside amounts in respect of the
Servicing Fee pursuant to clause (b)(i) and has not
retained such amounts pursaunt to clause (c), to the
Servicer (payable in arrears on each Monthly Settlement
Date) in payment in full of the Issuer's Share of
<PAGE>
accrued Servicing Fees so set aside, and
a. if such distribution occurs on a Termination
Day or on a day when the Purchased Interest exceeds
100%, FIRST to the Issuer in payment in full of all
accrued Discount with respect to each Portion of
Capital and accrued and unpaid Fees, SECOND to the
Issuer in payment in full of Capital (or, if such day
is not a Termination Day, the amount necessary to
reduce the Purchased Interest to 100%), THIRD, if Sequa
or an Affiliate thereof is not the Servicer, to the
Servicer in payment in full of all accrued Servicing
Fees, FOURTH, if the Capital and accrued Discount with
respect to each Portion of Capital have been reduced to
zero, and all accrued Servicing Fees payable to the
Servicer (if other than Sequa or an Affiliate thereof)
have been paid in full, to the Issuer, the
Administrator and any other Indemnified Party or
Affected Person in payment in full of any other amounts
owed thereto by the Seller under this Agreement and,
FIFTH, unless such amount has been retained by the
Servicer pursuant to clause (c), to the Servicer (if
the Servicer is Sequa or an Affiliate thereof) in
payment in full of the Issuer's Share of all accrued
Servicing Fees.
After the Capital, Discount, Fees and Servicing Fees with
respect to the Purchased Interest, and any other amounts
payable by the Seller and the Servicer to the Issuer, the
Administrator or any other Indemnified Party or Affected
Person hereunder, have been paid in full, all additional
Collections with respect to the Purchased Interest shall be
paid to the Seller for its own account.
1. For the purposes of this Section 1.4:
a. if on any day the Outstanding Balance of any
Pool Receivable is reduced or adjusted as a result of
any defective, rejected, returned, repossessed or
foreclosed goods or services, or any revision,
cancellation, allowance, discount or other adjustment
made by any Originator, the Servicer, the Seller or any
Affiliate of the Seller, or any setoff or dispute
between any Originator, the Seller or any Affiliate of
the Seller and an Obligor, the Seller shall be deemed
to have received on such day a Collection of such Pool
Receivable in the amount of such reduction or
adjustment;
a. if on any day any of the representations or
warranties in Section 1(g) or (m) of Exhibit III is not
true with respect to any Pool Receivable, the Seller
shall be deemed to have received on such day a
Collection of such Pool Receivable in full (Collections
<PAGE>
deemed to have been received pursuant to clause (i) and
(ii) of this paragraph (e) are hereinafter sometimes
referred to as "Deemed Collections");
a. except as otherwise required by applicable
law or the relevant Contract, all Collections received
from an Obligor of any Receivable shall be applied to
the Receivables of such Obligor in the order of the age
of such Receivables, starting with the oldest such
Receivable, unless such Obligor designates in writing
its payment for application to specific Receivables;
and
a. if and to the extent the Administrator or
the Issuer shall be required for any reason to pay over
to an Obligor (or any trustee, receiver, custodian or
similar official in any Insolvency Proceeding) any
amount received by it hereunder, such amount shall be
deemed not to have been so received by the
Administrator or the Issuer but rather to have been
retained by the Seller and, accordingly, the
Administrator or the Issuer, as the case may be, shall
have a claim against the Seller for such amount,
payable when and to the extent that any distribution
from or on behalf of such Obligor is made in respect
thereof.
1. If at any time the Seller shall wish to cause the
reduction of Capital of the Purchased Interest (but not to
commence the liquidation, or reduction to zero, of the
entire Capital of the Purchased Interest), the Seller may do
so as follows:
a. the Seller shall give the Administrator and
the Servicer at least two Business Days' prior written
notice thereof (including the amount of such proposed
reduction and the proposed date on which such reduction
will commence);
a. on the proposed date of commencement of such
reduction and on each day thereafter, the Servicer
shall cause Collections not to be reinvested until the
amount thereof not so reinvested shall equal the
desired amount of reduction; and
a. the Servicer shall hold such Collections in
the Liquidation Account for the benefit of the Issuer,
for payment to the Administrator on the next Settlement
Date immediately following the current Yield Period,
and the Capital of the Purchased Interest shall be
deemed reduced in the amount to be paid to the
Administrator only when in fact finally so paid;
provided, that:
<PAGE>
(A) the amount of any such reduction shall be not
less than $5,000,000 and shall be an integral multiple
of $1,000,000, and the entire Capital of the Purchased
Interest after giving effect to such reduction shall be
not less than $20,000,000 and shall be in an integral
multiple of $1,000,000 (unless Capital shall have been
reduced to zero); and
(B) the Seller shall choose a reduction amount,
and the date of commencement thereof, so that to the
extent practicable such reduction shall commence and
conclude in the same Yield Period.
A. Section FEES. The Seller shall pay to the
Administrator certain fees in the amounts and on the dates
set forth in a letter, dated the date hereof, among Sequa,
the Seller and the Administrator (as such letter agreement
may be amended, supplemented or otherwise modified from time
to time, the "Fee Letter").
1. Section PAYMENTS AND COMPUTATIONS, Etc. All
amounts to be paid or deposited by the Seller or the
Servicer hereunder shall be made without reduction for
offset or counterclaim and shall be paid or deposited no
later than noon (New York City time) on the day when due in
same day funds to the Administration Account. All amounts
received after noon (New York City time) will be deemed to
have been received on the next Business Day.
1. The Seller or the Servicer, as the case may be,
shall, to the extent permitted by law, pay interest on any
amount not paid or deposited by the Seller or the Servicer,
as the case may be, when due hereunder, at an interest rate
equal to 1.0% per annum above the Base Rate, payable on
demand.
1. All computations of interest under clause (b) and
all computations of Discount, fees and other amounts
hereunder shall be made on the basis of a year of 360 (or
365 or 366, as applicable, with respect to Discount or other
amounts calculated by reference to the Base Rate) days for
the actual number of days elapsed. Whenever any payment or
deposit to be made hereunder shall be due on a day other
than a Business Day, such payment or deposit shall be made
on the next Business Day and such extension of time shall be
included in the computation of such payment or deposit.
A. Section DIVIDING OR COMBINING PORTIONS OF THE
CAPITAL OF THE PURCHASED INTEREST. The Seller may, on the
last day of any Yield Period, pursuant to written notice
delivered to the Administrator in accordance with Section
5.2: (a) at least three Business Days before such last day
in the case of a Portion of Capital to be funded based upon
the Eurodollar Rate and (b) at least two Business Days
<PAGE>
before such last day in all other cases, either: (i) divide
the Capital of the Purchased Interest into two or more
portions (each a "Portion of Capital"), which Portions of
Capital may accrue Discount by reference to different rates,
equal, in aggregate, to the Capital of the Purchased
Interest; provided, that after giving effect to such
division the amount of each such Portion of Capital shall be
not less than $5,000,000 and shall be an integral multiple
of $1,000,000, or (ii) combine any two or more Portions of
Capital outstanding on such last day and having Yield
Periods ending on such last day into a single Portion of
Capital equal to the aggregate of the Capital of such
Portions of Capital.
1. Section INCREASED COSTS. If the Administrator,
the Issuer, any Purchaser, any other Program Support
Provider or any of their respective Affiliates (each an
"Affected Person") reasonably determines that the existence
of or compliance with: (i) any law or regulation or any
change therein or in the interpretation or application
thereof, in each case adopted, issued or occurring after the
date hereof, or (ii) any request, guideline or directive
from any central bank or other Governmental Authority
(whether or not having the force of law) issued or occurring
after the date of this Agreement, affects or would affect
the amount of capital required or expected to be maintained
by such Affected Person, and such Affected Person determines
that the amount of such capital is increased by or based
upon the existence of any commitment to make purchases of
(or otherwise to maintain the investment in) Pool
Receivables related to this Agreement or any related
liquidity facility, credit enhancement facility and other
commitments of the same type, then, upon demand by such
Affected Person (with a copy to the Administrator), the
Seller shall promptly pay to the Administrator, for the
account of such Affected Person, from time to time as
specified by such Affected Person, additional amounts
sufficient to compensate such Affected Person. A certificate
as to such amounts submitted to the Seller and the
Administrator by such Affected Person shall be conclusive
and binding for all purposes, absent manifest error.
1. If, due to either: (i) the introduction of or any
change in or in the interpretation of any law or regulation
or (ii) compliance with any guideline or request from any
central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the
cost to any Affected Person of agreeing to purchase or
purchasing, or maintaining the ownership of, the Purchased
Interest in respect of which Discount is computed by
reference to the Eurodollar Rate, then, upon demand by such
Affected Person, the Seller shall promptly pay to such
Affected Person, from time to time as specified by such
Affected Person, additional amounts sufficient to compensate
such Affected Person for such increased costs. A certificate
<PAGE>
as to such amounts submitted to the Seller and the
Administrator by such Affected Person shall be conclusive
and binding for all purposes, absent manifest error.
A. Section REQUIREMENTS OF LAW. If any Affected
Person reasonably determines that the existence of or
compliance with: (a) any law or regulation or any change
therein or in the interpretation or application thereof, in
each case adopted, issued or occurring after the date
hereof, or (b) any request, guideline or directive from any
central bank or other Governmental Authority (whether or not
having the force of law) issued or occurring after the date
of this Agreement:
(i) does or shall subject such Affected Person to
any tax of any kind whatsoever with respect to this
Agreement, any increase in the Purchased Interest or in
the amount of Capital relating thereto, or does or
shall change the basis of taxation of payments to such
Affected Person on account of Collections, Discount or
any other amounts payable hereunder (excluding taxes
imposed on the overall pre-tax net income of such
Affected Person, and franchise taxes imposed on such
Affected Person, by the jurisdiction under the laws of
which such Affected Person is organized or a political
subdivision thereof),
(ii) does or shall impose, modify or hold
applicable any reserve, special deposit, compulsory
loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of,
purchases, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any
office of such Affected Person that are not otherwise
included in the determination of the Eurodollar Rate or
the Base Rate hereunder, or
(iii) does or shall impose on such Affected Person
any other condition,
and the result of any of the foregoing is: (A) to increase
the cost to such Affected Person of acting as Administrator,
or of agreeing to purchase or purchasing or maintaining the
ownership of undivided percentage ownership interests with
regard to the Purchased Interest (or interests therein) or
any Portion of Capital, or (B) to reduce any amount
receivable hereunder (whether directly or indirectly), then,
in any such case, upon demand by such Affected Person, the
Seller shall promptly pay to such Affected Person additional
amounts necessary to compensate such Affected Person for
such additional cost or reduced amount receivable. All such
amounts shall be payable as incurred. A certificate from
such Affected Person to the Seller as to the amount of such
additional costs or reduced amount receivable shall be
<PAGE>
conclusive and binding for all purposes, absent manifest
error.
A. Section INABILITY TO DETERMINE EURODOLLAR RATE.
If the Administrator shall have determined before the first
day of any Yield Period (which determination shall be
conclusive and binding upon the parties hereto), by reason
of circumstances affecting the interbank Eurodollar market,
either that: (a) dollar deposits in the relevant amounts and
for the relevant Yield Period are not available, (b)
adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for such Yield Period or (c) the
Eurodollar Rate determined pursuant hereto does not
accurately reflect the cost to the Issuer (as conclusively
determined by the Administrator) of maintaining any Portion
of Capital during such Yield Period, the Administrator shall
promptly give telephonic notice of such determination,
confirmed in writing, to the Seller before the first day of
such Yield Period. Upon delivery of such notice: (i) no
Portion of Capital shall be funded thereafter at the
Alternate Rate determined by reference to the Eurodollar
Rate unless and until the Administrator shall have given
notice to the Seller that the circumstances giving rise to
such determination no longer exist, and (ii) with respect to
any outstanding Portions of Capital then funded at the
Alternate Rate determined by reference to the Eurodollar
Rate, such Alternate Rate shall automatically be converted
to the Alternate Rate determined by reference to the Base
Rate at the respective last days of the then-current Yield
Periods relating to such Portions of Capital.
I.ARTICLE
REPRESENTATIONS AND WARRANTIES; COVENANTS;
TERMINATION EVENTS
A. Section REPRESENTATIONS AND WARRANTIES;
COVENANTS. Each of the Seller, Sequa and the Servicer hereby
makes the representations and warranties, and hereby agrees
to perform and observe the covenants, applicable to it set
forth in Exhibits III and IV, respectively.
A. Section TERMINATION EVENTS. If any of the
Termination Events set forth in Exhibit V shall occur, the
Administrator may, by notice to the Seller, declare the
Facility Termination Date to have occurred (in which case
the Facility Termination Date shall be deemed to have
occurred); provided, that automatically upon the occurrence
of any event (without any requirement for the passage of
time or the giving of notice) described in paragraph (f) of
Exhibit V, the Facility Termination Date shall occur. Upon
any such declaration, occurrence or deemed occurrence of the
Facility Termination Date, the Issuer and the Administrator
<PAGE>
shall have, in addition to the rights and remedies that they
may have under this Agreement, all other rights and remedies
provided after default under the New York UCC and under
other applicable law, which rights and remedies shall be
cumulative.
I.ARTICLE
INDEMNIFICATION
A. Section INDEMNITIES BY THE SELLER. Without
limiting any other rights that the Administrator, the
Issuer, any Program Support Provider or any of their
respective Affiliates, employees, officers, directors,
agents, counsel, successors, transferees or assigns (each,
an "Indemnified Party") may have hereunder or under
applicable law, the Seller hereby agrees to indemnify each
Indemnified Party from and against any and all claims,
damages, expenses, costs, losses and liabilities (including
Attorney Costs) (all of the foregoing being collectively
referred to as "Indemnified Amounts") arising out of or
resulting from this Agreement (whether directly or
indirectly), the use of proceeds of purchases or
reinvestments, the ownership of the Purchased Interest, or
any interest therein, or in respect of any Receivable,
Related Security or Contract, excluding, however: (a)
Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such
Indemnified Party or its officers, directors, agents or
counsel, (b) recourse (except as otherwise specifically
provided in this Agreement) for uncollectible Receivables,
or (c) any overall net income taxes or franchise taxes
imposed on such Indemnified Party by the jurisdiction under
the laws of which such Indemnified Party is organized or any
political subdivision thereof. Without limiting or being
limited by the foregoing, and subject to the exclusions set
forth in the preceding sentence, the Seller shall pay on
demand to each Indemnified Party any and all amounts
necessary to indemnify such Indemnified Party from and
against any and all Indemnified Amounts relating to or
resulting from any of the following:
a. the failure of any Receivable included in
the calculation of the Net Receivables Pool Balance as
an Eligible Receivable to be an Eligible Receivable,
the failure of any information contained in an Monthly
Report to be true and correct, or the failure of any
other information provided to the Issuer or the
Administrator with respect to Receivables or this
Agreement to be true and correct,
a. the failure of any representation, warranty
or statement made or deemed made by the Seller (or any
<PAGE>
of its officers) under or in connection with this
Agreement to have been true and correct as of the date
made or deemed made in all respects when made,
a. the failure by the Seller to comply with any
applicable law, rule or regulation with respect to any
Pool Receivable or the related Contract, or the failure
of any Pool Receivable or the related Contract to
conform to any such applicable law, rule or regulation,
a. the failure to vest in the Issuer a valid
and enforceable: (A) perfected undivided percentage
ownership interest, to the extent of the Purchased
Interest, in the Receivables in, or purporting to be
in, the Receivables Pool and the other Pool Assets, or
(B) first priority perfected security interest in the
Pool Assets, in each case, free and clear of any
Adverse Claim,
a. the failure to have filed, or any delay in
filing, financing statements or other similar
instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with
respect to any Receivables in, or purporting to be in,
the Receivables Pool and the other Pool Assets, whether
at the time of any purchase or reinvestment or at any
subsequent time,
a. any dispute, claim, offset or defense (other
than discharge in bankruptcy of the Obligor) of the
Obligor to the payment of any Receivable in, or
purporting to be in, the Receivables Pool (including a
defense based on such Receivable or the related
Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim
resulting from the sale of the goods or services
related to such Receivable or the furnishing or failure
to furnish such goods or services or relating to
collection activities with respect to such Receivable
(if such collection activities were performed by the
Seller or any of its Affiliates acting as Servicer or
by any agent or independent contractor retained by the
Seller or any of its Affiliates),
a. any failure of the Seller (or any of its
Affiliates acting as the Servicer) to perform its
duties or obligations in accordance with the provisions
hereof or under the Contracts,
a. any products liability or other claim,
investigation, litigation or proceeding arising out of
or in connection with merchandise, insurance or
services that are the subject of any Contract,
<PAGE>
a. the commingling of Collections at any time
with other funds,
a. the use of proceeds of purchases or
reinvestments, or
a. any reduction in Capital as a result of the
distribution of Collections pursuant to Section 1.4(d),
if all or a portion of such distributions shall
thereafter be rescinded or otherwise must be returned
for any reason.
A. Section INDEMNITIES BY THE SERVICER. Without
limiting any other rights that the Administrator, the Issuer
or any other Indemnified Party may have hereunder or under
applicable law, the Servicer hereby agrees to indemnify each
Indemnified Party from and against any and all Indemnified
Amounts arising out of or resulting from (whether directly
or indirectly): (a) the failure of any information contained
in a Monthly Report to be true and correct, or the failure
of any other information provided to the Issuer or the
Administrator by, or on behalf of, the Servicer to be true
and correct, (b) the failure of any representation, warranty
or statement made or deemed made by the Servicer (or any of
its officers) under or in connection with this Agreement to
have been true and correct in all respects as of the date
made or deemed made, (c) the failure by the Servicer to
comply with any applicable law, rule or regulation with
respect to any Pool Receivable or the related Contract, (d)
any dispute, claim, offset or defense of the Obligor to the
payment of any Receivable in, or purporting to be in, the
Receivables Pool resulting from or related to the collection
activities with respect to such Receivable, or (e) any
failure of the Servicer to perform its duties or obligations
in accordance with the provisions hereof.
<PAGE>
I.ARTICLE
ADMINISTRATION AND COLLECTIONS
1. Section APPOINTMENT OF THE SERVICER. The
servicing, administering and collection of the Pool
Receivables shall be conducted by the Person so designated
from time to time as the Servicer in accordance with this
Section. Until the Administrator gives notice to Sequa (in
accordance with this Section) of the designation of a new
Servicer, Sequa is hereby designated as, and hereby agrees
to perform the duties and obligations of, the Servicer
pursuant to the terms hereof. Upon the occurrence of a
Termination Event, the Administrator may designate as
Servicer any Person (including itself) to succeed Sequa or
any successor Servicer, on the condition in each case that
any such Person so designated shall agree to perform the
duties and obligations of the Servicer pursuant to the terms
hereof.
1. Upon the designation of a successor Servicer as
set forth in clause (a), Sequa agrees that it will terminate
its activities as Servicer hereunder in a manner that the
Administrator determines will facilitate the transition of
the performance of such activities to the new Servicer, and
Sequa shall cooperate with and assist such new Servicer.
Such cooperation shall include access to and transfer of
related records and use by the new Servicer of all licenses,
hardware or software necessary or desirable to collect the
Pool Receivables and the Related Security.
1. Sequa acknowledges that, in making their decision
to execute and deliver this Agreement, the Administrator and
the Issuer have relied on Sequa's agreement to act as
Servicer hereunder. Accordingly, Sequa agrees that it will
not voluntarily resign as Servicer.
1. The Servicer may delegate its duties and
obligations hereunder to any subservicer (each a "Sub-
Servicer"); provided, that, in each such delegation: (i)
such Sub-Servicer shall agree in writing to perform the
duties and obligations of the Servicer pursuant to the terms
hereof, (ii) the Servicer shall remain primarily liable for
the performance of the duties and obligations so delegated,
(iii) the Seller, the Administrator and the Issuer shall
have the right to look solely to the Servicer for
performance, and (iv) the terms of any agreement with any
Sub-Servicer shall provide that the Administrator may
terminate such agreement upon the termination of the
Servicer hereunder by giving notice of its desire to
terminate such agreement to the Servicer (and the Servicer
shall provide appropriate notice to each such Sub-Servicer);
provided, however, that if any such delegation is to any
Person other than an Originator, the Administrator shall
<PAGE>
have consented in writing in advance to such delegation.
1. Section DUTIES OF THE SERVICER. The Servicer
shall take or cause to be taken all such action as may be
necessary or advisable to administer and collect each Pool
Receivable from time to time, all in accordance with this
Agreement and all applicable laws, rules and regulations,
with reasonable care and diligence, and in accordance with
the Credit and Collection Policies. The Servicer shall set
aside, for the accounts of the Seller and the Issuer, the
amount of the Collections to which each is entitled in
accordance with Article I. The Servicer may, in accordance
with the applicable Credit and Collection Policy, extend the
maturity of any Pool Receivable (but not beyond 30 days) and
extend the maturity or adjust the Outstanding Balance of any
Defaulted Receivable as the Servicer may determine to be
appropriate to maximize Collections thereof; provided,
however, that: (i) such extension or adjustment shall not
alter the status of such Pool Receivable as a Delinquent
Receivable or a Defaulted Receivable or limit the rights of
the Issuer or the Administrator under this Agreement and
(ii) if a Termination Event has occurred and Sequa or an
Affiliate thereof is serving as the Servicer, Sequa or such
Affiliate may make such extension or adjustment only upon
the prior written approval of the Administrator. The Seller
shall deliver to the Servicer and the Servicer shall hold
for the benefit of the Seller and the Administrator
(individually and for the benefit of the Issuer), in
accordance with their respective interests, all records and
documents (including computer tapes or disks) with respect
to each Pool Receivable. Notwithstanding anything to the
contrary contained herein, the Administrator may direct the
Servicer (whether the Servicer is Sequa or any other Person)
to commence or settle any legal action to enforce collection
of any Pool Receivable or to foreclose upon or repossess any
Related Security.
1. The Servicer shall, as soon as practicable
following actual receipt of collected funds, turn over to
the Seller the collections of any indebtedness that is not a
Pool Receivable, less, if Sequa or an Affiliate thereof is
not the Servicer, all reasonable and appropriate out-of-
pocket costs and expenses of such Servicer of servicing,
collecting and administering such collections. The Servicer,
if other than Sequa or an Affiliate thereof, shall, as soon
as practicable upon demand, deliver to the Seller all
records in its possession that evidence or relate to any
indebtedness that is not a Pool Receivable, and copies of
records in its possession that evidence or relate to any
indebtedness that is a Pool Receivable.
1. The Servicer's obligations hereunder shall
terminate on the later of: (i) the Facility Termination Date
and (ii) the date on which all amounts required to be paid
<PAGE>
to the Issuer, the Administrator and any other Indemnified
Party or Affected Person hereunder shall have been paid in
full.
After such termination, if Sequa or an Affiliate
thereof was not the Servicer on the date of such
termination, the Servicer shall promptly deliver to the
Seller all books, records and related materials that the
Seller previously provided to the Servicer, or that have
been obtained by the Servicer, in connection with this
Agreement.
A. Section ESTABLISHMENT AND USE OF CERTAIN
ACCOUNTS. (a) Prior to the initial purchase hereunder, the
Seller shall enter into Lock-Box Agreements establishing the
Lock-Box Accounts listed on Schedule II with all of the
Lock-Box Banks, and deliver original counterparts thereof to
the Administrator.
(b) The Servicer agrees to establish the
Concentration Accounts on or before the date of the first
purchase hereunder. The Concentration Accounts shall be
used to accept the transfer of Collections of Pool
Receivables from the Lock-Box Accounts pursuant to Section
1.4(b) and for such other purposes described in the
Transaction Documents.
(c) The Servicer agrees to establish the
Liquidation Account on or before the date of the initial
purchase hereunder. The Liquidation Account shall be used
to receive transfers of certain amounts of Collections of
Pool Receivables prior to the Settlement Dates and for such
other purposes described in the Transaction Documents. No
funds other than those transferred in accordance with
Section 1.4 shall be intentionally transferred into the
Liquidation Account.
(d) Any amounts in the Liquidation Account or the
Concentration Accounts, as the case may be, may be invested
by the Liquidation Account Bank or Concentration Account
Banks, respectively, at Servicer's direction, in Permitted
Investments, so long as Issuer's interest in such Permitted
Investments is perfected and such Permitted Investments are
subject to no Adverse Claims other than those of the Issuer
provided hereunder.
(e) Upon the occurrence of a Termination Event,
the Administrator may at any time thereafter give notice to
each Lock-Box Bank, each Concentration Account Bank and the
Liquidation Account Bank that the Administrator is
exercising its rights under the Lock-Box Agreements, the
Concentration Account Agreements and the Liquidation Account
Agreement, as applicable, to do any or all of the following:
(i) to have the exclusive ownership and control of the Lock-
<PAGE>
Box Accounts, the Concentration Accounts and the Liquidation
Account transferred to the Administrator and to exercise
exclusive dominion and control over the funds deposited
therein, (ii) to have the proceeds that are sent to the
respective Lock-Box Accounts redirected pursuant to the
Administrator's instructions rather than deposited in the
applicable Lock-Box Account, and (iii) to take any or all
other actions permitted under the applicable Lock-Box
Agreement, Concentration Account Agreement and the
Liquidation Account Agreement. The Seller hereby agrees that
if the Administrator at any time takes any action set forth
in the preceding sentence, the Administrator shall have
exclusive control of the proceeds (including Collections) of
all Pool Receivables and the Seller hereby further agrees to
take any other action that the Administrator may reasonably
request to transfer such control. Any proceeds of Pool
Receivables received by the Seller or the Servicer
thereafter shall be sent immediately to the Administrator.
The parties hereto hereby acknowledge that if at any time
the Administrator takes control of any Lock-Box Account, any
Concentration Account and/or the Liquidation Account, the
Administrator shall not have any rights to the funds therein
in excess of the unpaid amounts due to the Administrator,
the Issuer or any other Person hereunder, and the
Administrator shall distribute or cause to be distributed
such funds in accordance with Section 4.2(b) and Article I
(in each case as if such funds were held by the Servicer
thereunder).
1. Section ENFORCEMENT RIGHTS. At any time
following the occurrence of a Termination Event:
a. the Administrator may direct the Obligors
that payment of all amounts payable under any Pool
Receivable is to be made directly to the Administrator
or its designee,
a. the Administrator may give notice of the
Issuer's interest in Pool Receivables to each Obligor,
which notice shall direct that payments be made
directly to the Administrator or its designee, and
a. the Administrator may request the Servicer
to, and upon such request the Servicer shall: (A)
assemble all of the records necessary or desirable to
collect the Pool Receivables and the Related Security,
and transfer or license to a successor Servicer the use
of all software necessary or desirable to collect the
Pool Receivables and the Related Security, and make the
same available to the Administrator or its designee at
a place selected by the Administrator, and (B)
segregate all cash, checks and other instruments
received by it from time to time constituting
Collections in a manner acceptable to the Administrator
<PAGE>
and, promptly upon receipt, remit all such cash, checks
and instruments, duly endorsed or with duly executed
instruments of transfer, to the Administrator or its
designee.
1. The Seller hereby authorizes the Administrator,
and irrevocably appoints the Administrator as its attorney-
in-fact with full power of substitution and with full
authority in the place and stead of the Seller, which
appointment is coupled with an interest, to take any and all
steps in the name of the Seller and on behalf of the Seller
necessary or desirable, in the determination of the
Administrator, after the occurrence of a Termination Event,
to collect any and all amounts or portions thereof due under
any and all Pool Assets, including endorsing the name of the
Seller on checks and other instruments representing
Collections and enforcing such Pool Assets. Notwithstanding
anything to the contrary contained in this subsection, none
of the powers conferred upon such attorney-in-fact pursuant
to the preceding sentence shall subject such attorney-in-
fact to any liability if any action taken by it shall prove
to be inadequate or invalid, nor shall they confer any
obligations upon such attorney-in-fact in any manner
whatsoever.
1. Section RESPONSIBILITIES OF THE SELLER. Anything
herein to the contrary notwithstanding, the Seller shall pay
when due any taxes, including any sales taxes payable in
connection with the Pool Receivables and their creation and
satisfaction. The Administrator and the Issuer shall not
have any obligation or liability with respect to any Pool
Asset, nor shall either of them be obligated to perform any
of the obligations of the Seller, Sequa or an Originator
thereunder.
1. Sequa hereby irrevocably agrees that if at any
time it shall cease to be the Servicer hereunder, it shall
act (if the then-current Servicer so requests) as the data-
processing agent of the Servicer and, in such capacity,
Sequa shall conduct the data-processing functions of the
administration of the Receivables and the Collections
thereon in substantially the same way that Sequa conducted
such data-processing functions while it acted as the
Servicer.
A. Section Servicing Fee. (a) Subject to clause
(b), the Servicer shall be paid a fee equal to 1.0% per
annum (the "Servicing Fee Rate") of the daily average
aggregate Outstanding Balance of the Pool Receivables. The
Issuer's Share of such fee shall be paid through the
distributions contemplated by Section 1.4(d), and the
Seller's Share of such fee shall be paid by the Seller.
(b) If the Servicer ceases to be Sequa or an Affiliate
<PAGE>
thereof, the servicing fee shall be the greater of: (i) the
amount calculated pursuant to clause (a), and (ii) an
alternative amount specified by the successor Servicer not
to exceed 100% of the aggregate reasonable costs and
expenses incurred by such successor Servicer in connection
with the performance of its obligations as Servicer.
I.ARTICLE
MISCELLANEOUS
A. Section AMENDMENTS, ETC. No amendment or waiver
of any provision of this Agreement or any other Transaction
Document, or consent to any departure by the Seller or the
Servicer therefrom, shall be effective unless in a writing
signed by the Administrator, and, in the case of any
amendment, by the other parties thereto; and then such
amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which
given; provided, however, that no such material amendment
shall be effective until both Moody's and Standard & Poor's
have notified the Servicer and the Administrator in writing
that such action will not result in a reduction or
withdrawal of the rating of any Notes. No failure on the
part of the Issuer or the Administrator to exercise, and no
delay in exercising any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The
Administrator shall provide each Rating Agency with a copy
of each amendment to or waiver or consent under this
Agreement promptly following the effective date thereof.
A. Section NOTICES, ETC. All notices and other
communications hereunder shall, unless otherwise stated
herein, be in writing (which shall include facsimile
communication) and be sent or delivered to each party hereto
at its address set forth under its name on the signature
pages hereof or at such other address as shall be designated
by such party in a written notice to the other parties
hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent
by first class mail), and notices and communications sent by
other means shall be effective when received.
1. Section ASSIGNABILITY. This Agreement and the
Issuer's rights and obligations herein (including ownership
of the Purchased Interest or an interest therein) shall be
assignable, in whole or in part, by the Issuer and its
successors and assigns with the prior written consent of the
Seller; provided, however, that such consent shall not be
unreasonably withheld; and provided further, that no such
<PAGE>
consent shall be required if the assignment is made to BNS,
any Affiliate of BNS, any Purchaser or other Program Support
Provider or any Person that is: (i) in the business of
issuing Notes and (ii) associated with or administered by
BNS or any Affiliate of BNS.
1. The Issuer may at any time grant to one or more
banks or other institutions (each a "Purchaser") party to
the Liquidity Agreement, or to any other Program Support
Provider, participating interests in the Purchased Interest.
In the event of any such grant by the Issuer of a
participating interest to a Purchaser or other Program
Support Provider, the Issuer shall remain responsible for
the performance of its obligations hereunder. The Seller
agrees that each Purchaser or other Program Support Provider
shall be entitled to the benefits of Sections 1.8 and 1.9.
1. This Agreement and the rights and obligations of
the Administrator hereunder shall be assignable, in whole or
in part, by the Administrator and its successors and
assigns; provided, that unless: (i) such assignment is to an
Affiliate of BNS, (ii) it becomes unlawful for BNS to serve
as the Administrator or (iii) a Termination Event exists,
the Seller has consented to such assignment, which consent
shall not be unreasonably withheld.
1. Except as provided in Section 4.1(d), none of the
Seller, Sequa or the Servicer may assign its rights or
delegate its obligations hereunder or any interest herein
without the prior written consent of the Administrator.
1. Without limiting any other rights that may be
available under applicable law, the rights of the Issuer may
be enforced through it or by its agents.
1. Section COSTS, EXPENSES AND TAXES. In addition
to the rights of indemnification granted under Section 3.1,
the Seller agrees to pay on demand all reasonable costs and
expenses in connection with the preparation, execution,
delivery and administration (including periodic internal
audits by the Administrator of Pool Receivables) of this
Agreement, the other Transaction Documents and the other
documents and agreements to be delivered hereunder (and all
reasonable costs and expenses in connection with any
amendment, waiver or modification of any thereof),
including: (i) Attorney Costs for the Administrator, the
Issuer and their respective Affiliates and agents with
respect thereto and with respect to advising the
Administrator, the Issuer and their respective Affiliates
and agents as to their rights and remedies under this
Agreement and the other Transaction Documents, and (ii) all
reasonable costs and expenses (including Attorney Costs), if
any, of the Administrator, the Issuer and their respective
Affiliates and agents in connection with the enforcement of
<PAGE>
this Agreement and the other Transaction Documents.
1. In addition, the Seller shall pay on demand any
and all stamp and other taxes and fees payable in connection
with the execution, delivery, filing and recording of this
Agreement or the other documents or agreements to be
delivered hereunder, and agrees to save each Indemnified
Party harmless from and against any liabilities with respect
to or resulting from any delay in paying or omission to pay
such taxes and fees.
A. Section NO PROCEEDINGS; Limitation on Payments.
Each of the Seller, Sequa, the Servicer, the Administrator,
each assignee of the Purchased Interest or any interest
therein, hereby covenants and agrees that it will not
institute against, or join any other Person in instituting
against, the Issuer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar
law, for one year and one day after the latest maturing Note
issued by the Issuer is paid in full. The provision of this
Section 5.5 shall survive any termination of this Agreement.
1. Section GOVERNING LAW AND JURISDICTION. THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY
INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
1. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT
OF NEW YORK; AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW,
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE
PARTIES HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH SERVICE MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY NEW YORK LAW.
A. Section Execution in Counterparts. This Agreement
may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original,
and all of which, when taken together, shall constitute one
<PAGE>
and the same agreement.
A. Section SURVIVAL OF TERMINATION. The provisions
of Sections 1.8, 1.9, 3.1, 3.2, 5.4, 5.5, 5.6, 5.9 and 5.12
shall survive any termination of this Agreement.
A. Section WAIVER OF JURY TRIAL. EACH OF THE PARTIES
HERETO WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY
TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY
OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH
OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
A. Section Entire Agreement. This Agreement and the
other Transaction Documents embody the entire agreement and
understanding between the parties hereto, and supersede all
prior or contemporaneous agreements and understandings of
such Persons, verbal or written, relating to the subject
matter hereof and thereof.
r Section HEADINGS. The captions and headings of
this Agreement and any Exhibit, Schedule or Annex hereto are
for convenience of reference only and shall not affect the
interpretation hereof or thereof.
A. Section ISSUER'S LIABILITIES. The obligations of
the Issuer under the Transaction Documents are solely the
corporate obligations of the Issuer. No recourse shall be
had for any obligation or claim arising out of or based upon
any Transaction Document against any stockholder, employee,
officer, director or incorporator of the Issuer; provided,
however, that this Section shall not relieve any such Person
of any liability it might otherwise have for its own gross
negligence or willful misconduct.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
SEQUA RECEIVABLES CORP.
By:
Name:
Title:
Address:
Sequa Receivables Corp.
200 Park Avenue
New York, New York 10166
Attention: James Langelotti
Telephone: 212-986-5500
Facsimile: 212-370-3419
SEQUA CORPORATION
By:
Name:
Title:
Address:
Sequa Corporation
200 Park Avenue
New York, New York 10166
Attention: Kenneth A. Drucker
Telephone: 212-986-5500
Facsimile: 212-370-3419
<PAGE>
LIBERTY STREET FUNDING CORP.
By:
Name:
Title:
Address:
Liberty Street Funding Corp.
c/o Global Securitization
Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: Andrew L. Stidd
Telephone No.: (212) 302-8330
Facsimile No.: (212) 302-8767
With a copy to:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Terry Fryett
Telephone No.: (212) 225-5035
Facsimile No.: (212) 225-5090
THE BANK OF NOVA SCOTIA,
as Administrator
By:
Name:______________________________
Title:____________________________
Address:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Terry Fryett
Telephone No.: (212) 225-5035
Facsimile No.: (212) 225-5090
<PAGE>
EXHIBIT I
DEFINITIONS
As used in the Agreement (including its Exhibits,
Schedules and Annexes), the following terms shall have the
following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined). Unless
otherwise indicated, all Section, Annex, Exhibit and Schedule
references in this Exhibit are to Sections of and Annexes,
Exhibits and Schedules to the Agreement.
"Administration Account" means the account, account number
2158-13 of the Administrator maintained at the office of The Bank
of Nova Scotia, or such other account as may be so designated in
writing by the Administrator to the Servicer.
"Administrator" has the meaning set forth in the preamble
to the Agreement.
"Adverse Claim" means a lien, security interest or other
charge or encumbrance, or any other type of preferential
arrangement; it being understood that any thereof in favor of the
Issuer or the Administrator (for the benefit of the Issuer) shall
not constitute an Adverse Claim.
"Affected Person" has the meaning set forth in Section 1.8
of the Agreement.
"Affiliate" means, as to any Person: (a) any Person that,
directly or indirectly, is in control of, is controlled by or is
under common control with such Person, or (b) who is a director
or officer: (i) of such Person or (ii) of any Person described in
clause (a), except that, with respect to the Issuer, Affiliate
shall mean the holder(s) of its capital stock. For purposes of
this definition, control of a Person shall mean the power, direct
or indirect: (x) to vote 25% or more of the securities having
ordinary voting power for the election of directors of such
Person, or (y) to direct or cause the direction of the management
and policies of such Person, in either case whether by ownership
of securities, contract, proxy or otherwise.
"Agreement" has the meaning set forth in the preamble to
the Agreement.
"Alternate Rate" for any Yield Period for any Portion of
Capital of the Purchased Interest means an interest rate per
annum equal to, at the Seller's option: (a) 0.75% per annum above
the Eurodollar Rate for such Yield Period, or
<PAGE>
(b) the Base Rate for such Yield Period; provided, however, that
in the case of:
a. any Yield Period on or before the first day
of which the Administrator shall have been notified by
the Issuer, a Purchaser or any other Program Support
Provider that the introduction of or any change in or
in the interpretation of any law or regulation makes it
unlawful, or any central bank or other Governmental
Authority asserts that it is unlawful, for the Issuer,
such Purchaser or other Program Support Provider, as
applicable, to fund any Portion of Capital based on the
Eurodollar Rate (and the Issuer, such Purchaser or
other Program Support Provider shall not have
subsequently notified the Administrator that such
circumstances no longer exist),
a. any Yield Period of one to (and including)
29 days,
a. any Yield Period as to which: (A) the
Administrator does not receive notice before noon (New
York City time) on: (1) the second Business Day
preceding the first day of such Yield Period that the
Seller desires that the related Portion of Capital be
funded at the CP Rate, or (2) the third Business Day
preceding the first day of such Yield Period that the
Seller desires that the related Portion of Capital be
funded at the Alternate Rate and based on the
Eurodollar Rate, or (B) the Seller has given the notice
contemplated by clause (A)(1), and the Administrator
shall have notified the Seller that funding the related
Portion of Capital at the CP Rate is (in the
Administrator's sole discretion) economically
inadvisable to the Issuer, the Administrator, the
Seller or any similarly situated Person, or the Issuer
is not permitted to issue Notes to fund the Purchased
Interest hereunder, or
a. any Yield Period relating to a Portion of
Capital that is less than $5,000,000,
the "Alternate Rate" for each such Yield Period shall be an
interest rate per annum equal to the Base Rate in effect on
each day of such Yield Period. The "Alternate Rate" for any
day while a Termination Event exists shall be an interest
rate equal to 1% per annum above the Base Rate in effect on
such day.
"Attorney Costs" means and includes all reasonable fees
and disbursements of any law firm or other external counsel,
the reasonable allocated cost of internal legal services and
all reasonable disbursements of internal counsel.
<PAGE>
"Bankruptcy Code" means the United States Bankruptcy
Reform Act of 1978 (11 U.S.C. 101, et seq.), as amended
from time to time.
"Base Rate" means, for any day, a fluctuating interest
rate per annum as shall be in effect from time to time,
which rate shall be at all times equal to the higher of:
1. the rate of interest in effect for such day
as publicly announced from time to time by BNS in New
York, New York as its "reference rate". Such
"reference rate" is set by BNS based upon various
factors, including BNS's costs and desired return,
general economic conditions and other factors, and is
used as a reference point for pricing some loans, which
may be priced at, above or below such announced rate,
and
1. 0.75% per annum above the latest Federal
Funds Rate.
"Benefit Plan" means any employee benefit pension plan
as defined in Section 3(2) of ERISA in respect of which the
Seller, any Originator, Sequa or any ERISA Affiliate is, or
at any time during the immediately preceding six years was,
an "employer" as defined in Section 3(5) of ERISA.
"BNS" has the meaning set forth in the preamble to the
Agreement
"Business Day" means any day (other than a Saturday or
Sunday) on which: (a) banks are not authorized or required
to close in New York City, New York and (b) if this
definition of "Business Day" is utilized in connection with
the Eurodollar Rate, dealings are carried out in the London
interbank market.
"Capital" means the amount paid to the Seller in
respect of the Purchased Interest by the Issuer pursuant to
the Agreement, or such amount divided or combined in
accordance with Section 1.7 of the Agreement, in each case
reduced from time to time by Collections distributed and
applied on account of such Capital pursuant to Section
1.4(d) of the Agreement; provided, that if such Capital
shall have been reduced by any distribution, and thereafter
all or a portion of such distribution is rescinded or must
otherwise be returned for any reason, such Capital shall be
increased by the amount of such rescinded or returned
distribution as though it had not been made.
"Change in Control" means (a) that the Originators
cease to own, directly or indirectly, 100% of the capital
stock of the Seller free and clear of all Adverse Claims or
(b) that Sequa ceases to own, directly or indirectly, a
<PAGE>
majority of the capital stock of any Originator.
"Closing Date" means November 13, 1998.
"Collections" means, with respect to any Pool
Receivable: (a) all funds that are received by any
Originator, Sequa, the Seller or the Servicer in payment of
any amounts owed in respect of such Receivable (including
purchase price, finance charges, interest and all other
charges), or applied to amounts owed in respect of such
Receivable (including insurance payments and net proceeds of
the sale or other disposition of repossessed goods or other
collateral or property of the related Obligor or any other
Person directly or indirectly liable for the payment of such
Pool Receivable and available to be applied thereon), (b)
all Deemed Collections and (c) all other proceeds of such
Pool Receivable.
"Company Note" has the meaning set forth in Section 3.1
of the Sale Agreement.
"Concentration Account" means (a) that certain bank
account numbered 8900209887 maintained at The Bank of New
York in New York, New York and (b) that certain bank account
numbered 1000643 maintained at Mellon Bank, N.A. in
Pittsburgh, Pennsylvania, each of which is (i) identified as
the "Sequa Receivables Corp. Concentration Account," (ii) in
the Seller's name, (iii) pledged, on a first-priority basis,
to the Issuer pursuant to Section 1.2(d), and (iv) is
governed by a Concentration Account Agreement.
"Concentration Account Agreement" means each letter
agreement among the Seller, the Agent and each Concentration
Account Bank, as the same may be amended, supplemented,
amended and restated, or otherwise modified from time to
time in accordance with the Agreement.
"Concentration Account Bank" means each bank
maintaining a Concentration Account.
"Concentration Percentage" means: (a) for any Group A
Obligor, 10%, (b) for any Group B Obligor, 8%, (c) for any
Group C Obligor, 6% and (d) for any Group D Obligor, 3.75%;
provided, however, that the Issuer may, with prior written
consent from the Administrator and the Liquidity Agent, and
if the Rating Agency Condition is satisfied, approve higher
Concentration Percentages for selected Obligors
"Concentration Reserve" means, at any time the
aggregate Capital at such time multiplied by (a) the
Concentration Reserve Percentage divided by (b) 1, minus the
Concentration Reserve Percentage at such time.
"Concentration Reserve Percentage" means, at any time,
<PAGE>
the largest of: (a) the sum of four largest Group D Obligor
Percentages, (b) the sum of the two largest Group C Obligor
Percentages and (c) the largest Group B Obligor Percentage.
"Contract" means, with respect to any Receivable, any
and all contracts, instruments, agreements, leases,
invoices, notes or other writings pursuant to which such
Receivable arises or that evidence such Receivable or under
which an Obligor becomes or is obligated to make payment in
respect of such Receivable.
"CP Rate" for any Yield Period for any Portion of
Capital of the Purchased Interest means, to the extent the
Issuer funds such Portion of Capital for such Yield Period
by issuing Notes, a rate per annum equal to the sum of (i)
the rate (or if more than one rate, the weighted average of
the rates) at which Notes of the Issuer having a term equal
to such Yield Period and to be issued to fund such Portion
of Capital may be sold by any placement agent or commercial
paper dealer selected by the Administrator on behalf of the
Issuer, as agreed between each such agent or dealer and the
Administrator and notified by the Administrator to the
Servicer; provided, that if the rate (or rates) as agreed
between any such agent or dealer and the Administrator with
regard to any Yield Period for such Portion of Capital is a
discount rate (or rates), then such rate shall be the rate
(or if more than one rate, the weighted average of the
rates) resulting from converting such discount rate (or
rates) to an interest-bearing equivalent rate per annum,
plus (ii) the commissions and charges charged by such
placement agent or commercial paper dealer with respect to
such Notes, expressed as a percentage of such face amount
and converted to an interest-bearing equivalent rate per
annum.
"Credit and Collection Policy" means, as the context
may require, those receivables credit and collection
policies and practices of each Originator in effect on the
date of the Agreement and described in Schedule I to the
Agreement, as modified in compliance with the Agreement.
"Cut-off Date" has the meaning set forth in the Sale
Agreement.
"Days' Sales Outstanding" means, for any calendar
month, an amount computed as of the last day of such
calendar month equal to: (a) the average of the Outstanding
Balance of all Pool Receivables as of the last day of each
of the three most recent calendar months ended on the last
day of such calendar month divided by (b) the aggregate
amount of new Receivables generated by each Originator
during the three calendar months ended on or before the last
day of such calendar month multiplied by (c) 90.
"Debt" means: (a) indebtedness for borrowed money,
<PAGE>
(b) obligations evidenced by bonds, debentures, notes or
other similar instruments, (c) obligations to pay the
deferred purchase price of property or services, (d)
obligations as lessee under leases that shall have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases, and (e) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (a) through (d).
"Deemed Collections" has the meaning set forth in
Section 1.4(e)(ii) of the Agreement.
"Default Ratio" means the ratio (expressed as a
percentage and rounded to the nearest 1/100 of 1%, with
5/1000th of 1% rounded upward) computed as of the last day
of each calendar month by dividing: (a) the sum of (i) the
aggregate Outstanding Balance (excluding credit balances) of
all Pool Receivables as to which any payment, or part
thereof, remained unpaid 121-150 days from the original due
date for such payment during such month plus (ii) the
aggregate Outstanding Balance of all Pool Receivables that
remained unpaid for less than 121 days from the original due
date and were written off as uncollectible during such
month, by (b) the aggregate credit sales made by each
Originator during the month that is five calendar months
before such month.
"Defaulted Receivable" means a Receivable:
(a) as to which any payment, or part thereof,
remains unpaid for more than 90 days from the original
due date for such payment, or
(b) without duplication (i) as to which an Event
of Bankruptcy shall have occurred with respect to the
Obligor thereof or any other Person obligated thereon
or owning any Related Security with respect thereto, or
(ii) which has been, or, consistent with the Credit and
Collection Policy would be, written off the Seller's
books as uncollectible.
"Delinquency Ratio" means the ratio (expressed as a
percentage and rounded to the nearest 1/100 of 1%, with
5/1000th of 1% rounded upward) computed as of the last day
of each calendar month by dividing: (a) the aggregate
Outstanding Balance of all Pool Receivables that were
Delinquent Receivables on such day by (b) the Net
Receivables Pool Balance on such day.
"Delinquent Receivable" means a Receivable (other than
a Defaulted Receivable) as to which any payment, or part
<PAGE>
thereof, remains unpaid for more than 60 days from the
original due date for such payment.
"Dilution Reserve" means, on any day, an amount equal
to: (a) the Capital on such date, multiplied by (b) (i)
5.0%, divided by (ii) 1 minus 5.0%.
"Discount" means:
(a) for the Portion of Capital for any Yield
Period to the extent the Issuer will be funding such
Portion of Capital during such Yield Period through the
issuance of Notes:
CPR x C x ED/360
(b) for the Portion of Capital for any Yield
Period to the extent the Issuer will not be funding
such Portion of Capital during such Yield Period
through the issuance of Notes:
AR x C x ED/Year + TF
where:
AR = the Alternate Rate for the Portion of
Capital for such Yield Period,
C = the relevant Portion of Capital during
such Yield Period,
CPR = the CP Rate for the Portion of Capital,
ED = the actual number of days during such
Yield Period,
Year = if such Portion of Capital is funded
based upon: (i) the Eurodollar Rate,
360 days, and (ii) the Base Rate, 365
or 366 days, as applicable, and
TF = the Termination Fee, if any, for the
Portion of Capital for such Yield Period;
provided, however, that during the occurrence and
continuance of a Termination Event, the CP Rate shall not be
available and Discount for the Portion of Capital shall be
determined for each day in a Yield Period using a rate equal
to the Base Rate in effect on such day plus 1%; provided,
further, that no provision of the Agreement shall require
the payment or permit the collection of Discount in excess
of the maximum permitted by applicable law; and provided
<PAGE>
further, that Discount for the Portion of Capital shall not
be considered paid by any distribution to the extent that at
any time all or a portion of such distribution is rescinded
or must otherwise be returned for any reason.
"Eligible Receivable" means, at any time, a Pool
Receivable:
(a) the Obligor of which is (i) a United States
resident; provided, however, if the Obligor of such
Receivable is a resident of a jurisdiction other than
the United States, the aggregate Outstanding Balance
of all Pool Receivables of such Obligor that are
Eligible Receivables when added to the aggregate
Outstanding Balance of all other Eligible Receivables
of Obligors that are not residents of the United States
shall not exceed 10% of the Net Receivables Pool
Balance (not counting any otherwise Eligible
Receivables the Obligors of which are not residents of
the United States) at such time, (ii) not a government
or a governmental subdivision, affiliate or agency;
provided, however, if the Obligor of such Receivable is
a government or a governmental subdivision, affiliate
or agency, the aggregate Outstanding Balance of all
Pool Receivables of such Obligor that are Eligible
Receivables when added to the aggregate Outstanding
Balance of all other Eligible Receivables of Obligors
that are governments or governmental subdivisions,
affiliates or agencies shall not exceed 10% of the Net
Receivables Pool Balance (not counting any otherwise
Eligible Receivables the obligors of which are
governments or governmental subdivisions, affiliates or
agencies) at such time, (iii) not subject to any action
of the type described in paragraph (f) of Exhibit V to
the Agreement and (iv) not an Affiliate of Sequa or any
Affiliate of Sequa,
(b) that is denominated and payable only in U.S.
dollars in the United States,
(c) that does not have a stated maturity which is
more than 30 days after the original invoice date of
such Receivable,
(d) that arises under a duly authorized Contract
for the sale and delivery of goods and services in the
ordinary course of each Originator's business,
(e) that arises under a duly authorized Contract
that is in full force and effect and that is a legal,
valid and binding obligation of the related Obligor,
enforceable against such Obligor in accordance with its
terms,
<PAGE>
(f) that conforms in all material respects with
all applicable laws, rulings and regulations in effect,
(g) that is not the subject of any asserted
dispute, offset, hold back defense, Adverse Claim or
other claim,
(h) that satisfies all applicable requirements of
the applicable Credit and Collection Policy,
(i) that has not been modified, waived or
restructured since its creation, except as permitted
pursuant to Section 4.2 of the Agreement,
(j) in which the Seller owns good and marketable
title, free and clear of any Adverse Claims, and that
is freely assignable by the Seller (including without
any consent of the related Obligor),
(k) for which the Issuer shall have a valid and
enforceable undivided percentage ownership or security
interest, to the extent of the Purchased Interest, and
a valid and enforceable first priority perfected
security interest therein and in the Related Security
and Collections with respect thereto, in each case free
and clear of any Adverse Claim,
(l) that constitutes an account as defined in the
UCC, and that is not evidenced by instruments or
chattel paper,
(m) that is not a Defaulted Receivable,
(n) for which neither the Originator thereof, the
Seller nor the Servicer has established any offset
arrangements with the related Obligor,
(o) for which Defaulted Receivables of the related
Obligor do not exceed 25% of the Outstanding Balance of
all such Obligor's Receivables, and
(p) that represents amounts earned and payable by
the Obligor that are not subject to the performance of
additional services by the Originator thereof.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any successor
statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor
sections.
"ERISA Affiliate" means: (a) any corporation that is a
member of the same controlled group of corporations (within
<PAGE>
the meaning of Section 414(b) of the Internal Revenue Code)
as the Seller, any Originator or Sequa, (b) a trade or
business (whether or not incorporated) under common control
(within the meaning of Section 414(c) of the Internal
Revenue Code) with the Seller, any Originator or Sequa, or
(c) a member of the same affiliated service group (within
the meaning of Section 414(m) of the Internal Revenue Code)
as the Seller, any Originator, any corporation described in
clause (a) or any trade or business described in clause (b).
"Eurodollar Rate" means, for any Yield Period, an
interest rate per annum (rounded upward to the nearest
1/16th of 1%) determined pursuant to the following formula:
LIBOR
100% - Eurodollar Rate Reserve Percentage
where "Eurodollar Rate Reserve Percentage" means, for any
Yield Period, the maximum reserve percentage (expressed as a
decimal, rounded upward to the nearest 1/100th of 1%) in
effect on the date LIBOR for such Yield Period is determined
under regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to "Eurocurrency"
funding (currently referred to as "Eurocurrency
liabilities") having a term comparable to such Yield Period.
"Event of Bankruptcy" means (a) any case, action or
proceeding before any court or other governmental authority
relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief
of debtors or (b) any general assignment for the benefit of
creditors of a Person composition, marshalling of assets for
creditors of a Person, or other similar arrangement in
respect of its creditors generally or any substantial
portion of its creditors; in each of cases (a) and (b)
undertaken under U.S. Federal, state or foreign law,
including the U.S. Bankruptcy Code.
"Excess Concentration" means the sum of the amounts by
which the Outstanding Balance of Eligible Receivables of
each Obligor then in the Receivables Pool exceeds an amount
equal to: (a) the Concentration Percentage or Special
Concentration Percentage, as applicable, for such Obligor
multiplied by (b) the Outstanding Balance of all Eligible
Receivables then in the Receivables Pool.
"Facility Termination Date" means the earliest to occur
of: (a) November 13, 2003,(b) the date determined pursuant
to Section 2.2 of the Agreement, (c) the date the Purchase
Limit reduces to zero pursuant to Section 1.1(b) of the
Agreement and (d) the date that the commitments of the
Purchasers terminate under the Liquidity Agreement.
<PAGE>
"Federal Funds Rate" means, for any day, the per annum
rate set forth in the weekly statistical release designated
as H.15(519), or any successor publication, published by the
Federal Reserve Board (including any such successor,
"H.15(519)") for such day opposite the caption "Federal
Funds (Effective)." If on any relevant day such rate is not
yet published in H.15(519), the rate for such day will be
the rate set forth in the daily statistical release
designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including
any such successor, the "Composite 3:30 p.m. Quotations")
for such day under the caption "Federal Funds Effective
Rate." If on any relevant day the appropriate rate is not
yet published in either H.15(519) or the Composite 3:30 p.m.
Quotations, the rate for such day will be the arithmetic
mean as determined by the Administrator of the rates for the
last transaction in overnight Federal funds arranged before
9:00 a.m. (New York time) on that day by each of three
leading brokers of Federal funds transactions in New York
City selected by the Administrator.
"Federal Reserve Board" means the Board of Governors of
the Federal Reserve System, or any entity succeeding to any
of its principal functions.
"Fee Letter" has the meaning set forth in Section 1.5
of the Agreement.
"Fees" means the fees payable by the Seller to the
Administrator pursuant to the Fee Letter.
"GAAP" means the generally accepted United States
accounting principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors
and successors from time to time.
"Governmental Authority" means any nation or
government, any state or other political subdivision
thereof, any central bank (or similar monetary or regulatory
authority) thereof, any body or entity exercising executive,
legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any
court, and any Person owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Group A Obligor" means any Obligor, not a Special
Obligor, with a short-term rating of at least: (a) "A-1" by
Standard & Poor's, or if such Obligor does not have a short-
term rating from Standard & Poor's, a rating of "A+" or
better by Standard & Poor's on its long-term senior
unsecured and uncredit-enhanced debt securities, and (b) "P-
1" by Moody's, or if such Obligor does not have a short-term
rating from Moody's, "A1" or better by Moody's on its long-
<PAGE>
term senior unsecured and uncredit-enhanced debt securities.
"Group B Obligor" means an Obligor, not a Group A
Obligor or a Special Obligor, with a short-term rating of at
least: (a) "A-2" by Standard & Poor's, or if such Obligor
does not have a short-term rating from Standard & Poor's, a
rating of "BBB+" to "A" by Standard & Poor's on its long-
term senior unsecured and uncredit-enhanced debt securities,
and (b) "P-2" by Moody's, or if such Obligor does not have a
short-term rating from Moody's, "Baa1" to "A2" by Moody's
on its long-term senior unsecured and uncredit-enhanced debt
securities.
"Group B Obligor Percentage" means, at any time, for
each Group B Obligor, the percentage equivalent of: (a) the
aggregate Outstanding Balance of the Eligible Receivables of
such Group B Obligor less any Excess Concentrations of such
Obligor, divided by (b) the aggregate Outstanding Balance of
all Eligible Receivables at such time.
"Group C Obligor" means an Obligor, not a Group A
Obligor, Group B Obligor or Special Obligor, with a short-
term rating of at least: (a) "A-3" by Standard & Poor's, or
if such Obligor does not have a short-term rating from
Standard & Poor's, a rating of "BBB-" to "BBB" by Standard
& Poor's on its long-term senior unsecured and uncredit-
enhanced debt securities, and (b) "P-3" by Moody's, or if
such Obligor does not have a short-term rating from Moody's,
"Baa3" to "Baa2" by Moody's on its long-term senior
unsecured and uncredit-enhanced debt securities.
"Group C Obligor Percentage" means, at any time, for
each Group C Obligor, the percentage equivalent of: (a) the
aggregate Outstanding Balance of the Eligible Receivables of
such Group C Obligor less any Excess Concentrations of such
Obligor, divided by (b) the aggregate Outstanding Balance of
all Eligible Receivables at such time.
"Group D Obligor" means any Obligor that is not a Group
A Obligor, Group B Obligor, Group C Obligor or Special
Obligor.
"Group D Obligor Percentage" means, at any time, for
each Group D Obligor: (a) the aggregate Outstanding Balance
of the Eligible Receivables of such Group D Obligor less any
Excess Concentrations of such Obligor, divided by (b) the
aggregate Outstanding Balance of all Eligible Receivables at
such time.
"Impermissible Qualification" means, relative to the
opinion or certification of any independent public
accountant as to any financial statement of Seller, Sequa,
each Originator or each other Subsidiary or Affiliate of
Sequa, any qualification or exception to such opinion or
<PAGE>
certification:
(i) which is of a "going concern" or similar
nature; or
(ii) which relates to the limited scope of
examination of matters relevant to such financial
statement (other than any standard qualification of
such nature).
"Indemnified Amounts" has the meaning set forth in
Section 3.1 of the Agreement.
"Indemnified Party" has the meaning set forth in
Section 3.1 of the Agreement.
"Independent Director" has the meaning set forth in
paragraph 3(c) of Exhibit IV to the Agreement.
"Insolvency Proceeding" means: (a) any case, action or
proceeding before any court or other Governmental Authority
relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief
of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors, in
each case undertaken under U.S. Federal, state or foreign
law, including the Bankruptcy Code.
"Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended from time to time, and any successor
statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time.
References to sections of the Internal Revenue Code also
refer to any successor sections.
"Issuer" has the meaning set forth in the preamble to
the Agreement.
"Issuer's Share" of any amount means such amount
multiplied by the Purchased Interest at the time of
determination.
"LIBOR" means the rate of interest per annum determined
by the Administrator to be the arithmetic mean (rounded
upward to the nearest 1/16th of 1%) of the rates of interest
per annum notified to the Administrator by the Reference
Bank as the rate of interest at which dollar deposits in the
approximate amount of the Portion of Capital to be funded at
the Eurodollar Rate during such Yield Period would be
offered by major banks in the London interbank market to
such Reference Bank at its request at or about 11:00 a.m.
(London time) on the second Business Day before the
<PAGE>
commencement of such Yield Period.
"Liquidation Account" means that certain bank account
numbered 8900367083 maintained at The Bank of New York in
New York, New York which is (i) identified as the "Sequa
Receivables Corporation" Liquidation Account, (ii) in the
Seller's name, (iii) pledged on a first priority basis to
the Issuer pursuant to Section 1.2(d), and (iv) is governed
by the Liquidation Account Agreement.
"Liquidation Account Agreement" means a letter
agreement among the Seller, the Administrator and the
Liquidation Account Bank, as the same may be amended,
supplemented or otherwise modified from time to time.
"Liquidation Account Bank" means the bank holding the
Liquidation Account.
"Liquidity Agent" means BNS in its capacity as the
Liquidity Agent pursuant to the Liquidity Agreement.
"Liquidity Agreement" means the Liquidity Asset
Purchase Agreement, dated as of November 13, 1998 between
the purchasers from time to time party thereto, the Issuer
and BNS, as Administrator and Liquidity Agent, as the same
may be further amended, supplemented or otherwise modified
from time to time.
"Lock-Box Account" means an account maintained at a
bank or other financial institution for the purpose of
receiving Collections.
"Lock-Box Agreement" means an agreement, in
substantially the form of Annex A to the Agreement, among
the Seller, the Servicer and a Lock-Box Bank.
"Lock-Box Bank" means any of the banks or other
financial institutions holding one or more Lock-Box
Accounts.
"Loss Reserve" means, on any date, an amount equal to
(a) the Capital at the close of business of the Servicer on
such date multiplied by (b)(i) the Loss Reserve Percentage
on such date divided by (ii) 1 minus the Loss Reserve
Percentage on such date.
"Loss Reserve Percentage" means, on any date, the
greater of: (a) 10% and (b) (i) the product of (x) 2 times
the highest average of the Default Ratios for any three
consecutive calendar months during the twelve most recent
calendar months multiplied by (y) the aggregate credit sales
made during the four most recent calendar months divided by
(ii) the Net Receivables Pool Balance on such date.
<PAGE>
"Material Adverse Effect" means, relative to any Person
with respect to any event or circumstance, a material
adverse effect on:
(a) the assets, operations, business or financial
condition of such Person,
(b) the ability of any such Person to perform its
obligations under the Agreement or any other
Transaction Document to which it is a party,
(c) the validity or enforceability of any other
Transaction Document, or the validity, enforceability
or collectibility of a material portion of the Pool
Receivables, or
(d) the status, perfection, enforceability or
priority of the Issuer's or the Seller's interest in
the Pool Assets.
"Monthly Report" means a report, in substantially the
form of Annex A to the Agreement, furnished to the
Administrator pursuant to the Agreement.
"Monthly Settlement Date" means the first Business Day
of each calendar month.
"Moody's" means Moody's Investors Service, Inc.
"Net Receivables Pool Balance" means, at any time: (a)
the Outstanding Balance of Eligible Receivables then in the
Receivables Pool minus (b) the Excess Concentration.
"Notes" means short-term promissory notes issued, or to
be issued, by the Issuer to fund its investments in accounts
receivable or other financial assets.
"Obligor" means, with respect to any Receivable, the
Person obligated to make payments pursuant to the Contract
relating to such Receivable.
"Originator" has the meaning set forth in the Sale
Agreement.
"Originator Assignment Certificate" means each
assignment, in substantially the form of Exhibit C to the
Sale Agreement, evidencing Seller's ownership of the
Receivables generated by each Originator, as the same may be
amended, supplemented, amended and restated, or otherwise
modified from time to time in accordance with the Sale
Agreement.
"Outstanding Balance" of any Receivable at any time
means the then outstanding principal balance thereof.
<PAGE>
"Payment Date" has the meaning set forth in Section 2.1
of the Sale Agreement.
"Permitted Investments" means certificates of deposit
that are not represented by instruments, have a maturity of
one week or less and are issued by the Concentration Account
Banks, Liquidation Account Bank (with respect to the
investment of funds in the Concentration Accounts or
Liquidation Account, respectively) or The Bank of Nova
Scotia; provided, however, that the Administrator on behalf
of Issuer) may, from time to time, upon three Business Days'
prior written notice to Servicer, remove from the scope of
"Permitted Investments" certificates of deposit of any such
bank(s) and specify to be within such scope, certificates of
deposit of any other bank.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability
company or other entity, or a government or any political
subdivision or agency thereof.
"Pool Assets" has the meaning set forth in Section
1.2(d) of the Agreement.
"Pool Receivable" means a Receivable in the Receivables
Pool.
"Portion of Capital" has the meaning set forth in
Section 1.7 of the Agreement. In addition, at any time when
the Capital of the Purchased Interest is not divided into
two or more such portions, "Portion of Capital" means 100%
of the Capital.
"Program Support Agreement" means and includes the
Liquidity Agreement and any other agreement entered into by
any Program Support Provider providing for: (a) the issuance
of one or more letters of credit for the account of the
Issuer, (b) the issuance of one or more surety bonds for
which the Issuer is obligated to reimburse the applicable
Program Support Provider for any drawings thereunder, (c)
the sale by the Issuer to any Program Support Provider of
the Purchased Interest (or portions thereof) and/or (d) the
making of loans and/or other extensions of credit to the
Issuer in connection with the Issuer's Receivables-
securitization program contemplated in the Agreement,
together with any letter of credit, surety bond or other
instrument issued thereunder (but excluding any
discretionary advance facility provided by the
Administrator).
"Program Support Provider" means and includes any
Purchaser and any other Person (other than any customer of
the Issuer) now or hereafter extending credit or having a
<PAGE>
commitment to extend credit to or for the account of, or to
make purchases from, the Issuer pursuant to any Program
Support Agreement.
"Purchase and Sale Indemnified Amounts" has the meaning
set forth in Section 9.1 of the Sale Agreement.
"Purchase and Sale Indemnified Party" has the meaning
set forth in Section 9.1 of the Sale Agreement.
"Purchase and Sale Termination Date" has the meaning
set forth in Section 1.4 of the Sale Agreement.
"Purchase and Sale Termination Event" has the meaning
set forth in Section 8.1 of the Sale Agreement.
"Purchase Facility" has the meaning set forth in
Section 1.1 of the Sale Agreement.
"Purchase Limit" means $90,000,000, as such amount may
be reduced pursuant to Section 1.1(b) of the Agreement.
References to the unused portion of the Purchase Limit shall
mean, at any time, the Purchase Limit minus the then
outstanding Capital.
"Purchase Price" has the meaning set forth in Section
2.1 of the Sale Agreement.
"Purchase Report" has the meaning set forth in Section
2.1 of the Sale Agreement.
"Purchased Interest" means, at any time, the undivided
percentage ownership interest in: (a) each and every Pool
Receivable now existing or hereafter arising, (b) all
Related Security with respect to such Pool Receivables and
(c) all Collections with respect to, and other proceeds of,
such Pool Receivables and Related Security. Such undivided
percentage interest shall be computed as:
Capital + Total Reserves
Net Receivables Pool Balance
The Purchased Interest shall be determined from time to time
pursuant to Section 1.3 of the Agreement.
"Purchaser" has the meaning set forth in Section 5.3(b)
of the Agreement.
"Rating Agency Condition" means, with respect to any
event or occurrence, receipt by the Issuer of written
confirmation from Standard & Poor's and Moody's that such
event or occurrence shall not cause the rating on the then
outstanding Notes to be downgraded or withdrawn.
<PAGE>
"Receivable" means any indebtedness and other
obligations owed to the Seller as assignee of any Originator
or any Originator by, or any right of the Seller or any
Originator to payment from or on behalf of, an Obligor
whether constituting an account, chattel paper, instrument
or general intangible arising in connection with the sale of
goods or the rendering of services by such Originator, and
includes the obligation to pay any finance charges, fees and
other charges with respect thereto.
"Receivables Pool" means, at any time, all of the then
outstanding Receivables purchased or purported to be
purchased by the Seller or contributed to the Seller
pursuant to the Sale Agreement prior to the Facility
Termination Date.
"Reference Bank" means BNS.
"Related Rights" has the meaning set forth in Section
1.1 of the Sale Agreement.
"Related Security" means, with respect to any
Receivable:
(a) all of the Seller's and each Originator's
interest in any goods (including returned goods), and
documentation of title evidencing the shipment or
storage of any goods (including returned goods),
relating to any sale giving rise to such Receivable,
(b) all instruments and chattel paper that may
evidence such Receivable,
(c) all other security interests or liens and
property subject thereto from time to time purporting
to secure payment of such Receivable, whether pursuant
to the Contract related to such Receivable or
otherwise, together with all UCC financing statements
or similar filings relating thereto, and
(d) all of the Seller's and each Originator's
rights, interests and claims under the Contracts and
all guaranties, indemnities, insurance and other
agreements (including the related Contract) or
arrangements of whatever character from time to time
supporting or securing payment of such Receivable or
otherwise relating to such Receivable, whether pursuant
to the Contract related to such Receivable or
otherwise.
"Sale Agreement" means the Purchase and Sale Agreement,
dated as of November 13, 1998, between the Seller and the
Originators as such agreement may be amended, amended and
restated, supplemented or otherwise modified from time to
<PAGE>
time.
"Seller" has the meaning set forth in the preamble to
the Agreement.
"Seller's Share" of any amount means the greater of:
(a) $0 and (b) such amount minus the Issuer's Share.
"Servicer" has the meaning set forth in the preamble to
the Agreement.
"Servicing Fee" shall mean the fee referred to in
Section 4.6 of the Agreement.
"Servicing Fee Rate" shall mean the rate referred to in
Section 4.6 of the Agreement.
"Servicing Fee Reserve" for the purchased interest at
any time means the sum of (a) the then accrued and unpaid
Servicing Fee relating to the Purchased Interest plus (b)
the product of (i) the Outstanding Balance of Pool
Receivables at such time, times (ii) the product of (x) the
Servicing Fee Rate multiplied by (y) a fraction, the
numerator of which is 1.5 times the Days' Sales Outstanding
(calculated on the last day of the most recent preceding
calendar month) and the denominator of which is 360.
"Settlement Date" means (a) with respect to any Portion
of Capital, the last day of the Yield Period for such
Portion of Capital and (b) with respect to any Fees, the
Monthly Settlement Date.
"Solvent" means, with respect to any Person at any
time, a condition under which:
(i) the fair value and present fair saleable
value of such Person's total assets is, on the date of
determination, greater than such Person's total
liabilities (including contingent and unliquidated
liabilities) at such time;
(ii) the fair value and present fair saleable
value of such Person's assets is greater than the
amount that will be required to pay such Person's
probable liability on its existing debts as they become
absolute and matured ("debts," for this purpose,
includes all legal liabilities, whether matured or
unmatured, liquidated or unliquidated, absolute, fixed,
or contingent);
(iii) such Person is and shall continue to be
able to pay all of its liabilities as such liabilities
mature; and
(iv) such Person does not have unreasonably small
<PAGE>
capital with which to engage in its current and in its
anticipated business.
For purposes of this definition:
(A) the amount of a Person's contingent or
unliquidated liabilities at any time shall be that
amount which, in light of all the facts and
circumstances then existing, represents the amount
which can reasonably be expected to become an actual or
matured liability;
(B) the "fair value" of an asset shall be the
amount which may be realized within a reasonable time
either through collection or sale of such asset at its
regular market value;
(C) the "regular market value" of an asset shall
be the amount which a capable and diligent business
person could obtain for such asset from an interested
buyer who is willing to Purchase such asset under
ordinary selling conditions; and
(D) the "present fair saleable value" of an asset
means the amount which can be obtained if such asset is
sold with reasonable promptness in an arm's-length
transaction in an existing and not theoretical market.
"Special Concentration Percentage" means with respect
to any Special Obligor, the percentage, if any, for such
Special Obligor set forth opposite such Special Obligor's
name on Annex C to the Agreement; provided, however, that
the Administrator may, from time to time, adjust the Special
Concentration Percentage of any Special Obligor if such
Special Obligor's short-term rating, as of the date such
Person became a Special Obligor, is thereafter reduced or
withdrawn by Moody's or Standard & Poor's.
"Special Obligor" means each Obligor listed on Annex C
to the Agreement as such Annex C may be amended,
supplemented or otherwise modified from time to time.
"Standard & Poor's" means Standard & Poor's, a division
of The McGraw-Hill Companies, Inc.
"Subsidiary" means, as to any Person, a corporation,
partnership, limited liability company or other entity of
which shares of stock of each class or other interests
having ordinary voting power (other than stock or other
interests having such power only by reason of the happening
of a contingency) to elect a majority of the Board of
Directors or other managers of such entity are at the time
owned, or management of which is otherwise controlled: (a)
by such Person, (b) by one or more Subsidiaries of such
<PAGE>
Person or (c) by such Person and one or more Subsidiaries of
such Person.
"Termination Day" means: (a) each day on which the
conditions set forth in Section 2 of Exhibit II to the
Agreement are not satisfied or (b) each day that occurs on
or after the Facility Termination Date.
"Termination Event" has the meaning specified in
Exhibit V to the Agreement.
"Termination Fee" means, for any Yield Period during
which a Termination Day occurs, the amount, if any, by
which: (a) the additional Discount (calculated without
taking into account any Termination Fee or any shortened
duration of such Yield Period pursuant to the definition
thereof) that would have accrued during such Yield Period on
the reductions of Capital relating to such Yield Period had
such reductions not been made, exceeds (b) the income, if
any, received by the Issuer from investing the proceeds of
such reductions of Capital, as determined by the
Administrator, which determination shall be binding and
conclusive for all purposes, absent manifest error.
"Total Reserves" means, at any time the sum of : (a)
the Yield Reserve, plus (b) Servicing Fee Reserve, plus
(c) the greater of (i) the sum of (A) the Loss Reserve plus
(B) the Dilution Reserve and (ii) the Concentration Reserve.
"Transaction Documents" means the Agreement, the Lock-
Box Agreement(s), the Concentration Account Agreements, the
Liquidation Account Agreement, the Fee Letter, the Sale
Agreement and all other certificates, instruments, UCC
financing statements, reports, notices, agreements and
documents executed or delivered under or in connection with
the Agreement, in each case as the same may be amended,
supplemented or otherwise modified from time to time in
accordance with the Agreement.
"UCC" means the Uniform Commercial Code as from time to
time in effect in the applicable jurisdiction.
"Unmatured Purchase and Sale Termination Event" means
any event which, with the giving of notice or lapse of time,
or both, would become a Purchase and Sale Termination Event.
"Unmatured Termination Event" means an event that, with
the giving of notice or lapse of time, or both, would
constitute a Termination Event.
"Year 2000 Problem" has the meaning set forth in
Section 2(j) of Exhibit III to the Agreement.
"Yield Period" means, with respect to each Portion of
<PAGE>
Capital:
(a) initially the period commencing on the date
of a purchase pursuant to Section 1.2 and ending such
number of days as the Seller shall select, subject to
the approval of the Administrator pursuant to
Section 1.2, up to 60 days after such date; and
(b) thereafter each period commencing on the last
day of the immediately preceding Yield Period for any
Portion of Capital of the Purchased Interest and ending
such number of days (not to exceed 60 days) as the
Seller shall select, subject to the approval of the
Administrator pursuant to Section 1.2, on notice by the
Seller received by the Administrator (including notice
by telephone, confirmed in writing) not later than
11:00 a.m. (Chicago time) on such last day, except that
if the Administrator shall not have received such
notice or approved such period on or before 11:00 a.m.
(Chicago time) on such last day, such period shall be
one day; provided, that
(i) any Yield Period in respect of
which Discount is computed by reference to the
Alternate Rate shall be a period from one to and
including 60 days;
(ii) any Yield Period (other than of
one day) which would otherwise end on a day which
is not a Business Day shall be extended to the
next succeeding Business Day; provided, however,
if Discount in respect of such Yield Period is
computed by reference to the Eurodollar Rate, and
such Yield Period would otherwise end on a day
which is not a Business Day, and there is no
subsequent Business Day in the same calendar month
as such day, such Yield Period shall end on the
next preceding Business Day;
(iii) in the case of any Yield Period
of one day, (A) if such Yield Period is the
initial Yield Period for a purchase pursuant to
Section 1.2, such Yield Period shall be the day of
purchase of the Purchased Interest; (B) any
subsequently occurring Yield Period which is one
day shall, if the immediately preceding Yield
Period is more than one day, be the last day of
such immediately preceding Yield Period, and, if
the immediately preceding Yield Period is one day,
be the day next following such immediately
preceding Yield Period; and (C) if such Yield
Period occurs on a day immediately preceding a day
which is not a Business Day, such Yield Period
shall be extended to the next succeeding Business
<PAGE>
Day; and
(iv) in the case of any Yield Period
for any Portion of Capital of the Purchased
Interest which commences before the Facility
Termination Date and would otherwise end on a date
occurring after the Facility Termination Date,
such Yield Period shall end on such Facility
Termination Date and the duration of each Yield
Period which commences on or after the Facility
Termination Date shall be of such duration as
shall be selected by the Administrator
"Yield Reserve" means, at any time:
( BR x 1.5(DSO) x Capital)
360
where:
BR = the Base Rate in effect at such time, and
DSO = Days' Sales Outstanding.
Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with
generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in
such Article 9. Unless the context otherwise requires, "or"
means "and/or," and "including" (and with correlative
meaning "include" and "includes") means including without
limiting the generality of any description preceding such
term.
<PAGE>
EXHIBIT II
CONDITIONS OF PURCHASES
I. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The Initial
Purchase under this Agreement is subject to the following
conditions precedent that the Administrator shall have
received on or before the date of such purchase, each in
form and substance (including the date thereof) satisfactory
to the Administrator:
A. A counterpart of the Agreement and the other Transaction
Documents executed by the parties thereto.
A. Certified copies of: (i) the resolutions of the Board of
Directors of each of the Seller, the Originators and Sequa
authorizing the execution, delivery and performance by the
Seller, each Originator and Sequa, as the case may be, of
the Agreement and the other Transaction Documents to which
it is a party; (ii) all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to the Agreement and the other Transaction Documents
and (iii) the certificate of incorporation and by-laws of
the Seller, each Originator and Sequa.
A. A certificate of the Secretary or Assistant Secretary of
the Seller, each Originator and Sequa certifying the names
and true signatures of its officers who are authorized to
sign the Agreement and the other Transaction Documents.
Until the Administrator receives a subsequent incumbency
certificate from the Seller, each Originator or Sequa, as
the case may be, the Administrator shall be entitled to rely
on the last such certificate delivered to it by the Seller,
such Originator or Sequa, as the case may be.
A. Acknowledgment copies, or time stamped receipt copies, of
proper financing statements, duly filed on or before the
date of such initial purchase under the UCC of all
jurisdictions that the Administrator may deem necessary or
desirable in order to perfect the interests of the Seller,
Sequa and the Issuer contemplated by the Agreement and the
Sale Agreement.
A. Acknowledgment copies, or time-stamped receipt copies, of
proper financing statements, if any, necessary to release
all security interests and other rights of any Person in the
Receivables, Contracts or Related Security previously
granted by any Originator, Sequa or the Seller.
B. Completed UCC search reports, dated on or shortly before
the date of the initial purchase hereunder, listing the
financing statements filed in all applicable jurisdictions
referred to in subsection (e) above that name any Originator
<PAGE>
or the Seller as debtor, together with copies of such other
financing statements, and similar search reports with
respect to judgment liens, federal tax liens and liens of
the Pension Benefit Guaranty Corporation in such
jurisdictions, as the Administrator may request, showing no
Adverse Claims on any Pool Assets.
A.copies of the executed (i) Lock-Box Agreement[s] with the
Lock-Box Bank[s], (ii) Concentration Account Agreements with
the Concentration Account Banks and (iii) Liquidation
Account Agreement with the Liquidation Account Bank.
A. Favorable opinions, in form and substance reasonably
satisfactory to the Administrator, of general counsel for
Seller and each Originator.
A. Satisfactory results of a review and audit (performed by
representatives of the Administrator) of the Servicer's
collection, operating and reporting systems, the Credit and
Collection Policy of each Originator, historical receivables
data and accounts, including satisfactory results of a
review of the Servicer's operating location(s) and
satisfactory review and approval of the Eligible Receivables
in existence on the date of the initial purchase under the
Agreement.
A. A pro forma Monthly Report representing the performance
of the Receivables Pool for the calendar month before
closing.
A. Evidence of payment by the Seller of all accrued and
unpaid fees (including those contemplated by the Fee
Letter), costs and expenses to the extent then due and
payable on the date thereof, including any such costs, fees
and expenses arising under or referenced in Section 5.4 of
the Agreement and the Fee Letter.
A. The Fee Letter duly executed by the Seller and the
Servicer.
A. Good standing certificates with respect to each of the
Seller, the Originators and the Servicer issued by the
Secretary of State (or similar official) of the state of
each such Person's organization and principal place of
business.
A. Letters from each of the rating agencies then rating the
Notes confirming the rating of such Notes after giving
effect to the transaction contemplated by the Agreement.
A. The Liquidity Agreement and all other Transaction
Documents duly executed by the parties thereto.
A. A file (computer generated or otherwise) containing all
<PAGE>
information with respect to the Receivables as the
Administrator or the Issuer may reasonably request.
A. Such other approvals, opinions or documents as the
Administrator or the Issuer may reasonably request.
Conditions Precedent to All Purchases and Reinvestments.
Each purchase (except as to clause (a), including the
initial purchase) and each reinvestment shall be subject to
the further conditions precedent that:
A. in the case of each purchase, the Servicer shall have
delivered to the Administrator on or before such purchase,
in form and substance satisfactory to the Administrator, a
completed pro forma Monthly Report to reflect the level of
Capital and related reserves after such subsequent purchase;
and
A. on the date of such purchase or reinvestment the
following statements shall be true (and acceptance of the
proceeds of such purchase or reinvestment shall be deemed a
representation and warranty by the Seller that such
statements are then true):
1. the representations and warranties contained in
Exhibit III to the Agreement are true and correct in
all material respects on and as of the date of such
purchase or reinvestment as though made on and as of
such date; and
1. no event has occurred and is continuing, or would
result from such purchase or reinvestment, that
constitutes a Termination Event or an Unmatured
Termination Event.
<PAGE>
EXHIBIT III
REPRESENTATIONS AND WARRANTIES
1. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller represents and warrants as follows:
A. The Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of New York, and is duly qualified to do business and
is in good standing as a foreign corporation in every
jurisdiction where the nature of its business requires it to
be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect.
A. The execution, delivery and performance by the
Seller of the Agreement and the other Transaction Documents
to which it is a party, including its use of the proceeds of
purchases and reinvestments: (i) are within its corporate
powers; (ii) have been duly authorized by all necessary
corporate action; (iii) do not contravene or result in a
default under or conflict with: (A) its charter or by-laws,
(B) any law, rule or regulation applicable to it, (C) any
indenture, loan agreement, mortgage, deed of trust or other
agreement or instrument to which it is a party or by which
it is bound, or (D) any order, writ, judgment, award,
injunction or decree binding on or affecting it or any of
its property; and (iv) do not result in or require the
creation of any Adverse Claim upon or with respect to any of
its properties. The Agreement and the other Transaction
Documents to which it is a party have been duly executed and
delivered by the Seller.
A. No authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority
or other Person is required for its due execution, delivery
and performance by the Seller of the Agreement or any other
Transaction Document to which it is a party, other than the
Uniform Commercial Code filings referred to in Exhibit II to
the Agreement, all of which shall have been filed on or
before the date of the first purchase hereunder.
A. Each of the Agreement and the other Transaction
Documents to which the Seller is a party constitutes its
legal, valid and binding obligation of the Seller
enforceable against the Seller in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws from time
to time in effect affecting the enforcement of creditors'
rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a
proceeding in equity or at law.
<PAGE>
A. There is no pending or, to Seller's best
knowledge, threatened action or proceeding affecting Seller
or any of its properties before any Governmental Authority
or arbitrator.
A. No proceeds of any purchase or reinvestment will
be used by the Seller to acquire any equity security of a
class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
A. The Seller is the legal and beneficial owner of
the Pool Receivables and Related Security, free and clear of
any Adverse Claim. Upon each purchase or reinvestment, the
Issuer shall acquire a valid and enforceable perfected
undivided percentage ownership or security interest, to the
extent of the Purchased Interest, in each Pool Receivable
then existing or thereafter arising and in the Related
Security, Collections and other proceeds with respect
thereto, free and clear of any Adverse Claim. The Agreement
creates a security interest in favor of the Issuer in the
Pool Assets, and the Issuer has a first priority perfected
security interest in the Pool Assets, free and clear of any
Adverse Claims. No effective financing statement or other
instrument similar in effect covering any Pool Asset is on
file in any recording office, except those filed in favor of
the Seller pursuant to the Sale Agreement and the Issuer
relating to the Agreement.
A. Each Monthly Report (if prepared by the Seller or
one of its Affiliates, or to the extent that information
contained therein is supplied by the Seller or an
Affiliate), information, exhibit, financial statement,
document, book, record or report furnished or to be
furnished at any time by or on behalf of the Seller to the
Administrator in connection with the Agreement or any other
Transaction Document to which it is a party is or will be
complete and accurate in all material respects as of its
date or as of the date so furnished,
A. The Seller's principal place of business and
chief executive office (as such terms are used in the UCC)
and the office where it keeps its records concerning the
Receivables are located at the address referred to in
Sections 1(b) and 2(b) of Exhibit IV to the Agreement.
A. The names and addresses of all the Lock-Box
Banks, together with the account numbers of the Lock-Box
Accounts at such Lock-Box Banks, are specified in Schedule
II to the Agreement (or at such other Lock-Box Banks and/or
with such other Lock-Box Accounts as have been notified to
the Administrator in accordance with the Agreement) and all
Lock-Box Accounts are subject to Lock-Box Agreements.
A. The Seller is not in violation of any order of
<PAGE>
any court, arbitrator or Governmental Authority.
A. No proceeds of any purchase or reinvestment will
be used for any purpose that violates any applicable law,
rule or regulation, including Regulations G or U of the
Federal Reserve Board.
A. Each Pool Receivable included as an Eligible
Receivable in the calculation of the Net Receivables Pool
Balance is an Eligible Receivable.
A. No event has occurred and is continuing, or would
result from a purchase in respect of, or reinvestment in
respect of, the Purchased Interest or from the application
of the proceeds therefrom, that constitutes a Termination
Event or an Unmatured Termination Event.
A. The Seller has complied in all material respects
with the Credit and Collection Policy of each Originator
with regard to each Receivable originated by such
Originator.
A. The Seller has complied in all material respects
with all of the terms, covenants and agreements contained in
the Agreement and the other Transaction Documents that are
applicable to it.
A. The Seller's complete corporate name is set forth
in the preamble to the Agreement, and it does not use and
has not during the last five years used any other corporate
name, trade name, doing-business name or fictitious name,
except as set forth on Schedule III to the Agreement and
except for names first used after the date of the Agreement
and set forth in a notice delivered to the Administrator
pursuant to Section 1(k)(iv) of Exhibit IV to the Agreement.
A. The Seller is not an "investment company," or a
company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
In addition, the Seller is not a "holding company," a
"subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(s) The Seller has reviewed the areas within its
business and operations which could be adversely affected
by, and has developed or is developing a program to address
on a timely basis, the risk that certain computer
applications used by the Seller may be unable to recognize
and perform properly date-sensitive functions involving
dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem is not expected to have any
Material Adverse Effect on Seller's Business.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF SEQUA (including
in its capacity as the Servicer).Sequa, individually and in
its capacity as the Servicer, represents and warrants as
follows:
A. Sequa is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, and is duly qualified to do business and is in
good standing as a foreign corporation in every jurisdiction
where the nature of its business requires it to be so
qualified, except where the failure to be so qualified would
not have a Material Adverse Effect.
A. The execution, delivery and performance by Sequa
of the Agreement and the other Transaction Documents to
which it is a party, including the Servicer's use of the
proceeds of purchases and reinvestments: (i) are within its
corporate powers; (ii) have been duly authorized by all
necessary corporate action; (iii) do not contravene or
result in a default under or conflict with: (A) its charter
or by-laws, (B) any law, rule or regulation applicable to
it, (C) any indenture, loan agreement, mortgage, deed of
trust or other material agreement or instrument to which it
is a party or by which it is bound, or (D) any order, writ,
judgment, award, injunction or decree binding on or
affecting it or any of its property; and (iv) do not result
in or require the creation of any Adverse Claim upon or with
respect to any of its properties. The Agreement and the
other Transaction Documents to which Sequa is a party have
been duly executed and delivered by Sequa.
A. No authorization, approval or other action by,
and no notice to or filing with any Governmental Authority
or other Person, is required for the due execution, delivery
and performance by Sequa of the Agreement or any other
Transaction Document to which it is a party.
A. Each of the Agreement and the other Transaction
Documents to which Sequa is a party constitutes the legal,
valid and binding obligation of Sequa enforceable against
Sequa in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or
other similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at
law.
A. The balance sheets of Sequa and its consolidated
Subsidiaries as at December 31, 1997, and the related
statements of income and retained earnings for the fiscal
year then ended, copies of which have been furnished to the
Administrator, fairly present the financial condition of
Sequa and its consolidated Subsidiaries as at such date and
<PAGE>
the results of the operations of Sequa and its Subsidiaries
for the period ended on such date, all in accordance with
generally accepted accounting principles consistently
applied, and since December 31, 1997 there has been no event
or circumstances which have had a Material Adverse Effect.
A. Except as disclosed in the most recent audited
financial statements of Sequa furnished to the
Administrator, there is no pending or, to its best
knowledge, threatened action or proceeding affecting it or
any of its Subsidiaries before any Governmental Authority or
arbitrator that could have a Material Adverse Effect.
A. Each Monthly Report (if prepared by Sequa or one
of its Affiliates, or to the extent that information
contained therein is supplied by Sequa or an Affiliate),
information, exhibit, financial statement, document, book,
record or report furnished or to be furnished at any time by
or on behalf of the Servicer to the Administrator in
connection with the Agreement is or will be complete and
accurate in all material respects as of its date or (except
as otherwise disclosed to the Administrator at such time) as
of the date so furnished.
A. Sequa is not in violation of any order of any
court, arbitrator or Governmental Authority, which could
have a Material Adverse Effect.
A. The Servicer has complied in all material
respects with the Credit and Collection Policy of each
Originator with regard to each Receivable originated by such
Originator.
(j) Sequa has reviewed the areas within its business
and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely
basis, the risk that certain computer applications used by
the Sequa may be unable to recognize and perform properly
date-sensitive functions involving dates prior to and after
December 31, 1999 (the "Year 2000 Problem"). The Year 2000
Problem is not expected to have any Material Adverse Effect
on Sequa's Business.
<PAGE>
EXHIBIT IV
COVENANTS
1. COVENANTS OF THE SELLER. Until the latest of the
Facility Termination Date, the date on which no Capital of
or Discount in respect of the Purchased Interest shall be
outstanding or the date all other amounts owed by the Seller
under the Agreement to the Issuer, the Administrator and any
other Indemnified Party or Affected Person shall be paid in
full:
A. Compliance with Laws, Etc. The Seller shall
comply in all material respects with all applicable laws,
rules, regulations and orders, and preserve and maintain its
corporate existence, rights, franchises, qualifications and
privileges, except to the extent that the failure so to
comply with such laws, rules and regulations or the failure
so to preserve and maintain such rights, franchises,
qualifications and privileges would not have a Material
Adverse Effect.
A. Offices, Records and Books of Account, Etc. The
Seller: (i) shall keep its principal place of business and
chief executive office (as such terms or similar terms are
used in the UCC) and the office where it keeps its records
concerning the Receivables at the address of the Seller set
forth under its name on the signature page to the Agreement
or, pursuant to clause (k)(iv) below, at any other locations
in jurisdictions where all actions reasonably requested by
the Administrator to protect and perfect the interest of the
Issuer in the Receivables and related items (including the
Pool Assets) have been taken and completed and (ii) shall
provide the Administrator with at least 15 days' written
notice before making any change in the Seller's name or
making any other change in the Seller's identity or
corporate structure (including a Change in Control) that
could render any UCC financing statement filed in connection
with this Agreement "seriously misleading" as such term (or
similar term) is used in the UCC; each notice to the
Administrator pursuant to this sentence shall set forth the
applicable change and the effective date thereof. The Seller
also will maintain and implement (or cause the Servicer to
maintain and implement) administrative and operating
procedures (including an ability to recreate records
evidencing Receivables and related Contracts in the event of
the destruction of the originals thereof), and keep and
maintain (or cause the Servicer to keep and maintain) all
documents, books, records, computer tapes and disks and
other information reasonably necessary or advisable for the
collection of all Receivables (including records adequate to
permit the daily identification of each Receivable and all
Collections of and adjustments to each existing Receivable).
<PAGE>
A. Performance and Compliance with Contracts and
Credit and Collection Policy. The Seller shall (and shall
cause the Servicer to) fully comply in all material respects
with the applicable Credit and Collection Policies with
regard to each Receivable and the related Contract.
A. Ownership Interest, Etc. The Seller shall (and
shall cause the Servicer to), at its expense, take all
action necessary or desirable to establish and maintain a
valid and enforceable undivided percentage ownership or
security interest, to the extent of the Purchased Interest,
in the Pool Receivables, the Related Security and
Collections with respect thereto, and a first priority
perfected security interest in the Pool Assets, in each case
free and clear of any Adverse Claim, in favor of the Issuer,
including taking such action to perfect, protect or more
fully evidence the interest of the Issuer as the Issuer,
through the Administrator, may reasonably request.
A. Sales, Liens, Etc. The Seller shall not sell,
assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim
upon or with respect to, any or all of its right, title or
interest in, to or under any Pool Assets (including the
Seller's undivided interest in any Receivable, Related
Security or Collections, or upon or with respect to any
account to which any Collections of any Receivables are
sent), or assign any right to receive income in respect of
any items contemplated by this paragraph.
A. Extension or Amendment of Receivables. Except as
provided in the Agreement, the Seller shall not, and shall
not permit the Servicer to, extend the maturity or adjust
the Outstanding Balance or otherwise modify the terms of any
Pool Receivable, or amend, modify or waive any term or
condition of any related Contract.
A. Change in Credit and Collection Policy. The
Seller shall not make (or permit any Originator to make) any
material change in the character of its business or in any
Credit and Collection Policy, or any change in any Credit
and Collection Policy that would adversely affect the
collectibility of the Receivables Pool or the enforceability
of any related Contract or the ability of the Seller or
Servicer to perform its obligations under any related
Contract or under the Agreement.
A. Audits. (i) The Seller shall (and shall cause
each Originator to)(a) prior to the occurrence of a
Termination Event or an Unmatured Termination Event, from
time to time (but no more frequently than annually) during
regular business hours as reasonably requested in advance by
the Administrator or (b) at any time on and after the
occurrence of a Termination Event or an Unmatured
<PAGE>
Termination Event or, if in the opinion of the Administrator
reasonable grounds for insecurity exist with respect to the
collectibility of the Pool Receivables or with respect to
the Seller's performance or ability to perform its
obligations under the Agreement, permit the Administrator,
or its agents or representatives: (A) to examine and make
copies of and abstracts from all books, records and
documents (including computer tapes and disks) in the
possession or under the control of the Seller (or any
Originator) relating to Receivables and the Related
Security, including the related Contracts, and (B) to visit
the offices and properties of the Seller and each Originator
for the purpose of examining such materials described in
clause (i)(A) above, and to discuss matters relating to
Receivables and the Related Security or the Seller's,
Sequa's or such Originator's performance under the
Transaction Documents or under the Contracts with any of the
officers, employees, agents or contractors of the Seller,
Sequa or such Originator having knowledge of such matters;
and (ii) without limiting the provisions of
clause (i) next above, from time to time during regular
business hours, upon five Business Days prior written notice
from the Administrator, permit certified public accountants
or other auditors acceptable to the Administrator to conduct
a review of the Seller's or any Originator's books and
records, at the Seller's or such Originator's expense (as
the case may be), with respect to the Receivables.
A. Change in Lock-Box Banks, Lock-Box Accounts and
Payment Instructions to Obligors. The Seller shall not, and
shall not permit the Servicer or any Originator to, add or
terminate any bank as a Lock-Box Bank or any account as a
Lock-Box Account from those listed in Schedule II to the
Agreement, or make any change in its instructions to
Obligors regarding payments to be made to the Seller, such
Originator, the Servicer or any Lock-Box Account (or related
post office box), unless the Administrator shall have
consented thereto in writing and the Administrator shall
have received copies of all agreements and documents
(including Lock-Box Agreements) that it may request in
connection therewith.
A. Deposits to Lock-Box Accounts. The Seller shall
(or shall cause the Servicer to): (i) instruct all Obligors
to make payments of all Receivables to one or more Lock-Box
Accounts or to post office boxes to which only Lock-Box
Banks have access (and shall instruct the Lock-Box Banks to
cause all items and amounts relating to such Receivables
received in such post office boxes to be removed and
deposited into a Lock-Box Account on a daily basis), and
(ii) deposit, or cause to be deposited, any Collections
received by it, the Servicer or any Originator into Lock-Box
Accounts not later than one Business Day after receipt
thereof. Each Lock-Box Account, Concentration Account and
<PAGE>
the Liquidation Account shall at all times be subject to a
Lock-Box Agreement, a Concentration Account Agreement and a
Liquidation Account Agreement, respectively. The Seller will
not (and will not permit the Servicer to) deposit or
otherwise credit, or cause or permit to be so deposited or
credited, to any Lock-Box Account cash or cash proceeds
other than Collections.
A. Reporting Requirements. The Seller will provide
to the Administrator (in multiple copies, if requested by
the Administrator) the following:
1. as soon as available and in any event within
95 days after the end of each fiscal year of the
Seller, a copy of the annual report for such year for
the Seller, containing unaudited financial statements
for such year certified as to accuracy by the chief
financial officer or treasurer of the Seller;
1. as soon as possible and in any event within
five days after the occurrence of each Termination
Event or Unmatured Termination Event, a statement of
the chief financial officer of the Seller setting forth
details of such Termination Event or Unmatured
Termination Event and the action that the Seller has
taken and proposes to take with respect thereto;
1. promptly after the filing or receiving
thereof, copies of all reports and notices that the
Seller or any Affiliate files under ERISA with the
Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or that the
Seller or any Affiliate receives from any of the
foregoing or from any multiemployer plan (within the
meaning of Section 4001(a)(3) of ERISA) to which the
Seller or any of its Affiliates is or was, within the
preceding five years, a contributing employer, in each
case in respect of the assessment of withdrawal
liability or an event or condition that could, in the
aggregate, result in the imposition of liability on the
Seller and/or any such Affiliate;
2. at least fifteen days before any change in
the Seller's name or any other change requiring the
amendment of UCC financing statements, a notice setting
forth such changes and the effective date thereof;
1. promptly after the Seller obtains knowledge
thereof, notice of any: (A) material litigation,
investigation or proceeding that may exist at any time
between the Seller and any Person or (B) material
litigation or proceeding relating to any Transaction
Document;
1. promptly after the occurrence thereof,
<PAGE>
notice of a material adverse change in the business,
operations, property or financial or other condition of
the Seller, the Servicer or any Originator; and
1. such other information respecting the
Receivables or the condition or operations, financial
or otherwise, of the Seller or any of its Affiliates as
the Administrator may from time to time reasonably
request.
A. Certain Agreements. Without the prior written
consent of the Administrator, the Seller will not (and will
not permit any Originator to) amend, modify, waive, revoke
or terminate any Transaction Document to which it is a party
or any provision of Seller's certificate of incorporation or
by-laws.
A. Restricted Payments. (i) Except pursuant to
clause (ii) below, the Seller will not: (A) purchase or
redeem any shares of its capital stock, (B) declare or pay
any dividend or set aside any funds for any such purpose,
(C) prepay, purchase or redeem any Debt, (D) lend or advance
any funds or (E) repay any loans or advances to, for or from
any of its Affiliates (the amounts described in clauses (A)
through (E) being referred to as "Restricted Payments").
(ii) Subject to the limitations set forth in
clause (iii) below, the Seller may make Restricted
Payments so long as such Restricted Payments are made
only in one or more of the following ways: (A) the
Seller may make cash payments (including prepayments)
on the Company Notes in accordance with its terms, and
(B) if no amounts are then outstanding under the
Company Notes, the Seller may declare and pay
dividends.
(iii) The Seller may make Restricted Payments only
out of the funds it receives pursuant to Sections
1.4(b)(ii) and (iv) of the Agreement. Furthermore, the
Seller shall not pay, make or declare: (A) any dividend
if, after giving effect thereto, the Seller's tangible
net worth would be less than $50,000,000, or (B) any
Restricted Payment (including any dividend) if, after
giving effect thereto, any Termination Event or
Unmatured Termination Event shall have occurred and be
continuing.
A. Other Business. The Seller will not: (i) engage
in any business other than the transactions contemplated by
the Transaction Documents; (ii) create, incur or permit to
exist any Debt of any kind (or cause or permit to be issued
for its account any letters of credit or bankers'
acceptances) other than pursuant to this Agreement or the
Company Notes; or (iii) form any Subsidiary or make any
<PAGE>
investments in any other Person; provided, however, that the
Seller shall be permitted to incur minimal obligations to
the extent necessary for the day-to-day operations of the
Seller (such as expenses for stationery, audits, maintenance
of legal status, etc.).
A. Use of Seller's Share of Collections. The Seller
shall apply the Seller's Share of Collections to make
payments in the following order of priority: (i) the payment
of its expenses (including all obligations payable to the
Issuer and the Administrator under the Agreement and under
the Fee Letter); (ii) the payment of accrued and unpaid
interest on the Company Notes; and (iii) other legal and
valid corporate purposes.
A. Tangible Net Worth. The Seller will not permit
its tangible net worth, at any time, to be less than
$50,000,000.
2. Covenants of the Servicer and Sequa. Until the
latest of the Facility Termination Date, the date on which
no Capital of or Discount in respect of the Purchased
Interest shall be outstanding or the date all other amounts
owed by the Seller under the Agreement to the Issuer, the
Administrator and any other Indemnified Party or Affected
Person shall be paid in full:
A. Compliance with Laws, Etc. The Servicer and, to
the extent that it ceases to be the Servicer, Sequa shall
comply (and shall cause each Originator to comply) in all
material respects with all applicable laws, rules,
regulations and orders, and preserve and maintain its
corporate existence, rights, franchises, qualifications and
privileges, except to the extent that the failure so to
comply with such laws, rules and regulations or the failure
so to preserve and maintain such existence, rights,
franchises, qualifications and privileges would not have a
Material Adverse Effect.
A. Records and Books of Account, Etc. The Servicer
and, to the extent that it ceases to be the Servicer, Sequa,
also will (and will cause each Originator to) maintain and
implement administrative and operating procedures (including
an ability to recreate records evidencing Receivables and
related Contracts in the event of the destruction of the
originals thereof), and keep and maintain all documents,
books, records, computer tapes and disks and other
information reasonably necessary or advisable for the
collection of all Receivables (including records adequate to
permit the daily identification of each Receivable and all
Collections of and adjustments to each existing Receivable).
A. Change in Credit and Collection Policy. The
Servicer and, to the extent that it ceases to be the
<PAGE>
Servicer, Sequa, shall not make (and shall not permit any
Originator to make) any material change in the character of
its business or in any Credit and Collection Policy, or any
change in any Credit and Collection Policy that would
adversely affect the collectibility of the Receivables Pool
or the enforceability of any related Contract or the ability
of the Seller or Servicer to perform its obligations under
any related Contract or under the Agreement.
A. Audits. (i) The Servicer and, to the extent that
it ceases to be the Servicer, Sequa, shall (and shall cause
each Originator to)(a) prior to the occurrence of a
Termination Event or an Unmatured Termination Event, from
time to time (but no more frequently than annually) during
regular business hours as reasonably requested in advance by
the Administrator or (b) at any time on and after the
occurrence of a Termination Event or an Unmatured
Termination Event or, if in the opinion of the Administrator
reasonable grounds for insecurity exist with respect to the
collectibility of the Pool Receivables or with respect to
the Servicer's performance or ability to perform its
obligations under the Agreement, permit the Administrator,
or its agents or representatives: (A) to examine and make
copies of and abstracts from all books, records and
documents (including computer tapes and disks) in its
possession or under its control relating to Receivables and
the Related Security, including the related Contracts, and
(B) to visit its offices and properties for the purpose of
examining such materials described in clause (i)(A) above,
and to discuss matters relating to Receivables and the
Related Security or its performance hereunder or under the
Contracts with any of its officers, employees, agents or
contractors having knowledge of such matters; and (ii)
without limiting the provisions of clause (i) next above,
from time to time during regular business hours, upon five
Business Days prior written notice from the Administrator,
permit certified public accountants or other auditors
acceptable to the Administrator to conduct, at Servicer's
expense, a review of the Servicer's books and records with
respect to the Receivables.
A. Deposits to Lock-Box Accounts. The Servicer
shall: (i) instruct all Obligors to make payments of all
Receivables to one or more Lock-Box Accounts or to post
office boxes to which only Lock-Box Banks have access (and
shall instruct the Lock-Box Banks to cause all items and
amounts relating to such Receivables received in such post
office boxes to be removed and deposited into a Lock-Box
Account on a daily basis); and (ii) deposit, or cause to be
deposited, any Collections received by it into Lock-Box
Accounts not later than one Business Day after receipt
thereof. Each Lock-Box Account, Concentration Account and
the Liquidation Account shall at all times be subject to a
Lock-Box Agreement, a Concentration Account Agreement, and a
<PAGE>
Liquidation Account Agreement respectively. The Servicer
will not deposit or otherwise credit, or cause or permit to
be so deposited or credited, to any Lock-Box Account cash or
cash proceeds other than Collections.
A. Reporting Requirements. Sequa shall provide to
the Administrator (in multiple copies, if requested by the
Administrator) the following:
1. As soon as available and in any event within
50 days after the end of each of the first three
quarters of each fiscal year of Sequa, (a) copies of
the unaudited consolidated balance sheet of Sequa and
its consolidated Subsidiaries as at the end of such
quarter, together with unaudited statements of
earnings, stockholders' equity and cash flows for such
quarter and the portion of the fiscal year through such
quarter, prepared in accordance with GAAP and certified
by the chief financial officer, treasurer or chief
accounting officer of Sequa, (b) a letter from the
chief financial officer, treasurer or chief accounting
officer of Sequa certifying to the best knowledge of
such officer, that neither a Termination Event nor an
Unmatured Termination Event has occurred and is
continuing;
1. As soon as available and in any event within
95 days after the end of each fiscal year of Sequa, (a)
a copy of the consolidated balance sheet of Sequa and
its consolidated Subsidiaries as at the end of such
fiscal year, together with the related statements of
earnings, stockholders' equity and cash flows for such
fiscal year, each prepared in accordance with GAAP
applied consistently throughout the periods reflected
therein (Sequa's consolidated balance sheet and such
related statements to be certified without any
Impermissible Qualification by independent certified
public accountants of nationally recognized standing),
and (b) a letter from the chief financial officer,
treasurer or chief accounting officer of Sequa
certifying to the best knowledge of such officer, that
neither a Termination Event nor an Unmatured
Termination Event has occurred and is continuing, in
each case as at the end of each such fiscal year and
the date of delivery of such letter;
1. as to the Servicer only, as soon as
available and in any event not later than (i) 15 days
after the last day of each calendar month and (ii) 25
days after the last day of each fiscal year of Sequa, a
Monthly Report as of the last day of such month or,
within six Business Days of a request by the
Administrator, a Monthly Report for such periods as is
specified by the Administrator (including on a semi-
<PAGE>
monthly, weekly or daily basis);
1. promptly after the sending or filing
thereof, copies of all reports that Sequa sends to any
of its security holders, and copies of all reports and
registration statements that Sequa or any Subsidiary
files with the Securities and Exchange Commission or
any national securities exchange;
1. promptly after the filing or receiving
thereof, copies of all reports and notices that Sequa
or any of its Affiliate files under ERISA with the
Internal Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor or that
such Person or any of its Affiliates receives from any
of the foregoing or from any multiemployer plan (within
the meaning of Section 4001(a)(3) of ERISA) to which
such Person or any of its Affiliate is or was, within
the preceding five years, a contributing employer, in
each case in respect of the assessment of withdrawal
liability or an event or condition that could, in the
aggregate, result in the imposition of liability on
Sequa and/or any such Affiliate;
1. promptly after Sequa obtains knowledge
thereof, notice of any: (A) litigation, investigation
or proceeding that may exist at any time between Sequa
or any of its Subsidiaries and any Governmental
Authority that, if not cured or if adversely
determined, as the case may be, would have a Material
Adverse Effect; (B) litigation or proceeding adversely
affecting such Person or any of its Subsidiaries in
which the amount involved is $3,500,000 or more and not
covered by insurance or in which injunctive or similar
relief is sought; or (C) litigation or proceeding
relating to any Transaction Document;
1.
As soon as available and in any event within 100
days after the end of each fiscal year of Servicer, the
Servicer shall, at the Servicer's expense, cause a firm
of independent public accountants, acceptable to the
Administrator, to furnish a report to the Administrator,
to the effect that such firm has (i) compared the
information contained in the Monthly Reports delivered
during such fiscal year then ended with the information
contained in the Servicer's records and computer systems
for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion
that the information contained in the Monthly Reports
reconciles with the information contained in the
Servicer's records and computer systems and that the
servicing of the Receivables has been conducted in
<PAGE>
compliance with the Agreement, (ii) confirmed the Net
Receivables Pool Balance as of the end of each Yield
Period during such fiscal year, (iii) verified that the
Receivables treated by the Servicer as Eligible
Receivables in fact satisfied the requirements of the
definition thereof contained in Exhibit I to the
Agreement, and (iv) conducted a "negative confirmation"
of a sample of Receivables and verified that the
Servicer's records and computer systems used in servicing
the Receivables contained correct information with regard
to due dates and outstanding balances, except in each
case for (a) such exceptions as such firm shall believe
to be immaterial (which exceptions need not be
enumerated) and (b) such other exceptions as shall be set
forth in such statement; and
(viii) such other information respecting the
Receivables or the condition or operations, financial or
otherwise, of Sequa or any of its Affiliates as the
Administrator may from time to time reasonably request.
3. Separate Existence. Each of the Seller and Sequa
hereby acknowledges that the Purchasers, the Issuer and the
Administrator are entering into the transactions
contemplated by this Agreement and the other Transaction
Documents in reliance upon the Seller's identity as a legal
entity separate from Sequa and its Affiliates. Therefore,
from and after the date hereof, each of the Seller and Sequa
shall take all steps specifically required by the Agreement
or reasonably required by the Administrator to continue the
Seller's identity as a separate legal entity and to make it
apparent to third Persons that the Seller is an entity with
assets and liabilities distinct from those of Sequa and any
other Person, and is not a division of Sequa, its Affiliates
or any other Person. Without limiting the generality of the
foregoing and in addition to and consistent with the other
covenants set forth herein, each of the Seller and Sequa
shall take such actions as shall be required in order that:
(a) The Seller will be a limited purpose
corporation whose primary activities are restricted in
its certificate of incorporation to: (i) purchasing or
otherwise acquiring from the Originators, owning,
holding, granting security interests or selling
interests in Pool Assets, (ii) entering into agreements
for the selling and servicing of the Receivables Pool,
and (iii) conducting such other activities as it deems
necessary or appropriate to carry out its primary
activities;
(b) The Seller shall not engage in any business or
activity, or incur any indebtedness or liability, other
than as expressly permitted by the Transaction
Documents;
<PAGE>
(c) Not less than one member of the Seller's Board
of Directors (the "Independent Director") shall be an
individual who is not a direct, indirect or beneficial
stockholder, officer, director, employee, affiliate,
associate or supplier of Sequa or any of its
Affiliates. The certificate of incorporation of the
Seller shall provide that: (i) the Seller's Board of
Directors shall not approve, or take any other action
to cause the filing of, a voluntary bankruptcy petition
with respect to the Seller unless the Independent
Director shall approve the taking of such action in
writing before the taking of such action, and (ii) such
provision cannot be amended without the prior written
consent of the Independent Director;
(d) The Independent Director shall not at any time
serve as a trustee in bankruptcy for the Seller, Sequa
or any Affiliate thereof;
(e) Any employee, consultant or agent of the
Seller will be compensated from the Seller's funds for
services provided to the Seller. The Seller will not
engage any agents other than its attorneys, auditors
and other professionals, and a servicer and any other
agent contemplated by the Transaction Documents for the
Receivables Pool, which servicer will be fully
compensated for its services by payment of the
Servicing Fee, and a manager, which manager will be
fully compensated from the Seller's funds;
(f) The Seller will contract with the Servicer to
perform for the Seller all operations required on a
daily basis to service the Receivables Pool. The Seller
will pay the Servicer the Servicing Fee pursuant
hereto. The Seller will not incur any material indirect
or overhead expenses for items shared with Sequa (or
any other Affiliate thereof) that are not reflected in
the Servicing Fee. To the extent, if any, that the
Seller (or any Affiliate thereof) shares items of
expenses not reflected in the Servicing Fee or the
manager's fee, such as legal, auditing and other
professional services, such expenses will be allocated
to the extent practical on the basis of actual use or
the value of services rendered, and otherwise on a
basis reasonably related to the actual use or the value
of services rendered; it being understood that Sequa
shall pay all expenses relating to the preparation,
negotiation, execution and delivery of the Transaction
Documents, including legal, rating agency and other
fees;
(g) The Seller's operating expenses will not be
paid by Sequa or any other Affiliate thereof;
<PAGE>
(h) All of the Seller's business correspondence
and other communications shall be conducted in the
Seller's own name and on its own separate stationery;
(i) The Seller's books and records will be
maintained separately from those of Sequa and any other
Affiliate thereof;
(j) All financial statements of Sequa or any
Affiliate thereof that are consolidated to include
Seller will contain detailed notes clearly stating
that: (i) a special purpose corporation exists as a
Subsidiary of Sequa, and (ii) the Originators have sold
receivables and other related assets to such special
purpose Subsidiary that, in turn, has sold undivided
interests therein to certain financial institutions and
other entities;
(k) The Seller's assets will be maintained in a
manner that facilitates their identification and
segregation from those of Sequa or any Affiliate
thereof;
(l) The Seller will strictly observe corporate
formalities in its dealings with Sequa or any Affiliate
thereof, and funds or other assets of the Seller will
not be commingled with those of Sequa or any Affiliate
thereof except as permitted by the Agreement in
connection with servicing the Pool Receivables. The
Seller shall not maintain joint bank accounts or other
depository accounts to which Sequa or any Affiliate
thereof (other than Sequa in its capacity as the
Servicer) has independent access. The Seller is not
named, and has not entered into any agreement to be
named, directly or indirectly, as a direct or
contingent beneficiary or loss payee on any insurance
policy with respect to any loss relating to the
property of Sequa or any Subsidiary or other Affiliate
of Sequa. The Seller will pay to the appropriate
Affiliate the marginal increase or, in the absence of
such increase, the market amount of its portion of the
premium payable with respect to any insurance policy
that covers the Seller and such Affiliate; and
(m) The Seller will maintain arm's-length
relationships with Sequa (and any Affiliate thereof).
Any Person that renders or otherwise furnishes services
to the Seller will be compensated by the Seller at
market rates for such services it renders or otherwise
furnishes to the Seller. Neither the Seller nor Sequa
will be or will hold itself out to be responsible for
the debts of the other or the decisions or actions
respecting the daily business and affairs of the other.
The Seller and Sequa will immediately correct any known
<PAGE>
misrepresentation with respect to the foregoing, and
they will not operate or purport to operate as an
integrated single economic unit with respect to each
other or in their dealing with any other entity.
(n) Sequa shall not pay the salaries of Seller's
employees, if any.
<PAGE>
EXHIBIT V
TERMINATION EVENTS
Each of the following shall be a "Termination Event":
A. (i) the Seller, any Originator or the Servicer (if
Sequa or any of its Affiliates) shall fail to make when due
any payment or deposit to be made by it under the Agreement
and such failure shall continue unremedied for one Business
Day or (ii) the Seller, any Originator or the Servicer (if
Sequa or any of its Affiliates) shall fail to perform or
observe any other term, covenant or agreement under the
Agreement or any other Transaction Document and such failure
shall continue for 30 days;
A. Sequa (or any Affiliate thereof) shall fail to
transfer to any successor Servicer when required any rights
pursuant to the Agreement that Sequa (or such Affiliate)
then has as Servicer;
A. any representation or warranty made or deemed
made by the Seller, Sequa or any Originator (or any of their
respective officers) under or in connection with the
Agreement or any other Transaction Document, or any
information or report delivered by the Seller, Sequa or such
Originator or the Servicer pursuant to the Agreement or any
other Transaction Document, shall prove to have been
incorrect or untrue in any material respect when made or
deemed made or delivered;
A. the Seller or the Servicer shall fail to deliver
the Monthly Report pursuant to the Agreement, and such
failure shall remain unremedied for five days;
A. the Agreement or any purchase or reinvestment
pursuant to the Agreement shall for any reason: (i) cease to
create, or the Purchased Interest shall for any reason cease
to be, a valid and enforceable perfected undivided
percentage ownership or security interest to the extent of
the Purchased Interest in each Pool Receivable, the Related
Security and Collections with respect thereto, free and
clear of any Adverse Claim, or (ii) cease to create with
respect to the Pool Assets, or the interest of the Issuer
with respect to such Pool Assets shall cease to be, a valid
and enforceable first priority perfected security interest,
free and clear of any Adverse Claim,
A. the Seller, Sequa or any Originator shall
generally not pay its debts as such debts become due, or
shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted
<PAGE>
by or against the Seller, Sequa or any Originator seeking to
adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for
any substantial part of its property and, in the case of any
such proceeding instituted against it (but not instituted by
it), either such proceeding shall remain undismissed or
unstayed for a period of 60 days, or any of the actions
sought in such proceeding (including the entry of an order
for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for
any substantial part of its property) shall occur; or the
Seller, Sequa or any Originator shall take any corporate
action to authorize any of the actions set forth above in
this paragraph;
A. (i) the (A) Default Ratio shall exceed 5% or (B)
the Delinquency Ratio shall exceed 10% or (ii) the average
for three consecutive calendar months of: (A) the Default
Ratio shall exceed 5% or (B) the Delinquency Ratio shall
exceed 8%.
A. a Change in Control shall occur,
A. at any time (i) the sum of (A) the Capital plus
(B) the Total Reserves, exceeds (ii) the sum of (A) the Net
Receivables Pool Balance at such time plus (B) the Issuer's
Share of the amount of Collections then on deposit in the
Lock-Box Accounts, the Concentration Accounts and the
Liquidation Account(other than amounts set aside therein
representing Discount and Fees), and such circumstance shall
not have been cured within five Business Days,
(j) (i) Sequa or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any of its
Debt that is outstanding in a principal amount of at least
$3,500,000 in the aggregate when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any,
specified in the agreement, mortgage, indenture or
instrument relating to such Debt (and shall have not been
waived); or (ii) any other event shall occur or condition
shall exist under any agreement, mortgage, indenture or
instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such
agreement, mortgage, indenture or instrument (and shall have
not been waived), if, in either case: (a) the effect of such
non-payment, event or condition is to give the applicable
debtholders the right (whether acted upon or not) to
<PAGE>
accelerate the maturity of such Debt, or (b) any such Debt
shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to
repay, redeem, purchase or defease such Debt shall be
required to be made, in each case before the stated maturity
thereof;
(k) either: (i) a contribution failure shall occur with
respect to any Benefit Plan sufficient to give rise to a
lien under Section 302(f) of ERISA, (ii) the Internal
Revenue Service shall file a notice of lien asserting a
claim pursuant to the Internal Revenue Code with regard to
any of the assets of Seller, any Originator, Sequa or any
ERISA Affiliate, or (iii) the Pension Benefit Guaranty
Corporation shall file a notice of lien asserting a claim
pursuant to ERISA with regard to any assets of the Seller,
such Originator, Sequa or any ERISA Affiliate.
<PAGE>
SCHEDULE I
CREDIT AND COLLECTION POLICY
<PAGE>
SCHEDULE II
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
Lock-Box Bank
Lock-Box Accounts Lock-
Box Number
<PAGE>
SCHEDULE III
TRADE NAMES
<PAGE>
ANNEX A
to Receivables Purchase Agreement
FORM OF MONTHLY REPORT
<PAGE>
ANNEX C
to Receivables Purchase Agreement
SPECIAL OBLIGORS AND SPECIAL CONCENTRATION PERCENTAGES
Special
Concentration
Special Obligor Percentage
General Electric Company 25%
Pratt & Whitney (a wholly
owned subsidiary of
United Technologies
Corporation) 8%
<PAGE>
Execution Counterpart
AMENDMENT NO. I
AMENDMENT NO. 1 dated as of April 13,1998 SEQUA
CORPORATION, a corporation duly organized and validly existing
under the laws of the State of Delaware (the "Borrower"); the
SUBSIDIARY GUARANTORS party hereto (the "Subsidiary Guarantors");
the LENDERS party hereto (the "Lenders"); and THE CHASE MANHATTAN
BANK, as agent for the Lenders (in such capacity, the
"Administrative Agent").
The parties hereto are parties to a Credit Agreement
dated as of October 10, 1997
(the "Credit Agreement"). Capitalized terms used but not
otherwise defined herein have the
meanings given them in the Credit Agreement. The parties wish to
amend the Credit Agreement to exclude the current portion of
certain long term indebtedness of the Borrower from the
calculation of "Short Term Indebtedness" for purposes of Section
7.1 1 of the Credit Agreement.
Section 1. AMENDMENTS. Subject to the execution and delivery
hereof by the Borrower. the Subsidiary Guarantors, the Required
Lenders and the Administrative Agent, but effective as of the
date hereof, the Credit Agreement is hereby amended as follows:
A. GENERAL. All references in the Credit Agreement to the
Credit Agreement (including indirect references) shall be deemed
to be references to the Credit Agreement as amended hereby.
B. SHORT TERM INDEBTEDNESS. The last sentence of Section 7.1 1
of the Credit Agreement shall be amended by adding "(a)" in line
five of such Section after the words "shall not include", and by
adding the following at the end of such sentence:
or (b) the current portion as determined in accordance
with GAAP of the existing Long Tenn Debt of the
Borrower; PROVIDED, that as used in this sentence, "the
existing Long Term Debt of the Borrower" shall be deemed
to refer to (I) the Senior Unsecured Notes of the
Borrower due 1999, (ii) the Senior Notes of the Borrower
due 2001, (iii) the Medium Term Notes of the Borrower
and (iv) the Senior Subordinated Notes of the Borrower
due 2003."
Section 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lenders and the Administrative
Agent that the representations and warranties set forth in
Article IV of the Credit Agreement are on the date hereof true
and complete as if made on and as of such
<PAGE>
- 2 -
date and as if each reference in such representations and
warranties to the Credit Agreement included reference to such
agreement as amended by this Amendment No. 1.
Section 3. MISCELLANEOUS. Except as herein provided, the Credit
Agreement shall remain unchanged and in fall force and effect.
This Amendment No. 1 may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. I by signing any such counterpart
and sending the same by telecopier, mail messenger or courier to
the Administrative Agent or counsel to the Administrative Agent.
This Amendment No. 1 shall be governed by, and construed in
accordance with, the law of the State of New York.
IN WITNESS OF WHEREOF, the parties hereto have caused this
Amendment No.1 to be duly executed as of the day and year first
above written.
SEQUA CORPORATION
By: _________________________
Name:
Title:
LENDERS
THE CHASE MANHATTAN BANK,
individually, as Swingline Lender,
as Issuing Bank and as
Administrative Agent
By: _________________________
Name:
Title:
<PAGE>
- 3 -
THE BANK OF NEW YORK, individually
and as Issuing Bank
By: _________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: _________________________
Name:
Title:
BANK OF MONTREAL
By: _________________________
Name:
Title:
THE FUJI BANK LIMITED (NEW YORK)
By: _________________________
Name:
Title:
BANKERS TRUST COMPANY
By: _________________________
Name:
Title:
<PAGE>
- 4 -
MELLON BANK N.A. (NEW YORK)
By: _________________________
Name:
Title:
NATEXIS BANQUE BFCE (NEW YORK)
By: _________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By: _________________________
Name:
Title:
THE SUMITOMO BANK LTD (NEW YORK)
By: _________________________
Name:
Title:
<PAGE>
[EXECUTION
COUNTERPART]
CONSENT AND SECOND AMENDMENT
CONSENT AND SECOND AMENDMENT AGREEMENT dated as of
September 28, 1998 among SEQUA CORPORATION (the "Borrower"), the
Lenders party hereto and THE CHASE MANHATTAN BANK, as
Administrative Agent (in such capacity, the "Administrative
Agent").
The Borrower, the Lenders and the Administrative Agent
are parties to a Credit Agreement dated as of October 10, 1997
(as heretofore amended, the "Credit Agreement") providing,
subject to the terms and conditions thereof, for loans to be made
by said Lenders to the Borrower in an aggregate principal amount
not exceeding $150,000,000.
To permit the Borrower to consummate the Sequa
Chemicals Sale referred to below and enter into the Receivables
Agreements referred to below, the parties wish to amend the
Credit Agreement as hereinafter provided, and the Required
Lenders (as defined in the Credit Agreement) have consented to
such amendment. Accordingly, the Administrative Agent, acting
with the written consent of the Required Lenders, and the
Borrower hereby agree as follows:
SECTION 1. DEFINITIONS. Except as otherwise defined
in this Second Amendment, terms defined in the Credit Agreement
have the same respective meanings when used herein. In addition,
the following terms have the following meanings specified below:
"RECEIVABLES AGREEMENTS" means (1) the Receivables Purchase
Agreement dated as of November 13, 1998 among Sequa Receivables
Corp., the Borrower as initial servicer, Liberty Street Funding
Corp. as issuer and The Bank of Nova Scotia as administrator and
(2) the Purchase and Sale Agreement dated as of November 13, 1998
among the Originators named therein, Sequa Receivables Corp. and
the Borrower, each as from time to time amended or supplemented;
PROVIDED, that with respect to performance requirements or
restrictions placed on the Borrower and its Subsidiaries by the
terms thereof and Liens granted on the assets of the Borrower or
its Subsidiaries pursuant thereto, after giving effect to any
such amendment or supplement, the terms of such Receivables
Agreement shall be (a) no more restrictive or extensive than its
terms on the date hereof and
<PAGE>
- 2 -
(b) no more restrictive or extensive than, or not (in the
judgment of the Required Lenders) materially different from, the
terms of the Amended and Restated Receivables Purchase Agreement
dated as of June 24, 1993 (as in effect on the date hereof) among
Sequa Receivables Corp., the Borrower, certain financial
institutions party thereto and Chemical Bank.
"SEQUA CHEMICALS SALE" means the sale by the Borrower of
substantially all the business and assets of Sequa Chemicals,
Inc., and including the shares of stock of Sequa Chemicals S.A.,
to GenCorp Inc. on substantially the terms set forth in the
letter of intent dated July 9, 1998, as in effect on the date
hereof.
SECTION 2. CONSENT; RELEASE OF GUARANTY.
(a) Effective on the Effective Date, notwithstanding
anything in the Credit Agreement to the contrary, the
Administrative Agent, acting with the written consent of the
Required Lenders, hereby agrees that the Borrower may (1)
consummate the Sequa Chemicals Sale and (2) enter into and
perform its obligations under the Receivables Agreements.
(b) Effective upon the consummation of the Sequa Chemicals
Sale, the Administrative Agent hereby releases Sequa Chemicals
from its guaranty obligations under Article III of the Credit
Agreement in accordance with Section 10.02(b) of the Credit
Agreement.
SECTION 3. AMENDMENTS. Effective as of the date
hereof, but subject to Section 4 hereof, the Administrative
Agent, acting with the written consent of the Required Lenders,
and the Borrower agree that (i) the definition of "Receivables
Purchase Agreement" in Section 1.01 of the Credit Agreement is
deleted and replaced in its entirety with the definition of
"Receivables Agreements" set forth in Section 1 of this Consent
and Second Amendment and (ii) each reference in the Credit
Agreement to "Receivables Purchase Agreement" is replaced in its
entirety with the phrase "Receivables Agreements".
SECTION 4. CONDITIONS TO EFFECTIVENESS. This Consent
and Second Amendment shall become effective on the date (the
"Effective Date") on which each of the following conditions has
been satisfied: (i) this Consent and Second Amendment has been
duly executed and delivered by the parties hereto and (ii) the
<PAGE>
- 3 -
Administrative Agent shall have received an opinion of the
Borrower's counsel in form and substance satisfactory to the
Administrative Agent confirming (a) the due authorization,
execution and delivery by the Borrower of this Consent and Second
Amendment and (b) the legality, validity, binding effect and
enforceability hereof and of the Credit Agreement as amended
hereby.
SECTION 5. RATIFICATION. The Borrower hereby
represents and warrants to the Administrative Agent for the
benefit of the Lenders, as of the date hereof, that (I) the
execution, delivery and performance by the Borrower of this
Consent and Second Amendment have been duly authorized by all
necessary corporate action on its part and do not contravene any
applicable law or regulation or any contractual provision
applicable to it or require any consent or approval of any
Governmental Authority, (ii) this Consent and Second Amendment
constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, (iii) the
representations and warranties set forth in Article IV of the
Credit Agreement are on the date hereof true and complete as if
made on and as of such date and as if as of the date hereof and
(iv) no Default has occurred and is continuing, or will have
occurred and be continuing, under the terms of the Credit
Agreement, as amended hereby and after giving effect to the Sequa
Chemicals Sale. Except as specifically amended hereby, the
Credit Agreement and each other Loan Document are in all respects
ratified and confirmed and shall remain unchanged and in full
force and effect. From and after the date hereof, all references
in the Credit Agreement and in any other related document to
"this Agreement", "the Credit Agreement" and words of like import
shall be deemed to refer to the Credit Agreement as amended
hereby.
SECTION 5. MISCELLANEOUS. This Consent and Second
Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this
Consent and Second Amendment by signing any such counterpart.
This Consent and Second Amendment shall be governed by, and
construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Consent and Second Amendment to be duly executed and delivered as
of the day and year first above written.
<PAGE>
- 4 -
SEQUA CORPORATION
By: _________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By: _________________________
Title:
ACKNOWLEDGED:
SEQUA CHEMICALS, INC.
CASCO INVESTORS CORPORATION
CHROMALLOY AMERICAN CORPORATION
CHROMALLOY GAS TURBINE CORPORATION
CASCO PRODUCTS CORPORATION
SEQUA FINANCIAL CORPORATION
ATLANTIC RESEARCH CORPORATION
By: _________________________
Name:
Title:
<PAGE>
PURCHASE AND SALE AGREEMENT
Dated as of November 13, 1998
among
THE ORIGINATORS NAMED HEREIN
SEQUA RECEIVABLES CORP.
and
SEQUA CORPORATION,
as the initial Servicer
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE I AGREEMENT TO PURCHASE AND SELL
<S> <C>
1.1. Agreement to Purchase and Sell 1
1.2. Timing of Purchases 3
1.3. Consideration for Purchases 3
1.4. Purchase and Sale Termination Date 3
1.5. Intention of the Parties 3
ARTICLE II CALCULATION OF PURCHASE PRICE
2.1. Calculation of Purchase Price 4
ARTICLE III CONTRIBUTION OF RECEIVABLES;PAYMENT OF PURCHASE PRICE
3.1. Contribution of Receivables 5
3.2. Initial Purchase Price Payment 5
3.3. Subsequent Purchase Price Payments 5
3.4. Settlement as to Specific Receivables 6
3.5. Reconveyance of Receivables 7
ARTICLE IV CONDITIONS OF PURCHASES
4.1. Conditions Precedent to Initial Purchase 7
4.2. Certification as to Representations and Warranties 9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS
5.1. Organization and Good Standing 9
5.2. Due Qualification 9
5.3. Power and Authority; Due Authorization 10
5.4. Valid Sale or Contribution;
Binding Obligations 10
5.5. No Violation 10
5.6. Proceedings 11
5.7. Bulk Sales Act 11
5.8. Government Approvals 11
5.9. Financial Condition 11
5.10. Margin Regulations 11
5.11. Quality of Title 12
5.12. Accuracy of Information 12
5.13. Offices 12
5.14. Trade Names 13
5.15. Taxes 13
5.16. Licenses and Labor Controversies 13
5.17. Compliance with Applicable Laws 13
5.18. Reliance on Separate Legal Identity 13
5.19. Purchase Price 14
5.20. Certain Definitions 14
5.21 Year 2000 Problem 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI COVENANTS OF THE ORIGINATORS
<S> <C>
6.1. Affirmative Covenants 15
6.2. Reporting Requirements 18
6.3. Negative Covenants 18
ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS INRESPECT OF THE
RECEIVABLES
7.1. Rights of the Company 19
7.2. Responsibilities of Each Originator 20
7.3. Further Action Evidencing Purchases 20
7.4. Application of Collections 21
ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS
8.1. Purchase and Sale Termination Events 21
8.2. Remedies 22
ARTICLE IX INDEMNIFICATION
9.1. Indemnities by the Originators 23
ARTICLE X MISCELLANEOUS
10.1. Amendments, etc 25
10.2. Notices, etc 25
10.3. No Waiver; Cumulative Remedies 25
10.4. Binding Effect; Assignability 25
10.5. Governing Law 26
10.6. Costs, Expenses and Taxes 26
10.7. Submission to Jurisdiction 26
10.8. Waiver of Jury Trial 27
10.9. Captions and Cross References;
Incorporation by Reference 27
10.10. Execution in Counterparts 27
10.11. Acknowledgment and Agreement 27
</TABLE>
<PAGE>
SCHEDULES
SCHEDULE 5.13 Office Locations
SCHEDULE 5.14 Trade Names
EXHIBITS
EXHIBIT A Form of Purchase Report
EXHIBIT B Form of Company Note
EXHIBIT C Form of Opinion of Originator's Counsel
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (as amended,
supplemented or modified from time to time, this "Agreement"),
dated as of November 13, 1998, is among SEQUA CORPORATION, a
Delaware corporation ("Sequa"), individually and as the initial
Servicer, CHROMALLOY GAS TURBINE CORPORATION, a Delaware
corporation ("Gas Turbine"), CHROMALLOY CASTINGS TAMPA
CORPORATION, a Delaware corporation ("Castings"), CHROMALLOY
COMPRESSOR TECHNOLOGIES CORPORATION, a Delaware corporation
("Compressor"), CHROMALLOY H.I.T. LTD., a Delaware corporation
("HIT"), CHROMALLOY SAN DIEGO, a California corporation ("SD"),
CHROMALLOY WALLKILL CORP., a New York corporation ("Wallkill"),
SPECIALIZED OVERHAUL SERVICES GROUP, INC., a Delaware corporation
("SOSG"), ATLANTIC RESEARCH CORPORATION, a Delaware
corporation,("ARC") CASCO PRODUCTS CORPORATION, a Delaware
Corporation ("Casco"), MEGTEC SYSTEMS, INC., a Delaware
corporation ("MEGTEC") (Sequa, Gas Turbine, Castings, Compressor,
HIT, SD, Wallkill, SOSG, ARC, Casco and MEGTEC are collectively
herein sometimes referred to as the "Originators" and
individually as an "Originator"), and SEQUA RECEIVABLES CORP., a
New York corporation (the "Company"), as purchaser and
contributee.
DEFINITIONS
Unless otherwise indicated, certain terms that are
capitalized and used throughout this Agreement are defined in
Exhibit I to the Receivables Purchase Agreement of even date
herewith (as amended, supplemented or otherwise modified from
time to time, the "Receivables Purchase Agreement"), among the
Company, Sequa, as initial Servicer, LIBERTY STREET FUNDING CORP.
(the "Issuer"), and THE BANK OF NOVA SCOTIA, as Administrator
(together with its successors and assigns, the "Administrator").
BACKGROUND
1. The Company is a special purpose corporation, all of
the capital stock of which is wholly-owned by Sequa.
2. In order to finance their respective businesses, the
Originators wish to sell certain Receivables and Related Rights
from time to time to the Company, and the Company is willing, on
the terms and subject to the conditions set forth herein, to
purchase such Receivables and Related Rights from such
Originators.
<PAGE>
3. The Company intends to sell to Issuer an undivided
variable percentage interest in its Receivables and Related
Rights pursuant to the Receivables Purchase Agreement in order to
finance its purchases of certain Receivables and Related Rights
hereunder.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein contained, the parties hereto agree
as follows:
I. ARTICLE
AGREEMENT TO PURCHASE AND SELL
A. AGREEMENT TO PURCHASE AND SELL. On the terms and
subject to the conditions set forth in this Agreement (including
Article IV), and in consideration of the Purchase Price, each
Originator agrees to sell to the Company, and does hereby sell to
the Company, and the Company agrees to purchase from such
Originator, and does hereby purchase from such Originator,
without recourse and without regard to collectibility, all of
such Originator's right, title and interest in and to:
1. each Receivable of such Originator that existed and was
owing to such Originator as of the close of such Originator's
business on November 13, 1998 (the "Closing Date") (other than
the Receivables and Related Rights contributed by such Originator
to the Company pursuant to Section 3.1 (the "Contributed
Receivables"));
1. each Receivable created or originated by such
Originator from the close of such Originator's business on the
Closing Date to and including the Purchase and Sale Termination
Date;
1. all rights to, but not the obligations under, all
Related Security;
1. all monies due or to become due with respect to any of
the foregoing;
1. all books and records related to any of the foregoing;
and
1. all proceeds thereof (as defined in the applicable UCC)
received on or after the date hereof including, without
limitation, all funds which either are received by such
Originator, the Company or the Servicer from or on behalf of the
Obligors in payment of any amounts owed (including, without
limitation, finance charges, interest and all other charges) in
respect of Receivables, or are applied to such amounts owed by
the Obligors (including, without limitation, insurance payments,
if any, that such Originator or the Servicer (if other than
Originator) applies in the ordinary course of its business to
<PAGE>
amounts owed in respect of any Receivable).
All purchases and contributions hereunder shall be made without
recourse, but shall be made pursuant to and in reliance upon the
representations, warranties and covenants of each Originator set
forth in this Agreement and each other Transaction Document. The
Company's foregoing commitment to purchase such Receivables and
the proceeds and rights described in subsections (c) through (f)
of this Section 1.1 (collectively, the "Related Rights") is
herein called the "Purchase Facility."
A. TIMING OF PURCHASES.
1. CLOSING DATE PURCHASES. Each Originator's entire
right, title and interest in (i) each Receivable that existed and
was owing to Originator as of the close of such Originator's
business on the Closing Date, (other than Contributed
Receivables), and (ii) all Related Rights with respect thereto
shall be deemed to have been sold to the Company on the Closing
Date.
1. REGULAR PURCHASES. After the Closing Date, each
Receivable created or originated by each Originator and described
in Section 1.1(b) hereof and all Related Rights shall be
purchased and owned by the Company (without any further action)
upon the creation or origination of such Receivable.
A. CONSIDERATION FOR PURCHASES. On the terms and subject
to the conditions set forth in this Agreement, the Company agrees
to make all Purchase Price payments to the respective
Originators, and to reflect all contributions, in accordance with
Article III.
A. PURCHASE AND SALE TERMINATION DATE. The "Purchase and
Sale Termination Date" shall be the earlier to occur of (a) the
date of the termination of this Agreement pursuant to Section 8.2
and (b) the Payment Date immediately following the day on which
the Sequa shall have given notice to the Company that the
Originators desire to terminate this Agreement.
As used herein, "Payment Date" means (i) the Closing
Date and (ii) each Business Day thereafter that the Originators
are open for business.
A. INTENTION OF THE PARTIES. It is the express intent of
the parties hereto that the transfers of the Receivables and
Related Rights by each Originator to the Company, as contemplated
by this Agreement be, and be treated as, sales or contributions,
as applicable, and not as loans secured by the Receivables and
Related Rights. If, however, notwithstanding the intent of the
parties, such transfers are deemed to be loans, such Originator
hereby grants to the Company a first priority security interest
in all of such Originator's right, title and interest in and to
the Receivables and the Related Rights now existing and hereafter
<PAGE>
created, all monies due or to become due and all amounts received
with respect thereto, and all proceeds thereof, to secure all of
such Originator's obligations hereunder.
I. ARTICLE
CALCULATION OF PURCHASE PRICE
A. CALCULATION OF PURCHASE PRICE. On each Servicer Report
Date, the Servicer shall deliver to the Company, the
Administrator and each Originator a report in substantially the
form of Exhibit A (each such report being herein called a
"Purchase Report") with respect to the matters set forth therein
and the Company's purchases of Receivables from each Originator
1. that are to be made on the Closing Date (in the case of
the Purchase Report to be delivered on the Closing Date), or
1. that were made during the period commencing on the
Servicer Report Date immediately preceding such Servicer Report
Date to (but not including) such Servicer Report Date (in the
case of each subsequent Purchase Report).
The "Purchase Price" (to be paid to each Originator in accordance
with the terms of Article III) for the Receivables and the
Related Rights that are purchased hereunder shall be determined
in accordance with the following formula:
PP = OB X FMVD
where:
PP = Purchase Price for each Receivable as
calculated on the relevant Payment Date.
OB = the Outstanding Balance of such Receivable.
FMVD = Fair Market Value Discount, as measured on
such Payment Date, which is equal to the
quotient (expressed as percentage) of (a) one
divided by (b) the sum of (i) one, plus (ii)
the product of (A) the Prime Rate on such
Payment Date, and (B) a fraction, the
numerator of which is the Days' Sales
Outstanding (calculated as of the last day of
the calendar month next preceding such
Payment Date) and the denominator of which is
365.
"Prime Rate" means a per annum rate equal to the "prime
rate" as published in the "Money Rates" section of The Wall
Street Journal or such other publication as determined by the
Administrator in its sole discretion.
<PAGE>
I. ARTICLE
CONTRIBUTION OF RECEIVABLES;
PAYMENT OF PURCHASE PRICE
A. CONTRIBUTION OF RECEIVABLES. On the Closing Date,
Sequa shall, and hereby does, contribute to the capital of the
Company, Receivables and Related Rights with respect thereto
consisting of each Receivable of Sequa that existed and was owing
to Sequa on the Closing Date, beginning with the oldest of such
Receivables and continuing chronologically thereafter, and all or
an undivided interest in the most recent of such contributed
Receivables such that the aggregate Outstanding Balance of all
such contributed Receivables shall be equal to $50,000,000.
A. INITIAL PURCHASE PRICE PAYMENT. On the terms and
subject to the conditions set forth in this Agreement, the
Company agrees to pay to each Originator the Purchase Price for
the purchase of Receivables to be made on the Closing Date,
partially in cash in the amount of the proceeds of the purchase
made by the Issuer on the Closing Date under the Receivables
Purchase Agreement, and partially by issuing a promissory note in
the form of Exhibit B to such Originator with an initial
principal balance equal to the remaining Purchase Price (as such
promissory note may be amended, supplemented, indorsed or
otherwise modified from time to time, together with all
promissory notes issued from time to time in substitution
therefor or renewal thereof in accordance with the Transaction
Documents, being herein called the ("Company Note").
A. SUBSEQUENT PURCHASE PRICE PAYMENTS. On each Business
Day falling after the Closing Date and on or prior to the
Purchase and Sale Termination Date, on the terms and subject to
the conditions set forth in this Agreement, the Company shall pay
to each Originator the Purchase Price for the Receivables sold by
such Originator to the Company on such Business Day, in cash, to
the extent provided under Section 1.2 of the Receivables Purchase
Agreement, and to the extent any of such Purchase Price remains
unpaid, such remaining portion of such Purchase Price shall be
paid by means of an automatic increase to the outstanding
principal amount of the Company Note issued to such Originator.
Servicer shall make all appropriate record keeping
entries with respect to the Company Notes or otherwise to reflect
the foregoing payments and to reflect adjustments pursuant to
Section 3.4, and Servicer's books and records shall constitute
rebuttable presumptive evidence of the principal amount of and
accrued interest on any Company Note at any time. Furthermore,
Servicer shall hold the Company Notes for the benefit of the
Originators, and all payments under the Company Notes shall be
made to the Servicer for the account of the applicable payee
thereof. Each Originator hereby irrevocably authorizes Servicer
to mark the Company Notes "CANCELLED" and to return such Company
<PAGE>
Notes to the Company upon the final payment thereof after the
occurrence of the Purchase and Sale Termination Date.
A. SETTLEMENT AS TO SPECIFIC RECEIVABLES AND DILUTION.
1. If on the day of purchase or contribution of any
Receivable from any Originator hereunder, any of the
representations or warranties set forth in Section 5.4 or 5.11 of
such Originator is not true with respect to such Receivable or as
a result of any action or inaction of such Originator, on any day
any of such representations or warranties set forth in Section
5.4 or 5.11 is no longer true with respect to such a Receivable
(OTHER THAN A REPRESENTATION OR WARRANTY SET FORTH IN SECTION
5.11(c) WHICH IS NO LONGER TRUE AS A RESULT OF AN OBLIGOR'S
PAYMENT OBLIGATION BEING DISCHARGED IN BANKRUPTCY), then the
Purchase Price (or in the case of a Contributed Receivable, the
Outstanding Balance of such Receivable (the "Contributed Value"))
with respect to such Receivables shall be reduced by an amount
equal to the Outstanding Balance of such Receivable and shall be
accounted to such Originator as provided in subsection (c) below;
provided, that if the Company thereafter receives payment on
account of Collections due with respect to such Receivable, the
Company promptly shall deliver such funds to such Originator.
1. If, on any day, the Outstanding Balance of any
Receivable (including any Contributed Receivable) purchased (or
contributed) hereunder is reduced or adjusted as a result of any
defective, rejected, returned goods or services, or any discount
or other adjustment made by any Originator, the Company or the
Servicer or any offset, setoff or dispute between such Originator
or the Servicer and an Obligor as indicated on the books of the
Company (or, for periods prior to the Closing Date, the books of
such Originator), then the Purchase Price or the Contributed
Value, as the case may be, with respect to such Receivable shall
be reduced by the amount of such net reduction and shall be
accounted to Originator as provided in subsection (c) below.
1. Any reduction in the Purchase Price (or Contributed
Value) of any Receivable pursuant to subsection (a) or (b) above
shall be applied as a credit for the account of the Company
against the Purchase Price of Receivables subsequently purchased
by the Company from such Originator hereunder; provided, however
if there are no purchases of Receivables from such Originator (or
insufficiently large purchases of Receivables) to create a
Purchase Price sufficient to so apply such credit against, the
amount of such credit
a. shall be paid in cash to the Company by such Originator
in the manner and for application as described in the following
proviso, or
a. shall be deemed to be a payment under, and shall be
deducted from the principal amount outstanding under, the Company
Note payable to such Originator to the extent permitted under
Section 1(m) of Exhibit IV of the Receivables Purchase Agreement;
<PAGE>
provided, further, that at any time (y) when a Termination Event
or Unmatured Termination Event exists under the Receivables
Purchase Agreement or (z) on or after the Purchase and Sale
Termination Date, the amount of any such credit shall be paid by
such Originator to the Company by deposit in immediately
available funds into the Concentration Account for application by
Servicer to the same extent as if Collections of the applicable
Receivable in such amount had actually been received on such
date.
1. Each Purchase Report (other than the Purchase Report
delivered on the Closing Date) shall include, in respect of the
Receivables previously generated by each Originator (including
the Contributed Receivables), a calculation of the aggregate
reductions described in subsection (a) or (b) relating to such
Receivables since the last Purchase Report delivered hereunder,
as indicated on the books of the Company (or, for such period
prior to the Closing Date, the books of the Originators).
A. RECONVEYANCE OF RECEIVABLES. In the event that an
Originator has paid to the Company the full Outstanding Balance
of any Receivable pursuant to Section 3.4, the Company shall
reconvey such Receivable to such Originator, without
representation or warranty, but free and clear of all liens
created by the Company.
I. ARTICLE
CONDITIONS OF PURCHASES
A. Conditions Precedent to Initial Purchase. The initial
purchase hereunder is subject to the condition precedent that the
Company shall have received, on or before the Closing Date, the
following, each (unless otherwise indicated) dated the Closing
Date, and each in form, substance and date satisfactory to the
Company:
1. A copy of the resolutions of the Board of Directors of
each Originator approving the Transaction Documents to be
delivered by it and the transactions contemplated hereby and
thereby, certified by the Secretary or Assistant Secretary of
such Originator;
1. Good standing certificates for each Originator issued
as of a recent date acceptable to Servicer by the Secretary of
State of the jurisdiction of such Originator's incorporation and
the jurisdiction where such Originator's chief executive office
is located;
1. A certificate of the Secretary or Assistant Secretary
of each Originator certifying the names and true signatures of
the officers authorized on such Originator's behalf to sign the
Transaction Documents to be delivered by it (on which certificate
<PAGE>
the Company and Servicer (if other than such Originator) may
conclusively rely until such time as the Company and the Servicer
shall receive from Originator a revised certificate meeting the
requirements of this subsection (c));
1. The articles of incorporation of each Originator, duly
certified by the Secretary of State of the Jurisdiction of such
Originator's incorporation as of a recent date acceptable to
Servicer, together with a copy of the by-laws of such Originator,
each duly certified by the Secretary or an Assistant Secretary of
such Originator;
1. Copies of the proper financing statements (Form UCC-1)
that have been duly executed and name each Originator as the
debtor/seller and the Company as the secured party/purchaser (and
Issuer as assignee of the Company) of the Receivables generated
by such Originator and Related Rights or other, similar
instruments or documents, as may be necessary or, in Servicer's
or the Administrator's opinion, desirable under the UCC of all
appropriate jurisdictions or any comparable law of all
appropriate jurisdictions to perfect the Company's ownership
interest in all Receivables and Related Rights in which an
ownership interest may be assigned to it hereunder;
1. A written search report from a Person satisfactory to
Servicer and the Administrator listing all effective financing
statements that name any Originator as debtor or assignor and
that are filed in the jurisdictions in which filings were made
pursuant to the foregoing subsection (e), together with copies of
such financing statements (none of which, except for those
described in the foregoing subsection (e), shall cover any
Receivable or any Related Right), and tax and judgment lien
search reports from a Person satisfactory to Servicer and the
Administrator showing no evidence of such liens filed against any
Originator;
1. Favorable opinions of general counsel to the
Originators, in the forms of Exhibit C;
1. Evidence (i) of the execution and delivery by each of
the parties thereto of each of the other Transaction Documents to
be executed and delivered in connection herewith and (ii) that
each of the conditions precedent to the execution, delivery and
effectiveness of such other Transaction Documents has been
satisfied to the Company's satisfaction; and
1. A certificate from an officer of each Originator to the
effect that Servicer and Originator have placed on the most
recent, and have taken all steps reasonably necessary to ensure
that there shall be placed on subsequent, summary master control
data processing reports the following legend (or the substantive
equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN
SOLD TO SEQUA RECEIVABLES CORP. PURSUANT TO A PURCHASE AND SALE
AGREEMENT, DATED AS OF November 13, 1998, AMONG SEQUA
<PAGE>
CORPORATION, THE ORIGINATORS NAMED THEREIN AND SEQUA RECEIVABLES
CORP.; AND AN INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS
BEEN GRANTED TO LIBERTY STREET FUNDING CORP., PURSUANT TO A
RECEIVABLES PURCHASE AGREEMENT, DATED AS OF November 13, 1998,
AMONG SEQUA CORPORATION, SEQUA RECEIVABLES CORP., LIBERTY STREET
FUNDING CORP., AND THE BANK OF NOVA SCOTIA, AS ADMINISTRATOR."
1. CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES.
Each Originator, by accepting the Purchase Price related to each
purchase of Receivables (and Related Rights)generated by such
Originator, shall be deemed to have certified that the
representations and warranties contained in Article V are true
and correct on and as of such day, with the same effect as though
made on and as of such day.
I. ARTICLE
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS
In order to induce the Company to enter into this
Agreement and to make purchases and accept contributions
hereunder, each Originator, hereby makes with respect to itself
the representations and warranties set forth in this Article V.
A. ORGANIZATION AND GOOD STANDING. Such Originator has
been duly organized and is validly existing as a corporation in
good standing under the laws of the state of its incorporation,
with power and authority to own its properties and to conduct its
business as such properties are presently owned and such business
is presently conducted.
A. DUE QUALIFICATION. Such Originator is duly licensed or
qualified to do business as a foreign corporation in good
standing in the jurisdiction where its chief executive office and
principal place of business are located and in all other
jurisdictions in which (a) the ownership or lease of its property
or the conduct of its business requires such licensing or quali-
fication and (b) the failure to be so licensed or qualified has
not had and could not reasonably be expected to have a Material
Adverse Effect.
A. POWER AND AUTHORITY; DUE AUTHORIZATION. Such
Originator has (a) all necessary corporate power, authority and
legal right (i) to execute and deliver, and perform its
obligations under, each Transaction Document to which it is a
party, and (ii) to generate, own, sell, contribute and assign
Receivables and Related Rights on the terms and subject to the
conditions herein and therein provided; and (b) duly authorized
such execution and delivery and such sale, contribution and
assignment and the performance of such obligations by all
necessary corporate action.
A. VALID SALE OR CONTRIBUTION; BINDING OBLIGATIONS. Each
<PAGE>
sale or contribution, as the case may be, of Receivables and
Related Rights made by such Originator pursuant to this Agreement
shall constitute a valid sale or contribution, as the case may
be, transfer, and assignment thereof to the Company, enforceable
against creditors of, and purchasers from, such Originator; and
this Agreement constitutes, and each other Transaction Document
to be signed by such Originator, when duly executed and
delivered, will constitute, a legal, valid, and binding
obligation of such Originator, enforceable in accordance with its
terms; except in each case as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
A. NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the other Transaction
Documents and the fulfillment of the terms hereof or thereof will
not (a) conflict with, result in any breach of any of the terms
and provisions of, or constitute (with or without notice or lapse
of time or both) a default under (i) such Originator's
certificate of incorporation or by-laws, or (ii) any indenture,
loan agreement, mortgage, deed of trust, or other agreement or
instrument to which it is a party or by which it is bound, (b)
result in the creation or imposition of any Adverse Claim upon
any of its properties pursuant to the terms of any such
indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument, other than the Transaction Documents, or
(c) violate any law or any order, rule, or regulation applicable
to it of any court or of any federal, state or foreign regulatory
body, administrative agency, or other governmental instrumen-
tality having jurisdiction over it or any of its properties.
A. PROCEEDINGS. There is no litigation or, to such
Originator's knowledge, any proceeding or investigation pending
before any court, regulatory body, arbitrator, administrative
agency, or other tribunal or governmental instrumentality (a)
asserting the invalidity of any Transaction Document, (b) seeking
to prevent the sale or contribution of Receivables and Related
Rights to the Company or the consummation of any of the other
transactions contemplated by any Transaction Document, or (c)
seeking any determination or ruling that could reasonably be
expected to have a Material Adverse Effect.
A. BULK SALES ACT. No transaction contemplated hereby
requires compliance with any bulk sales act or similar law.
A. GOVERNMENT APPROVALS. Except for the filing of the UCC
financing statements referred to in Article IV, all of which, at
the time required in Article IV, shall have been duly made and
shall be in full force and effect, no authorization or approval
or other action by, and no notice to or filing with, any govern-
mental authority or regulatory body is required for such
Originator's due execution, delivery and performance of any
<PAGE>
Transaction Document to which it is a party, as seller.
A. FINANCIAL CONDITION.
1. On the date hereof, and on the date of each sale of
Receivables by each Originator to the Company (both before and
after giving effect to such sale), such Originator shall be
Solvent.
1. The consolidated balance sheets of Sequa and its
consolidated subsidiaries as of December 31, 1997 and the related
statements of income and shareholders' equity of Sequa and its
consolidated subsidiaries for the fiscal year then ended
certified by Sequa's independent accountants, copies of which
have been furnished to the Company, present fairly the
consolidated financial position of Sequa and its consolidated
subsidiaries for the period ended on such date, all in accordance
with generally accepted accounting principles consistently
applied; and since such date no event has occurred that has had,
or is reasonably likely to have, a Material Adverse Effect.
A. MARGIN REGULATIONS. No use of any funds acquired by
such Originator under this Agreement will conflict with or
contravene any of Regulations T, U and X promulgated by the Board
of Governors of the Federal Reserve System from time to time.
A. QUALITY OF TITLE.
1. Each Receivable (together with the Related Rights)
which is to be sold or contributed to the Company hereunder is or
shall be owned by such Originator, free and clear of any Adverse
Claim. Whenever the Company makes a purchase, or accepts a
contribution, hereunder, it shall have acquired a valid and
perfected ownership interest (free and clear of any Adverse
Claim) in all Receivables generated by such Originator and all
Collections related thereto, and in such Originator's entire
right, title and interest in and to the other Related Rights with
respect thereto.
1. No effective financing statement or other instrument
similar in effect covering any Receivable generated by such
Originator or any right related to any such Receivable is on file
in any recording office except such as may be filed in favor of
the Company or the Originators, as the case may be, in accordance
with this Agreement or in favor of the Issuer in accordance with
the Receivables Purchase Agreement.
1. Unless otherwise identified to the Company in the
related Purchase Report, each Receivable purchased or contributed
hereunder is on the date of purchase or contribution an Eligible
Receivable.
A. ACCURACY OF INFORMATION. No factual written
information furnished or to be furnished in writing by such
<PAGE>
Originator, to the Company, the Issuer or the Administrator for
purposes of or in connection with any Transaction Document or any
transaction contemplated hereby or thereby is, and no other such
factual written information hereafter furnished (and prepared) by
such Originator, to the Company, the Issuer, or the Administrator
pursuant to or in connection with any Transaction Document, taken
as a whole, will be inaccurate in any material respect as of the
date it was furnished or (except as otherwise disclosed to the
Company at or prior to such time) as of the date as of which such
information is dated or certified, or shall contain any material
misstatement of fact or omitted or will omit to state any
material fact necessary to make such information, in the light of
the circumstances under which any statement therein was made, not
materially misleading on the date as of which such information is
dated or certified.
A. OFFICES. Such Originator's principal place of business
and chief executive office is located at the address set forth
under such Originator's signature hereto, and the offices where
such Originator keeps all its books, records and documents
evidencing the Receivables, the related Contracts and all other
agreements related to such Receivables are located at the
addresses specified on Schedule 5.13 (or at such other locations,
notified to Servicer and the Administrator in accordance with
Section 6.1(f), in jurisdictions where all action required by
Section 7.3 has been taken and completed).
A. TRADE NAMES. Except as disclosed on Schedule 5.14,
such Originator does not use any trade name other than its actual
corporate name. From and after the date that fell five (5) years
before the date hereof, such Originator has not been known by any
legal name other than its corporate name as of the date hereof,
nor has such Originator been the subject of any merger or other
corporate reorganization except as disclosed on Schedule 5.14.
A. TAXES. Such Originator has filed all material tax
returns and reports required by law to have been filed by it and
has paid all taxes and governmental charges thereby shown to be
owing, except any such taxes which are not yet delinquent or are
being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with
generally accepted accounting principles shall have been set
aside on its books.
A. LICENSES AND LABOR CONTROVERSIES.
1. Such Originator has not failed to obtain any licenses,
permits, franchises or other governmental authorizations
necessary to the ownership of its properties or to the conduct of
its business, which violation or failure to obtain would be
reasonably likely to have a Material Adverse Effect; and
1. There are no labor controversies pending against such
Originator that have had (or are reasonably likely to have) a
<PAGE>
Material Adverse Effect.
A. COMPLIANCE WITH APPLICABLE LAWS. Such Originator is in
compliance, in all material respects, with the requirements of
(i) all applicable laws, rules, regulations, and orders of all
governmental authorities (including, without limitation,
Regulation Z, laws, rules and regulations relating to usury,
truth in lending, fair credit billing, fair credit reporting,
equal credit opportunity, fair debt collection practices and
privacy and all other consumer laws applicable to the Receivables
and related Contracts) (excluding with respect to environmental
matters which are covered by clause (ii)), and (ii) to the best
of its knowledge, all applicable environmental laws, rules,
regulations and orders of all governmental authorities.
A. RELIANCE ON SEPARATE LEGAL IDENTITY. Such Originator
is aware that Issuer and the Administrator are entering into the
Transaction Documents to which they are parties in reliance upon
the Company's identity as a legal entity separate from any
Originator.
A. PURCHASE PRICE. The purchase price payable by the
Company to such Originator hereunder is intended by such
Originator and Company to be consistent with the terms that would
be obtained in an arm's length sale.
A. CERTAIN DEFINITIONS. With respect to this Agreement,
the terms "Material Adverse Effect" and "Solvent" are defined as
follows:
"MATERIAL ADVERSE EFFECT" means, with respect to any
event or circumstance, a material adverse effect on:
(i) the business, assets, or financial condition of any
Originator;
(ii) the ability of any Originator or the Servicer (if
it is the Originator) to perform its obligations under the
Receivables Purchase Agreement or any other Transaction
Document to which it is a party or the performance of any
such obligations;
(iii) the validity or enforceability of the Receivables
Purchase Agreement or any other Transaction Document;
(iv) with respect to this Agreement, the status,
existence, perfection, priority or enforceability of
Company's interest in the Receivables or Related Rights; or
(v) the validity or enforceability of the Receivables.
"Solvent" means, with respect to any Person at any time,
a condition under which:
<PAGE>
(i) the fair value and present fair saleable value of
such Person's total assets is, on the date of determination,
greater than such Person's total liabilities (including
contingent and unliquidated liabilities) at such time;
(ii) such Person is and shall continue to be able to
pay all of its liabilities as such liabilities mature; and
(iii) such Person does not have unreasonably small
capital with which to engage in its current and in its
anticipated business.
For purposes of this definition:
(A) the amount of a Person's contingent or unliquidated
liabilities at any time shall be that amount which, in light
of all the facts and circumstances then existing, represents
the amount which can reasonably be expected to become an
actual or matured liability;
(B) the "fair value" of an asset shall be the amount
which may be realized within a reasonable time either through
collection or sale of such asset at its regular market value;
(C) the "regular market value" of an asset shall be the
amount which a capable and diligent business person could
obtain for such asset from an interested buyer who is willing
to purchase such asset under ordinary selling conditions; and
(D) the "present fair saleable value" of an asset means
the amount which can be obtained if such asset is sold with
reasonable promptness in an arm's length transaction in an
existing and not theoretical market.
5.21. YEAR 2000 PROBLEM. Such Originator has reviewed
the areas within its business and operations which could be
adversely affected by, and has developed or is developing a
program to address on a timely basis, the risk that certain
computer applications used by such Originator may be unable to
recognize and perform properly date-sensitive functions involving
dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem is not likely to result in any
material adverse change in such Originator's business.
I. ARTICLE
COVENANTS OF THE ORIGINATORS
A. AFFIRMATIVE COVENANTS. From the date hereof until the
first day following the Purchase and Sale Termination Date, each
Originator will, unless the Company and the Administrator shall
otherwise consent in writing:
<PAGE>
1. COMPLIANCE WITH LAWS, ETC. Comply in all material
respects with all applicable laws, rules, regulations and orders,
including those with respect to the Receivables generated by it
and the related Contracts and other agreements related thereto.
1. PRESERVATION OF CORPORATE EXISTENCE. Preserve and
maintain its corporate existence, rights, franchises and privi-
leges in the jurisdiction of its incorporation, and qualify and
remain qualified in good standing as a foreign corporation in
each jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualification could
reasonably be expected to have a Material Adverse Effect.
1. RECEIVABLES REVIEW. (i) At any time and from time to
time (but, (a) prior to the occurrence of a Purchase and Sale
Termination Event or Unmatured Purchase and Sale Termination
Event or (b) unless, in the opinion of the Administrator
reasonable grounds for insecurity exist with respect to the
collectibility of the Receivables or such Originator's
performance or ability to perform its obligations under this
Agreement, no more frequently than annually) during regular
business hours, upon reasonable prior notice, permit the Company
and/or the Administrator, or their respective agents or
representatives, (A) to examine, to audit and make copies of and
abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the possession
or under the control of such Originator relating to the
Receivables and Related Rights, including, without limitation,
the Contracts and other agreements related thereto, and (B) to
visit such Originator's offices and properties for the purpose of
examining such materials described in the foregoing clause (A)
and discussing matters relating to the Receivables and Related
Rights or such Originator's performance hereunder with any of the
officers or employees of such Originator having knowledge of such
matters; and (ii) without limiting the provisions of clause (i)
next above, from time to time (but, (a) prior to the occurrence
of a Purchase and Sale Termination Event or Unmatured Purchase
and Sale Termination Event or (b) unless, in the opinion of the
Administrator reasonable grounds for insecurity exist with
respect to the collectibility of the Receivables or such
Originator's performance or ability to perform its obligations
under this Agreement, no more frequently than annually) on
request of the Administrator, permit certified public accountants
or other auditors acceptable to the Administrator to conduct a
review of its books and records with respect to the Receivables
and Related Rights.
1. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain an
ability to recreate records evidencing the Receivables in the
event of the destruction of the originals thereof.
1. PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND
CONTRACTS. At its expense timely and fully perform and comply
with all provisions, covenants and other promises required to be
<PAGE>
observed by it under the related Contracts and all other
agreements related to the Receivables and Related Rights.
1. LOCATION OF RECORDS. Keep its principal place of
business and chief executive office, and the offices where it
keeps its records concerning or related to Receivables and
Related Rights, at the address(es) referred to in Schedule 5.13
or, upon 30 days' prior written notice to the Company and the
Administrator, at such other locations in jurisdictions where all
action required by Section 7.3 shall have been taken and
completed.
1. CREDIT AND COLLECTION POLICIES. Comply in all material
respects with its Credit and Collection Policy in connection with
the Receivables and the related Contracts.
1. SEPARATE CORPORATE EXISTENCE OF THE COMPANY. Take such
actions as shall be required in order that:
a. the Company's operating expenses (other than certain
organization expenses and expenses incurred in connection with
the preparation, negotiation and delivery of the Transaction
Documents) will not be paid by such Originator;
a. the Company's books and records will be maintained
separately from those of such Originator;
a. all financial statements of such Originator that are
consolidated to include the Company will contain detailed notes
clearly stating that (A) all of the Company's assets are owned by
the Company, and (B) the Company is a separate entity with
creditors who have received interests in the Company's assets;
a. Such Originator will strictly observe corporate
formalities in its dealing with the Company;
a. Except as otherwise provided in the Receivables
Purchase Agreement in connection with the servicing of
Receivables, such Originator shall not commingle its funds with
any funds of the Company;
a. Such Originator will maintain arm's length
relationships with the Company, and such Originator will be
compensated at market rates for any services it renders or
otherwise furnishes to the Company; and
a. Such Originator will not be, and will not hold itself
out to be, responsible for the debts of the Company or the
decisions or actions in respect of the daily business and affairs
of the Company.
1. POST OFFICE BOXES. Within 30 days after the date
hereof, deliver to the Administrator a certificate from an
authorized officer of such Originator to the effect that (i) the
<PAGE>
name of the renter of all post office boxes into which
Collections may from time to time be mailed have been changed to
the name of the Company (unless such post office boxes are in the
name of the relevant Lock-Box Banks) and (ii) all relevant
postmasters have been notified that each of Servicer and the
Administrator are authorized to collect mail delivered to such
post office boxes (unless such post office boxes are in the name
of the relevant Lock-Box Banks).
A. REPORTING REQUIREMENTS. From the date hereof until the
first day following the Purchase and Sale Termination Date, each
Originator shall, unless the Administrator and the Company shall
otherwise consent in writing, furnish to the Company and the
Administrator:
1. PROCEEDINGS. Promptly after such Originator has
knowledge thereof, written notice to the Company and the
Administrator of (i) all pending proceedings and investigations
of the type described in Section 5.6 not previously disclosed to
the Company and/or the Administrator and (ii) all material
adverse developments that have occurred with respect to any
previously disclosed proceedings and investigations.
1. OTHER. Promptly, from time to time, such other
information, documents, records or reports respecting the Receiv-
ables, the Related Rights or such Originator's performance
hereunder that the Company or the Administrator may from time to
time reasonably request in order to protect the interests of the
Company, the Issuer, the Administrator or any other Affected
Person under or as contemplated by the Transaction Documents.
A. NEGATIVE COVENANTS. From the date hereof until the
date following the Purchase and Sale Termination Date, each
Originator agrees that, unless the Administrator and the Company
shall otherwise consent in writing (which consent shall not be
unreasonably withheld), it shall not:
1. SALES, LIENS, ETC. Except as otherwise provided
herein or in any other Transaction Document, sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create
or suffer to exist any Adverse Claim upon or with respect to, any
Receivable or related Contract, Collections or Related Security,
or any interest therein, or assign any right to receive income in
respect thereof.
1. EXTENSION OR AMENDMENT OF RECEIVABLES. Except as
otherwise permitted in Section 4.2(a) of the Receivables Purchase
Agreement or in accordance with the Credit and Collection Policy,
extend, amend or otherwise modify the terms of any Receivable in
any material respect, or amend, modify or waive, in any material
respect, any term or condition of any Contract related thereto
(which term or condition relates to payments under, or the
enforcement of, such Contract).
<PAGE>
1. CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY.
Make any change in the character of its business or materially
alter its Credit and Collection Policy, which change would, in
either case, materially change the credit standing required of
particular Obligors or potential Obligors or impair, in any
material respect, the collectibility of the Receivables generated
by it.
1. RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES OR
CHATTEL PAPER. Take any action to cause or permit any Receivable
generated by it to become evidenced by any "instrument" or
"chattel paper" (as defined in the applicable UCC) unless such
"instrument" or "chattel paper" shall be delivered to the Company
(which in turn shall deliver the same to the Issuer (or the
Administrator on its behalf)).
1. MERGERS, ACQUISITIONS, SALES, ETC. Merge or
consolidate with another Person (except pursuant to a merger or
consolidation involving such Originator where such Originator is
the surviving corporation), or convey, transfer, lease or
otherwise dispose of (whether in one or in a series of
transactions), all or substantially all of its assets (whether
now owned or hereafter acquired), other than pursuant to this
Agreement.
1. LOCK-BOX BANKS. Make any changes in its instructions
to Obligors regarding Collections or add or terminate any Lock-
Box Bank unless the requirements of Section 1(i) of Exhibit IV to
the Receivables Purchase Agreement have been met.
1. ACCOUNTING FOR PURCHASES. Account for or treat
(whether in financial statements or otherwise) the transactions
contemplated hereby in any manner other than as sales of the
Receivables and Related Security by such Originator to the
Company.
1. TRANSACTION DOCUMENTS. Enter into, execute, deliver or
otherwise become bound by any agreement, instrument, document or
other arrangement that restricts the right of such Originator to
amend, supplement, amend and restate or otherwise modify, or to
extend or renew, or to waive any right under, this Agreement or
any other Transaction Documents.
I. ARTICLE
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE RECEIVABLES
A. RIGHTS OF THE COMPANY. Each Originator hereby
authorizes the Company and the Servicer or their respective
designees to take any and all steps in such Originator's name
necessary or desirable, in their respective determination, to
collect all amounts due under any and all Receivables and Related
<PAGE>
Rights, including, without limitation, endorsing such
Originator's name on checks and other instruments representing
Collections and enforcing such Receivables and the provisions of
the related Contracts that concern payment and/or enforcement of
rights to payment.
A. RESPONSIBILITIES OF EACH ORIGINATOR. Anything herein
to the contrary notwithstanding:
1. Each Originator agrees to (A) direct, and hereby grants
to each of the Company and the Administrator the authority to
direct, all Obligors of Receivables originated by such Originator
to make payments of such Receivables directly to a Lock-Box
Account at a Lock-Box Bank, and (B) to transfer any Collections
that it receives directly, to Servicer (for deposit to such a
Lock-Box Account) within one Business Day of receipt thereof, and
agrees that all such Collections shall be deemed to be received
in trust for the Company.
1. Each Originator shall perform its obligations
hereunder, and the exercise by the Company or its designee of its
rights hereunder shall not relieve such Originator from such
obligations.
1. None of the Company, Servicer, Issuer or the
Administrator shall have any obligation or liability to any
Obligor or any other third Person with respect to any
Receivables, Contracts related thereto or any other related
agreements, nor shall the Company, Servicer, Issuer or the
Administrator be obligated to perform any of the obligations of
any Originator thereunder.
1. Each Originator hereby grants to Administrator an
irrevocable power of attorney, with full power of substitution,
coupled with an interest, to take in the name of such Originator
all steps necessary or advisable to indorse, negotiate or
otherwise realize on any writing or other right of any kind held
or transmitted by such Originator or transmitted or received by
the Company (whether or not from such Originator) in connection
with any Receivable or Related Right.
A. FURTHER ACTION EVIDENCING PURCHASES. Each Originator
agrees that from time to time, at its expense, it will promptly
execute and deliver all further instruments and documents, and
take all further action that the Company or Servicer may
reasonably request in order to perfect, protect or more fully
evidence the Receivables (and the Related Rights) purchased by,
or contributed to, the Company hereunder, or to enable the
Company to exercise or enforce any of its rights hereunder or
under any other Transaction Document. Without limiting the
generality of the foregoing, upon the request of the Company,
each Originator will:
<PAGE>
1. execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and
such other instruments or notices, as may be necessary or
appropriate; and
1. mark the summary master control data processing records
with the legend set forth in Section 4.1(i).
Each Originator hereby authorizes the Company or its designee to
file one or more financing or continuation statements, and
amendments thereto and assignments thereof, relative to all or
any of the Receivables (and the Related Rights) now existing or
hereafter generated by such Originator. If any Originator fails
to perform any of its agreements or obligations under this
Agreement, the Company or its designee may (but shall not be
required to) itself perform, or cause performance of, such
agreement or obligation, and the expenses of the Company or its
designee incurred in connection therewith shall be payable by
such non-performing Originator as provided in Section 9.1.
A. APPLICATION OF COLLECTIONS. Any payment by an Obligor
in respect of any indebtedness owed by it to any Originator
shall, except as otherwise specified by such Obligor or otherwise
required by contract or law and unless otherwise instructed by
the Company or the Administrator, be applied first, as a
Collection of any Receivables of such Obligor, in the order of
the age of such Receivables, starting with the oldest of such
Receivables, and second, to any other indebtedness of such
Obligor.
I. ARTICLE
PURCHASE AND SALE TERMINATION EVENTS
A. PURCHASE AND SALE TERMINATION EVENTS. Each of the
following events or occurrences described in this Section 8.1
shall constitute a "Purchase and Sale Termination Event":
1. The Facility Termination Date (as defined in the
Receivables Purchase Agreement) shall have occurred; or
1. Any Originator shall fail to make any payment or
deposit to be made by it hereunder when due and such failure
shall remain unremedied for two Business Day after notice; or
1. Any representation or warranty made or deemed to be
made by any Originator (or any of its officers) under or in
connection with this Agreement, any other Transaction Document or
any other information or report delivered pursuant hereto or
thereto shall prove to have been false or incorrect in any
material respect when made or deemed made; or
<PAGE>
1. Any Originator shall fail to perform or observe in any
material respect any agreement contained in any of Sections
6.1(h) or 6.3; or
1. Any Originator shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement on
its part to be performed or observed and such failure shall
remain unremedied for thirty (30) days after written notice
thereof shall have been given by Servicer, the Administrator or
the Company to such Originator; or
a. Any Originator or any of its subsidiaries shall
generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against such Originator
or any of its subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or
other similar official for it or for all or any substantial part
of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), such proceeding
shall remain undismissed or unstayed for a period of 30 days; or
any Originator or any of its subsidiaries shall take any
corporate action to authorize any of the actions set forth in
clause (i) above in this Section 8.1(f); or
1. A contribution failure shall occur with respect to any
benefit plan sufficient to give rise to a lien under Section
302(f) of ERISA, or the Internal Revenue Service shall, or shall
indicate its intention in writing to any Originator to, file
notice of a lien asserting a claim or claims pursuant to the Code
with regard to any of the assets of such Originator, or the
Pension Benefit Guaranty Corporation shall, or shall indicate its
intention in writing to such Originator or an ERISA Affiliate to,
either file notice of a lien asserting a claim pursuant to ERISA
with regard to any assets of such Originator or an ERISA
Affiliate or terminate any benefit plan that has unfunded benefit
liabilities.
A. REMEDIES.
a. OPTIONAL TERMINATION. Upon the occurrence of a
Purchase and Sale Termination Event, the Company shall have the
option by notice to the Originators (with a copy to the
Administrator) to declare the Purchase and Sale Termination Date
to have occurred.
<PAGE>
a. REMEDIES CUMULATIVE. Upon any termination of the
Purchase Facility pursuant to this Section 8.2, the Company shall
have, in addition to all other rights and remedies under this
Agreement or otherwise, all other rights and remedies provided
under the UCC of each applicable jurisdiction and other
applicable laws, which rights shall be cumulative.
I. ARTICLE
INDEMNIFICATION
A. INDEMNITIES BY THE ORIGINATORS. Without limiting any
other rights which the Company may have hereunder or under
applicable law, each Originator, severally and for itself alone,
and Sequa, jointly and severally with each Originator, hereby
agrees to indemnify the Company and each of its assigns,
officers, directors, employees and agents (each of the foregoing
Persons being individually called a "Purchase and Sale
Indemnified Party"), forthwith on demand, from and against any
and all damages, losses, claims, judgments, liabilities and
related costs and expenses, including reasonable attorneys' fees
and disbursements (all of the foregoing being collectively called
"Purchase and Sale Indemnified Amounts") awarded against or
incurred by any of them arising out of or as a result of the
following:
1. the transfer by such Originator of an interest in any
Receivable or Related Right to any Person other than the Company;
1. the breach of any representation or warranty made by
such Originator under or in connection with this Agreement or any
other Transaction Document, or any information or report
delivered by such Originator pursuant hereto or thereto which
shall have been false or incorrect in any respect when made or
deemed made;
1. the failure by such Originator to comply with any
applicable law, rule or regulation with respect to any Receivable
or the related Contract, or the nonconformity of any Receivable
or the related Contract with any such applicable law, rule or
regulation;
1. the failure to vest and maintain vested in the Company
an ownership interest in the Receivables generated by such
Originator and the Related Rights free and clear of any Adverse
Claim;
1. the failure of such Originator to file with respect to
itself, or any delay by such Originator in filing, financing
statements or other similar instruments or documents under the
UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivables or purported Receivables generated by
such Originator or any Related Rights, whether at the time of any
purchase or contribution or at any subsequent time;
<PAGE>
1. any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any
Receivable or purported Receivable generated by such Originator
(including, without limitation, a defense based on such
Receivable or the related Contract not being a legal, valid and
binding obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim resulting from the
goods or services related to any such Receivable or the
furnishing of or failure to furnish such goods or services;
1. any product liability claim arising out of or in
connection with goods or services that are the subject of any
Receivable;
1. any litigation, proceeding or investigation against
such Originator;
1. any tax or governmental fee or charge (other than any
tax excluded pursuant to the proviso below), all interest and
penalties thereon or with respect thereto, and all out-of-pocket
costs and expenses, including the reasonable fees and expenses of
counsel in defending against the same, which may arise by reason
of the purchase, contribution or ownership of the Receivables or
any Related Right connected with any such Receivables; and
1. any failure of such Originator to perform its duties or
obligations in accordance with the provisions of this Agreement
or any other Transaction Document;
excluding, however, (i) Purchase and Sale Indemnified Amounts to
the extent resulting from gross negligence or willful misconduct
on the part of a Purchase and Sale Indemnified Party, (ii) any
indemnification which has the effect of recourse for non-payment
of the Receivables due to credit reasons to any indemnitor
(except as otherwise specifically provided under this Section
9.1) and (iii) any tax based upon or measured by net income or
gross receipts.
If for any reason the indemnification provided above in
this Section 9.1 is unavailable to a Purchase and Sale
Indemnified Party or is insufficient to hold such Purchase and
Sale Indemnified Party harmless, then each of the Originators,
severally and for itself alone, and Sequa, jointly and severally
with each Originator, shall contribute to the amount paid or
payable by such Purchase and Sale Indemnified Party as a result
of such loss, claim, damage or liability to the maximum extent
permitted under applicable law.
<PAGE>
I. ARTICLE
MISCELLANEOUS
A. AMENDMENTS, ETC.
1. The provisions of this Agreement may from time to time
be amended, modified or waived, if such amendment, modification
or waiver is in writing and consented to by the Company, the
Administrator and the Originators (with respect to an amendment)
or by the Company (with respect to a waiver or consent by it).
1. No failure or delay on the part of the Company,
Servicer, any Originator or any third party beneficiary in
exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand
on the Company, Servicer, or any Originator in any case shall
entitle it to any notice or demand in similar or other
circumstances. No waiver or approval by the Company or Servicer
under this Agreement shall, except as may otherwise be stated in
such waiver or approval, be applicable to subsequent
transactions. No waiver or approval under this Agreement shall
require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
A. NOTICES, ETC. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile communication) and shall be
personally delivered or sent by express mail or courier or by
certified mail, postage-prepaid, or by facsimile, to the intended
party at the address or facsimile number of such party set forth
under its name on the signature pages hereof or at such other
address or facsimile number as shall be designated by such party
in a written notice to the other parties hereto. All such
notices and communications shall be effective, (i) if personally
delivered or sent by express mail or courier or if sent by
certified mail, when received, and (ii) if transmitted by
facsimile, when sent, receipt confirmed by telephone or
electronic means.
A. NO WAIVER; CUMULATIVE REMEDIES. The remedies herein
provided are cumulative and not exclusive of any remedies
provided by law.
A. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be
binding upon and inure to the benefit of the Company and each
Originator and their respective successors and permitted assigns;
provided, however, that no Originator may assign its rights
hereunder or any interest herein or delegate its duties hereunder
without the prior consent of the Company and the Administrator.
This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms,
<PAGE>
and shall remain in full force and effect until the date after
the Purchase and Sale Termination Date on which the Originators
have received payment in full for all Receivables and Related
Rights purchased pursuant to Section 1.1 hereof. The rights and
remedies with respect to any breach of any representation and
warranty made by any Originator pursuant to Article V and the
indemnification and payment provisions of Article IX and
Section 10.6 shall be continuing and shall survive any
termination of this Agreement.
A. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
A. COSTS, EXPENSES AND TAXES. In addition to the
obligations of the Originators under Article IX, each Originator
agrees to pay on demand:
1. all reasonable costs and expenses in connection with
the enforcement of this Agreement and the other Transaction
Documents; and
1. all stamp and other similar taxes and fees payable or
determined to be payable in connection with the execution,
delivery, filing and recording of this Agreement or the other
Transaction Documents, and agrees to indemnify each Purchase and
Sale Indemnified Party against any liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes
and fees.
A. SUBMISSION TO JURISDICTION. EACH PARTY HERETO HEREBY
IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
COURT OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT; (b)
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES
FEDERAL COURT; (c) WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING; (d) CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION 10.2;
AND (e) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A NONAPPEALABLE
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN
THIS SECTION 10.7 SHALL AFFECT THE COMPANY'S RIGHT TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY
ACTION OR PROCEEDING AGAINST ANY ORIGINATOR OR ITS RESPECTIVE
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
A. WAIVER OF JURY TRIAL. EACH PARTY HERETO EXPRESSLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER
<PAGE>
TRANSACTION DOCUMENT, OR UNDER ANY AMENDMENT, INSTRUMENT OR
DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
A. CAPTIONS AND CROSS REFERENCES; INCORPORATION BY
REFERENCE. The various captions (including, without limitation,
the table of contents) in this Agreement are included for
convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. References in
this Agreement to any underscored Section or Exhibit are to such
Section or Exhibit of this Agreement, as the case may be. The
Exhibits hereto are hereby incorporated by reference into and
made a part of this Agreement.
A. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken
together shall constitute one and the same Agreement.
A. ACKNOWLEDGMENT AND AGREEMENT. By execution below, each
Originator expressly acknowledges and agrees that all of the
Company's rights, title, and interests in, to, and under this
Agreement shall be assigned by the Company to the Issuer pursuant
to the Receivables Purchase Agreement, and such Originator
consents to such assignment. Each of the parties hereto
acknowledges and agrees that the Administrator and the Issuer are
third party beneficiaries of the rights of the Company arising
hereunder and under the other Transaction Documents to which such
Originator is a party.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
SEQUA RECEIVABLES CORP.
By:
Name:
Title:
SEQUA RECEIVABLES CORP.
200 Park Avenue
New York, New York 10166
Attention: James Langelotti
Telephone: 212-986-5500
Facsimile: 212-370-3419
SEQUA CORPORATION, as initial Servicer
By:
Name:
Title:
SEQUA CORPORATION
200 Park Avenue
New York, New York 10166
Attention: Kenneth A. Drucker
Telephone: 212-986-5500
Facsimile: 212-370-3419
<PAGE>
ORIGINATORS:
ATLANTIC RESEARCH CORPORATION
By:
Name:
Title:
ATLANTIC RESEARCH CORPORATION
5945 Wellington Road
Gainesville, Virginia 20155
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CASCO PRODUCTS CORPORATION
By:
Name:________________________________
Title:_______________________________
CASCO PRODUCTS CORPORATION
380 Horace Street
Bridgeport, Connecticut 06610
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY GAS TURBINE CORPORATION
By:
Name:________________________________
Title:_______________________________
CHROMALLOY GAS TURBINE CORPORATION
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
<PAGE>
MEGTEC SYSTEMS, INC.
By:
Name:________________________________
Title:_______________________________
MEGTEC SYSTEMS, INC.
830 Prosper Road
DePere, Wisconsin 54115
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
SEQUA CORPORATION
By:
Name:________________________________
Title:_______________________________
SEQUA CORPORATION
200 Park Avenue
New York, New York 10166
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY CASTINGS TAMPA
CORPORATION
By:
Name:________________________________
Title:_______________________________
CHROMALLOY CASTINGS TAMPA CORPORATION
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY COMPRESSOR TECHNOLOGIES CORPORATION
By:
Name:
Title:
<PAGE>
CHROMALLOY COMPRESSOR TECHNOLOGIES CORPORATION
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY H.I.T. LTD.
By:
Name:________________________________
Title:_______________________________
CHROMALLOY H.I.T. LTD.
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY SAN DIEGO
By:
Name:________________________________
Title:_______________________________
CHROMALLOY SAN DIEGO
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
CHROMALLOY WALLKILL CORP.
By:
Name:________________________________
Title:_______________________________
<PAGE>
CHROMALLOY WALLKILL CORP.
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
SPECIALIZED OVERHAUL SERVICES
GROUP, INC.
By:
Name:________________________________
Title:_______________________________
SPECIALIZED OVERHAUL SERVICES
GROUP, INC.
4430 Director Drive
San Antonio, Texas 78219
Attention: Kenneth A. Drucker
Telephone:
Facsimile:
<PAGE>
SCHEDULE 5.13
OFFICE LOCATIONS
<PAGE>
SCHEDULE 5.14
TRADE NAMES
<PAGE>
EXHIBIT A
FORM OF PURCHASE REPORT
<PAGE>
EXHIBIT B
FORM OF COMPANY NOTE
<PAGE>
EXHIBIT C
FORM OF OPINION OF ORIGINATOR'S COUNSEL
<PAGE>
<TABLE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
--------------------------
The companies listed below are the majority-owned subsidiaries of
the registrant as of December 31, 1998:
<CAPTION>
State or Other
Jurisdiction
in which
Name of Subsidiary Incorporated
- -------------------------- --------------
<S> <C>
Atlantic Research Corporation Delaware
Casco IMOS Italia S.R.L. Italy
Casco Products Corporation Delaware
The Centor Company Missouri
Chromalloy American Corporation Delaware
Chromalloy Castings Tampa Corporation Delaware
Chromalloy Gas Turbine Corporation Delaware
Chromalloy Gas Turbine France France
Chromalloy Heavy Industrial Turbines, Ltd. Delaware
Chromalloy Holland B.V. Netherlands
Chromalloy Israel Ltd Israel
Chromalloy Men's Apparel, Inc. Delaware
Chromalloy San Diego Corporation California
Chromalloy Thailand Ltd Thailand
Chromalloy U.K. Ltd. England
Chromalloy Wallkill Corp. New York
Chromizing, S.A. de C.V. Mexico
Jamo Matrizjen B.V. Netherlands
Malichaud et CIE S.A. France
MEGTEC Systems AB Sweden
MEGTEC System, GmbH Germany
MEGTEC Systems, Inc. Delaware
MEGTEC Systems, SA France
Sequa Capital Corporation New York
Sequa Coatings Corporation Indiana
Sequa Financial Corporation New York
Specialized Overhaul Services Group, Inc. Delaware
TurboCombustor Technology, Inc. Florida
Warwick International Group Ltd England
<FN>
Other subsidiaries of the Registrant have been omitted from this
listing since, considered in the aggregate as a single
subsidiary, they would not constitute a significant subsidiary.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Annual Report on
Form 10-K, into the Company's previously filed Registration
Statements on Form S-3 (File No. 33-47552 and File No. 333-
66035).
ARTHUR ANDERSEN LLP
New York, New York
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 84,889
<SECURITIES> 11,475
<RECEIVABLES> 347,461
<ALLOWANCES> 16,514
<INVENTORY> 262,765
<CURRENT-ASSETS> 715,868
<PP&E> 1,093,327
<DEPRECIATION> 641,884
<TOTAL-ASSETS> 1,624,147
<CURRENT-LIABILITIES> 337,939
<BONDS> 500,685
0
797
<COMMON> 11,000
<OTHER-SE> 653,655
<TOTAL-LIABILITY-AND-EQUITY> 1,624,147
<SALES> 1,802,393
<TOTAL-REVENUES> 1,802,393
<CGS> 1,444,914
<TOTAL-COSTS> 1,444,914
<OTHER-EXPENSES> (54,310)
<LOSS-PROVISION> 4,276
<INTEREST-EXPENSE> 51,776
<INCOME-PRETAX> 107,997
<INCOME-TAX> 44,100
<INCOME-CONTINUING> 63,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,897
<EPS-PRIMARY> 6.01
<EPS-DILUTED> 5.87
</TABLE>
