-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T3ntwFwfNmStq4JXGoqG93xBMEIxJXTJvdBZ1WnpJ+wmI4L47592hKAteJg3zb1m vUybAP1rqZfcEvzFmO5Jnw== 0000893220-02-000316.txt : 20020415 0000893220-02-000316.hdr.sgml : 20020415 ACCESSION NUMBER: 0000893220-02-000316 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YORK INTERNATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000842662 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 133473472 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10863 FILM NUMBER: 02587653 BUSINESS ADDRESS: STREET 1: 631 S RICHLAND AVE CITY: YORK STATE: PA ZIP: 17403 BUSINESS PHONE: 7177717890 MAIL ADDRESS: STREET 1: 631 SOUTH RICHLAND AVENUE CITY: YORK STATE: PA ZIP: 17403 FORMER COMPANY: FORMER CONFORMED NAME: YORK HOLDINGS CORP DATE OF NAME CHANGE: 19910930 10-K 1 w58431e10-k.txt 10-K YORK INTERNATIONAL FOR 12/31/2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NUMBER: 1-10863 --------------------- YORK INTERNATIONAL CORPORATION (Exact name of the registrant as specified in its charter) DELAWARE 13-3473472 (State of incorporation) (I.R.S. Employer Identification No.)
631 SOUTH RICHLAND AVENUE, YORK, PA 17403 (717) 771-7890 (Address and telephone number of principal executive offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.005 Par Value Per Share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether 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. [ ] As of March 22, 2002, there were 39,275,428 shares of the registrant's Common Stock outstanding, and the aggregate market value of the Common Stock held by non-affiliates was $1,344,970,606 based on the closing price of the Common Stock on the New York Stock Exchange Composite Transactions of such date. (Only officers and directors of the registrant are assumed to be affiliates for purposes of this calculation.) DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Financial Statements and Review of Operations for the year ended December 31, 2001 are incorporated by reference into Parts I, II and IV. Portions of the registrant's definitive Proxy Statement pertaining to the Annual Meeting, to be held May 23, 2002, are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YORK INTERNATIONAL CORPORATION FORM 10-K YEAR ENDED DECEMBER 31, 2001 INDEX
ITEM NUMBER PAGE - ------ ---- PART 1 1. Business............................................... 1 2. Properties............................................. 14 3. Legal Proceedings...................................... 15 4. Submission of Matters to a Vote of Security Holders.... 15 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters................................. 15 6. Selected Financial Data................................ 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 16 7A. Quantitative and Qualitative Disclosure about Market Risk................................................ 16 8. Financial Statements and Supplementary Data............ 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 16 PART III 10. Directors and Executive Officers of the Registrant...... 16 11. Executive Compensation.................................. 16 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 16 13. Certain Relationships and Related Transactions.......... 16 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................ 17
PART I ITEM 1. BUSINESS. GENERAL York International Corporation and its consolidated subsidiaries (the Company, which may be referred to as we, us or our) are a full-line, global designer and manufacturer of heating, ventilating, air conditioning and refrigeration (HVAC&R) products. We believe that we are the third largest manufacturer and marketer of HVAC&R products in the United States and one of the leading companies in the HVAC&R industry internationally. Our air conditioning systems range from a one ton* unit for a small residence to large systems installed in high-rise residential and commercial buildings. In 2001, our products were sold in over 125 countries through over 1,000 sales and distribution facilities and are in use in such diverse locations as the Kuala Lumpur City Centre in Malaysia, the British Houses of Parliament, the Tokyo World Trade Center, the Pentagon, NASA's Vehicle Assembly Building at Kennedy Space Center, NASA's Johnson Space Center, the Los Angeles International Airport, the Jeddah Airport, the Overseas Union Bank Centre in Singapore, the Sydney Opera House, the Atlantic City Convention Center, the English Channel Eurotunnel, the Hong Kong Convention and Exhibition Centre and the Lantau Airport Railway in Hong Kong. We were founded in 1874 in York, Pennsylvania. From 1956 until 1986 we were a part of Borg-Warner Corporation. In 1986, we were spun off to Borg-Warner shareholders and became an independent, publicly held company. In 1988, we were purchased in a leveraged buyout. In 1991, we completed an initial public offering of our common stock. During the 1990's, we expanded our worldwide presence through growth and acquisitions. In 1999, we further expanded our refrigeration business by acquiring all of the outstanding capital stock of Sabroe A/S, a Danish company. This acquisition established the York Refrigeration Group as the world leader in supplying industrial refrigeration systems and products. Headquartered in York, Pennsylvania, we have manufacturing facilities in 10 states and 8 foreign countries. As of December 31, 2001, we employed approximately 23,600 people worldwide. Our principal executive offices are located at 631 South Richland Avenue, York, Pennsylvania 17403, and our telephone number is (717) 771-7890. STRATEGY Our strategy is to focus on the global heating, ventilating, air conditioning, and refrigeration equipment markets, refrigeration contracting, and the worldwide service, repair and replacement markets. We have grown, and expect to continue to grow, through expansion of services, product development, acquisition of businesses, establishment of joint ventures and licensing of technology in the HVAC&R industry. We intend to continue our strategy of increasing our market share by developing our product range to offer a complete line of environmentally acceptable and energy efficient products. We seek to take advantage of regulatory changes by developing products that comply with tightening environmental and energy - --------------- * The cooling capacity of air conditioning units is measured in tons. One ton of cooling capacity is equivalent to 12,000 BTUs and is generally adequate to air condition approximately 500 square feet of residential space. 1 efficiency requirements and regulations before they become effective. We have implemented our environmental strategy by developing product lines that utilize our screw, centrifugal, reciprocating, hermetic, scroll and inertia compressor technology employing HCFC-123, HCFC-22, R-407C, R-410A, R-404A, R-507, R-717 (ammonia) and HFC-134a as refrigerants. Screw and centrifugal compressors utilize designs which separate the refrigerant from the motor housing. See Environmental Matters discussion below. We have increased the overall efficiency of our product offerings by employing internally developed advanced heat transfer and compressor technology and introducing large air conditioning systems that utilize advanced thermal storage and absorption technologies. We are also seeking to expand into new markets. We intend to expand sales of our equipment throughout the international markets by enhancing our product lines and expanding our distribution capabilities. In addition, we intend to strategically expand our service offering internationally. We also focus on controlling manufacturing and operating expenses and thus improving our operating margins by redesigning products, acquiring more efficient manufacturing equipment and processes and reducing costs not directly associated with the manufacturing process. In addition, our planning process enables us to carefully monitor the amount of capital used in our business and to reposition our segments in light of changing conditions throughout the year. We believe that our management stock ownership plans and management incentive compensation plans, which reward the management team of each segment for achieving the planned objectives of that segment, are key elements in implementing our strategies and contributing to meeting financial objectives. PRODUCTS AND MARKETS All of our products are in the HVAC&R industry, and we operate solely in this industry. Within HVAC&R, our business is comprised of four segments: Engineered Systems Group, York Refrigeration Group, Unitary Products Group and Bristol Compressors. Engineered Systems Group (ESG) produces heating, air conditioning and thermal storage equipment designed for commercial applications in retail stores, office buildings, shopping malls, manufacturing facilities, hospitals, universities, airports and marine vessels. York Refrigeration Group (YRG) produces commercial and industrial refrigeration systems and gas compression equipment designed for the food, beverage, chemical and petrochemical processing industries as well as marine applications. Unitary Products Group (UPG) produces heating and air conditioning solutions designed for use in residential and light commercial applications. Bristol Compressors (Bristol) manufactures reciprocating and scroll compressors for our use and for sale to original equipment manufacturers and wholesale distributors. Our engineered systems products and refrigeration and gas compression equipment are designed specifically for the customer's needs and applications. 2 The following table sets forth net sales by product and geographic market:
2001 2000 1999 ---------- ---------- ---------- (IN THOUSANDS) Engineered Systems Group......................... $1,930,263 $1,859,817 $1,769,990 York Refrigeration Group......................... 932,133 997,013 903,623 Unitary Products Group........................... 766,441 767,248 854,782 Bristol Compressors.............................. 509,706 525,716 581,836 Eliminations..................................... (207,866) (252,391) (233,202) ---------- ---------- ---------- Total net sales................................ $3,930,677 $3,897,403 $3,877,029 ========== ========== ========== U.S. ............................................ 48% 48% 52% Non-U.S. ........................................ 52% 52% 48% ---------- ---------- ---------- 100% 100% 100% ========== ========== ==========
Additional financial information about our segments, U.S. and non-U.S. operations, and export sales is incorporated herein by reference to Note 16 on pages 35 to 38 of the Annual Financial Statements and Review of Operations. ENGINEERED SYSTEMS GROUP Our Engineered Systems Group produces and sells heating and air conditioning solutions for both new construction and replacement for the full range of commercial building types worldwide. ESG's commercial air conditioning products include air-cooled and water-cooled chillers, air handling equipment including indoor and outdoor units, variable air volume units, underfloor air distribution systems and large packaged rooftop units. Additionally, ESG offers controls to monitor and regulate individual components or the entire heating, ventilating and air conditioning (HVAC) system. ESG, through our world-wide service organization, also provides a complete range of maintenance and repair services. ESG is currently the major supplier of water chillers to the U.S. Navy for both surface vessels and submarines. ESG also supplies specially designed chilled water systems for use on other naval and commercial marine vessels. ESG is also the world leader in the design, manufacturing and selling of snow-making equipment. ESG offers a broad range of water chilling products in the HVAC industry driven with electricity, gas and steam utilizing centrifugal, screw, scroll and reciprocating compressors in addition to offering absorption units. Current products utilize HCFC and HFC refrigerants, which meet the requirements of applicable international environmental protocols. Current product development efforts emphasize improving "real world" energy efficiency, achieving higher environmental standards and reducing operating noise levels. Air handling equipment covers all the traditional applications as well as offering the industry's most advanced underfloor air distribution system, FlexSys. Air handling equipment product development efforts increasingly focus on improving indoor air quality, promoting energy efficiency and lowering operating noise levels. All products make use of the latest controls technology to enhance all areas of performance. The global commercial HVAC market is driven by new construction and replacement sales in almost equal proportions. Commercial construction tends to move in the general direction of the economies of the world. Replacements are strongest in those areas of the world where the installed base of equipment is largest, such as North America. Replacement sales are driven by the age of the equipment, the trade-off economics of repair versus replacement, and the likelihood of increased energy efficiency and greater environmental acceptability of replacing old with new equipment. ESG's products are principally manufactured in York, Pennsylvania; Albany, Missouri; Hattiesburg, Mississippi; San Antonio, Texas; Roanoke, Virginia; Curitiba, Brazil; Basildon, England; Carquefou, France; Nantes, France; Wuxi, China; Guanghzou, China; Laem Chabang, Thailand; Johannesburg, South 3 Africa; Durango, Mexico; and Monterrey, Mexico. Many of the components of ESG's products, such as motors, control elements and castings, are purchased from outside suppliers. The other components are custom manufactured by us. Using these components and based upon specific design specifications, ESG's products are machined, assembled, tested and shipped from the above locations. ESG's products are distributed globally through a combination of our sales and service offices, sales agents, and independent distributors. Our sales engineers operating out of our sales and service offices around the world account for approximately 75% of ESG's equipment sales with the remaining portion coming from sales agents and independent distributors. In addition to new equipment sales, "aftermarket" products and services represent a very significant portion of ESG's business. Parts are sold from all our offices as well as from major regional distribution centers in Baltimore, Maryland; Miami, Florida; Singapore; Hong Kong SAR, China; Shanghai, China; Dubai, U.A.E.; and Basildon, England. Repair, maintenance and start up services are provided globally by technicians employed by us. We provide maintenance and repair services for both our equipment and that of third parties, although the majority of the work is performed on our equipment. The aftermarket is a key growth opportunity, and, therefore, a strategic objective for ESG. The market, unlike equipment, is highly fragmented with regard to market share. There is also a major potential outside of North America as the installed base grows and ages. ESG's extensive service experience in North America provides an excellent template for expansion of the business globally. During the year 2001, we, through acquisition, added General Refrigermetics Corporation and Arduman to augment ESG's extensive service business in the U.S. and the Middle East, respectively. We market ESG's chiller products under the "YORK" brand name and market air handling equipment under the "YORK", "MILLER-PICKING", and "PACE" brands. Service is marketed under the "YORK" and "NATKIN" brands. Parts are marketed under the "YORK" and "SOURCE 1" brands. All of the markets in which ESG participates are very competitive. ESG's products compete on the basis of product design, reliability, quality, price, efficiency, acoustics and post-installation service. Architects and engineers play an important part in determining which manufacturer's products will be specified and ultimately used in an application. In the domestic market, we compete primarily with two large worldwide manufacturers, Carrier, a United Technologies Corporation company, and Trane Company, a division of American Standard Companies Inc. In the international market, we compete primarily with Carrier, Trane, local manufacturers in Europe, and a number of Japanese manufacturers. YORK REFRIGERATION GROUP Our York Refrigeration Group develops, contracts, manufactures, integrates and distributes products and systems globally for the marine, industrial and commercial refrigeration markets. YRG produces screw and reciprocating compressors, condensers, evaporators, heat exchangers, industrial and marine chillers, ice makers, process refrigeration systems, air handling and ventilating equipment, gas compression systems, automated plant control systems and advanced control systems for refrigerated containers. Screw and reciprocating compressors enable us to produce highly reliable refrigeration systems required for industrial and commercial applications in the food, beverage, chemical and petroleum industries as well as marine applications. Our refrigeration and gas compression equipment is engineered and manufactured to customer specifications. YRG integrates screw and reciprocating compressors with other components to offer customers the optimal solution and value for their specific application considering cost, energy efficiency, reliability, space and environmental requirements. Refrigeration systems are essential in the textile, electronics, pharmaceutical and petrochemical industries. Food, beverage, marine and process cooling operations use refrigeration systems both in chilling and 4 product freezing and for maintaining these products in warehouses, distribution centers and retail outlets. YRG's systems are also in use in sporting venues. We market our refrigeration and gas compression equipment under the "YORK", "SABROE", "FRICK", "NOVENCO", "FRIGID COIL", "IMECO", "ACUAir", "GRAM REFRIGERATION", and "YORK BONUS" brands. The products are sold by our sales engineers located in 14 offices and a national network of more than 50 independent agents in the U.S. as well as our 60 owned sales, contracting and service offices, independent distributors, and agents outside the U.S. In addition, we believe that developing countries offer opportunities for increasing sales of refrigeration equipment. Refrigeration equipment is manufactured at our owned facilities in Dixon, Illinois; Polo, Illinois; Waynesboro, Pennsylvania; Sao Paulo, Brazil; Aarhus, Naestved, and Hornslet, Denmark; and at a leased facility in Santa Fe Springs, California. All of the markets in which YRG does business are very competitive. Refrigeration manufacturers compete on the basis of product design, reliability, quality and price. In the market for refrigeration equipment, we compete primarily with FES, GEA-Grasso, Evapco, Krack Corp. and Mycom. UNITARY PRODUCTS GROUP Our Unitary Products Group produces and sells residential and light commercial heating and air conditioning solutions. These include ducted central air conditioning and heating systems (air conditioners, heat pumps and furnaces), and light commercial heating and cooling equipment. UPG's products consist of split systems and packaged products. A split system consists of an outdoor unit containing a compressor and condenser, a connected indoor unit containing a heat exchanger, an electric, gas or oil heating section, an indoor blower system and associated controls. A packaged product is a single, self-contained unit with compressor, condenser, heat exchanger, electric, gas or oil heating section, blower and associated controls. These units are typically installed on rooftops or beside a structure. Ducted products distribute conditioned air throughout building structures with ductwork connected to the system's blower, whereas ductless installations provide conditioned air directly from indoor blowers without the use of ductwork. UPG markets its products under the "YORK", "LUXAIRE", "FRASER-JOHNSON", "COLEMAN", "WINCHESTER", "GUARDIAN", and "AIRPRO" brands. Service parts are sold under the "SOURCE 1" brand. "YORK" is our full line brand, which is sold through our company-owned distribution centers and exclusive independent distributors throughout the world. The "YORK" brand is sold with a high level of customer service and sales support. Our other brands are sold through more than 200 non-exclusive distributors primarily for resale to contractors. We also sell unitary products in the manufactured housing industry in North America on an original equipment manufacturer basis through an exclusive distributor. UPG sales include both new installations and replacement systems. We estimate that more than half of UPG revenues in North America are attributable to the replacement market. The replacement market is not affected by levels of new home construction and therefore tends to be less cyclical. The replacement market is significantly affected by ambient temperature. Hot weather in the spring season causes existing older units to fail earlier in the season, leading customers to accelerate replacement of a unit which might otherwise be deferred in the case of a late season failure. Unitary and light commercial products are manufactured principally in plants located in Norman, Oklahoma; Wichita, Kansas; and Monterrey, Mexico. UPG's manufacturing process relies on the purchase of certain components (including hermetic compressors, copper tube, fan motors, fan blades and control 5 elements) from outside suppliers, and in-house fabrication of sheet metal cabinets and refrigerant coils. The various unitary products are then assembled and tested before shipment. All of the markets in which UPG does business are very competitive. Unitary product manufacturers compete on the basis of price, reliability, delivery, efficiency, acoustics and maximum market coverage. Price competition and maximum market coverage are of particular importance in residential product lines as there is often relatively little perceived differentiation. In the U.S. market, we compete with three large worldwide manufacturers, Carrier, Trane and Lennox, in addition to numerous national manufacturers such as Goodman, Rheem and Nordyne. BRISTOL COMPRESSORS Bristol Compressors manufactures reciprocating and scroll compressors for our use and for sale to original equipment manufacturers and wholesale distributors. A compressor is an integral part of an air conditioning system. Our unitary products use compressors manufactured by Bristol as well as those purchased from other vendors. Approximately 80% of Bristol's revenues are attributable to sales of products to other air conditioning equipment manufacturers or wholesale distributors. We market our Bristol products under the "BRISTOL" brand. Sales of Bristol products are directly correlated to the factors affecting demand for unitary products discussed previously in the Unitary Products Group section. Bristol markets an Inertia reciprocating compressor that directly competes against other technologies in meeting high efficiency requirements. We are also producing successors to the Inertia compressor with lower applied cost to the customer and equivalent performance. Bristol has also developed a new compressor design known as TS Technology. These new compressors provide higher system efficiencies, greater reliability and increased comfort. Scroll Technologies, a joint venture to design and manufacture scroll compressors, continues to upgrade the scroll compressor technology and performance. Bristol products are currently manufactured at our factories in Bristol, Virginia and Sparta, North Carolina, and by Scroll Technologies in Arkadelphia, Arkansas. We are in the process of closing operations at Sparta. As with our other products, Bristol products are assembled using purchased parts (including motors, castings, forgings and electronic components) as well as parts manufactured by us. Bristol competes directly with two United States manufacturers, Copeland Corporation, a subsidiary of Emerson Electric Inc., and Tecumseh, a division of Tecumseh Corporation. Also, we compete internationally with L.G. Electronics, Matsushita Electric Industrial Co., Ltd., and SANYO Electric Co., Ltd. 6 RAW MATERIALS AND PURCHASED COMPONENTS We purchase compressors, steel, copper, aluminum, electric motors, castings, forgings, stampings, fabricated copper tubes, electronic starters and controls, aluminum fins, fan blades, capacitors, transformers, refrigerant gases, valves, fittings and other components from many outside suppliers. Alternate sources of supply are available for all raw materials and components for which we use a single supplier. We believe that we have adequate sources of supplies of raw materials and component parts for our manufacturing requirements. In order to hedge against certain raw material price increases, we enter into commodity forward contracts for the purchase of certain raw materials, principally copper. Additional information about our commodity forward contracts contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations, Market Risk" on pages 10 to 11 of the Annual Financial Statements and Review of Operations is incorporated herein by reference. PATENTS AND TRADEMARKS We hold numerous patents that relate to the design and use of our products that we consider important, but not essential, to the overall conduct of our business. It is our policy to obtain patent protection for as many of our new and developmental products as possible, and to enforce such patent rights as appropriate. No patents which we consider material will expire within the next five years. We own several trademarks that we consider important in the marketing of our products as discussed in each of the business segment sections. We believe that our rights in these trademarks are adequately protected and of unlimited duration. JOINT VENTURES IN U.S. AND NON-U.S. MARKETS In addition to our wholly-owned production and distribution facilities, we produce, distribute and service products through our participation in several joint ventures, which are described in the following table:
JOINT VENTURE (PERCENT OWNED BY PRINCIPAL PRINCIPAL LOCATION JOINT VENTURE PARTNER THE COMPANY) PRODUCTS/SERVICES MARKETS SERVED - ------------------ --------------------- ----------------- ----------------- -------------- Malaysia............. OYL Industries BHD. OYL-Condair Manufacture Asia Pacific Industries unitary and Middle East SDN.BHD. (49%) engineered systems products Malaysia............. OYL Industries BHD. York (Malaysia) Sales and service Malaysia Service SDN.BHD. of air (30%) conditioning equipment Peoples Republic of Guangzhou Sinro Air York Guangzhou Manufacture China China.............. Conditioning Air Conditioning unitary and Mechanical and and Refrigeration engineered Electronic Equipment Co. Ltd. (97%) systems products Company Ltd. Peoples Republic of Wuxi Boiler Works York-Wuxi Air Manufacture China China.............. Conditioning and engineered Refrigeration Co. systems products Ltd. (80%) Republic of China Taipei Engineering York-Taiwan, Inc. Sales and service Taiwan (Taiwan)........... Development Co. (60%) of air conditioning equipment Cyprus............... Sabinco Ltd. KROY Ltd. (50%) Sales of air Middle East conditioning equipment and parts
7
JOINT VENTURE (PERCENT OWNED BY PRINCIPAL PRINCIPAL LOCATION JOINT VENTURE PARTNER THE COMPANY) PRODUCTS/SERVICES MARKETS SERVED - ------------------ --------------------- ----------------- ----------------- -------------- Saudi Arabia......... Al Salem United Al Salem-York Service and Saudi Arabia Contracting Co. Services Ltd. repair of air (49%) conditioning equipment Spain................ Compania Roca Clima Roca-York Manufacture Spain Radiadores S.A. S.L. (50%) unitary products U.S.................. Carrier Corporation Scroll Manufacture U.S. Technologies scroll (50%) compressors Finland.............. OY Huurre Group AB Sabroe Finland Oy Sales and service Finland (50%) of refrigeration products South Africa......... Spoormakers & Shared Energy Energy management South Africa Partners Inc. Management (Pty) services Ltd (50%) Denmark.............. Three Danish pension Jernstberiet Castings Europe funds Dania A/S (40%) People's Republic of Individual Chinese YORK Sales and service China China.............. Shareholder Refrigeration of refrigeration Marine (China) equipment Ltd. (75%) Japan (Flakt)........ Nissin Refrigeration Stal Nissin Corp. Sales and service Japan & Engineering Ltd. (50%) of refrigeration products Japan (Novenco)...... Individual Japanese Novenco Nippon Sales and service Japan shareholder Ltd (23%) of air handling equipment Korea................ Individual Korean Hi-Pres Korea Co. Sales and service Korea shareholder Ltd (20%) of air handling equipment Malaysia............. Kumpulan Nametech Airvenco Sdn. Sales and service Malaysia Sdn. Bhd. Bhd. (21%) of air handling equipment Morocco.............. IFU A/S, Denmark York Sales and service North Africa Individual Moroccan Refrigeration of refrigeration shareholder Morocco S.A. products (20%) U.S.................. Individual U.S. York Sales and service North America shareholder Refrigeration of refrigeration Marine U.S. Inc. products (50%) Colombia............. Paramo Industria de Sabroe de Sales and service Latin America Refrigeracion Ltda. Colombia Ltda of refrigeration Industria de (60%) products Engenieria e Refrigeracion S.A.
We received dividends from affiliates of $2.9 million, $4.8 million and $1.0 million in 2001, 2000 and 1999, respectively. Our total investments in affiliates were $25.0 million and $24.9 million as of December 31, 2001 and 2000, respectively. Our sales to affiliates are less than 1% of our total revenues. 8 MAJOR CUSTOMERS During 2001, no customer, distributor, dealer or licensee accounted for more than 10% of our revenues. The loss of a few customers, distributors, dealers or licensees would not have a material adverse effect on our business. BACKLOG The following table sets forth backlog by business segment:
DECEMBER 31, --------------------- 2001 2000 -------- ---------- (IN THOUSANDS) Engineered Systems Group.................................... $445,337 $ 528,713 Refrigeration Products Group................................ 287,410 353,498 Unitary Products Group...................................... 46,225 42,347 Bristol Compressors......................................... 72,978 93,906 -------- ---------- Total backlog............................................. $851,950 $1,018,464 ======== ==========
Substantially all orders are expected to be fulfilled within the next 12 months. GOVERNMENT CONTRACTS On an ongoing basis approximately 1% of our sales are related to contracts for the U.S. Navy, for both research and development and equipment. Contracts vary in duration from one to several years. If these contracts were to be terminated, we would be entitled to reimbursement of costs incurred and to a payment of a reasonable allowance for profit on work actually performed. We also sell equipment on standard commercial terms to contractors and others who incorporate it into U.S. government projects. RESEARCH AND DEVELOPMENT Our product development activities include ongoing research and development programs to redesign existing products to reduce manufacturing costs and to increase product efficiencies, developing electronic controls for current product offerings and creating a wide range of new products. During 2001, 2000 and 1999, we spent $46.2 million, $46.9 million and $41.0 million, respectively, for all product development activities. ESG maintains a very active ongoing product development program spanning all areas of its product offering. Major emphasis continues to be placed on improving "real world" energy efficiency, lowering operating noise levels, improving indoor air quality, and developing equipment and systems controls that improve all areas of performance. Product development efforts also seek to utilize the most environmentally friendly refrigerant solutions compatible with regulatory requirements and market needs. During 2001, in keeping with its ongoing efforts at improving product energy efficiency and expanding the use of more environmentally friendly refrigerants, ESG launched a number of new products. These included new Max E centrifugal and screw chiller models in various ranges using HFC refrigerants, a new line of system controls offered as factory packaged controls for air handling units, and ECO2 packaged rooftop units in the 50-95 ton range featuring an HFC-407C option. YRG is currently developing screw compressors for gas compression and food and beverage refrigeration and a semihermetic type compressor for the A/C chiller market. Also, a new common compressor control unit is being developed as well as a platform for plant control systems in contracting units to be used in 9 connection with application development. Concurrently, introduction of updated versions of the Quantum and UniSab II compressor controllers has strengthened the existing range of control. In 2001, YRG launched the first model of a new range of compressors for natural gas gathering (NGC 300), the first two semihermetic compressors type YRS, and Rotatune reciprocating and screw compressor packages with variable speed drive, featuring lower power consumption than traditional packages. Requirements for alternative refrigerants have led to a range of compressor and freezing package introductions using carbon dioxide as refrigerant for marine and land-based installations. This technology is used for lower temperatures and higher output of our customers' equipment compared to traditional solutions. YRG's research and development is focused on the core competencies within compression and controls, thermodynamics and manufacturing technologies. These technologies are the basis of optimization, cost reductions and price performance as well as development of new and enhanced product introductions. YRG's new Test Center in Aarhus, Denmark was opened in 2001 and improved our ability to test large compressors, new products and refrigerants and to provide customer witnessed tests of equipment. UPG continues to redesign its product line for lower sound ratings and greater efficiency on our higher tiered premium product line, and manufacturing cost effectiveness on our entry level value offering. The new Predator commercial rooftop line leads the industry in efficiency and feature set value. The Stealth series residential air conditioner, utilizing Twin Single, or TS, compressor technology, is an industry first. A new cost reduced air conditioner line will allow UPG to compete in the value segment of the residential new construction market. An entirely new gas furnace, designed specifically for the manufactured housing market will make the Coleman brand of manufactured housing furnaces an industry leader. Bristol has developed a new breakthrough compressor design, TS Technology, providing higher system efficiencies, greater reliability and increased comfort. Scroll compressor technology and capability are continuing to expand through the joint venture, Scroll Technologies. EMPLOYEES As of December 31, 2001, we employed approximately 23,600 persons worldwide. Approximately 11,200 persons are employed in the U.S. and 12,400 persons are employed in foreign countries. Approximately 2,115 U.S. employees are covered by collective bargaining agreements that expire at various dates and are generally for a term ranging from three to five years. We consider our relations with our employees to be satisfactory. ENVIRONMENTAL MATTERS Environmental laws that affect or could affect our U.S. operations include, among others, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, any regulations promulgated under these acts, and various other Federal, state and local laws and regulations governing environmental matters. Our non-U.S. operations are also subject to various environmental statutes and regulations. Generally, these requirements tend to be no more restrictive than those in effect in the U.S. In 1993, the Council of European Communities agreed on European Community regulation number 1836/93 that recommended that each company voluntarily complete an ECO-Audit. We have completed these audits at our European facilities. In September 1987, the U.S. became a signatory to an international agreement titled the Montreal Protocol on Substances that Deplete the Ozone Layer, or the Montreal Protocol. The Montreal Protocol requires its signatories to reduce production and consumption of CFCs and halons, some of which are utilized in air 10 conditioning and refrigeration equipment. In 1988, the EPA issued regulations under the Clean Air Act implementing the Montreal Protocol in the U.S. Many other countries have also become signatories to the Montreal Protocol. The manner in which these countries implement the Montreal Protocol and regulate CFCs could differ from the approach taken in the U.S. The Clean Air Act allows the EPA to accelerate the statutory phase-out schedule for any Class I (CFC) or Class II (HCFC) substance. In November 1992, the parties to the Montreal Protocol agreed to amend the Protocol to require the complete phase-out of CFC production by the beginning of 1996. Further, the parties agreed to a 1996 production cap on HCFCs and a complete phase-out of HCFC production by 2030. In May 1995, EPA published a final rule requiring accelerated phase-out of the production of all CFCs by 1996 and of all HCFCs by 2030. None of our manufactured products contains Class I substances. Class I substances previously used by us have been substituted with Class II substances or substances that are currently unregulated. We do, however, believe that revenues from servicing and repairing existing equipment that uses Class I substances are and will be significant. These activities are regulated by the EPA, which imposes guidelines affecting service and maintenance of equipment that uses Class I and Class II substances. We train and license our service technicians in service and maintenance procedures that comply with the new regulations. Therefore, we believe that the new regulations will not have a material adverse effect on our operations. The phase-out of Class I substances will require modifications to existing air conditioning equipment as availability of recycled Class I substances decreases. Since our technology enables us to modify existing equipment for use with Class II substances, we believe that this will continue to generate additional service revenues. While we expect to derive substantial revenue from the sale of products utilizing Class II substances, it is not expected that any phase-out will have a significant impact on the sales of such products since new products that use unregulated refrigerants such as HFC's are now becoming readily available. Nonetheless, as the supply of virgin and recycled Class II substances falls, it will be necessary to address the need to substitute permitted substances for Class II substances. We, in conjunction with major chemical manufacturers, are continually in the process of reviewing and addressing the impact of refrigerant regulations on our products. We believe that the combination of those products which presently utilize Class II substances and those products in the field which can be retrofitted to such refrigerants provides a complete line of commercial and industrial products. Therefore, we do not foresee any material adverse impact on our business or competitive position as a result of the Montreal Protocol, the 1990 Clean Air Act amendments or their implementing regulations. However, we believe that the implementation of severe restrictions on the production, importation or use of refrigerants employed in larger quantities by us could have such an impact. We believe that the engineered systems products that we have produced will be well positioned to utilize the next generation of refrigerants without substantial modification. If the next generation of refrigerants is incompatible with the hermetic compressors used by us and all of our competitors for unitary products, design modifications would be required. GOVERNMENTAL REGULATIONS We are subject to regulations promulgated under the National Appliance Energy Conservation Act of 1987, as amended, and various state regulations concerning the energy efficiency of our products. We have developed and are developing products that will comply with these regulations, and do not believe that such regulations will have a material adverse effect on our business. 11 EXECUTIVE OFFICERS Our executive officers are as follows:
NAME AGE POSITION - ---- --- -------- Michael R. Young.......... 57 President and Chief Executive Officer Ole Andersen.............. 61 Vice President and President of York Refrigeration Group Wayne J. Kennedy.......... 59 Vice President and President of Bristol Compressors Peter C. Spellar.......... 57 Vice President and President of Engineered Systems Group Dale L. Bennett........... 63 Vice President, Human Resources Jane G. Davis............. 52 Vice President, Secretary and General Counsel C. David Myers............ 38 Vice President and Chief Financial Officer James P. Corcoran......... 56 Vice President and Treasurer David R. Heck............. 47 Controller
Mr. Young has been President and Chief Executive Officer since February 2000. Prior thereto, he was Vice President of the Company and President, Central Environmental Systems from 1999 to 2000, Vice President of the Company, and Chief Executive Officer and President of Bristol Compressors from 1996 to 1999, President, Chairman and Chief Executive Officer of Evcon Industries, Inc. from 1991 to 1995, President and Chief Operating Officer of York International Inc. from 1988 to 1989, and Chairman, President and Chief Executive Officer of Bristol Compressors from 1983 to 1987. Mr. Andersen has been Vice President of the Company and President of York Refrigeration Group since June 1999 when the Company acquired Sabroe Refrigeration A/S, Denmark. He was Chief Executive Officer of Sabroe Refrigeration A/S from 1997 to 1999. Prior to joining Sabroe, he was a Member of the Executive Board and President of the Process Technology Division of GEA AG, Germany from 1993 to 1997. Prior thereto, he was President of Niro Group, Denmark from 1977 to 1993 and President of Niro Inc., USA from 1973 to 1977. Mr. Kennedy has been Vice President of the Company and President, Bristol Compressors since March 2000. Prior thereto, he was Vice President, Human Resources from 1993 to 2000. Prior to joining the Company, he was Vice President of Human Resources for the Millipore Corporation from 1985 to 1993. Mr. Spellar has been Vice President of the Company and President, Engineered Systems Group since February 2000. Prior thereto, he was Vice President, Marketing and Strategic Accounts from 1999 to 2000, Vice President of the Company and President, Applied Systems Worldwide from 1995 to 1999, Vice President of the Company and Vice President, European Operations from 1992 to 1995, President, Frick Division from 1987 to 1992 and President of the Frick Company from 1979 to 1987. 12 Mr. Bennett has been Vice President, Human Resources since March 2000. Prior thereto, he was Vice President, Organization Development from 1999 to 2000 and Director of Organization Development from 1997 to 1999. Prior to joining the Company, he held several Human Resource leadership positions with Millipore Corporation, Pfizer Inc., and E. J. Gallo Winery. Ms. Davis has been Vice President, Secretary and General Counsel of the Company since March 1995. Prior to joining the Company, she was Vice President, General Counsel and Secretary of Joy Technologies Inc. from 1988 to 1995. Mr. Myers has been Vice President and Chief Financial Officer of the Company since February 2000. Prior thereto, he was Vice President Finance, Engineered Systems Group from 1998 to February 2000, Corporate Controller from 1995 to 1998, Director of Finance for the Airside Products Group from 1994 to 1995, and Director of Financial Planning and Controls in 1994. Prior to joining the Company, he was with KPMG LLP from 1986 to 1994. Mr. Corcoran has been Vice President and Treasurer of the Company since March 2001. Prior thereto, he was Treasurer of the Company from 1992 to 2001. Prior to joining the Company, he was Treasurer of Griffith Laboratories from 1990 to 1992, Treasurer of AM International from 1987 to 1990 and Director, Treasury Operations of Borg-Warner Corporation from 1977 to 1987. Mr. Heck has been Controller since January 2000. Prior to joining the Company, he was Director of Strategic Analysis and Corporate Controller of Superior Group, Inc. from 1995 to 1999, Corporate Controller and Accounting Manager for LFC Financial Corp. from 1983 to 1995, and Audit Manager with Deloitte, Haskins, & Sells from 1976 to 1983. 13 ITEM 2. PROPERTIES. Our principal offices are located in York, Pennsylvania on an approximately 71 acre site owned by us. The following table lists our principal manufacturing facilities:
APPROXIMATE LOCATION SEGMENT ENCLOSED AREA (SQ. FT.) - -------- ------- ----------------------- OWNED York, PA Engineered Systems Group 1,500,000 Wichita, KS Unitary Products Group 1,278,000 Bristol, VA Bristol Compressors 672,000 Norman, OK Unitary Products Group 539,000 Waynesboro, PA York Refrigeration Group 438,000 Aarhus, Denmark York Refrigeration Group 418,000 Naestved, Denmark York Refrigeration Group 292,000 Basildon, England Engineered Systems Group 254,000 Sparta, NC Bristol Compressors 180,000* Monterrey, Mexico Engineered Systems Group 132,000 Durango, Mexico Engineered Systems Group 128,000 Sao Paulo, Brazil York Refrigeration Group 123,000 San Antonio, TX Engineered Systems Group 120,000 Guangzhou, China Engineered Systems Group 115,000 Dixon, IL York Refrigeration Group 97,000 Hornslet, Denmark York Refrigeration Group 82,000 Wuxi, China Engineered Systems Group 82,000 Polo, IL York Refrigeration Group 78,000 Roanoke, VA Engineered Systems Group 72,000 Carquefou, France Engineered Systems Group 32,000 LEASED Laem Chabang, Thailand Engineered Systems Group 215,000 Monterrey, Mexico Unitary Products Group 165,000 Albany, MO Engineered Systems Group 135,000 York, PA Engineered Systems Group 120,000 Johannesburg, South Africa Engineered Systems Group 109,000 Hattiesburg, MS Engineered Systems Group 84,000 Santa Fe Springs, CA York Refrigeration Group 82,000 Curitiba, Brazil Engineered Systems Group 57,000 Nantes, France Engineered Systems Group 34,000
- --------------- * We are in the process of closing operations at Sparta. At the York, Pennsylvania location, approximately 175,000 square feet of facilities are leased to tenants and approximately 400,000 square feet are currently used as storage and are available for expansion. In addition to the properties described above, we lease facilities worldwide for use as sales and service offices and regional warehouses. We believe that our properties are in good condition and adequate for our requirements. We believe that our principal plants are generally adequate to meet our production plans pursuant to our long-term sales goals. 14 In the ordinary course of its business, we monitor the condition of our facilities to ensure that they remain adequate to meet our long-term sales goals and production plans. We make capital expenditures intended to upgrade existing facilities and equipment to increase production efficiency and, when appropriate, to adapt them to the requirements of manufacturing new product lines. ITEM 3. LEGAL PROCEEDINGS. We are a party to lawsuits arising in the ordinary course of business. We believe that no pending lawsuit will result in any material adverse effect to us. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to our security holders during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock trades on the New York Stock Exchange under the symbol "YRK". On March 22, 2002, we had 4,792 holders of record of our common stock. TRADING AND DIVIDEND INFORMATION
DIVIDENDS HIGH LOW DECLARED ------ ------ --------- 2001 Fourth quarter............................................ $39.99 $27.02 $0.15 Third quarter............................................. 40.00 27.13 0.15 Second quarter............................................ 36.79 26.65 0.15 First quarter............................................. 33.30 27.10 0.15 2000 Fourth quarter............................................ $30.88 $22.88 $0.15 Third quarter............................................. 29.44 19.00 0.15 Second quarter............................................ 29.12 21.12 0.15 First quarter............................................. 27.81 18.12 0.15
The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend upon such factors as our profitability, financial condition, cash requirements and future prospects and limitations imposed by our credit agreements. ITEM 6. SELECTED FINANCIAL DATA. Information contained under the caption "Five Year Summary of Selected Financial Data" on page 2 of the Annual Financial Statements and Review of Operations is incorporated herein by reference in response to this item. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 3 to 13 of the Annual Financial Statements and Review of Operations is incorporated herein by reference in response to this item. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations, Market Risk," on pages 10 to 11 of the Annual Financial Statements and Review of Operations is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements for York International Corporation and Subsidiaries are contained on pages 15 to 40 of the Annual Financial Statements and Review of Operations and Summary of Quarterly Results (unaudited) are contained on page 41 of the Annual Financial Statements and Review of Operations and are incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information contained under the caption "Election of Directors" in the Registrant's definitive 2002 Proxy Statement is incorporated herein by reference in response to this item. See Item 1 above for information concerning executive officers. ITEM 11. EXECUTIVE COMPENSATION. Information contained under the caption "Executive Compensation" in the Registrant's definitive 2002 Proxy Statement is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information contained under the captions "Election of Directors" and "Ownership of Common Stock" in the Registrant's definitive 2002 Proxy Statement is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information contained under the caption "Ownership of Common Stock" in the Registrant's definitive 2002 Proxy Statement is incorporated herein by reference in response to this item. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) The following financial statements of York International Corporation and subsidiaries are incorporated herein by reference to pages 15 to 40 of the Annual Financial Statements and Review of Operations: Consolidated Balance Sheets -- as of December 31, 2001 and 2000 Consolidated Statements of Operations -- years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Comprehensive Income (Loss) -- years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows -- years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders' Equity -- years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements (2) The following financial statement schedule for York International Corporation and subsidiaries is included herein: II Valuation and Qualifying Accounts -- years ended December 31, 2001, 2000 and 1999; (Page 23 of Form 10-K) All other schedules are omitted as they are not applicable. Independent Auditors' Report Covering Financial Statement Schedule; (Page 22 of Form 10-K) (3) The exhibits filed in response to Item 601 of Regulation S-K are as follows:
EXHIBIT NUMBER - ------- 3.1 Amended and Restated Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3, File No. 33-91292, filed on June 7, 1995) 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May 3, 1996 (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-10863) 3.3 By-Laws of Registrant, restated as of December 17, 1996 (Incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-10863) 4.1 Indenture dated as of March 1, 1993 between the Registrant and Morgan Guaranty Trust Company of New York, as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement filed on Form S-3, File No. 33-57178, filed on January 19, 1993)
17 4.2 Indenture effective as of June 1, 1998 between the Registrant and State Street Bank and Trust Company, a Massachusetts chartered trust company, as Trustee (Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K, File No. 1-10863, filed on May 28, 1998) 4.3 Senior Indenture dated as of August 9, 2001 between the Registrant and the Bank of New York, as Trustee (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement filed on Form S-3, File No. 333-59678, filed on April 27, 2001) 4.4 364-Day Credit Agreement, dated as of May 29, 2001, among York International Corporation as borrower, the initial lenders named therein, as initial lenders, Citibank, N.A., as administrative agent, The Chase Manhattan Bank, as syndication agent, Bank of Tokyo-Mitsubishi, First Union National Bank, and Fleet National Bank, as documentation agents, and JP Morgan Securities, Inc. and Salomon Smith Barney Inc., as joint lead arrangers and joint bookrunners. (Incorporated by reference to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended June 30, 2001, File No. 1-10863) 4.5 Five Year Credit Agreement, dated as of May 29, 2001, among York International Corporation, as borrower, the initial lenders and initial issuing bank named therein, as initial lenders and initial issuing bank, Citibank, N.A., as administrative agent, The Chase Manhattan Bank, as syndication agent, Bank of Tokyo-Mitsubishi, First Union National Bank, and Fleet National Bank, as documentation agents, and JP Morgan Securities, Inc. and Salomon Smith Barney Inc., as joint lead arrangers and joint bookrunners. (Incorporated by reference to Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 1-10863) 4.6 Receivables Purchase Agreement, dated as of December 21, 2001, among York Receivables Funding LLC, York International Corporation, as Servicer, The Members of Various Purchaser Groups From Time to Time Party Hereto and PNC Bank, National Association, as Administrator (filed herewith) 4.7 Purchase and Sale Agreement, dated as of December 21, 2001, between York International Corporation and Bristol Compressors, Inc., as originators, and York Receivables Funding LLC (filed herewith) *10.1 Registrant's Amended and Restated 1992 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-Q for the quarter ended March 31, 1997, File No. 1-10863) *10.2 Amendment No. 1 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, dated February 16, 1999 (Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-10863) *10.3 York International Corporation 1996 Incentive Compensation Plan (Amended and Restated Effective January 1, 1999) (Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
18 June 30, 1999, File No. 1-10863) *10.4 York International Corporation Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-10863) *10.5 Form of Restricted Stock Agreement by and between Registrant and certain of its employees (Incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-10863) *10.6 York International Corporation Amended and Restated Executive Deferred Compensation Plan, effective July 1, 2001 (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 1-10863) *10.7 Form of Severance Agreement entered into between the Registrant and certain of its Officers and Employees (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 1-10863) *10.8 Employment Agreement between York International Corporation and Michael R. Young, dated December 29, 1999 (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863) *10.9 Employment Agreement between York International Corporation and Ole Andersen, dated August 31, 2000 (Incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.10 Employment Agreement between York International Corporation and C. David Myers, dated March 23, 2000 (Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.11 Employment Agreement between York International Corporation and Wayne J. Kennedy, dated December 29, 1999 (Incorporated by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.12 Employment Agreement between York International Corporation and Peter C. Spellar, dated July 27, 2000 (Incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.13 Form of Employment Agreement between York International Corporation and certain other Key Executive Employees (Incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863)
19 *10.14 Amendment No. 2 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, dated February 9, 2000 (Incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863) *10.15 Amendment No. 3 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, effective July 27, 2000 (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 1-10863) 12 Statement re: Computation of Ratio of Earnings to Fixed Charges (filed herewith) 13 Annual Financial Statements and Review of Operations with Accountants' Certificate (filed herewith) 21 Subsidiaries of the Registrant (filed herewith) 23 Accountants' Consent (filed herewith)
- --------------- * Required to be Filed as management contracts, compensatory plans or arrangements required to be identified pursuant to Item 14(c) of the registrant's report on Form 10-K. (b) No reports on Form 8-K have been filed during the last quarter of fiscal 2001. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. YORK INTERNATIONAL CORPORATION /s/ MICHAEL R. YOUNG -------------------------------------- Michael R. Young President and Chief Executive Officer Date: March 22, 2002 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 this 22nd day of March 2002.
SIGNATURE TITLE --------- ----- /s/ MICHAEL R. YOUNG President and Chief Executive Officer - ----------------------------------------------------- (Principal Executive Officer) Michael R. Young /s/ C. DAVID MYERS Vice President and Chief Financial Officer - ----------------------------------------------------- (Principal Financial Officer) C. David Myers /s/ DAVID R. HECK Controller - ----------------------------------------------------- (Principal Accounting Officer) David R. Heck DIRECTORS --------- /s/ GERALD C. MCDONOUGH* - ----------------------------------------------------- Gerald C. McDonough /s/ W. MICHAEL CLEVY* - ----------------------------------------------------- W. Michael Clevy /s/ MALCOLM W. GAMBILL* - ----------------------------------------------------- Malcolm W. Gambill /s/ J. RODERICK HELLER, III* - ----------------------------------------------------- J. Roderick Heller, III /s/ ROBERT F. B. LOGAN* - ----------------------------------------------------- Robert F. B. Logan /s/ PAUL J. POWERS* - ----------------------------------------------------- Paul J. Powers /s/ DONALD M. ROBERTS* - ----------------------------------------------------- Donald M. Roberts /s/ JAMES A. URRY* - ----------------------------------------------------- James A. Urry /s/ MICHAEL R. YOUNG - ----------------------------------------------------- Michael R. Young
- --------------- * Pursuant to powers of attorney. 21 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders York International Corporation: Under date of February 15, 2002, we reported on the consolidated balance sheets of York International Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2001, as contained in the 2001 Annual Financial Statements and Review of Operations. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP KPMG LLP Harrisburg, Pennsylvania February 15, 2002 22 SCHEDULE II YORK INTERNATIONAL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 -------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN C COLUMN D COLUMN E -------- ---------- --------- ----------- ---------- ---------- BALANCE AT ADDITIONS ADDITIONS BALANCE AT BEGINNING COSTS AND OTHER CLOSE OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(a) DEDUCTIONS PERIOD ----------- ---------- --------- ----------- ---------- ---------- (THOUSANDS OF DOLLARS) 2001 Allowances for Doubtful Accounts.......... $24,551 $ 7,847 $ -- $ 6,723 $25,675 Warranties................................ $40,728 $17,219 $ -- $14,196 $43,751 2000 Allowances for Doubtful Accounts.......... $31,342 $ 9,004 $ -- $15,795 $24,551 Warranties................................ $39,607 $17,002 $ -- $15,881 $40,728 1999 Allowances for Doubtful Accounts.......... $19,911 $10,899 $8,913 $ 8,381 $31,342 Warranties................................ $36,488 $13,967 $1,475 $12,323 $39,607
- --------------- (a) Additions charged to Other Accounts includes liabilities of businesses acquired in 1999. 23 EXHIBIT INDEX
EXHIBIT PAGE NUMBER NUMBER - ------- ------ 3.1 Amended and Restated Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3, File No. 33-91292, filed on June 7, 1995) 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated May 3, 1996 (Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-10863) 3.3 By-Laws of Registrant, restated as of December 17, 1996 (Incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-10863) 4.1 Indenture dated as of March 1, 1993 between the Registrant and Morgan Guaranty Trust Company of New York, as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement filed on Form S-3, File No. 33-57178, filed on January 19, 1993) 4.2 Indenture effective as of June 1, 1998 between the Registrant and State Street Bank and Trust Company, a Massachusetts chartered trust company, as Trustee (Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K, File No. 1-10863, filed on May 28, 1998) 4.3 Senior Indenture dated as of August 9, 2001 between the Registrant and the Bank of New York, as Trustee (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement filed on Form S-3, File No. 333-59678, filed on April 27, 2001) 4.4 364-Day Credit Agreement, dated as of May 29, 2001, among York International Corporation as borrower, the initial lenders named therein, as initial lenders, Citibank, N.A., as administrative agent, The Chase Manhattan Bank, as syndication agent, Bank of Tokyo-Mitsubishi, First Union National Bank, and Fleet National Bank, as documentation agents, and JP Morgan Securities, Inc. and Salomon Smith Barney Inc., as joint lead arrangers and joint bookrunners. (Incorporated by reference to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended June 30, 2001, File No. 1-10863) 4.5 Five Year Credit Agreement, dated as of May 29, 2001, among York International Corporation, as borrower, the initial lenders and initial issuing bank named therein, as initial lenders and initial issuing bank, Citibank, N.A., as administrative agent, The Chase Manhattan Bank, as syndication agent, Bank of Tokyo-Mitsubishi, First Union National Bank, and Fleet National Bank, as documentation agents, and JP Morgan Securities, Inc. and Salomon Smith Barney Inc., as joint lead arrangers and joint bookrunners. (Incorporated by reference to Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File No. 1-10863)
24 4.6 Receivables Purchase Agreement, dated as of December 21, 2001, among York Receivables Funding LLC, York International Corporation, as Servicer, The Members of Various Purchaser Groups From Time to Time Party Hereto and PNC Bank, National Association, as Administrator (filed herewith) 4.7 Purchase and Sale Agreement, dated as of December 21, 2001, between York International Corporation and Bristol Compressors, Inc., as originators, and York Receivables Funding LLC (filed herewith) *10.1 Registrant's Amended and Restated 1992 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on Form 10-Q for the quarter ended March 31, 1997, File No. 1-10863) *10.2 Amendment No. 1 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, dated February 16, 1999 (Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-10863) *10.3 York International Corporation 1996 Incentive Compensation Plan (Amended and Restated Effective January 1, 1999) (Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 1-10863) *10.4 York International Corporation Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-10863) *10.5 Form of Restricted Stock Agreement by and between Registrant and certain of its employees (Incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-10863) *10.6 York International Corporation Amended and Restated Executive Deferred Compensation Plan, effective July 1, 2001 (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, File No. 1-10863) *10.7 Form of Severance Agreement entered into between the Registrant and certain of its Officers and Employees (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, File No. 1-10863) *10.8 Employment Agreement between York International Corporation and Michael R. Young, dated December 29, 1999 (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863) *10.9 Employment Agreement between York International Corporation and Ole Andersen, dated August 31, 2000 (Incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863)
25 *10.10 Employment Agreement between York International Corporation and C. David Myers, dated March 23, 2000 (Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.11 Employment Agreement between York International Corporation and Wayne J. Kennedy, dated December 29, 1999 (Incorporated by reference to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.12 Employment Agreement between York International Corporation and Peter C. Spellar, dated July 27, 2000 (Incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-10863) *10.13 Form of Employment Agreement between York International Corporation and certain other Key Executive Employees (Incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863) *10.14 Amendment No. 2 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, dated February 9, 2000 (Incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999, File No. 1-10863) *10.15 Amendment No. 3 to the York International Corporation Amended and Restated 1992 Omnibus Stock Plan, effective July 27, 2000 (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 1-10863) 12 Statement re: Computation of Ratio of Earnings to Fixed Charges (filed herewith) 13 Annual Financial Statements and Review of Operations with Accountants' Certificate (filed herewith) 21 Subsidiaries of the Registrant (filed herewith) 23 Accountants' Consent (filed herewith)
- --------------- * Required to be Filed as management contracts, compensatory plans or arrangements required to be identified pursuant to Item 14(c) of the registrant's report on Form 10-K. 26 EX-4.6 3 w58431ex4-6.txt RECEIVABLES PURCHASE AGREEMENT Exhibit 4.6 - -------------------------------------------------------------------------------- RECEIVABLES PURCHASE AGREEMENT dated as of December 21, 2001 among YORK RECEIVABLES FUNDING LLC, YORK INTERNATIONAL CORPORATION, as Servicer THE MEMBERS OF VARIOUS PURCHASER GROUPS FROM TIME TO TIME PARTY HERETO and PNC BANK, NATIONAL ASSOCIATION, as Administrator - -------------------------------------------------------------------------------- This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is entered into as of December 21, 2001, among YORK RECEIVABLES FUNDING LLC, a Delaware limited liability company, as seller (the "Seller"), YORK INTERNATIONAL CORPORATION, a Delaware corporation ("York"), as initial servicer (in such capacity, together with its successors and permitted assigns in such capacity, the "Servicer"), MARKET STREET FUNDING CORPORATION ("Market Street"), a Delaware corporation, as a Conduit Purchaser, PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC"), as agent for the Market Street Purchaser Group, LIBERTY STREET FUNDING CORP. ("Liberty Street"), a Delaware corporation, as a Conduit Purchaser, THE BANK OF NOVA SCOTIA ("BNS"), a Canadian chartered bank acting through its New York Agency as agent for the Liberty Street Purchaser Group, each of the other members of each Purchaser Group that become parties hereto by executing an Assumption Agreement or a Transfer Supplement and PNC as administrator for each Purchaser Group a party hereto or that become parties hereto (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 Purchasers desire to acquire such undivided variable percentage interest, as such percentage interest shall be adjusted from time to time based upon, in part, reinvestment payments that are made by such Purchasers. In consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES Section 1.1 Purchase Facility. (a) On the terms and subject to the conditions hereof, the Seller may, from time to time before the Facility Termination Date, request that the Conduit Purchasers, or, only if a Conduit Purchaser denies such request or is unable to fund (and provides notice of such denial or inability to the Seller, the Administrator and its Purchaser Agent), ratably request that the Related Committed Purchasers, make purchases of and 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. Subject to Section 1.4(b), concerning reinvestments, at no time will a Conduit Purchaser have any obligation to make a purchase. Each Related Committed Purchaser severally hereby agrees, on the terms and subject to the conditions hereof, to make Purchases before the Facility Termination Date, based on the applicable Purchaser Group's Ratable Share of each purchase requested pursuant to Section 1.2(a) (each a "Purchase") (and, in the case of each Related Committed Purchaser, its Commitment Percentage of its Purchaser Group's Ratable Share of such Purchase) to the extent its Investment would not thereby exceed its Commitment and the Aggregate Investment would not (after giving effect to all Purchases on such date) exceed the Purchase Limit. (b) The Seller may, upon at least 60 days' written notice to the Administrator and each Purchaser Agent terminate the purchase facility provided for in this Section in whole or, upon 30 days' written notice to the Administrator and each Purchaser Agent, from time to time, irrevocably reduce in part the unfunded portion of the Purchase Limit (but not below the amount which would cause the Group Investment of any Purchaser Group to exceed its Group Commitment (after giving effect to such reduction)); 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 unless terminated in whole, the Purchase Limit shall in no event be reduced below $50,000,000. Such reduction shall at the option of the Seller be applied either (i) ratably to reduce the Group Commitment of each Purchaser Group or (ii) to terminate the Group Commitment of any one Purchaser Group. Section 1.2 Making Purchases. (a) Each purchase (but not reinvestment) of undivided percentage ownership interests with regard to the Purchased Interest hereunder shall be made upon the Seller's irrevocable written notice in the form of Annex B delivered to the Administrator and each Purchaser Agent in accordance with Section 6.2 (which notice must be received by the Administrator and each Purchaser Agent before 11:00 a.m., New York City time) at least three Business Days before the requested Purchase Date, which notice shall specify: (A) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000, with respect to each Purchaser Group, being the aggregate of the Investments of each Purchaser within such Purchaser Group, relating to the undivided percentage ownership interest then being purchased), (B) the date of such purchase (which shall be a Business Day), and (C) a pro forma calculation of the Purchased Interest after giving effect to the increase in the Aggregate Investment. If the Purchase is requested from a Conduit Purchaser and such Conduit Purchaser determines, in its sole discretion, to make the requested Purchase, such Conduit Purchaser shall transfer to the account of the Seller described in Section 1.2(b), below (the "Disbursement Account"), an amount equal to such Conduit Purchaser's Purchaser Group Ratable Share of such Purchase on the requested Purchase Date. If the Purchase is requested from the Related Committed Purchasers for a Purchaser Group (in the case where the related Conduit Purchaser determined not to or was unable to make such Purchase), subject to the terms and conditions hereof, such Related Committed Purchasers for a Purchaser Group shall transfer the applicable Purchaser Group's Ratable Share of each Purchase (and, in the case of each Related Committed Purchaser, its Commitment Percentage of its Purchaser Group's Ratable Share of such Purchase) into the Disbursement Account on the Purchase Date and shall use its reasonable best efforts to make such transfer by no later than 4:00 p.m. (New York time) on such Purchase Date. (b) On the date of each Purchase, each Purchaser (or the related Purchaser Agent on its behalf), shall make available to the Seller in same day funds, at, Wilmington Trust, account number, ABA 57038-0, ABA 031100092, an amount equal to the proceeds of such Purchase. 2 (c) Effective on the date of each Purchase pursuant to this Section 1.2 and each reinvestment pursuant to Section 1.4, the Seller hereby sells and assigns to the Administrator for the benefit of the Purchasers (ratably, according to each such Purchaser's Investment) 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. (d) To secure all of the Seller's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Seller hereby grants to the Administrator, for the benefit of the Purchasers, a security interest in all of the Seller's right, title and interest (including any undivided interest of the Seller) in, to and under all of the following, whether now or hereafter owned, existing or arising: (i) all Pool Receivables, (ii) all Related Security with respect to such Pool Receivables, (iii) all Collections with respect to such Pool Receivables, (iv) the Lock-Box Accounts (and the related lock-boxes) and all amounts on deposit therein, and all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts (and such related lock-boxes) and amounts on deposit therein, (v) all books and records of each Receivable, all rights, remedies, powers and privileges of the Seller in any accounts into which Collections are or may be received and all rights (but none of the obligations) of the Seller under the Purchase and Sale Agreement and (vi) all proceeds and products of, and all amounts received or receivable under any or all of, the foregoing (collectively, the "Pool Assets"). The Administrator, for the benefit of the Purchasers, shall have, with respect to the Pool Assets, and in addition to all the other rights and remedies available to the Administrator and the Purchasers, all the rights and remedies of a secured party under any applicable UCC. (e) The Seller may, with the written consent of the Administrator and each Purchaser, add additional Persons as Purchasers (either to an existing Purchaser Group or by creating new Purchaser Groups) or cause an existing Purchaser to increase its Commitment in connection with a corresponding increase in the Purchase Limit; provided, however, that the Commitment of any Purchaser may only be increased with the consent of such Purchaser. Each new Purchaser (or Purchaser Group) and each Purchaser increasing its Commitment shall become a party hereto or increase its Commitment, as the case may be, by executing and delivering to the Administrator and the Seller an Assumption Agreement in the form of Annex C hereto (which Assumption Agreement shall, in the case of any new Purchaser or Purchasers be executed by each Person in such new Purchaser's Purchaser Group). (f) Each Related Committed Purchaser's obligation hereunder shall be several, such that the failure of any Related Committed Purchaser to make a payment in connection with any purchase hereunder shall not relieve any other Related Committed Purchaser of its obligation hereunder to make payment for any Purchase. Further, in the event any Related Committed Purchaser fails to satisfy its obligation to make a purchase as required hereunder, upon receipt of notice of such failure from the Administrator (or any relevant Purchaser Agent), subject to the limitations set forth herein, the 3 non-defaulting Related Committed Purchasers in such defaulting Related Committed Purchaser's Purchaser Group shall purchase the defaulting Related Committed Purchaser's Commitment Percentage of the related Purchase pro rata in proportion to their relative Commitment Percentages (determined without regard to the Commitment Percentage of the defaulting Related Committed Purchaser; it being understood that a defaulting Related Committed Purchaser's Commitment Percentage of any Purchase shall be first put to the Related Committed Purchasers in such defaulting Related Committed Purchaser's Purchaser Group and thereafter if there are no other Related Committed Purchasers in such Purchaser Group or if such other Related Committed Purchasers are also defaulting Related Committed Purchasers, then such defaulting Related Committed Purchaser's Commitment Percentage of such Purchase shall be put to each other Purchaser Group ratably and applied in accordance with this paragraph (f)). Notwithstanding anything in this paragraph (f) to the contrary, no Related Committed Purchaser shall be required to make a Purchase pursuant to this paragraph for an amount which would cause (i) the aggregate Investment of such Related Committed Purchaser (after giving effect to such Purchase) to exceed its Commitment or (ii) the sum of the aggregate Investments of all Purchasers in the Purchaser Group of such Related Committed Purchaser (after giving effect to such Purchase) to exceed the sum of the Commitments of all of the Purchasers in such Purchaser Group. Section 1.3 Purchased Interest Computation. The Purchased Interest shall be initially computed on the date of the initial Purchase hereunder. Thereafter, until the Facility Termination Date, such Purchased Interest shall be automatically recomputed (or deemed to be recomputed) on each Business Day other than a Termination Day. From and after the occurrence of any Termination Day, the Purchased Interest shall (until the event(s) giving rise to such Termination Day are satisfied or are waived by the Administrator and a Simple Majority of the Purchasers) be deemed to be 100%. The Purchased Interest shall become zero when the Aggregate Investment thereof and Aggregate Discount thereon shall have been paid in full, all the amounts owed by the Seller and the Servicer hereunder to each Purchaser, the Administrator and any other Indemnified Party or Affected Person are paid in full, and the Servicer shall have received the accrued Servicing Fee thereon. Section 1.4 Settlement Procedures. (a) The collection of the Pool Receivables shall be administered by the Servicer in accordance with this Agreement. The Seller shall provide to the Servicer on a timely basis all information needed for such administration, including notice of the occurrence of any Termination Day and current computations of the Purchased Interest. (b) The Servicer shall, on each day on which Collections of Pool Receivables are received (or deemed received) by the Seller or the Servicer: (i) set aside and hold in trust (and shall, at the request of the Administrator (with the consent or at the direction of the Majority Purchasers), segregate in a separate account approved by the Administrator if, at the time of such request, there exists an Unmatured Termination Event or a Termination Event or if the failure to so segregate reasonably could be expected to cause a 4 Material Adverse Effect) for the benefit of each Purchaser Group, out of the Purchasers' Share of such Collections, first, an amount equal to the Aggregate Discount accrued through such day for each Portion of Investment and not previously set aside, second, an amount equal to the fees set forth in each Purchaser Group Fee Letter accrued and unpaid through such day, and third, to the extent funds are available therefor, an amount equal to the aggregate of each Purchaser Group's Ratable Share of the Purchasers' Share of the Servicing Fee accrued through such day and not previously set aside, (ii) subject to Section 1.4(f), if such day is not a Termination Day, remit to the Seller, ratably, on behalf of each Purchaser Group, the remainder of the Purchasers' Share of such Collections. Such remainder shall, to the extent representing a return on the Aggregate Investment, ratably, according to each Purchaser's Investment, be automatically reinvested in Pool Receivables, and in the Related Security, Collections and other proceeds with respect thereto; provided, however, that if the Purchased Interest would exceed 100%, then the Servicer shall not reinvest, but shall set aside and hold in trust for the benefit of the Purchasers (and shall, at the request of the Administrator (with the consent or at the direction of the Majority Purchasers), segregate in a separate account approved by the Administrator if, at the time of such request, there exists an Unmatured Termination Event or a Termination Event or if the failure to so segregate reasonably could be expected to cause a Material Adverse Effect) a portion of such Collections that, together with the other Collections set aside pursuant to this paragraph, shall equal the amount necessary to reduce the Purchased Interest to 100%; provided, further, that in the case of any Purchaser that has provided notice (an "Exiting Notice") to its Purchaser Agent of its refusal, pursuant to Section 1.10, to extend its Commitment hereunder (an "Exiting Purchaser"), then such Purchaser's ratable share of such Collections based on its Investment shall not be reinvested and shall instead be held in trust for the benefit of such Purchaser and applied in accordance with clause (iii) below, (iii) if such day is a Termination Day (or any day following the provision of an Exiting Notice), set aside, segregate and hold in trust (and shall, at the request of the Administrator (with the consent or at the direction of a Simple Majority of the Purchasers), segregate in a separate account approved by the Administrator) for the benefit of each Purchaser Group the entire remainder of the Purchasers' Share of the Collections (or in the case of an Exiting Purchaser an amount equal to such Exiting Purchaser's ratable share of such Collections based on its Investment; provided, that solely for the purpose of determining such Exiting Purchaser's ratable share of such Collections applicable to its Investment (and not for purposes of calculating any Fees or Discount payable to such Exiting Purchaser hereunder), such Exiting Purchaser's Investment shall be deemed to remain constant from the date of the provision of an Exiting Notice until the date such Exiting Purchaser's Investment has been paid in full; it being understood that if such day is also a Termination Day, such Exiting Purchaser's Investment shall be recalculated taking into account amounts received by such Purchaser in respect 5 of this parenthetical and thereafter Collections shall be set aside for such Exiting Purchaser ratably in respect of its Investment (as recalculated)); provided, that if amounts are set aside and held in trust on any Termination Day of the type described in clause (a) of the definition of "Termination Day" (or any day following the provision of an Exiting Notice) and, thereafter, the conditions set forth in Section 2 of Exhibit II are satisfied or waived by the Administrator and a Simple Majority of the Purchasers (or in the case of an Exiting Notice, such Exiting Notice has been revoked by the related Exiting Purchaser, and written notice thereof has been provided to the Administrator, the related Purchaser Agent and the Servicer), such previously set-aside amounts shall, to the extent representing a return on Aggregate Investment (or the Investment of the Exiting Purchaser) and ratably in accordance with each Purchaser's Investment, be reinvested in accordance with clause (ii) on the day of such subsequent satisfaction or waiver of conditions or revocation of Exiting Notice, and (iv) release to the Seller (subject to Section 1.4(f)) for its own account any Collections in excess of: (x) amounts required to be reinvested in accordance with clause (ii) or the proviso to clause (iii) plus (y) the amounts that are required to be set aside pursuant to clause (i), the proviso to clause (ii) and clause (iii) plus (z) the Seller's Share of the Servicing Fee accrued and unpaid through such day and all reasonable and appropriate out-of-pocket costs and expenses of the Servicer for servicing, collecting and administering the Pool Receivables. (c) The Servicer shall, in accordance with the priorities set forth in Section 1.4(d), below, deposit into each applicable Purchaser's account (or such other account designated by such applicable Purchaser or its Purchaser Agent), on each Settlement Date (or solely with respect to Collections held for the Purchasers pursuant to clause (f)(iii) of Section 1.4 such other date approved by the Administrator with at least (5) Business Days prior written notice to the Administrator of such payment), Collections held for each Purchaser with respect to such Purchaser's Portion(s) of Investment pursuant to clause (b)(i) or (f) plus the amount of Collections then held for such Purchaser pursuant to clauses (b)(ii) and (iii) of Section 1.4; provided, York may retain the portion of the Collections set aside pursuant to clause (b)(i) that represents the aggregate of each Purchaser Group's Ratable Share of the Purchasers' Share of the Servicing Fee. On or before the last day of each Yield Period with respect to any Portion of Investment, the applicable Purchaser Agent will notify the Servicer by facsimile of the amount of the Discount accrued with respect to each such Portion of Investment during the related Yield Period then ending. (d) The Servicer shall distribute the amounts described (and at the times set forth) in Section 1.4(c), as follows: (i) if such distribution occurs on a day that is not a Termination Day and the Purchased Interest does not exceed 100%, first to each Purchaser Agent ratably according to the Discount accrued during such Yield Period (for the benefit of the relevant Purchasers within such Purchaser Agent's Purchaser Group) in payment in full of all accrued Discount and fees (other than Servicing 6 Fees) with respect to each Portion of Investment maintained by such Purchasers; it being understood that each Purchaser Agent shall distribute such amounts to the Purchasers within its Purchaser Group ratably according to Discount, and second, if the Servicer has set aside amounts in respect of the Servicing Fee pursuant to clause (b)(i) and has not retained such amounts pursuant to clause (c), to the Servicer's own account (payable in arrears on each Settlement Date) in payment in full of the aggregate of each Purchaser Group's Ratable Share of the Purchasers' Share of accrued Servicing Fees so set aside, and (ii) if such distribution occurs on a Termination Day or on a day when the Purchased Interest exceeds 100%, first to the Servicer's own account in payment in full of all accrued Servicing Fees, second to each Purchaser Agent ratably according to Discount (for the benefit of the relevant Purchasers within such Purchaser Agent's Purchaser Group) in payment in full of all accrued Discount with respect to each Portion of Investment funded or maintained by the Purchasers within such Purchaser Agent's Purchaser Group, third to each Purchaser Agent ratably according to the Group Investment of such Purchaser Agent's Purchaser Group (for the benefit of the relevant Purchasers within such Purchaser Agent's Purchaser Group) in payment in full of each Purchaser's Investment (or, if such day is not a Termination Day, the amount necessary to reduce the Purchased Interest to 100%); it being understood that each Purchaser Agent shall distribute the amounts described in the first and second clauses of this Section 1.4(d)(ii) to the Purchasers within its Purchaser Group ratably according to Discount and Investment, respectively and fourth, if the Aggregate Investment and accrued Aggregate Discount with respect to each Portion of Investment for all Purchaser Groups have been reduced to zero, and all accrued Servicing Fees payable to the Servicer have been paid in full, to each Purchaser Group ratably (for the benefit of the Purchasers within such Purchaser Group) in accordance with its Ratable Share, the Administrator and any other Indemnified Party or Affected Person in payment in full of any other amounts owed thereto by the Seller or Servicer hereunder. After the Aggregate Investment, Aggregate Discount, fees payable pursuant to each Purchaser Group Fee Letter and Servicing Fees with respect to the Purchased Interest, and any other amounts payable by the Seller and the Servicer to each Purchaser Group, the Administrator or any other Indemnified Party or Affected Person hereunder, have been paid in full, all additional Collections with respect to the Purchased Interest shall be paid to the Seller for its own account. (e) For the purposes of this Section 1.4: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed goods or services, or any revision, cancellation, allowance, discount or other adjustment made by the Seller or any Affiliate of the Seller, or the Servicer or any Affiliate of the Servicer, or any setoff or dispute between the Seller or any Affiliate of the Seller, or the Servicer or any Affiliate of the Servicer and an 7 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; (ii) if on any day any of the representations or warranties in Section 1(g) or (n) of Exhibit III is not true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in clause (i) or (ii), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; and (iv) if and to the extent the Administrator, any Purchaser Agent or any Purchaser 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 such Person but rather to have been retained by the Seller and, accordingly, such Person shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (f) If at any time the Seller shall wish to cause the reduction of Aggregate Investment (but not to commence the liquidation, or reduction to zero, of the entire Aggregate Investment), the Seller may do so as follows: (i) the Seller shall give the Administrator, each Purchaser Agent and the Servicer written notice in the Form of Annex E (A) at least two Business Days' prior written notice thereof for any reduction of Aggregate Investment less than or equal to $10,000,000 and (B) at least ten Business Days' prior written notice thereof for any reduction of Aggregate Investment greater than $10,000,000 (in each case such notice shall include the amount of such proposed reduction and the proposed date on which such reduction will commence); (ii) on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall cause Collections not to be reinvested until the amount thereof not so reinvested shall equal the desired amount of reduction; and (iii) the Servicer shall hold such Collections in trust for the benefit of each Purchaser ratably according to its Investment, for payment to each such Purchaser (or its related Purchaser Agent for the benefit of such Purchaser) on the (i) next Settlement Date with respect to any Portions of Investment maintained by such Purchaser immediately following the related current Yield Period or (ii) such other date approved by the Administrator with at least five Business Days prior 8 written notice to the Administrator of such payment, and the Aggregate Investment (together with the Investment of any related Purchaser) shall be deemed reduced in the amount to be paid to such Purchaser (or its related Purchaser Agent for the benefit of such Purchaser) only when in fact finally so paid; provided, that: (A) the amount of any such reduction shall be not less than $1,000,000 for each Purchaser Group and shall be an integral multiple of $100,000, and the entire Aggregate Investment after giving effect to such reduction shall be not less than $50,000,000 and shall be in an integral multiple of $100,000 (unless the Aggregate Investment shall have been reduced to zero); and (B) with respect to any Portion of Investment, 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. Section 1.5 Fees. The Seller shall pay to each Purchaser Agent for the benefit of the related Purchasers certain fees in the amounts and on the dates set forth in letters, dated the date hereof, each such letter (as amended, supplemented, or otherwise modified from time to time, a "Purchaser Group Fee Letter") in each case among the Seller, the Servicer, the Purchasers and the related Purchaser Agent. Section 1.6 Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Servicer hereunder shall be made without reduction for offset or counterclaim and shall be paid or deposited no later than 2:00 p.m. (New York City time) on the day when due in same day funds to the applicable Purchaser's account (as such account is identified in the related Purchaser Group Fee Letter). All amounts received after 2:00 p.m. (New York City time) will be deemed to have been received on the next Business Day. (b) The Seller or the Servicer, as the case may be, shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller or the Servicer, as the case may be, when due hereunder, at an interest rate equal to the Base Rate, payable on demand. (c) All computations of interest under clause (b) and all computations of Discount, fees and other amounts hereunder shall be made on the basis of a year of 360 (or 365 or 366, as applicable, with respect to Discount or other amounts calculated by reference to the Base Rate) days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next Business Day and such extension of time shall be included in the computation of such payment or deposit. 9 Section 1.7 Increased Costs. (a) If any Purchaser Agent, Purchaser, Liquidity Provider, the Administrator or 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 or other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Administrator), the Seller shall promptly pay to the Administrator, for the account of such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either: (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Affected Person of agreeing to purchase or purchasing, or maintaining the ownership of, the Purchased Interest or any portion thereof in respect of which Discount is computed by reference to the Euro-Rate, then, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person for such increased costs. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (c) If such increased costs affect the related Affected Person's portfolio of financing transactions, such Affected Person shall use reasonable averaging and attribution methods to allocate such increased costs to the transactions contemplated by this Agreement. (d) Each Affected Person will notify Seller and the applicable Purchaser Agent promptly after it has received official notice of any event which will entitle such Affected Person to such additional amounts as compensation pursuant to this Section 1.7. Such additional amounts shall accrue from the date as to which such Affected Person becomes subject to such additional costs as a result of such event (or if such notice of such event is not given to Seller by such Affected Person within 90 days after such 10 Affected Person received such official notice of such event, from the date which is 90 days prior to the date such notice is given to Seller by such Affected Person). Section 1.8 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 any portion thereof or in the amount of such Person's Investment 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 Euro-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 as a Purchaser Agent, 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 Investment, or (B) to reduce any amount receivable hereunder (whether directly or indirectly), then, in any such case, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person additional amounts necessary to compensate such Affected Person for such additional cost or reduced amount receivable. All such amounts shall be payable as incurred. A certificate from such Affected Person to the Seller and the Administrator certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs or reduced amount receivable shall be conclusive and binding for all purposes, absent manifest error; provided, however, that no Affected Person shall be required to disclose any confidential or tax planning information in any such certificate. Each Affected Person will notify Seller and the applicable Purchaser Agent promptly after it has received official notice of any event which will entitle such Affected Person 11 to such additional amounts as compensation pursuant to this Section 1.8. Such additional amounts shall accrue from the date as to which such Affected Person becomes subject to such additional costs as a result of such event (or if such notice of such event is not given to Seller by such Affected Person within 90 days after such Affected Person received such official notice of such event, from the date which is 90 days prior to the date such notice is given to Seller by such Affected Person). Section 1.9 Inability to Determine Euro-Rate. (a) If the Administrator (or any Purchaser Agent) determines before the first day of any Yield Period (which determination shall be final and conclusive) that, by reason of circumstances affecting the interbank eurodollar market generally, deposits in dollars (in the relevant amounts for such Yield Period) are not being offered to banks in the interbank eurodollar market for such Yield Period, or adequate means do not exist for ascertaining the Euro-Rate for such Yield Period, then the Administrator shall give notice thereof to the Seller. Thereafter, until the Administrator or such Purchaser Agent notifies the Seller that the circumstances giving rise to such suspension no longer exist, (A) no Portion of Investment shall be funded at the Yield Rate determined by reference to the Euro-Rate and (B) the Discount for any outstanding Portions of Investment then funded at the Yield Rate determined by reference to the Euro-Rate shall, on the last day of the then current Yield Period, be converted to the Yield Rate determined by reference to the Base Rate. (b) If, on or before the first day of any Yield Period, the Administrator shall have been notified by any Purchaser, Purchaser Agent or Liquidity Provider that, such Person has determined (which determination shall be final and conclusive) that, any enactment, promulgation or adoption of or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Person with any guideline, request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for such Person to fund or maintain any Portion of Investment at the Yield Rate and based upon the Euro-Rate, the Administrator shall notify the Seller thereof. Upon receipt of such notice, until the Administrator notifies the Seller that the circumstances giving rise to such determination no longer apply, (A) no Portion of Investment funded by the affected Person shall be funded at the Yield Rate determined by reference to the Euro-Rate and (B) the Discount for any outstanding Portions of Investment then funded at the Yield Rate determined by reference to the Euro-Rate shall be converted to the Yield Rate determined by reference to the Base Rate either (i) on the last day of the then current Yield Period if such Person may lawfully continue to maintain such Portion of Investment at the Yield Rate determined by reference to the Euro-Rate to such day, or (ii) immediately, if such Person may not lawfully continue to maintain such Portion of Investment at the Yield Rate determined by reference to the Euro-Rate to such day. Section 1.10 Extension of Termination Date. The Seller may advise the Administrator and each Purchaser Agent in writing of its desire to extend the Facility Termination Date for an additional 364 days, provided such request is made not more than 90 days prior to, and not less than 60 days prior to, the then current Facility Termination Date. In the event that the Purchaser Agents are all agreeable to such extension, the Administrator shall so notify the Seller in writing 12 (it being understood that the Purchaser Agents may accept or decline such a request in their sole discretion and on such terms as they may elect) not less than 30 days prior to the then current Facility Termination Date and the Seller, the Administrator, the Purchaser Agents and the Purchasers shall enter into such documents as the Purchasers may deem necessary or appropriate to reflect such extension, and all reasonable costs and expenses incurred by the Purchasers, the Administrator and the Purchaser Agents in connection therewith (including reasonable Attorneys' Costs) shall be paid by the Seller. In the event the Purchaser Agents decline the request for such extension, the Administrator shall so notify the Seller of such determination; provided, however, that the failure of the Administrator to notify the Seller of the determination to decline such extension shall not affect the understanding and agreement that the Purchaser Agents shall be deemed to have refused to grant the requested extension in the event the Administrator fails to affirmatively notify the Seller, in writing, of their agreement to accept the requested extension. ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1 Representations and Warranties; Covenants. Each of the Seller and the Servicer hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, applicable to it set forth in Exhibits III, IV and VI, respectively. Section 2.2 Termination Events. If any of the Termination Events set forth in Exhibit V shall occur, the Administrator may (with the consent of a Simple Majority of the Purchasers) or shall (at the direction of a Simple Majority of the Purchasers), 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 Administrator, each Purchaser Agent and each Purchaser 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. ARTICLE III INDEMNIFICATION Section 3.1 Indemnities by the Seller. Without limiting any other rights that any Purchaser Agent, Purchaser, Liquidity Provider, the Administrator or 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 13 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 with respect to any Receivable to the extent that such Receivable is uncollectible on account of the insolvency, bankruptcy or lack of credit worthiness of the related Obligor, or (c) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, and subject to the exclusions set forth in the preceding sentence, the Seller shall pay on demand (which demand shall be accompanied by documentation of the Indemnified Amounts, in reasonable detail) to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable, the failure of any information contained in an Information Package to be true and correct as of the date such information was provided (except to extent that such in formation relates expressly to an earlier date, and in which case such information shall be true and correct as of such earlier date), or the failure of any other information provided to such Indemnified Party by the Seller or Servicer with respect to Receivables or this Agreement to be true and correct as of the date such information was provided (except to extent that such in formation relates expressly to an earlier date, and in which case such information shall be true and correct as of such earlier date), (ii) the failure of any representation, warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct as of the date made or deemed made in all respects when made, (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation, (iv) the failure to vest in the Administrator (for the benefit of the Purchasers) 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, (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the other Pool Assets, whether at the time of any purchase or reinvestment or at any subsequent time, 14 (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Receivable, (vii) any failure of the Seller, any Affiliate of the Seller or the Servicer to perform its duties or obligations in accordance with the provisions hereof or under the Contracts, (viii) any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services that are the subject of any Contract, (ix) the commingling of Collections at any time with other funds, (x) the use of proceeds of purchases or reinvestments, or (xi) any reduction in the Aggregate Investment as a result of the distribution of Collections pursuant to Section 1.4(d), if all or a portion of such distributions shall thereafter be rescinded or otherwise must be returned for any reason. Section 3.2 Indemnities by the Servicer. Without limiting any other rights that any Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts arising out of or resulting from (whether directly or indirectly): (a) the failure of any information contained in an Information Package to be true and correct as of the date such information was provided (except to extent that such in formation relates expressly to an earlier date, and in which case such information shall be true and correct as of such earlier date), or the failure of any other information provided to such Indemnified Party by, or on behalf of, the Servicer to be true and correct as of the date such information was provided (except to extent that such in formation relates expressly to an earlier date, and in which case such information shall be true and correct as of such earlier date), (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 or any other Transaction Document to which it is a party to have been true and correct as of the date made or deemed made in all respects when made, (c) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, (d) any dispute, claim, offset or defense of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool resulting from or related to the collection activities with respect to such Receivable, (e) any failure of the Servicer to perform its duties or obligations in accordance with the provisions hereof or any other Transaction Document to which it is a party, (f) the failure of the Servicer to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any 15 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, or (g) any commingling by the Servicer of Collections at any time with other funds. ARTICLE IV ADMINISTRATION AND COLLECTIONS Section 4.1 Appointment of the Servicer. (a) The servicing, administering and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as the Servicer in accordance with this Section. Until the Administrator gives notice to York (in accordance with this Section 4.1) of the designation of a new Servicer, York 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 (with the consent of the Majority Purchasers) or shall (at the direction of the Majority Purchasers) designate as Servicer any Person (including itself) to succeed York or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. (b) Upon the designation of a successor Servicer as set forth in clause (a), York agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrator reasonably determines will facilitate the transition of the performance of such activities to the new Servicer, and York shall cooperate with and assist such new Servicer. Such cooperation shall include access to and transfer of related records (including all Contracts) and, subject to restrictions in applicable contracts and agreements use by the new Servicer of all licenses, hardware or software necessary or desirable to collect the Pool Receivables and the Related Security. (c) York acknowledges that, in making their decision to execute and deliver this Agreement, the Administrator and each Purchaser Group have relied on York's agreement to act as Servicer hereunder. Accordingly, York agrees that it will not voluntarily resign as Servicer. (d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each a "Sub-Servicer"); provided, that, in each such delegation: (i) such Sub-Servicer shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain primarily liable for the performance of the duties and obligations so delegated, (iii) the Seller, the Administrator and each Purchaser Group 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 16 or an Affiliate thereof, the Administrator and the Majority Purchasers shall have consented in writing in advance to such delegation. Section 4.2 Duties of the Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to administer and collect each Pool Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policies. The Servicer shall set aside, for the account of each Purchaser Group, the amount of the Collections to which each such Purchaser Group is entitled in accordance with Article I. The Servicer may, in accordance with the applicable Credit and Collection Policy, take such action as the Servicer may determine to be appropriate to maximize Collections thereof or reflect adjustments required under the applicable Contract; provided, however, that: (i) such action shall not change the number of days such Pool Receivable has remained unpaid from the date of the original due date related to such Pool Receivable, (ii) such action shall not alter the status of such Pool Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the rights of the Administrator or any Purchaser Group under this Agreement and (iii) if a Termination Event has occurred and York or an Affiliate thereof is serving as the Servicer, York or such Affiliate may take such action only upon the prior approval of the Administrator (with the consent of the Majority Purchasers). 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 each Purchaser Group), 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 York or any other Person) to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security; provided, however, that no such direction may be given unless either: (A) a Termination Event has occurred or (B) the Administrator believes in good faith that failure to commence, settle or effect such legal action, foreclosure or repossession could adversely affect Receivables constituting a material portion of the Pool Receivables. (b) The Servicer shall, as soon as practicable following actual receipt of collected funds, turn over to the Seller the collections of any indebtedness that is not a Pool Receivable, less, if York 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 York or an Affiliate thereof, shall, as soon as practicable upon demand, deliver to the Seller all records in its possession that evidence or relate to any indebtedness that is not a Pool Receivable, and copies of records in its possession that evidence or relate to any indebtedness that is a Pool Receivable. (c) The Servicer's obligations hereunder shall terminate on the later of: (i) the Facility Termination Date and (ii) the date on which all amounts required to be paid to 17 the Purchaser Agents, each Purchaser, the Administrator and any other Indemnified Party or Affected Person hereunder shall have been paid in full. After such termination, if York or an Affiliate thereof was not the Servicer on the date of such termination, the Servicer shall promptly deliver to the Seller all books, records and related materials that the Seller previously provided to the Servicer, or that have been obtained by the Servicer, in connection with this Agreement. Section 4.3 Lock-Box Account Arrangements. Upon the occurrence of a Termination Event, the Administrator may (with the consent of a Simple Majority of the Purchasers) or shall (upon the direction of a Simple Majority of the Purchasers) at any time thereafter give notice to each Lock-Box Bank that the Administrator is exercising its rights under the Lock-Box Agreements to do any or all of the following: (a) to have the exclusive ownership and control of the Lock-Box Accounts (and the related lock-boxes) transferred to the Administrator (for the benefit of the Purchasers) and to exercise exclusive dominion and control over the funds deposited therein, (b) to have the proceeds that are sent to the respective Lock-Box Accounts (and the respective related lock-boxes) redirected pursuant to the Administrator's instructions rather than deposited in the applicable Lock-Box Account (or sent to the applicable related lock-box), and (c) to take any or all other actions permitted under the applicable Lock-Box 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 (for the benefit of the Purchasers) of the proceeds (including Collections) of all Pool Receivables and the Seller hereby further agrees to take any other action that the Administrator or any Purchaser Agent 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 (and any such related lock-box), the Administrator shall not have any rights to the funds therein in excess of the unpaid amounts due to the Administrator, the Purchaser Groups, any Indemnified Party or any other Person hereunder, and the Administrator shall distribute or cause to be distributed such funds in accordance with Section 4.2(b) and Article I (in each case as if such funds were held by the Servicer thereunder). Section 4.4 Enforcement Rights. (a) At any time following the occurrence of a Termination Event: (i) the Administrator may (with the consent or at the direction of the Majority Purchasers) direct the Obligors that payment of all amounts payable under any Pool Receivable is to be made directly to the Administrator or its designee, (ii) the Administrator may (with the consent or at the direction of the Majority Purchasers) instruct the Seller or the Servicer to give notice of the Purchaser Groups' interest in Pool Receivables to each Obligor, which notice shall direct that payments be made directly to the Administrator or its designee (on behalf of such Purchaser Groups), and the Seller or the Servicer, as the case may be, shall give such notice at the expense of the Seller or the Servicer, as the 18 case may be; provided, that if the Seller or the Servicer, as the case may be, fails to so notify each Obligor, the Administrator (at the Seller's or the Servicer's, as the case may be, expense) may so notify the Obligors, and (iii) the Administrator may (with the consent or at the direction of the Majority Purchasers) 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 (for the benefit of the Purchasers) at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrator and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. (b) The Seller hereby authorizes the Administrator (on behalf of each Purchaser Group), 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. (c) The parties hereto hereby acknowledge that if at any time the Administrator takes steps in the name of Seller and on behalf of the Seller pursuant to the powers granted in Section 4.4(b) to collect any and all amounts or portions thereof due under any Pool Assets, the Administrator shall not have any rights to collect amounts or portions thereof in excess of the unpaid amounts due to the Administrator, the Purchaser Groups, any Indemnified Party or any other Persons hereunder, and the Administrator shall distribute or cause to be distributed such amounts in accordance with Section 4.2(b) and Article I (in each case as if such amounts were hold by the Servicer thereunder). Section 4.5 Responsibilities of the Seller. (a) Anything herein to the contrary notwithstanding, the Seller shall: (i) perform all of its obligations, if any, under the Contracts related to the Pool Receivables to the same extent as if interests in such Pool Receivables had not been transferred hereunder, and the exercise by the Administrator, the Purchaser Agents or the Purchasers of their respective rights hereunder shall not relieve the Seller from such obligations, and 19 (ii) pay when due any taxes, including any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. The Administrator, the Purchaser Agents or any of the Purchasers shall not have any obligation or liability with respect to any Pool Asset, nor shall any of them be obligated to perform any of the obligations of the Seller, Servicer, York or the Originators thereunder. (b) York 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, York shall conduct the data-processing functions of the administration of the Receivables and the Collections thereon in substantially the same way that York conducted such data-processing functions while it acted as the Servicer and shall be entitled to recover from the Servicing Fee its reasonable costs and expenses incurred while acting as such data-processing agent of the Servicer. Section 4.6 Servicing Fee. (a) Subject to clause (b), the Servicer shall be paid a fee (the "Servicing Fee") equal to 1.00% per annum of the daily average aggregate Outstanding Balance of the Pool Receivables. The Aggregate of each Purchaser Group's Ratable 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 York or an Affiliate thereof, the servicing fee shall be the greater of: (i) the amount calculated pursuant to clause (a), and (ii) an alternative amount specified by the successor Servicer not to exceed 110% of the aggregate reasonable costs and expenses incurred by such successor Servicer in connection with the performance of its obligations as Servicer. ARTICLE V THE AGENTS Section 5.1 Appointment and Authorization. (a) Each Purchaser and Purchaser Agent hereby irrevocably designates and appoints PNC as the "Administrator" hereunder and authorizes the Administrator to take such actions and to exercise such powers as are delegated to the Administrator hereby and to exercise such other powers as are reasonably incidental thereto. The Administrator shall hold, in its name, for the benefit of each Purchaser, ratably, the Purchased Interest. The Administrator shall not have any duties other than those expressly set forth herein or any fiduciary relationship with any Purchaser or Purchaser Agent, and no implied obligations or liabilities shall be read into this Agreement, or otherwise exist, against the Administrator. The Administrator does not assume, nor shall it be deemed to have assumed, any obligation to, or relationship of trust or agency with, the Seller or Servicer. Notwithstanding any provision of this Agreement or any other Transaction Document to the contrary, in no event shall the Administrator ever be required to take any action which exposes the Administrator to personal liability or which is contrary to the provision of any Transaction Document or applicable law. (b) Each Purchaser hereby irrevocably designates and appoints the respective institution identified as the Purchaser Agent for such Purchaser's Purchaser Group on the 20 signature pages hereto or in the Assumption Agreement or Transfer Supplement pursuant to which such Purchaser becomes a party hereto, and each authorizes such Purchaser Agent to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to such Purchaser Agent by the terms of this Agreement, if any, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Purchaser Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Purchaser or other Purchaser Agent or the Administrator, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Purchaser Agent shall be read into this Agreement or otherwise exist against such Purchaser Agent. (c) Except as otherwise specifically provided in this Agreement, the provisions of this Article V are solely for the benefit of the Purchaser Agents, the Administrator and the Purchasers, and none of the Seller or Servicer shall have any rights as a third-party beneficiary or otherwise under any of the provisions of this Article V, except that this Article V shall not affect any obligations which any Purchaser Agent, the Administrator or any Purchaser may have to the Seller or the Servicer under the other provisions of this Agreement. Furthermore, no Purchaser shall have any rights as a third-party beneficiary or otherwise under any of the provisions hereof in respect of a Purchaser Agent which is not the Purchaser Agent for such Purchaser. (d) In performing its functions and duties hereunder, the Administrator shall act solely as the agent of the Purchasers and the Purchaser Agents and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller or Servicer or any of their successors and assigns. In performing its functions and duties hereunder, each Purchaser Agent shall act solely as the agent of its respective Purchaser and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Seller, the Servicer, any other Purchaser, any other Purchaser Agent or the Administrator, or any of their respective successors and assigns. Section 5.2 Delegation of Duties. The Administrator may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrator shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 5.3 Exculpatory Provisions. None of the Purchaser Agents, the Administrator or any of their directors, officers, agents or employees shall be liable for any action taken or omitted (i) with the consent or at the direction of the Majority Purchasers (or in the case of any Purchaser Agent, the Purchasers within its Purchaser Group that have a majority of the aggregate Commitment of such Purchaser Group) or (ii) in the absence of such Person's gross negligence or willful misconduct. The Administrator shall not be responsible to any Purchaser, Purchaser Agent or other Person for (i) any recitals, representations, warranties or other statements made by the Seller, Servicer, or any of their Affiliates, (ii) the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Transaction Document, (iii) any failure of the Seller, any Originator or any of their Affiliates to perform any obligation or (iv) the satisfaction of any 21 condition specified in Exhibit II. The Administrator shall not have any obligation to any Purchaser or Purchaser Agent to ascertain or inquire about the observance or performance of any agreement contained in any Transaction Document or to inspect the properties, books or records of the Seller, Servicer, Originator or any of their Affiliates. Section 5.4 Reliance by Agents. Each Purchaser Agent and the Administrator shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or other writing or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person and upon advice and statements of legal counsel (including counsel to the Seller), independent accountants and other experts selected by the Administrator. Each Purchaser Agent and the Administrator shall in all cases be fully justified in failing or refusing to take any action under any Transaction Document unless it shall first receive such advice or concurrence of the Majority Purchasers (or in the case of any Purchaser Agent, the Purchasers within its Purchaser Group that have a majority of the aggregate Commitment of such Purchaser Group), and assurance of its indemnification, as it deems appropriate. (a) The Administrator shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Purchasers or the Purchaser Agents, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Purchasers, the Administrator and Purchaser Agents. (b) The Purchasers within each Purchaser Group with a majority of the Commitment of such Purchaser Group shall be entitled to request or direct the related Purchaser Agent to take action, or refrain from taking action, under this Agreement on behalf of such Purchasers. Such Purchaser Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of such majority Purchasers, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of such Purchaser Agent's Purchasers. (c) Unless otherwise advised in writing by a Purchaser Agent or by any Purchaser on whose behalf such Purchaser Agent is purportedly acting, each party to this Agreement may assume that (i) such Purchaser Agent is acting for the benefit of each of the Purchasers in respect of which such Purchaser Agent is identified as being the "Purchaser Agent" in the definition of "Purchaser Agent" hereto, as well as for the benefit of each assignee or other transferee from any such Person, and (ii) each action taken by such Purchaser Agent has been duly authorized and approved by all necessary action on the part of the Purchasers on whose behalf it is purportedly acting. Each Purchaser Agent and its Purchaser(s) shall agree amongst themselves as to the circumstances and procedures for removal, resignation and replacement of such Purchaser Agent. Section 5.5 Notice of Termination Events. Neither any Purchaser Agent nor the Administrator shall be deemed to have knowledge or notice of the occurrence of any Termination Event or Unmatured Termination Event unless such Administrator has received notice from any Purchaser, Purchaser Agent, the Servicer or the Seller stating that a Termination Event or Unmatured Termination Event has occurred hereunder and describing such Termination 22 Event or Unmatured Termination Event. In the event that the Administrator receives such a notice, it shall promptly give notice thereof to each Purchaser Agent whereupon each such Purchaser Agent shall promptly give notice thereof to its Purchasers. In the event that a Purchaser Agent receives such a notice (other than from the Administrator), it shall promptly give notice thereof to the Administrator. The Administrator shall take such action concerning a Termination Event or Unmatured Termination Event as may be directed by the Majority Purchasers (unless such action otherwise requires the consent of all Purchasers), but until the Administrator receives such directions, the Administrator may (but shall not be obligated to) take such action, or refrain from taking such action, as the Administrator deems advisable and in the best interests of the Purchasers and Purchaser Agents. Section 5.6 Non-Reliance on Administrator, Purchaser Agents and Other Purchasers. Each Purchaser expressly acknowledges that none of the Administrator, the Purchaser Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrator, or any Purchaser Agent hereafter taken, including any review of the affairs of the Seller, York, Servicer or any Originator, shall be deemed to constitute any representation or warranty by the Administrator or such Purchaser Agent, as applicable. Each Purchaser represents and warrants to the Administrator and the Purchaser Agents that, independently and without reliance upon the Administrator, Purchaser Agents or any other Purchaser and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Seller, York, Servicer or the Originators, and the Receivables and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document. Except for items specifically required to be delivered hereunder, the Administrator shall not have any duty or responsibility to provide any Purchaser Agent with any information concerning the Seller, York, Servicer or the Originators or any of their Affiliates that comes into the possession of the Administrator or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 5.7 Administrators and Affiliates. Each of the Purchasers and the Administrator and their Affiliates may extend credit to, accept deposits from and generally engage in any kind of banking, trust, debt, equity or other business with the Seller, York, Servicer or any Originator or any of their Affiliates and PNC may exercise or refrain from exercising its rights and powers as if it were not the Administrator. With respect to the acquisition of the Eligible Receivables pursuant to this Agreement, each of the Purchaser Agents and the Administrator shall have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not such an agent, and the terms "Purchaser" and "Purchasers" shall include each of the Purchaser Agents and the Administrator in their individual capacities. Section 5.8 Indemnification. Each Purchaser Group shall indemnify and hold harmless the Administrator (but solely in its capacity as Administrator) and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Seller, York or Servicer and without limiting the obligation of the Seller, York or Servicer to do so), ratably in accordance with its Ratable Share from and against any and all liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses and disbursements of any kind 23 whatsoever (including in connection with any investigative or threatened proceeding, whether or not the Administrator or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Administrator or such Person as a result of, or related to, any of the transactions contemplated by the Transaction Documents or the execution, delivery or performance of the Transaction Documents or any other document furnished in connection therewith (but excluding any such liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrator or such Person as finally determined by a court of competent jurisdiction); provided, that in the case of each Purchaser that is a commercial paper conduit, such indemnity shall be provided solely to the extent of amounts received by such Purchaser under this Agreement which exceed the amounts required to repay such Purchaser's outstanding Notes. Notwithstanding anything in this Section 5.8 to the contrary, each of the Administrator, each Purchaser Agent and each Purchaser hereby covenants and agrees that it shall not institute against, or join any other Person in instituting against, any Conduit Purchaser any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law, for one year and a day after the latest maturing Note issued by such Conduit Purchaser is paid in full. Section 5.9 Successor Administrator. The Administrator may, upon at least five (5) days notice to the Seller and each Purchaser and Purchaser Agent, resign as Administrator. Such resignation shall not become effective until a successor agent is appointed by the Majority Purchasers and has accepted such appointment. Upon such acceptance of its appointment as Administrator hereunder by a successor Administrator, such successor Administrator shall succeed to and become vested with all the rights and duties of the retiring Administrator, and the retiring Administrator shall be discharged from its duties and obligations under the Transaction Documents. After any retiring Administrator's resignation hereunder, the provisions of Sections 3.1 and 3.2 and this Article V shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrator. ARTICLE VI MISCELLANEOUS Section 6.1 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Transaction Document, or consent to any departure by the Seller or the Servicer therefrom, shall be effective unless in a writing signed by the Administrator and each of the Majority Purchasers, 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, if required by any Conduit Purchaser, no such material amendment shall be effective until both Moody's and Standard & Poor's have notified the related Purchaser Agent in writing that such action will not result in a reduction or withdrawal of the rating of any Notes; provided, further that no such amendment or waiver shall, without the consent of each affected Purchaser, (A) extend the date of any payment or deposit of Collections by the Seller or the Servicer, (B) reduce the rate or extend the time of payment of Discount, (C) reduce any fees payable to the Administrator, any Purchaser Agent or any Purchaser pursuant to the applicable Purchaser Group Fee Letter, (D) change the amount of Investment of any Purchaser, any Purchaser's pro rata share of the Purchased Interest or any Related Committed Purchaser's Commitment, (E) amend, modify or waive any provision of 24 the definition of "Majority Purchaser" or this Section 6.1, (F) consent to or permit the assignment or transfer by the Seller of any of its rights and obligations under this Agreement, (G) change the definition of "Concentration Percentage," "Concentration Reserve," "Concentration Reserve Percentage," "Eligible Receivable," "Ineligible Elimination Amounts," "Loss Reserve," "Loss Reserve Percentage," "Dilution Reserve," "Dilution Reserve Percentage," "Specifically Reserved Dilution Amount," "Termination Event," "Total Reserve," "Yield Reserve," or "Yield Reserve Percentage", (H) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses, or (I) otherwise materially and adversely affect the rights of any such Purchaser hereunder. No failure on the part of the Purchasers or the Administrator to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 6.2 Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be sent or delivered to each party hereto at its address set forth under its name on the signature pages hereof (or in any Assumption Agreement pursuant to which it became a party hereto) or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. Section 6.3 Successors and Assigns; Participations; Assignments. (a) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as otherwise provided herein, the Seller may not assign or transfer any of its rights or delegate any of its duties hereunder or under any Transaction Document without the prior consent of the Administrator, the Purchaser Agents and the Purchasers. (b) Participations. Any Purchaser may sell to one or more Persons (each a "Participant") participating interests in the interests of such Purchaser hereunder; provided, however, that no Purchaser shall grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement or any other Transaction Document. Such Purchaser shall remain solely responsible for performing its obligations hereunder, and the Seller, each Purchaser Agent and the Administrator shall continue to deal solely and directly with such Purchaser in connection with such Purchaser's rights and obligations hereunder. A Purchaser shall not agree with a Participant to restrict such Purchaser's right to agree to any amendment hereto, except amendments that require the consent of all Purchasers. (c) Assignments by Certain Related Committed Purchasers. Any Related Committed Purchaser may assign to one or more Persons (each a "Purchasing Related Committed Purchaser"), reasonably acceptable to the related Purchaser Agent in its sole discretion, any portion of its Commitment pursuant to a supplement hereto, substantially in the form of Annex D with any changes as have been approved by the parties thereto (a 25 "Transfer Supplement"), executed by each such Purchasing Related Committed Purchaser, such selling Related Committed Purchaser, such related Purchaser Agent. Any such assignment by Related Committed Purchaser cannot be for an amount less than $10,000,000. Upon (i) the execution of the Transfer Supplement, (ii) delivery of an executed copy thereof to the Seller, such related Purchaser Agent and the Administrator and (iii) payment by the Purchasing Related Committed Purchaser to the selling Related Committed Purchaser of the agreed purchase price, such selling Related Committed Purchaser shall be released from its obligations hereunder to the extent of such assignment and such Purchasing Related Committed Purchaser shall for all purposes be a Related Committed Purchaser party hereto and shall have all the rights and obligations of a Related Committed Purchaser hereunder to the same extent as if it were an original party hereto. The amount of the Commitment of the selling Related Committed Purchaser allocable to such Purchasing Related Committed Purchaser shall be equal to the amount of the Commitment of the selling Related Committed Purchaser transferred regardless of the purchase price paid therefor. The Transfer Supplement shall be an amendment hereof only to the extent necessary to reflect the addition of such Purchasing Related Committed Purchaser as a "Related Committed Purchaser" and any resulting adjustment of the selling Related Committed Purchaser's Commitment. (d) Replaceable Related Committed Purchaser. If any Related Committed Purchaser (a "Replaceable Related Committed Purchaser") shall (i) petition the Seller for any amounts under Section 1.7 or 1.8 or (ii) cease to have a short-term debt rating of "A-1" by Standard & Poor's and "P-1" by Moody's (if such a rating is required by the related Purchaser's securitization program), the related Purchaser Agent or the Administrator may and if requested by the Seller, use its reasonable best efforts to designate a replacement financial institution (a "Replacement Related Committed Purchaser"), to which such Replaceable Related Committed Purchaser shall, subject to its receipt of an amount equal to the aggregate outstanding principal balance of its Investment and accrued and unpaid Discount thereon (and, if applicable, its receipt (unless a later date for the remittance thereof shall be agreed upon by the Seller and such Replaceable Related Committed Purchaser) of all amounts claimed under Section 1.7 and/or 1.8) promptly assign all of its rights, obligations and Commitment hereunder, together with all of its right, title and interest in, to and under the Purchased Interest allocable to it, to the Replacement Related Committed Purchaser in accordance with Section 6.3(c), above. Once such assignment becomes effective, the Replacement Related Committed Purchaser shall be deemed to be a "Related Committed Purchaser" for all purposes hereof and such Replaceable Related Committed Purchaser shall cease to be "Related Committed Purchaser" for all purposes hereof and shall have no further rights or obligations hereunder. (e) Assignment by Conduit Purchasers. Each party hereto agrees and consents (i) to any Conduit Purchaser's assignment, participation, grant of security interests in or other transfers of any portion of, or any of its beneficial interest in, the Purchased Interest (or portion thereof), including without limitation to any collateral agent in connection with its commercial paper program and (ii) to the complete assignment by any Conduit Purchaser of all of its rights and obligations hereunder to any other Person, and upon such assignment such Conduit Purchaser shall be released from 26 all obligations and duties, if any, hereunder; provided, however, that such Conduit Purchaser may not, without the prior consent of its Related Committed Purchasers, make any such transfer of its rights hereunder unless the assignee (i) is principally engaged in the purchase of assets similar to the assets being purchased hereunder, (ii) has as its Purchaser Agent the Purchaser Agent of the assigning Conduit Purchaser and (iii) issues commercial paper or other Notes with credit ratings substantially comparable to the ratings of the assigning Conduit Purchaser. Any assigning Conduit Purchaser shall deliver to any assignee a supplement hereto, substantially in the form of Annex D with any changes as have been approved by the parties thereto (also, a "Transfer Supplement"), duly executed by such Conduit Purchaser, assigning any portion of its interest in the Purchased Interest to its assignee. Such Conduit Purchaser shall promptly (i) notify each of the other parties hereto of such assignment and (ii) take all further action that the assignee reasonably requests in order to evidence the assignee's right, title and interest in such interest in the Purchased Interest and to enable the assignee to exercise or enforce any rights of such Conduit Purchaser hereunder. Upon the assignment of any portion of its interest in the Purchased Interest, the assignee shall have all of the rights hereunder with respect to such interest (except that the Discount therefor shall thereafter accrue at the rate, determined with respect to the assigning Conduit Purchaser unless the Seller, the related Purchaser Agent and the assignee shall have agreed upon a different Discount). (f) Opinions of Counsel. If required by the Administrator or the applicable Purchaser Agent or to maintain the ratings of any Conduit Purchaser, each Transfer Supplement must be accompanied by an opinion of counsel of the assignee as to such matters as the Administrator or such Purchaser Agent may reasonably request. Section 6.4 Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 3.1, the Seller agrees to pay on demand (which demand shall be accompanied by documentation thereof in reasonable detail) all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic internal audits by the Administrator of Pool Receivables) of this Agreement, the other Transaction Documents and the other documents and agreements to be delivered hereunder (and all reasonable costs and expenses in connection with any amendment, waiver or modification of any thereof), including: (i) Attorney Costs for the Administrator, each Purchaser Group and their respective Affiliates and agents with respect thereto and with respect to advising the Administrator, each Purchaser Group 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, each Purchaser Group and their respective Affiliates and agents in connection with the enforcement of this Agreement and the other Transaction Documents. (b) In addition, the Seller shall pay on demand any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. 27 Section 6.5 No Proceedings; Limitation on Payments. Each of the Seller, York, the Servicer, the Administrator, the Purchaser Agents, the Purchasers, each assignee of the Purchased Interest or any interest therein, and each Person that enters into a commitment to purchase the Purchased Interest or interests therein, hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, any Conduit Purchaser 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 such Conduit Purchaser is paid in full. The provision of this Section 6.5 shall survive any termination of this Agreement. Section 6.6 GOVERNING LAW AND JURISDICTION. (a) 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. (b) 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. Section 6.7 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same agreement. Section 6.8 Survival of Termination. The provisions of Sections 1.7, 1.8, 3.1, 3.2, 6.4, 6.5, 6.6, 6.9 and 6.14 shall survive any termination of this Agreement. Section 6.9 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 28 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. Section 6.10 Sharing of Recoveries. Each Purchaser agrees that if it receives any recovery, through set-off, judicial action or otherwise, on any amount payable or recoverable hereunder in a greater proportion than should have been received hereunder or otherwise inconsistent with the provisions hereof, then the recipient of such recovery shall purchase for cash an interest in amounts owing to the other Purchasers (as return of Investment or otherwise), without representation or warranty except for the representation and warranty that such interest is being sold by each such other Purchaser free and clear of any Adverse Claim created or granted by such other Purchaser, in the amount necessary to create proportional participation by the Purchaser in such recovery. If all or any portion of such amount is thereafter recovered from the recipient, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 6.11 Right of Setoff. During a Termination Event, each Purchaser is hereby authorized (in addition to any other rights it may have) to setoff, appropriate and apply (without presentment, demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by such Purchaser (including by any branches or agencies of such Purchaser) to, or for the account of, the Seller against amounts owing by the Seller hereunder (even if contingent or unmatured). Section 6.12 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. Section 6.13 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. Section 6.14 Purchaser Groups' Liabilities. The obligations of each Purchaser Agent and each Purchaser under the Transaction Documents are solely the corporate obligations of such Person. Except with respect to any claim arising out of the intentional breach of this Agreement, willful misconduct or gross negligence of the Administrator, any Purchaser Agent or any Purchaser, no claim may be made by the Seller or the Servicer or any other Person against the 29 Administrator, any Purchaser Agent or any Purchaser or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by the Agreement or any other Transaction Document, or any act, omission or event occurring in connection therewith; and each of Seller and Servicer hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Section 6.15 Confidentiality. Unless otherwise required by applicable law, each of the Seller and the Servicer agrees to maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided, that this Agreement may be disclosed to: (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Administrator, and (b) the Seller's legal counsel and auditors if they agree to hold it confidential. Unless otherwise required by applicable law, each of the Administrator, the Purchaser Agents and the Purchasers agree to maintain the confidentiality of non-public financial information regarding York and its Subsidiaries and Affiliates; provided, that such information may be disclosed to: (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to York, (ii) legal counsel and auditors of the Purchasers, the Purchaser Agents or the Administrator if they agree to hold it confidential, (iii) the rating agencies rating the Notes, (iv) any Program Support Provider or potential Program Support Provider (if they agree to hold it confidential), (v) any placement agent placing the Notes and (vi) any regulatory authorities having jurisdiction over PNC, BNS, the Purchasers, the Purchaser Agents or any Program Support Provider. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 30 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. YORK RECEIVABLES FUNDING LLC By: ___________________________________________ Name: ____________________________________ Title: ___________________________________ Address: York Receivables Funding LLC 1403 Foulk Road, Suite 102 Wilmington, Delaware 19803 Attention: James P. Corcoran Telephone: (717) 771-7438 Facsimile: (717) 771-6843 YORK INTERNATIONAL CORPORATION, as Servicer By: ___________________________________________ Name: ____________________________________ Title: ___________________________________ Address: York International Corporation 631 S. Richland Avenue York, Pennsylvania 17403 Attention: James P. Corcoran Telephone: (717) 771-7438 Facsimile: (717) 771-6843 S-1 PNC BANK, NATIONAL ASSOCIATION, as Administrator By: ___________________________________________ Name: ____________________________________ Title: ___________________________________ Address: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: John Smathers Telephone No.: (412) 762-6440 Facsimile No.: (412) 762-9184 S-2 PURCHASERS: MARKET STREET FUNDING CORPORATION, as a Conduit Purchaser and a Related Committed Purchaser By: ___________________________________________ Name: ____________________________________ Title: ___________________________________ Address: Market Street Funding Corporation c/o AMACAR Group, L.L.C. 6525 Morrison Blvd., Suite 318 Charlotte, North Carolina 28211 Attention: Douglas K. Johnson Telephone No.: (704) 365-0569 Facsimile No.: (704) 365-1362 With a copy to: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: John Smathers Telephone No.: (412) 762-6440 Facsimile No.: (412) 762-9184 Commitment $__________________________ S-3 LIBERTY STREET FUNDING CORP., as a Conduit Purchaser and a Related Committed Purchaser By: ___________________________________________ Name: _____________________________________ Title: ____________________________________ Address: Liberty Street Funding Corp. c/o Global Securitization Services, LLC 114 West 47th Street, Suite 1715 New York, New York 10036 Attention: Andrew L. Stidd Telephone No.: (212) 302-5151 Facsimile No.: (212) 302-8767 With a copy to: The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Attention: Norman Last Telephone No.: (212) 225-5000 Facsimile No.: (212) 225-5090 Commitment $_____________________ S-4 PNC BANK, NATIONAL ASSOCIATION, as Market Street Purchaser Agent By: ___________________________________________ Name: ____________________________________ Title: ___________________________________ Address: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: John Smathers Telephone No.: (412) 762-6440 Facsimile No.: (412) 762-9184 S-5 THE BANK OF NOVA SCOTIA, as Liberty Street Purchaser Agent BBy: __________________________________________ Name: ____________________________________ Title: ___________________________________ Address: The Bank of Nova Scotia One Liberty Plaza New York, New York 10006 Attention: Norman Last Telephone No.: (212) 225-5000 Facsimile No.: (212) 225-5090 S-6 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. "Administrator" has the meaning set forth in the preamble to the Agreement. "Administrator's Account" means the account (account number 1002422076 ABA 043000096) of the Administrator maintained at the office of PNC at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707, or such other account as may be so designated in writing by the Administrator to the Servicer. "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 Administrator (for the benefit of the Purchasers ) shall not constitute an Adverse Claim. "Affected Person" has the meaning set forth in Section 1.7 of the Agreement. "Affiliate" means, as to any Person: (a) any Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person, or (b) who is a director or officer: (i) of such Person or (ii) of any Person described in clause (a), except that, in the case of each Conduit Purchaser, Affiliate shall mean the holder 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. "Aggregate Discount" at any time, means the sum of the aggregate for each Purchaser of the accrued and unpaid Discount with respect to each such Purchaser's Investment at such time. "Aggregate Investment" means the amount paid to the Seller in respect of the Purchased Interest or portion thereof by each Purchaser pursuant to the Agreement, as reduced from time to time by Collections distributed and applied on account of such Aggregate Investment pursuant to Section 1.4(d) of the Agreement; provided, that if such Aggregate Investment 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 Aggregate Investment shall be increased by the amount of such rescinded or returned distribution as though it had not been made. "Agreement" has the meaning set forth in the preamble to the Agreement. "Assumption Agreement" means an agreement substantially in the form set forth in Annex C to the Agreement. "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel. I-1 "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.), as amended from time to time. "Base Rate" means, for any day, (a) in the case of the Purchaser Group including Market Street, the Market Street Base Rate, (b) in the case of the Purchaser Group including Liberty Street, the Liberty Street Base Rate, and (c) in the case of each other Purchaser Group, shall mean the rate set forth as the Base Rate for such Purchaser Group in the related Purchaser Group Fee Letter. "BBA" means the British Bankers' Association. "Benefit Plan" means any employee benefit pension plan as defined in Section 3(2) of ERISA in respect of which the Seller, any Originator, York or any ERISA Affiliate is, or at any time during the immediately preceding six years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day (other than a Saturday or Sunday) on which: (a) banks are not authorized or required to close in New York City, New York or Pittsburgh, Pennsylvania and (b) if this definition of "Business Day" is utilized in connection with the Euro-Rate, dealings are carried out in the London interbank market. "Cancelled Distributor" means the following Obligors with whom the Originators are no longer doing business, (i) Watsco Companies, Inc., (ii) Ferguson Enterprises and (iii) Dale Supply Company. "Change in Control" means (a) with respect to Seller, that at any time York shall fail to own, directly or indirectly through one or more wholly-owned Subsidiaries free and clear of any Adverse Claim, 100% of the shares of outstanding voting stock of the Seller on a fully diluted basis, (b) with respect to any Originator other than York, that at any time York shall fail to own, directly or indirectly through one or more wholly-owned Subsidiaries free and clear of any Adverse Claim, 100% of the share of outstanding voting stock of such Originator on a fully diluted basis, and (c) with respect to York, the acquisition by any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) of 20% or more of the shares of outstanding voting stock of York. "Closing Date" means December 21, 2001. "Collections" means, with respect to any Pool Receivable: (a) all funds that are received by any Originator, York, 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 that are 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 amounts deemed to have been received pursuant to Section 1.4(e) of the Agreement and (c) all other proceeds of such Pool Receivable. I-2 "Commitment" means, with respect to each Related Committed Purchaser, the maximum amount which such Purchaser is obligated to pay hereunder on account of any Purchase, as set forth below its signature to this Agreement or in the Assumption Agreement pursuant to which it became a Purchaser, as such amount may be modified in connection with any subsequent assignment pursuant to Section 6.3(c) or in connection with a change in the Purchase Limit pursuant to Section 1.1(b). "Commitment Percentage" means, for each Related Committed Purchaser in a Purchaser Group, such Related Committed Purchaser's Commitment divided by the total of all Commitments of all Related Committed Purchasers in such Purchaser Group. "Company Note" has the meaning set forth in Section 3.1 of the Purchase and Sale Agreement. "Concentration Percentage" means as to any Obligor which is (a) a Group A Obligor, 16.0%, (b) a Group B Obligor, 16.0%, (c) a Group C Obligor, 8.0%, or (d) a Group D Obligor, 4.0%. "Concentration Reserve" means, on any day, an amount equal to: (a) the Aggregate Investment at the close of business of the Servicer on such date multiplied by (b) (i) the Concentration Reserve Percentage on such date, divided by (ii) 100% minus the Concentration Reserve Percentage on such date. "Concentration Reserve Percentage" means, on any date, the quotient of (i) the greatest of (a) the largest aggregate Outstanding Balance of the Receivables of any single Group A Obligor or Group B Obligor, (b) the sum of the largest aggregate Outstanding Balances of the Receivables of any two Group C Obligors or (c) the sum of the largest aggregate Outstanding Balances of the Receivables of any four Group D Obligors, divided by (ii) the aggregate Outstanding Balance of all Eligible Receivables, on such date. For the purposes of this definition the Outstanding Balance of an Obligor shall exclude the Excess Concentration Amounts for such Obligor. "Conduit Purchasers" means each commercial paper conduit that is a party to the Agreement, as a purchaser, or that becomes a party to the Agreement, as a purchaser pursuant to an Assumption Agreement. "Contract" means, with respect to any Receivable, any and all contracts, understandings, 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 Investment (a) in the case of the Purchaser Group including Market Street, means the Market Street CP Rate, (b) in the case of the Purchaser Group including Liberty Street, means the Liberty Street CP Rate and (c) in the case of each other Purchaser Group, shall mean the rate set forth as the CP Rate for such Purchaser Group in the related Purchaser Group Fee Letter. I-3 "Credit and Collection Policy" means, as the context may require, those receivables credit and collection policies and practices of each Originator and of York in effect on the date of the Agreement and described in Schedule I to the Agreement, as the same may be modified from time to time in compliance with the Agreement. "Current Days' Sales Outstanding" means, for any Fiscal Month, an amount computed as of the last day of such Fiscal Month equal to: (a) the average of the Outstanding Balance of all Pool Receivables that are not passed their respective due date as of the last day of the most recent three Fiscal Months divided by (b)(i) the average of the aggregate credit sales made by the Originators during most recent three Fiscal Months divided by (ii) 90. "Cut-off Date" has the meaning set forth in the Purchase and Sale Agreement. "Debt" means: (a) indebtedness for borrowed money, (b) obligations evidenced by bonds, debentures, notes or other similar instruments, (c) obligations to pay the deferred purchase price of property or services, (d) obligations as lessee under leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (e) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d). "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 Fiscal Month by dividing: (a) the aggregate Outstanding Balance of all Pool Receivables that became Defaulted Receivables during such month excluding Ineligible Elimination Amounts, by (b)(i) at all times during which the Current Days' Sales Outstanding is less than or equal to 45, the aggregate credit sales made by the Originators during the month that is five months before such month and (ii) at all other times, the aggregate credit sales made by the Originators during the month that is six months before such month. "Defaulted Receivable" means a Receivable: (a) as to which any payment, or part thereof, remains unpaid for more than 120 days, in each case from the due date for such payment, or (b) without duplication (i) as to which an Insolvency Proceeding shall have occurred with respect to the Obligor thereof or any other Person obligated thereon or owning any Related Security with respect thereto, (ii) that has been charged-off as uncollectible or (iii) that should have been charged-off as uncollectible pursuant to the Credit and Collection Policy. The "Outstanding Balance" of any Defaulted Receivable shall be determined without regard to any credit memos or balances. "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 Fiscal Month by dividing: (a) the aggregate Outstanding Balance of all Pool Receivables that were Delinquent Receivables on such day excluding Ineligible Elimination Amounts by (b) the aggregate Outstanding Balance of all Pool Receivables on such day. I-4 "Delinquent Receivable" means a Receivable (a) as to which any payment, or part thereof, remains unpaid for more than 90 days from the due date for such payment or (b) without duplication, which has been (or consistent with the Credit and Collection Policy, would be) classified as a Delinquent Receivable by the applicable Originator. The "Outstanding Balance" of any Delinquent Receivable shall be determined without regard to any credit memos or balances. "Dilution Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward), computed as of the last day of each Fiscal Month by dividing: (a) the aggregate amount of payments made or owed by the Seller pursuant to Section 1.4(e)(i) of the Agreement during such Fiscal Month excluding payments related to Ineligible Elimination Amounts, Specifically Reserved Dilution Amount and amounts reported as credits and rebills on the Information Package, by (b) the aggregate credit sales made by the Originators during the Fiscal Month that is one month prior to such Fiscal Month. "Dilution Reserve" means, on any day, an amount equal to: (a) the Aggregate Investment at the close of business of the Servicer on such date multiplied by (b) (i) the Dilution Reserve Percentage on such date, divided by (ii) 100% minus the Dilution Reserve Percentage on such date. "Dilution Reserve Percentage" means, on any date, the greater of (a) 6.0%, or (b) the percentage determined by the following formula: [[(2.0 x ED) + ((DS-ED) x DS/ED))] x DHR] ED = the "Expected Dilution," which shall be equal to the 12-month rolling average Dilution Ratio, expressed as a percentage; DS = the "Dilution Spike," which shall be equal to the highest one month Dilution Ratio over the immediately preceding 12 months, expressed as a percentage; and DHR = the "Dilution Horizon Ratio," which shall be equal to the aggregate credit sales made by the Originators during the two preceding Fiscal Months divided by the Net Receivables Pool Balance as of the last day of most recent Fiscal Month. "Discount" means with respect to any Purchaser: (a) for any Portion of Investment for any Yield Period with respect to any Purchaser to the extent such Portion of Investment will be funded by such Purchaser during such Yield Period through the issuance of Notes: CPR x I x ED/360 (b) for any Portion of Investment for any Yield Period with respect to any Purchaser to the extent such Portion of Investment will not be funded by such Purchaser during such Yield Period through the issuance of Notes: I-5 YR x I x ED/Year + TF where: YR = the Yield Rate, as applicable, for such Portion of Investment for such Yield Period with respect to such Purchaser, I = the Investment with respect to such Portion of Investment during such Yield Period with respect to such Purchaser, CPR = the CP Rate for the Portion of Investment for such Yield Period with respect to such Purchaser, ED = the actual number of days during such Yield Period, Year = if such Portion of Investment is funded based upon: (a) the Euro-Rate, 360 days, and (b) the Base Rate, 365 or 366 days, as applicable, and TF = the Termination Fee, if any, for the Portion of Investment for such Yield Period with respect to such Purchaser; provided, that no provision of the Agreement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; and provided further, that Discount for any Portion of Investment 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 (A) the Obligor of such Receivable is a resident of Canada, such Receivable shall be deemed to satisfy the requirements of this clause (a)(i) to the extent that the sum of the Outstanding Balance of such Receivable and the aggregate Outstanding Balance of all other Eligible Receivables of Obligors who are residents of Canada does not exceed 5.00% of the aggregate Outstanding Balance of all Eligible Receivables at such time as determined, without giving effect to this proviso or (B) the Obligor of such Receivable is not a United States resident such Receivables shall be deemed to satisfy the requirements of this clause (a)(i) to the extent that the sum of the Outstanding Balance of such Receivable and the aggregate Outstanding Balance of all other Eligible Receivables the Obligors of which are not United States residents does not exceed $5,000,000 and credit enhancement satisfactory to each Purchaser Agent has been provided for such Obligor, (ii) not a government or a governmental subdivision, affiliate or agency; (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 York, (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 60 days after the original invoice date of such Receivable; provided, however, that up to 10.00% of the I-6 aggregate Outstanding Balance of all Receivables may have a stated maturity which is more than 60 days but not more than 180 days from the original invoice date of such Receivable; provided, further, that up to 10.00% of the aggregate Outstanding Balance of all Receivables may have a stated maturity which is more than 180 days but not more than 360 days from the original invoice date of such Receivables and such Receivables are covered by an insurance policy in form and substance acceptable to the Purchasers. (d) that arises under a duly authorized Contract for the sale and delivery of goods and services in the ordinary course of an Originator's business, (e) that arises under a duly authorized Contract that is in full force and effect and that is a legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms, (f) that conforms in all material respects with all applicable laws, rulings and regulations in effect, (g) that is not the subject of any asserted dispute, offset, hold back defense, Adverse Claim or other claim, (h) that satisfies all applicable requirements of the applicable Credit and Collection Policy, (i) that has not been modified, waived or restructured since its creation, except as permitted pursuant to Section 4.2 of the Agreement, (j) in which the Seller owns good and marketable title, free and clear of any Adverse Claims, and that is freely assignable by the Seller (including without any consent of the related Obligor), (k) for which the Administrator (for the benefit of each Purchaser) 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 or a Delinquent Receivable, (n) for which none of the Originator thereof, the Seller and 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, I-7 (p) that represents amounts earned and payable by the Obligor that are not subject to the performance of additional services by the Originator or Servicer thereof, including without limitation, any progress billed Receivables, and (q) the Obligor of which is not a Cancelled Distributor. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means: (a) any corporation that is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Seller, any Originator or York, (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 York, 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). "Euro-Rate" means with respect to any Yield Period, the interest rate per annum determined by the Administrator by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the applicable Purchaser Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank market offered rates for U.S. dollars quoted by the BBA as set forth on Dow Jones Markets Service (formerly known as Telerate) (or appropriate successor or, if BBA or its successor ceases to provide display page 3750 (or such other display page on the Dow Jones Markets Service system as may replace display page 3750) at or about 11:00 a.m. (London time) on the Business Day which is two (2) Business Days prior to the first day of such Yield Period for an amount comparable to the Portion of Investment to be funded at the Yield Rate and based upon the Euro-Rate during such Yield Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Euro-Rate = Average of London interbank offered rates quoted by BBA as shown on Dow Jones Markets Service display page 3750 or appropriate successor -------------------------------------------------------------------- 1.00 - Euro-Rate Reserve Percentage where "Euro-Rate Reserve Percentage" means, the maximum effective percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including without limitation, supplemental, marginal, and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities"). The Euro-Rate shall be adjusted with respect to any Portion of Investment funded at the Yield Rate and based upon the Euro-Rate that is outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The applicable Purchaser Agent shall give prompt notice to the Seller of the Euro-Rate as determined or adjusted in accordance herewith (which determination shall be conclusive absent manifest error). I-8 "Excess Concentration" means, on any date, 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 applicable Concentration Percentage for such Obligor multiplied by (b) the Outstanding Balance of all Eligible Receivables, on such date. "Exiting Purchaser" has the meaning set forth in Section 1.4(b)(ii). "Facility Termination Date" means the earliest to occur of: (a) with respect to each Purchaser December 20, 2002, subject to any extension pursuant to Section 1.10 of the Agreement (it being understood that if any such Purchaser does not extend its Commitment hereunder then the Purchase Limit shall be reduced ratably with respect to the Purchasers in each Purchaser Group by an amount equal to the Commitment of such Exiting Purchaser and the Commitment Percentages and Group Commitments of the Purchasers within each Purchaser Group shall be appropriately adjusted), (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, (d) with respect to each Purchaser Group, the date that the commitments of all of the Liquidity Providers terminate under the related Liquidity Agreements and (e) with respect to each Purchaser Group, the date that the commitment, of all of the Related Committed Purchasers of such Purchaser Group terminate pursuant to Section 1.10 and (f) the failure to cause the amendment or modification of any Transaction Document or related opinion as required by Moody's or Standard and Poor's and such failure shall continue for 10 Business Days after such amendment is initially requested. "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 applicable Purchaser Agent 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 such Purchaser Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions. "Fees" means the fees payable by the Seller to each Purchaser Group pursuant to the applicable Purchaser Group Fee Letter. "Fiscal Month" means, with respect to any date, the monthly period designated with respect to such date on Schedule IV hereto, as such Schedule may be modified or replaced from time to time. I-9 "GAAP" means the generally accepted accounting principles and practices in the United States, consistently applied. "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 an Obligor with a short-term senior unsecured indebtedness rating (or, if such Obligor does not have such a short-term rating, a long-term senior unsecured indebtedness rating) of at least "A-1" (or "A+") by Standard & Poor's and "P-1" (or "A1") by Moody's. "Group B Obligor" means an Obligor with a short-term senior unsecured indebtedness rating (or, if such Obligor does not have such a short-term rating, a long-term senior unsecured indebtedness rating) of at least "A-2" (or "BBB+") by Standard & Poor's and "P-2" (or "Baa1") by Moody's, that is not a Group A Obligor. "Group C Obligor" means an Obligor with a short-term senior unsecured indebtedness rating (or, if such Obligor does not have such a short-term rating, a long-term senior unsecured indebtedness rating) of at least "A-3" (or "BBB-") by Standard & Poor's and "P-3" (or "Baa3") by Moody's, that is not a Group A Obligor or a Group B Obligor. "Group Commitment" means with respect to any Purchaser Group the aggregate of the Commitments of each Purchaser within such Purchaser Group. "Group D Obligor" means an Obligor which is not a Group A Obligor, a Group B Obligor or a Group C Obligor. "Group Investment" means with respect to any Purchaser Group, an amount equal to the aggregate of all Investments of the Purchasers within such Purchaser Group. "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. "Ineligible Elimination Amounts" means amounts which are reported by the Servicer as inputs to the Information Package as credit memos or aged invoices which relate to Receivables, the Obligors of which are Cancelled Distributors. "Information Package" means a report, in substantially the form of Annex A to the Agreement, including all supporting input information, source data information, worksheets and calculations furnished to the Administrator pursuant to the Agreement. I-10 "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 of a Person or, composition, marshaling 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 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. "Investment" means with respect to any Purchaser the amount paid to the Seller by such Purchaser pursuant to the Agreement, or such amount divided or combined in accordance with the Agreement, in each case reduced from time to time by Collections distributed and applied on account of such Investment pursuant to Section 1.4(d) of the Agreement; provided, that if such Investment 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 Investment shall be increased by the amount of such rescinded or returned distribution as though it had not been made. "Liberty Street" has the meaning set forth in the preamble to the Agreement. "Liberty Street Base Rate" means, in the case of Liberty Street or any Purchaser in its Purchaser Group, for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher of: (a) the rate of interest in effect for such day as publicly announced from time to time by 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 (b) 0.50% per annum above the latest Federal Funds Rate. "Liberty Street CP Rate" means, with respect to Liberty Street for any Yield Period with respect to any Portion of Investment, the per annum rate equivalent to the "weighted average cost" (as defined below) related to the issuance of Liberty Street's Notes that are allocated, in whole or in part, by Liberty Street (or by its Purchaser Agent) to fund or maintain such Portion of Investment (and which may also be allocated in part to the funding of other Portions of Investment hereunder or of other assets of Liberty Street); provided, however, that if any component of such rate is a discount rate, in calculating the "Liberty Street CP Rate" for such Portion of Investment for such Yield Period, Liberty Street shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. As used in this definition, Liberty Street's "weighted average cost" shall consist of (x) the actual interest rate (or discount) paid to purchasers of Liberty Street's Notes, together with the I-11 commissions of placement agents and dealers in respect of such Notes, to the extent such commissions are allocated, in whole or in part, to such Notes by Liberty Street (or by its Purchaser Agent) and (y) any incremental carrying costs incurred with respect to Liberty Street's Notes maturing on dates other than those on which corresponding funds are received by Liberty Street. Notwithstanding the foregoing, the "Liberty Street CP Rate" for any day while a Termination Event exists shall be an interest rate equal to 2% above the Base Rate in effect on such day. "Liberty Street Yield Rate" for any Yield Period for any Portion of Investment of the Purchased Interest in the case of Liberty Street or any Purchaser in its Purchaser Group, means an interest rate per annum equal to: (a) the rate set forth as the "Applicable Margin" in the Purchaser Group Fee Letter relating to Liberty Street above the Euro-Rate for such Yield Period, or (b) if requested by the Seller the Base Rate for such Yield Period; provided, however, that in the case of: (i) any Yield Period on or before the first day of which BNS shall have been notified by any Purchaser within the Liberty Street Purchaser Group or 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 such Person, to fund any Euro-Rate Portion of Investment (and such Person shall not have subsequently notified BNS that such circumstances no longer exist), (ii) any Yield Period of one to (and including) 29 days, (iii) any Yield Period as to which BNS does not receive notice before noon (New York City time) on the third Business Day preceding the first day of such Yield Period that the Seller desires that the related Portion of Investment be a Euro-Rate Portion of Investment, or (iv) any Yield Period relating to a Portion of Investment that is less than $5,000,000, the "Yield 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 "Yield Rate" for any day while a Termination Event exists shall be an interest rate equal to 2% per annum above the applicable Base Rate in effect on such day. "Liquidity Agent" means each of the banks acting as agent for the various Liquidity Banks under each Liquidity Agreement. "Liquidity Agreement" means any agreement entered into in connection with this Agreement pursuant to which a Liquidity Provider agrees to make purchases or advances to, or purchase assets from, any Conduit Purchaser in order to provide liquidity for such Conduit Purchaser's Purchases. "Liquidity Provider" means each bank or other financial institution that provides liquidity support to any Conduit Purchaser pursuant to the terms of a Liquidity Agreement. I-12 "Lock-Box Account" means an account in the name of the Seller and maintained by the Seller at a bank or other financial institution for the purpose of, directly or indirectly, receiving Collections. "Lock-Box Agreement" means an agreement, among the applicable Originator, the Seller, the Servicer, the Administrator, the Purchasers 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 Horizon" (a) (i) at all times during which the Current Days' Sales Outstanding is less than or equal to 45, the aggregate credit sales made by the Originators during the five most recent Fiscal Months, and (ii) at all other times, the aggregate credit sales made by the Originators during the six most recent Fiscal Months divided by (b) the Net Receivables Pool Balance as of such date. "Loss Reserve" means, on any date, an amount equal to (a) the Aggregate Investment at the close of business of the Servicer on such date multiplied by (b) (i) the Loss Reserve Percentage on such date divided by (2) 100% minus the Loss Reserve Percentage on such date. "Loss Reserve Percentage" means, on any date, the greater of, (a) 10.0% and (b) the product of (i) 2 times (ii) the highest average of the Default Ratios for any three consecutive Fiscal Months during the twelve most recent Fiscal Months multiplied by (iii) the Loss Horizon. "Majority Purchasers" means, at any time, Purchasers whose Commitments aggregate more than 66.67% of the aggregate of the Commitments of all Purchasers; provided, however, that so long as any Purchaser's Commitment is greater than 50% of the aggregate Commitments, then "Majority Purchasers" shall mean a minimum of two Purchasers whose Commitments aggregate more than 50% of the aggregate Commitments. "Market Street" has the meaning set forth in the preamble to the Agreement. "Market Street Base Rate" means, in the case of Market Street or any Purchaser in its Purchaser Group, for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher of: (a) the rate of interest in effect for such day as publicly announced from time to time by PNC in Pittsburgh, Pennsylvania as its "prime rate." Such "prime rate" is set by PNC based upon various factors, including PNC's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate, and (b) 0.50% per annum above the latest Federal Funds Rate. "Market Street CP Rate" means, with respect to Market Street for any Yield Period with respect to any Portion of Investment, the per annum rate equivalent to the "weighted average cost" (as defined below) related to the issuance of Market Street's Notes that are allocated, in whole or in part, by Market Street (or by its Purchaser Agent) to fund or maintain such Portion of I-13 Investment (and which may also be allocated in part to the funding of other Portions of Investment hereunder or of other assets of Market Street); provided, however, that if any component of such rate is a discount rate, in calculating the "Market Street CP Rate" for such Portion of Investment for such Yield Period, Market Street shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. As used in this definition, Market Street's "weighted average cost" shall consist of (x) the actual interest rate (or discount) paid to purchasers of Market Street's Notes, together with the commissions of placement agents and dealers in respect of such Notes, to the extent such commissions are allocated, in whole or in part, to such Notes by Market Street (or by its Purchaser Agent) and (y) any incremental carrying costs incurred with respect to Market Street's Notes maturing on dates other than those on which corresponding funds are received by Market Street. Notwithstanding the foregoing, the "Market Street CP Rate" for any day while a Termination Event exists shall be an interest rate equal to 2% above the Base Rate in effect on such day. "Market Street Yield Rate" for any Yield Period for any Portion of Investment of the Purchased Interest in the case of Market Street or any Purchaser in its Purchaser Group, means an interest rate per annum equal to: (a) the rate set forth as the "Applicable Margin" in the Purchaser Group Fee Letter relating to Market Street above the Euro-Rate for such Yield Period, or (b) if requested by the Seller, the Base Rate for such Yield Period; provided, however, that in the case of: (i) any Yield Period on or before the first day of which the Administrator shall have been notified by any Purchaser within the Market Street Purchaser Group or 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 such Person, to fund any Euro-Rate Portion of Investment (and such Person shall not have subsequently notified the Administrator that such circumstances no longer exist), (ii) any Yield Period of one to (and including) 29 days, (iii) any Yield Period as to which the Administrator does not receive notice before noon (New York City time) on the third Business Day preceding the first day of such Yield Period that the Seller desires that the related Portion of Investment be a Euro-Rate Portion of Investment, or (iv) any Yield Period relating to a Portion of Investment that is less than $5,000,000, the "Yield 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 "Yield Rate" for any day while a Termination Event exists shall be an interest rate equal to 2% per annum above the applicable Base Rate in effect on such day. I-14 "Material Adverse Effect" means, relative to any Person with respect to any event or circumstance, a material adverse effect on: (a) the assets, operations, business or financial condition of such Person. (b) the ability of any of such Person to perform its obligations under the Agreement or any other Transaction Document to which it is a party, (c) the validity or enforceability of any other Transaction Document, or the validity, enforceability or collectibility of a material portion of the Pool Receivables, or (d) the status, perfection, enforceability or priority of any Purchaser's or the Seller's interest in the Pool Assets. "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 sum of (i) the Excess Concentration and (ii) Specifically Reserved Dilution Amount; provided that such calculation shall exclude the Receivables for which the related Obligor has a net credit balance with respect to such Obligor's Eligible Receivables. "Notes" means short-term promissory notes issued, or to be issued, by each Conduit Purchaser to fund its investments in accounts receivable or other financial assets. "Obligor" means, with respect to any Receivable, the Person obligated to make payments pursuant to the Contract relating to such Receivable. "Originator" has the meaning set forth in the Purchase and Sale Agreement. "Originator Assignment Certificate" means each assignment, in substantially the form of Exhibit C to the Purchase and Sale Agreement, evidencing Seller's ownership of the Receivables generated by Originator, as the same may be amended, supplemented, amended and restated, or otherwise modified from time to time in accordance with the Purchase and Sale Agreement. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Payment Date" has the meaning set forth in Section 2.1 of the Purchase and Sale Agreement. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "PNC" has the meaning set forth in the preamble to the Agreement. "Pool Assets" has the meaning set forth in Section 1.2(d) of the Agreement. I-15 "Pool Receivable" means a Receivable in the Receivables Pool. "Portion of Investment" means, with respect to any Purchaser and its related Investment, the portion of such Investment being funded or maintained by such Purchaser by reference to a particular interest rate basis. "Program Support Agreement" means and includes any 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 any Conduit Purchaser, (b) the issuance of one or more surety bonds for which the such Conduit Purchaser is obligated to reimburse the applicable Program Support Provider for any drawings thereunder, (c) the sale by such Conduit Purchaser to any Program Support Provider of the Purchased Interest (or portions thereof) maintained by such Conduit Purchaser and/or (d) the making of loans and/or other extensions of credit to any Conduit Purchaser in connection with such Conduit Purchaser's 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 with respect to each Conduit Purchaser any Liquidity Provider and any other Person (other than any customer of such Conduit Purchaser) now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, such Conduit Purchaser pursuant to any Program Support Agreement. "Purchase" is defined in Section 1.1(a). "Purchase and Sale Agreement" means the Purchase and Purchase and Sale Agreement, dated as of December 21, 2001, among the Seller and the Originators as amended through the date of the Agreement and as such agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "Purchase and Sale Indemnified Amounts" has the meaning set forth in Section 9.1 of the Purchase and Sale Agreement. "Purchase and Sale Indemnified Party" has the meaning set forth in Section 9.1 of the Purchase and Sale Agreement. "Purchase and Sale Termination Date" has the meaning set forth in Section 1.4 of the Purchase and Sale Agreement. "Purchase and Sale Termination Event" has the meaning set forth in Section 8.1 of the Purchase and Sale Agreement. "Purchase Date" means the date of which a Purchase or a reinvestment is made pursuant to the Agreement. "Purchase Facility" has the meaning set forth in Section 1.1 of the Purchase and Sale Agreement. I-16 "Purchase Limit" means $175,000,000, 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 Aggregate Investment. "Purchase Price" has the meaning set forth in Section 2.1 of the Purchase and Sale Agreement. "Purchase Report" has the meaning set forth in Section 2.1 of the Purchase and Sale Agreement. "Purchased Interest" means, at any time, the undivided percentage ownership interest in: (a) each and every Pool Receivable now existing or hereafter arising, (b) all Related Security with respect to such Pool Receivables and (c) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security. Such undivided percentage interest shall be computed as: Aggregate Investment + 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" means each Conduit Purchaser and/or each Related Committed Purchaser, as applicable. "Purchaser Agent" means each Person acting as agent on behalf of a Purchaser Group and designated as a Purchaser Agent for such Purchaser Group on the signature pages to the Agreement or any other Person who becomes a party to this Agreement as a Purchaser Agent pursuant to an Assumption Agreement or a Transfer Supplement. "Purchaser Group" means, for each Conduit Purchaser, such Conduit Purchaser, its Related Committed Purchasers and its related Purchaser Agent. "Purchaser Group Fee Letter" has the meaning set forth in Section 1.5 of the Agreement. "Purchasers' Share" of any amount means such amount multiplied by the Purchased Interest at the time of determination. "Ratable Share" means, for each Purchaser Group, such Purchaser Group's aggregate Commitments divided by the aggregate Commitments of all Purchaser Groups. "Rating Agency Condition" means, with respect to any material event or occurrence, receipt by the Administrator (or the applicable Purchaser Agent) of written confirmation from each of Standard & Poor's and Moody's that such event or occurrence shall not cause the rating on the then outstanding Notes of any applicable Purchaser to be downgraded or withdrawn. "Receivable" means any indebtedness and other obligations (whether or not earned by performance) owed to the Seller or any Originator by, or any right of the Seller or any Originator I-17 to payment from or on behalf of, an Obligor, whether constituting an account, chattel paper, instrument or general intangible, arising in connection with property or goods that have been or are to be sold or otherwise disposed of, or services rendered or to be rendered by an Originator, and includes the obligation to pay any finance charges, fees and other charges with respect thereto. Indebtedness and other obligations arising from any one transaction, including indebtedness and other obligations represented by an individual invoice or agreement, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other obligations arising from any other transaction. "Receivables Pool" means, at any time, all of the then outstanding Receivables purchased or otherwise acquired by the Seller pursuant to the Purchase and Sale Agreement prior to the Facility Termination Date. "Related Committed Purchaser" means each Person listed as such (and its respective Commitment) for each Conduit Purchaser as set forth on the signature pages of the Agreement or in any Assumption Agreement or Transfer Supplement. "Related Rights" has the meaning set forth in Section 1.1 of the Purchase and Sale Agreement. "Related Security" means, with respect to any Receivable: (a) all of the Seller's and the Originator thereof's interest in any goods (including returned goods), and documentation of title evidencing the shipment or storage of any goods (including returned goods), relating to any sale giving rise to such Receivable, (b) all 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 the Originator thereof's rights, interests and claims under the Contracts and all guaranties, indemnities, insurance, letters of credit 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. "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 product of (i) such amount multiplied by (ii) the Purchased Interest. "Servicer" has the meaning set forth in the preamble to the Agreement. I-18 "Servicing Fee" shall mean the fee referred to in Section 4.6 of the Agreement. "Settlement Date" means (a) prior to the Facility Termination Date the 23rd calendar day of each calendar month or if such day is not a Business Day the next succeeding Business Day and (b) on and after the Facility Termination Date, each day selected from time to time by the Administrator (it being understood that the Administrator may select such Settlement Date to occur as frequently as daily), or in the absence of any such selection, the day which would be the Settlement Date for the Portion of Investment pursuant to clause (a) of this definition. "Simple Majority" means, at any time, Purchasers whose Commitments aggregate 50% or more of the aggregate of the Commitments of all Purchasers. "Solvent" means, with respect to any Person at any time, a condition under which: (a) 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; (b) 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); (c) such Person is and shall continue to be able to pay all of its liabilities as such liabilities mature; and (d) 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. I-19 "Specifically Reserved Dilution Amount" means, at any time, the greater of (a) the balance sheet reserve amount maintained by each Originator or the Servicer representing pricing discount amounts; or (b) the actual amount of credits issued in the most recent month related to pricing discounts. "Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "Subsidiary" means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such entity are at the time owned, or management of which is otherwise controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and one or more Subsidiaries of such Person. "Tangible Net Worth" means, with respect to any Person, the tangible net worth of such Person as determined in accordance with GAAP. "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, with respect to any Purchaser, the amount, if any, by which: (a) the additional Discount related to such Purchaser's Investment (calculated without taking into account any Termination Fee or any shortened duration of such Yield Period) that would have accrued during such Yield Period on the reductions of Investment relating to such Yield Period had such reductions not been made, exceeds (b) the income, if any, received by such Purchaser from investing the proceeds of such reductions of Investment, as determined by the such Purchaser's Purchaser Agent, which determination shall be binding and conclusive for all purposes, absent manifest error. "Total Reserves" means, at any time, the sum of the Yield Reserve and the greater of (a) the sum of the Loss Reserve and the Dilution Reserve, or (b) the Concentration Reserve. "Transaction Documents" means the Agreement, the Lock-Box Agreements, each Purchaser Group Fee Letter, the Purchase and Sale Agreement and all other certificates, instruments, UCC financing statements, reports, notices, agreements and documents executed or delivered under or in connection with any of the foregoing, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Agreement. "Transfer Supplement" has the respective meanings set forth in Sections 6.3(c) and 6.3(e). I-20 "Turnover Rate" means, for any Fiscal Month, an amount computed as of the last day of such Fiscal Month equal to: (a) the Outstanding Balance of all Pool Receivables as of the last day of the most recent Fiscal Month, divided by (b) the quotient of (i) the aggregate credit sales made by the Originators during the three Fiscal Months ended on the last day of such Fiscal Month, divided by (ii) 3. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. "Unmatured Purchase and Sale Termination Event" means any event which, with the giving of notice or lapse of time, or both, would become a Purchase and Sale Termination Event. "Unmatured Termination Event" means an event that, with the giving of notice or lapse of time, or both, would constitute a Termination Event. "Yield Period" means, with respect to each Portion of Investment: (a) before the Facility Termination Date: (i) initially the period commencing on the date of the initial Purchase pursuant to Section 1.2 of the Agreement (or in the case of any fees payable hereunder, commencing on the Closing Date) and ending on (but not including) the next Settlement Date, and (ii) thereafter, each period commencing on such Settlement Date and ending on (but not including) the next Settlement Date, and (b) on and after the Facility Termination Date, such period (including a period of one day) as shall be selected from time to time by the Administrator or, in the absence of any such selection, each period of 30 days from the last day of the preceding Yield Period. "Yield Rate" for any Yield Period for any Portion of Investment of the Purchased Interest (a) in the case of the Purchaser Group including Market Street, means the Market Street Yield Rate, (b) in the case of the Purchaser Group including Liberty Street, means the Liberty Street Yield Rate and (c) in the case of each other Purchaser Group, shall mean the rate set forth as the Yield Rate for such Purchaser Group in the related Purchaser Group Fee Letter. "Yield Reserve" shall be equal to the Aggregate Investment multiplied by a percentage equal to (a) the Yield Reserve Percentage divided by (b) 100% minus the Yield Reserve Percentage. "Yield Reserve Percentage" means, on any date, an amount equal to (a) the sum of the Base Rate for the most recent period plus 1.0%, multiplied by (b) the product of 1.5 times the Turnover Rate, divided by (c) 12. "York" has the meaning set forth in the preamble to the Agreement. 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. I-21 EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to Initial Purchase. The initial Purchase under this Agreement is subject to the following conditions precedent that the Administrator and each Purchaser Agent shall have received on or before the date of such Purchase, each in form and substance (including the date thereof) satisfactory to the Administrator and each Purchaser Agent: (a) A counterpart of the Agreement and the other Transaction Documents executed by the parties thereto. (b) Certified copies of: (i) the resolutions of the Board of Directors, the Managing Member or other managers of each of the Seller, the Originators and York authorizing the execution, delivery and performance by the Seller, such Originator and York, as the case may be, of the Agreement and the other Transaction Documents to which it is a party; (ii) all documents evidencing other necessary organizational action and governmental approvals, if any, with respect to the Agreement and the other Transaction Documents and (iii) the certificate of incorporation and by-laws or certificate of formation and limited liability company agreement or any other organizational document, as applicable, of the Seller, each Originator and York. (c) A certificate of the Secretary or Assistant Secretary of the Seller, the Originators and York certifying the names and true signatures of its officers who are authorized to sign the Agreement and the other Transaction Documents. Until the Administrator and each Purchaser Agent receives a subsequent incumbency certificate from the Seller, an Originator or York, as the case may be, the Administrator and each Purchaser Agent shall be entitled to rely on the last such certificate delivered to it by the Seller, such Originator or York, as the case may be. (d) Acknowledgment copies, or time stamped receipt copies, of proper financing statements, duly filed on or before the date of such initial purchase under the UCC of all jurisdictions that the Administrator may deem necessary or desirable in order to perfect the interests of the Seller, York and the Administrator (on behalf of each Purchaser) contemplated by the Agreement and the Purchase and Sale Agreement. (e) Acknowledgment copies, or time-stamped receipt copies, of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by the Originators, York or the Seller. (f) 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 (d) above that name the Originators or the Seller as debtor, together with copies of such other financing statements, and similar search reports with respect to judgment liens, federal tax liens and liens of the Pension Benefit Guaranty II-1 Corporation in such jurisdictions, as the Administrator or any Purchaser Agent may request, showing no Adverse Claims on any Pool Assets. (g) Copies of executed Lock-Box Agreements with each Lock-Box Bank. (h) Favorable opinions, in form and substance reasonably satisfactory to the Administrator and each Purchaser Agent, of: (i) Blank Rome Comisky & McCauley LLP, counsel for the Seller, each Originator, York and the Servicer, and (ii) general counsel for Seller, York and each Originator. (i) [Reserved] (j) A pro forma Information Package representing the performance of the Receivables Pool for the Fiscal Month before closing. (k) Evidence of payment by the Seller of all accrued and unpaid fees (including those contemplated by each Purchaser Group 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 6.4 of the Agreement and the Fee Letter. (l) Each Purchaser Group Fee Letter (received only by the related Purchaser Group Agent) duly executed by the Seller and the Servicer. (m) Good standing certificates with respect to each of the Seller, the Originators and the Servicer issued by the Secretary of State (or similar official) of the state of each such Person's organization and principal place of business. (n) To the extent required by each Conduit Purchaser's commercial paper program, letters from each of the rating agencies then rating the Notes confirming the rating of such Notes after giving effect to the transaction contemplated by the Agreement. (o) Each Liquidity Agreement (received only by the related Purchaser Group Agent) and all other Transaction Documents duly executed by the parties thereto. (p) A computer file containing all information with respect to the Receivables as the Administrator or any Purchaser Agent may reasonably request. (q) Such other approvals, opinions or documents as the Administrator or any Purchaser Agent may reasonably request. 2. Conditions Precedent to All Purchases and Reinvestments. Each Purchase (including the initial Purchase) and each reinvestment shall be subject to the further conditions precedent that: (a) solely in the case of each purchase but not a reinvestment, the Servicer shall have delivered to the Administrator and each Purchaser Agent on or before such purchase, in form and substance satisfactory to the Administrator and such Purchaser Agent, a completed pro forma Information Package to reflect the level of Investment with II-2 respect to each Purchaser Group and related reserves and the calculation of the Purchased Interest after such subsequent purchase and a completed purchase notice in the form of Annex B; and (b) on the date of such purchase or reinvestment (and with respect to item (v) below within ninety days of the Closing Date) the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) the representations and warranties contained in Exhibit III to the Agreement are true and correct in all material respects on and as of the date of such purchase or reinvestment as though made on and as of such date (except to the extent that such representations and warranties relate expressly to an earlier date, and in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (ii) no event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes a Termination Event or an Unmatured Termination Event; (iii) after giving effect to such purchase, the Purchased Interest will not exceed 100% and the Aggregate Investment will not exceed the Purchase Limit; (iv) the Facility Termination Date shall not have occurred; and (v) Satisfactory results of a review and audit (performed by representatives of each Purchaser Agent) 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). II-3 EXHIBIT III REPRESENTATIONS AND WARRANTIES 1. Representations and Warranties of the Seller. The Seller represents and warrants as follows: (a) The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business and is in good standing as a foreign organization in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. (b) The execution, delivery and performance by the Seller of the Agreement and the other Transaction Documents to which it is a party, including its use of the proceeds of purchases and reinvestments: (i) are within its organizational powers; (ii) have been duly authorized by all necessary organizational action; (iii) do not contravene or result in a default under or conflict with: (A) its certification of formation or limited liability company agreement, (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 it is a party have been duly executed and delivered by the Seller. (c) No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for its due execution, delivery and performance by the Seller of the Agreement or any other Transaction Document to which it is a party, other than the Uniform Commercial Code filings referred to in Exhibit II to the Agreement, all of which shall have been filed on or before the date of the first purchase hereunder. (d) Each of the Agreement and the other Transaction Documents to which the Seller is a party constitutes its legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) There is no pending or, to Seller's best knowledge, threatened action or proceeding affecting Seller or any of its properties before any Governmental Authority or arbitrator. (f) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. III-1 (g) The Seller is the legal and beneficial owner of the Pool Receivables and Related Security, free and clear of any Adverse Claim. Upon each purchase or reinvestment, Administrator (for the benefit of each Purchaser) 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 Administrator (for the benefit of each Purchaser) in the Pool Assets, and the Administrator (for the benefit of each Purchaser) has a first priority perfected security interest in the Pool Assets, free and clear of any Adverse Claims. No effective financing statement or other instrument similar in effect covering any Pool Asset is on file in any recording office, except those filed in favor of the Seller pursuant to the Purchase and Sale Agreement and the Administrator (for the benefit of each Purchaser) relating to the Agreement, or in respect of which the Administrator has received evidence satisfactory to the Administrator of acknowledgment copies, or time-stamped receipt copies, of proper financing statements releasing or terminating, as applicable, all security interests and other rights of any Person in such Pool Asset. (h) Each Information Package (if prepared by the Seller or one of its Affiliates, or to the extent that information contained therein is supplied by the Seller or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Administrator or any Purchaser Agent 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, and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading. (i) The Seller's principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Receivables are located at the address referred to in Section 1(b) and 2(b) of Exhibit IV to the Agreement. The Seller is a limited liability company, organized under the laws of the State of Delaware and its organizational number is 3469762. (j) The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts (and the related lock-boxes) 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 (and such other related lock-boxes) as have been notified to the Administrator in accordance with the Agreement) and all Lock-Box Accounts (and all related lock-boxes) are subject to Lock-Box Agreements. Seller has not granted to any Person, other than the Administrator as contemplated by the Agreement, dominion and control of any Lock-Box Account, or the right to take dominion and control of any such account at a future time or upon the occurrence of a future event. (k) The Seller is not in violation of any order of any court, arbitrator or Governmental Authority. III-2 (l) Neither the Seller nor any of its Affiliates has any direct or indirect ownership or other financial interest in any Purchaser. (m) No proceeds of any purchase or reinvestment will be used for any purpose that violates any applicable law, rule or regulation, including Regulations T, U or X of the Federal Reserve Board. (n) Each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance is an Eligible Receivable. (o) No event has occurred and is continuing that constitutes a Termination Event or an Unmatured Termination Event and no event would result from a purchase in respect of, or reinvestment in respect of, the Purchased Interest or from the application of the proceeds therefrom that constitutes a Termination Event or an Unmatured Termination Event. (p) The Seller has accounted for each sale of undivided percentage ownership interests in Receivables in its books and financial statements as sales, consistent with generally accepted accounting principles. (q) The Seller has complied in all material respects with the Credit and Collection Policy of each Originator with regard to each Receivable originated by such Originator. (r) The Seller has complied in all material respects with all of the terms, covenants and agreements contained in the Agreement and the other Transaction Documents that are applicable to it and all laws, rules, regulations and orders that are applicable to it. (s) The Seller's complete organizational name is set forth in the preamble to the Agreement, and it does not use and has not during the last six years used any other organizational name, trade name, doing-business name or fictitious name, except as set forth on Schedule III to the Agreement and except for names first used after the date of the Agreement and set forth in a notice delivered to the Administrator pursuant to Section 1(k)(iv) of Exhibit IV to the Agreement. (t) The Seller is not an "investment company," or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. In addition, the Seller is not a "holding company," a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (u) With respect to each Receivable transferred to the Seller under the Purchase and Sale Agreement, Seller has given reasonably equivalent value to the Originator thereof in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer by any Originator of any Receivable under the III-3 Purchase and Sale Agreement is or may be voidable under any section of the Bankruptcy Code. (v) Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (w) Since its most recent fiscal year end, there has been no change in the business, operations, financial condition, properties or assets of the Seller which would have a Material Adverse Effect on its ability to perform its obligations under the Agreement or any other Transaction Document to which it is a party or materially and adversely affect the transactions contemplated under the Agreement or such other Transaction Documents. (x) The Seller has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 2. Representations and Warranties of York (including in its capacity as the Servicer). York, individually and in its capacity as the Servicer, represents and warrants as follows: (a) York is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business and is in good standing as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. (b) The execution, delivery and performance by York, 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 York is a party have been duly executed and delivered by York. III-4 (c) No authorization, approval or other action by, and no notice to or filing with any Governmental Authority or other Person, is required for the due execution, delivery and performance by York of the Agreement or any other Transaction Document to which it is a party. (d) Each of the Agreement and the other Transaction Documents to which York is a party constitutes the legal, valid and binding obligation of York enforceable against York in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) The balance sheets of York and its consolidated Subsidiaries as at December 31, 2000, and the related statements of income and retained earnings for the fiscal year then ended, copies of which have been furnished to the Administrator and each Purchaser Agent, fairly present the financial condition of York and its consolidated Subsidiaries as at such date and the results of the operations of York and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 31, 2000 there has been no event or circumstances which have had a Material Adverse Effect. (f) Except as disclosed in the most recent audited financial statements of York furnished to the Administrator and each Purchaser Agent, there is no pending or, to its best knowledge, threatened action or proceeding affecting it or any of its Subsidiaries before any Governmental Authority or arbitrator that could have a Material Adverse Effect. (g) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) Each Information Package (if prepared by York or one of its Affiliates, or to the extent that information contained therein is supplied by York 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, any Purchaser or any Purchaser Agent in connection with the Agreement is or will be complete and accurate in all material respects as of its date or as of the date so furnished and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (i) The principal place of business and chief executive office (as such terms are used in the UCC) of York and the office where it keeps its records concerning the Receivables are located at the address referred to in Section 2(b) of Exhibit IV to the Agreement. York is a corporation, organized under the laws of the State of Delaware and its organizational number is 2164946. III-5 (j) York is not in violation of any order of any court, arbitrator or Governmental Authority, which could have a Material Adverse Effect. (k) Neither York nor any of its Affiliates has any direct or indirect ownership or other financial interest in any Purchaser. (l) The Servicer has complied in all material respects with the Credit and Collection Policy of each Originator with regard to each Receivable originated by such Originator. (m) York 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. (n) York 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, York 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. (o) Since its most recent fiscal year end, there has been no change in the business, operations, financial condition, properties or assets of the Servicer which would have a Material Adverse Effect on its ability to perform its obligations under the Agreement or any other Transaction Document to which it is a party or materially and adversely affect the transactions contemplated under the Agreement or such other Transaction Documents. (p) [Reserved] (q) The Servicer has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. III-6 EXHIBIT IV COVENANTS 1. Covenants of the Seller. Until the latest of the Facility Termination Date, the date on which no Investment 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 any Purchaser, Purchaser Agent, the Administrator and any other Indemnified Party or Affected Person shall be paid in full: (a) Compliance with Laws, Etc. The Seller shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its organizational existence, rights, franchises, qualifications and privileges, except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications and privileges would not have a Material Adverse Effect. (b) Offices, Records and Books of Account, Etc. The Seller: (i) shall keep its principal place of business and chief executive office (as such terms or similar terms are used in the UCC) and the office where it keeps its records concerning the Receivables at the address of the Seller set forth under its name on the signature page to the Agreement and keep its state of organization at the state set forth in Section 1(a) of Exhibit III 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 Administrator (for the benefit of the Purchasers) in the Receivables and related items (including the Pool Assets) have been taken and completed and (ii) shall provide the Administrator with at least 30 days' written notice before making any change in the Seller's name or making any other change in the Seller's identity or organizational structure (including a Change in Control) that could render any UCC financing statement filed in connection with this Agreement "seriously misleading" as such term (or similar term) is used in the UCC or to be filed in the incorrect jurisdiction in order to protect and perfect the interest of the Administrator (for the benefit of the Purchasers) in the Receivables and related items (including the Pool Assets) as a first priority security interest; 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). The Seller will (and will cause each Originator to) on or prior to the date of the Agreement, mark its master data processing records and other books and records relating to the Purchased Interest (and at all times thereafter (until the latest of the Facility Termination Date or the date all other amounts owed by the Seller under the Agreement shall be paid in full) continue to maintain such records) with a legend, acceptable to the Administrator, describing the Purchased Interest. IV-1 (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller shall (and shall cause the Servicer to), at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables and timely and fully comply in all material respects with the applicable Credit and Collection Policies with regard to each Receivable and the related Contract. (d) Ownership Interest, Etc. The Seller shall (and shall cause the Servicer to), at its expense, take all action necessary or desirable to establish and maintain a valid and enforceable undivided percentage ownership or security interest, to the extent of the Purchased Interest which shall not be greater than 100%, 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 Administrator (for the benefit of the Purchasers), including taking such action to perfect, protect or more fully evidence the interest of the Administrator (for the benefit of the Purchasers) as the Administrator, may reasonably request. (e) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any or all of its right, title or interest in, to or under any Pool Assets (including the Seller's undivided interest in any Receivable, Related Security or Collections, or upon or with respect to any account to which any Collections of any Receivables are sent), or assign any right to receive income in respect of any items contemplated by this paragraph. (f) Extension or Amendment of Receivables. Except as provided in the Agreement, the Seller shall not, and shall not permit the Servicer to, extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any related Contract. (g) Change in Business or Credit and Collection Policy. The Seller shall not make (or permit any Originator to make) any change in the character of its business or in any Credit and Collection Policy that would have a Material Adverse Effect. The Seller shall not make (or permit any Originator to make) any other change in any Credit and Collection Policy without the prior written consent of thereof to the Administrator and each Purchaser Agent. (h) Audits. The Seller shall (and shall cause each Originator to), from time to time during regular business hours, but no more frequently than annually unless (x) a Termination Event or Unmatured Termination Event has occurred and is continuing or (y) in the opinion of the Administrator (with the consent or at the direction of the Majority Purchasers) reasonable grounds for insecurity exist with respect to the collectibility of a material portion of the Pool Receivables or with respect to the Seller's performance or ability to perform in any material respect its obligations under the Agreement, as reasonably requested in advance (unless a Termination Event or Unmatured Termination Event exists) by the Administrator or any Purchaser, permit the Administrator or any Purchaser, or agent or representatives of the Administration or any IV-2 Purchaser: (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in the possession or under the control of the Seller (or any such Originator) relating to Receivables and the Related Security, including the related Contracts, and (ii) to visit the offices and properties of the Seller and the Originators for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Security or the Seller's, York's or the Originator's performance under the Transaction Documents or under the Contracts with any of the officers, employees, agents or contractors of the Seller, York or the Originator having knowledge of such matters and (iii) without limiting clauses (i) and (ii) above, no more than once annually (unless a Termination Event or an Unmatured Termination Event exists or there shall be a material variance in the performance of the Receivables), during regular business hours, and upon reasonable prior notice, to engage certified public accountants or other auditors acceptable to the Seller and the Administrator to conduct, at the Seller's expense, a review of the Seller's books and records with respect to such Receivables. (i) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. The Seller shall not, and shall not permit the Servicer or any Originator to, add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account (or any related lock-box) from those listed in Schedule II to the Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Seller, the Originators, the Servicer or any Lock-Box Account (or related lock-box), unless the Administrator and the Majority Purchasers 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 reasonably request in connection therewith. Notwithstanding anything herein to the contrary, the Administrator and the Majority Purchasers shall not be required to consent in connection with the Seller's request to terminate and/or add any bank as a Lock-Box Bank and/or Lock-Box Account provided that the new Lock-Box Bank or Lock-Box Account to be added is (or is with) a commercial bank having a combined capital and surplus of at least $250,000,000. 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. (j) Deposits to Lock-Box Accounts. The Seller shall (or shall cause the Servicer to): (i) 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, and (ii) instruct all Obligors to make payments of all Receivables to one or more Lock-Box Accounts or to lock-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 lock-boxes to be removed and deposited into a Lock-Box Account on a daily basis). Each Lock-Box Account shall at all times be subject to a Lock-Box Agreement. The Seller will not (and will not permit the Servicer to) deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections. IV-3 (k) Reporting Requirements. The Seller will provide to the Administrator (in multiple copies, if requested by the Administrator) and each Purchaser Agent the following: (i) as soon as available and in any event within 90 days after the end of each fiscal year of the Seller, unaudited financial statements for such year certified as to accuracy by the chief financial officer or treasurer of the Seller; (ii) as soon as possible and in any event within five days after the occurrence of each Termination Event or Unmatured Termination Event, a statement of the chief financial officer of the Seller setting forth details of such Termination Event or Unmatured Termination Event and the action that the Seller has taken and proposes to take with respect thereto; (iii) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller or any Affiliate files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Seller or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any of its Affiliates is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition that could, in the aggregate, result in the imposition of material liability on the Seller and/or any such Affiliate; (iv) at least 30 days before any change in the Seller's name or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof; (v) promptly after the Seller obtains knowledge thereof, notice of any: (A) litigation, investigation or proceeding that may exist at any time between the Seller and any Person or (B) litigation or proceeding relating to any Transaction Document; (vi) promptly after obtaining knowledge thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Seller, the Servicer or any Originator; and (vii) such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Seller or any of its Affiliates as the Administrator or any Purchaser Agent may from time to time reasonably request. (l) Certain Agreements. Without the prior written consent of the Administrator and the Majority Purchasers, 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. IV-4 (m) Restricted Payments. (i) Except pursuant to clause (ii) below, the Seller will not: (A) purchase or redeem any shares of its capital stock, (B) declare or pay any dividend or set aside any funds for any such purpose, (C) prepay, purchase or redeem any Debt, (D) lend or advance any funds or (E) repay any loans or advances to, for or from any of its Affiliates (the amounts described in clauses (A) through (E) being referred to as "Restricted Payments"). (ii) Subject to the limitations set forth in clause (iii) below, the Seller may make Restricted Payments so long as such Restricted Payments are made only in one or more of the following ways: (A) the Seller may make cash payments (including prepayments) on the Company Note in accordance with its terms, and (B) if no amounts are then outstanding under the Company Note, the Seller may declare and pay dividends. (iii) The Seller may make Restricted Payments only out of the funds it receives pursuant to Sections 1.4(b)(ii) and (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 $20,000,000 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. (n) Other Business. The Seller will not: (i) engage in any business other than the transactions contemplated by the Transaction Documents; (ii) create, incur or permit to exist any Debt of any kind (or cause or permit to be issued for its account any letters of credit or bankers' acceptances) other than pursuant to this Agreement or the Company Note; or (iii) form any Subsidiary or make any investments in any other Person; provided, however, that the Seller shall be permitted to incur minimal obligations to the extent necessary for the day-to-day operations of the Seller (such as expenses for stationery, audits, maintenance of legal status, etc.). (o) 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 Purchaser Groups and the Administrator under the Agreement and under each Purchaser Group Fee Letter); (ii) the payment of accrued and unpaid interest on the Company Note; and (iii) other legal and valid organizational purposes. (p) Tangible Net Worth. The Seller will not permit its Tangible Net Worth, at any time, to be less than $20,000,000. 2. Covenants of the Servicer and York. Until the latest of the Facility Termination Date, the date on which no Investment 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 Purchaser Agents, the Purchasers, the Administrator and any other Indemnified Party or Affected Person shall be paid in full: IV-5 (a) Compliance with Laws, Etc. The Servicer and, to the extent that it ceases to be the Servicer, York shall comply (and shall cause each Originator to comply) in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges, except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications and privileges would not have a Material Adverse Effect. (b) Offices, Records and Books of Account, Etc. The Servicer and, to the extent that it ceases to be the Servicer, York, shall keep (and shall cause each Originator to keep) its principal place of business and chief executive office (as such terms or similar terms are used in the applicable UCC) and the office where it keeps its records concerning the Receivables at the address of the Servicer set forth under its name on the signature page to the Agreement or, upon at least 30 days' prior written notice of a proposed change to the Administrator, at any other locations in jurisdictions where all actions reasonably requested by the Administrator to protect and perfect the interest of the Administrator (for the benefit of each Purchaser) in the Receivables and related items (including the Pool Assets) have been taken and completed. The Servicer and, to the extent that it ceases to be the Servicer, York, 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). The Servicer will (and will cause each Originator to) on or prior to the date of the Agreement, mark its master data processing records and other books and records relating to the Purchased Interest (and at all times thereafter (until the latest of the Facility Termination Date or the date all other amounts owing by the Seller under the Agreement shall be paid in full) continue to maintain such records) with a legend, acceptable to the Administrator, describing the Purchased Interest. (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Servicer and, to the extent that it ceases to be the Servicer, York, shall (and shall cause each Originator to), at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and timely and fully comply in all material respects with the applicable Credit and Collection Policies with regard to each Receivable and the related Contract. (d) Extension or Amendment of Receivables. Except as provided in the Agreement, the Servicer and, to the extent that it ceases to be the Servicer, York, shall not extend (and shall not permit any Originator to extend), the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any related Contract. IV-6 (e) Change in Business or Credit and Collection Policy. The Servicer and, to the extent that it ceases to be the Servicer, York, shall not make (and shall not permit any Originator to make) any change in the character of its business or in any Credit and Collection Policy that would have a Material Adverse Effect. The Servicer and, to the extent that it ceases to be the Servicer, York, shall not make (and shall not permit any Originator to make) any other change in any Credit and Collection Policy without the prior written consent of the Administrator and each Purchaser Agent. (f) Audits. The Servicer and, to the extent that it ceases to be the Servicer, York, shall (and shall cause each Originator to), from time to time during regular business hours, but no more frequently than annual unless (x) a Termination Event or Unmatured Termination Event has occurred and is continuing or (y) in the opinion of the Administrator (with the consent or at the direction of the Majority Purchasers) reasonable grounds for insecurity exist with respect to the collectibility of a material portion of the Pool Receivables or with respect to the Servicer's performance or ability to perform in any material respect its obligations under the Agreement, as reasonably requested in advance (unless a Termination Event or Unmatured Termination Event exists) by the Administrator or a Purchaser, permit the Administrator or a Purchaser, or of the Administrator or any Purchaser agent or representative: (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in its possession or under its control relating to Receivables and the Related Security, including the related Contracts; and (ii) to visit its offices and properties for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Security or its performance hereunder or under the Contracts with any of its officers, employees, agents or contractors having knowledge of such matters and (iii) without limiting clauses (i) and (ii) above, no more than once annually (unless a Termination Event or an Unmatured Termination Event exists or there shall be a material variance in the performance of the Receivables), during regular business hours, and upon reasonable prior notice, to engage certified public accountants or other auditors acceptable to the Servicer and the Administrator to conduct, at the Servicer's expense, a review of the Servicer's books and records with respect to such Receivables. (g) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. The Servicer and, to the extent that it ceases to be the Servicer, York, shall not (and shall not permit any Originator to) add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account (or any related lock-box) from those listed in Schedule II to the Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Servicer or any Lock-Box Account (or related lock-box), unless the Administrator and the Majority Purchasers 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 reasonably request in connection therewith. Notwithstanding anything herein to the contrary, the Administrator and the Majority Purchasers shall not be required to consent in connection with the Servicer's request to terminate and/or add any bank as a Lock-Box Bank and/or Lock-Box Account provided that the new Lock-Box Bank or Lock-Box Account to be added is (or is with) a commercial bank having a combined capital and surplus of at least IV-7 $250,000,000. 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. (h) Deposits to Lock-Box Accounts. The Servicer shall: (i) deposit, or cause to be deposited, any Collections received by it into Lock-Box Accounts not later than one Business Day after receipt thereof, and (ii) instruct all Obligors to make payments of all Receivables to one or more Lock-Box Accounts or to lock-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 lock-boxes to be removed and deposited into a Lock-Box Account on a daily basis). Each Lock-Box Account shall at all times be subject to a Lock-Box Agreement. The Servicer will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections. (i) Reporting Requirements. York shall provide to the Administrator (in multiple copies, if requested by the Administrator) and each Purchaser Agent the following: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of York and the Seller, balance sheets of York and its consolidated Subsidiaries and of Seller as of the end of such quarter and statements of income, retained earnings and cash flow of York and its consolidated Subsidiaries and the Seller for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of such Person; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of York and of Seller, a copy of the annual report for such year for York and its consolidated Subsidiaries and the Seller, containing financial statements for such year audited by independent certified public accountants of nationally recognized standing; (iii) as to the Servicer only, as soon as available and in any event not later than two Business Days prior to the Settlement Date, an Information Package as of the last day of such month or, within 10 Business Days of a request by the Administrator or any Purchaser Agent, an Information Package for such periods as is specified by the Administrator or such Purchaser Agent (including on a semi-monthly, weekly or daily basis); (iv) as soon as possible and in any event within five days after becoming aware of the occurrence of each Termination Event or Unmatured Termination Event, a statement of the chief financial officer of York setting forth details of such Termination Event or Unmatured Termination Event and the action that such Person has taken and proposes to take with respect thereto; IV-8 (v) promptly after the sending or filing thereof, copies of all reports that York sends to any of its security holders, and copies of all reports and registration statements that York or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; provided, that any filings with the Securities and Exchange Commission that have been granted "confidential" treatment shall be provided promptly after such filings have become publicly available; (vi) promptly after the filing or receiving thereof, copies of all reports and notices that York 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 a liability on York and/or any such Affiliate; (vii) at least thirty days before any change in York's or any Originator's name or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof; (viii) promptly after York obtains knowledge thereof, notice of any: (A) litigation, investigation or proceeding that may exist at any time between York 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 $1,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; or (C) litigation or proceeding relating to any Transaction Document; (ix) promptly after obtaining knowledge thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Servicer, the Seller or York or any of its subsidiaries; (x) promptly after the occurrence thereof, notice of any downgrade of York; (xi) such other information respecting the Receivables or the condition or operations, financial or otherwise, of York or any of its Affiliates as the Administrator or any Purchaser Agent may from time to time reasonably request; and (xii) promptly after the occurrence thereof, notice of any material acquisition or investment by York of or in any Person, business or operation. 3. Separate Existence. Each of the Seller and York hereby acknowledges that the Purchasers, the Purchaser Agents, the Administrator and the Liquidity Providers are entering IV-9 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 York and its Affiliates. Therefore, from and after the date hereof, each of the Seller and York 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 York and any other Person, and is not a division of York, 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 York shall take such actions as shall be required in order that: (a) The Seller will be a limited purpose limited liability company whose primary activities are restricted in its limited liability company agreement to: (i) purchasing or otherwise acquiring from the Originators, owning, holding, granting security interests or selling interests in Pool Assets, (ii) entering into agreements for the selling and servicing of the Receivables Pool, and (iii) conducting such other activities as it deems necessary or appropriate to carry out its primary activities; (b) The Seller shall not engage in any business or activity, or incur any indebtedness or liability, other than as expressly permitted by the Transaction Documents; (c) Not less than one member of the Seller's Board of Directors (the "Independent Director") shall be an individual who is not a direct, indirect or beneficial stockholder, officer, director, employee, affiliate, associate or supplier of York or any of its Affiliates. The limited liability company agreement of the Seller shall provide that: (i) the Seller's Board of Directors shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Seller unless the Independent Director shall approve the taking of such action in writing before the taking of such action, and (ii) such provision cannot be amended without the prior written consent of the Independent Director; (d) The Independent Director shall not at any time serve as a trustee in bankruptcy for the Seller, York 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 to the Agreement. The Seller will not incur any material indirect or overhead expenses for items shared with York (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 IV-10 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 York shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including legal, agency and other fees; (g) The Seller's operating expenses will not be paid by York or any other Affiliate thereof; (h) All of the Seller's business correspondence and other communications shall be conducted in the Seller's own name and on its own separate stationery; (i) The Seller's books and records will be maintained separately from those of York and any other Affiliate thereof; (j) All financial statements of York or any Affiliate thereof that are consolidated to include Seller will contain detailed notes clearly stating that: (i) a special purpose limited liability company exists as a Subsidiary of York, 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 York or any Affiliate thereof; (l) The Seller will strictly observe organizational formalities in its dealings with York or any Affiliate thereof, and funds or other assets of the Seller will not be commingled with those of York 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 York or any Affiliate thereof (other than York 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 York or any Subsidiary or other Affiliate of York. 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; (m) The Seller will maintain arm's-length relationships with York (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 York 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 York will immediately correct any known misrepresentation with respect to the foregoing, and they will not operate or IV-11 purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity; and (n) York shall not pay the salaries of Seller's employees, if any. IV-12 EXHIBIT V TERMINATION EVENTS Each of the following shall be a "Termination Event": (a) (i) the Seller, York, any Originator or the Servicer shall fail to perform or observe any term, covenant or agreement under the Agreement or any other Transaction Document and, except as otherwise provided herein, such failure shall continue for more than 15 Business Days after knowledge or notice thereof, (ii) the Seller or the Servicer shall fail to make when due any payment or deposit to be made by it under the Agreement and such failure shall continue unremedied for one Business Day or (iii) York shall resign as Servicer, and no successor Servicer reasonably satisfactory to the Administrator and the Majority Purchasers shall have been appointed; (b) York (or any Affiliate thereof) shall fail to transfer to any successor Servicer when required any rights pursuant to the Agreement that York (or such Affiliate) then has as Servicer; (c) any representation or warranty made or deemed made by the Seller, York 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, York or any Originator or the Servicer pursuant to the Agreement or any other Transaction Document, shall prove to have been incorrect or untrue in any respect when made or deemed made or delivered; provided, however, if the violation of this paragraph (c) by the Seller, any Originator or the Servicer may be cured without any potential or actual detriment to the Issuer, the Administrator or any Program Support Provider, the Seller, such Originator or the Servicer, as applicable, shall have 15 Business Days from the earlier of (i) such Person's actual knowledge of such failure and (ii) notice to such Person of such failure to so cure any such violation before a Termination Event shall occur so long as such Person is diligently attempting to effect such cure; (d) the Seller or the Servicer shall fail to deliver the Information Package pursuant to the Agreement, and such failure shall remain unremedied for two Business Days; (e) the Agreement or any purchase or reinvestment pursuant to the Agreement shall for any reason: (i) cease to create, or the Purchased Interest shall for any reason cease to be, a valid and enforceable perfected undivided percentage ownership or security interest to the extent of the Purchased Interest in each Pool Receivable, the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, or (ii) cease to create with respect to the Pool Assets, or the interest of the Administrator (for the benefit of the Purchasers) with respect to such Pool Assets shall cease to be, a valid and enforceable first priority perfected security interest, free and clear of any Adverse Claim; (f) the Seller, York or any Originator shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller, York 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 V-1 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, York or any Originator shall take any organizational action to authorize any of the actions set forth above in this paragraph; (g) (i) (A) the Default Ratio shall exceed 4.00%, or (B) the Delinquency Ratio shall exceed 13.00% or (c) the Current Days' Sales Outstanding shall exceed 80 days or (ii) the average for three consecutive Fiscal Months of (A) the Default Ratio shall exceed 3.50%, (B) the Delinquency Ratio shall exceed 11.00%, or (C) the Dilution Ratio shall exceed 4.75%; (h) a Change in Control shall occur with respect to Seller, any Originator or York; (i) at any time (i) the sum of (A) the Aggregate Investment plus (B) the Total Reserves, exceeds (ii) the sum of (A) the Net Receivables Pool Balance at such time plus (B) the Purchasers' Share of the amount of Collections then on deposit in the Lock-Box Accounts (other than amounts set aside therein representing Discount and Fees), and such circumstance shall not have been cured within five days; (j) (i) York 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 $25,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement, mortgage, indenture or instrument relating to such Debt (and shall have not been waived); or (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 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 and such failure shall not be cured within 10 days, (ii) the Internal Revenue Service shall file a notice of lien asserting a claim or claims of $250,000 or more in the aggregate pursuant to the Internal Revenue Code with regard to any of the assets of Seller, any Originator, York or any ERISA Affiliate and such lien shall have been filed and not released within 10 days, or (iii) the Pension Benefit Guaranty Corporation shall, or shall indicate its intention in writing to the Seller, any Originator, York or any ERISA Affiliate to, either file a notice of lien asserting a claim pursuant to ERISA with regard to any assets of the Seller, any Originator, York or any ERISA Affiliate or terminate any V-2 Benefit Plan that has unfunded benefit liabilities, or any steps shall have been taken to terminate any Benefit Plan subject to Title IV of ERISA so as to result in any liability in excess of $1,000,000 and such lien shall have been filed and not released within 10 days; (l) one or more final judgments for the payment of money shall be entered against the Seller or (ii) one or more final judgments for the payment of money in an amount in excess of $20,000,000, individually or in the aggregate, shall be entered against the Servicer or any Originator on claims not covered by insurance or as to which the insurance carrier has denied its responsibility, and such judgment shall continue unsatisfied and in effect for sixty (60) consecutive days without a stay of execution; or (m) the "Purchase and Sale Termination Date" under and as defined in the Purchase and Sale Agreement shall occur under the Purchase and Sale Agreement or any Originator shall for any reason cease to transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables to the Seller under the Purchase and Sale Agreement. V-3 EXHIBIT VI SUPPLEMENTAL PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS In addition to the representations, warranties and covenants contained in Exhibit III and Exhibit IV hereof, the Seller hereby makes the following additional representations, warranties and covenants: 1. Receivables; Lock-box Accounts. (a) The Pool Receivables constitute "accounts", "general intangibles" or "tangible chattel paper", each within the meaning of the applicable UCC. (b) Lock-Box Accounts. Each Lock-Box Account constitutes a "deposit account" within the meaning of the applicable UCC. 2. Creation of Security Interest. The Seller owns and has good and marketable title to the Pool Receivables and Lock-Box Accounts (and the related lock-boxes), free and clear of any Adverse Claim. The Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Pool Receivables and the Lock-Box Accounts (and the related lock-boxes) in favor of the Administrator (for the benefit of the Purchasers), which security interest is prior to all other Adverse Claims and is enforceable as such as against any creditors of and purchasers from the Seller. 3. Perfection. (a) General. The Seller has or has caused, or will or will cause within ten days after the date hereof, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the sale of the Pool Receivables from the Originators to the Seller pursuant to the Purchase and Sale Agreement and the security interest granted by the Seller to the Administrator (for the benefit of the Purchasers) in the Receivables and Lock-Box Accounts (and the related lock-boxes) hereunder. (b) Tangible Chattel Paper. With respect to any Pool Receivable that constitutes "tangible chattel paper", the Servicer is in possession of the original copies of the tangible chattel paper that constitute or evidence such Pool Receivables, and the Seller has filed and has caused each Originator to file, or will file or will cause each Originator to file within ten days after the date hereof, the financing statements described in paragraph (a) above, each of which will contain a statement that: "A purchase of or a grant of a security interest in any property described in this financing statement will violate the rights of the Administrator." The Pool Receivables to the extent they are evidenced by "tangible chattel paper" do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Seller or the Administrator. (c) Lock-Box Accounts. With respect to all Lock-Box Accounts (and all related lock-boxes), the Seller has delivered to the Administrator, on behalf of the Purchasers, a fully executed Lock-Box Agreement pursuant to which the applicable Lock-Box Bank has agreed, following the occurrence and continuation of a Termination Event, to comply with all VI-1 instructions given by the Administrator with respect to all funds on deposit in such Lock-Box Account (and all funds sent to the respective lock-box), without further consent by the Seller or the Servicer. 4. Priority. (a) Other than the transfer of the Receivables by the Originators to the Seller pursuant to the Purchase and Sale Agreement and the grant of security interest by the Seller to the Administrator (for the benefit of the Purchasers) in the Pool Receivables and Lock-Box Accounts (and the related lock-boxes) hereunder, neither the Seller nor any Originator has pledged, assigned, sold, conveyed, or otherwise granted a security interest in any of the Pool Receivables or Lock-Box Accounts (and the related lock-boxes) to any other Person. (b) Neither the Seller nor any Originator has authorized, or is aware of, any filing of any financing statement against the Seller or any Originator that include a description of collateral covering the Pool Receivables or any other Pool Assets, other than any financing statement filed pursuant to the Purchase and Sale Agreement and the Agreement or financing statements that have been validly terminated prior to the date hereof. (c) The Seller is not aware of any judgment, ERISA or tax lien filings against either the Seller or any Originator. (d) None of the Lock-Box Accounts (and the related lock-boxes) are in the name of any Person other than the Seller or the Administrator. Neither the Seller, the Servicer or any Originator has consented to any Lock-Box Bank's complying with instructions of any person other than the Administrator. 5. Survival of Supplemental Representations. Notwithstanding any other provision of the Agreement or any other Transaction Document, the representations contained in this Exhibit VI shall be continuing, and remain in full force and effect until such time as all the Investment has finally been paid in full and all other obligations of the Seller under the Agreement or any other Transaction Documents have been fully performed. 6. No Waiver. The parties to the Agreement: (i) shall not, without obtaining a written confirmation of the then-current rating of the Notes by the rating agencies then rating the Notes, waive any of the representations set forth in this Exhibit VI; (ii) shall provide the ratings agencies rating the Notes with prompt written notice of any breach of any representations set forth in this Exhibit VI, and (iii) shall not, without obtaining a written confirmation of the then-current rating of the Notes by the rating agencies then rating the Notes (as determined after any adjustment or withdrawal of the ratings following notice of such breach) waive a breach of any of the representations set forth in this Exhibit VI. 7. Seller or Servicer to Maintain Perfection and Priority. In order to evidence the interests of the Administrator under this Agreement, the Seller or Servicer shall, from time to time take such action, or execute and deliver such instruments (other than filing financing statements) as may be necessary or advisable (including, without limitation, such actions as are requested by the Administrator on behalf of the Purchasers) to maintain and perfect, as a first-priority interest, the Administrator's security interest (for the benefit of the Purchasers) in VI-2 the Pool Assets. The Seller or Servicer shall, from time to time and within the time limits established by law, prepare and present to the Administrator for the Administrator's authorization and approval all financing statements, amendments, continuations or initial financing statements in lieu of a continuation statement, or other filings necessary to continue, maintain and perfect the Administrator's security interest (for the benefit of the Purchasers in the Pool Assets as a first-priority interest. The Administrator's approval of such filings shall authorize the Seller or Servicer to file such financing statements under the UCC without the signature of the Seller, any Originator or the Administrator where allowed by applicable law. Notwithstanding anything else in the Transaction Documents to the contrary, neither the Seller, the Servicer, nor any Originator, shall have any authority to file a termination, partial termination, release, partial release or any amendment that deletes the name of a debtor or excludes collateral of any such financing statements, without the prior written consent of the Administrator, on behalf of the Purchasers. VI-3 SCHEDULE I CREDIT AND COLLECTION POLICY Schedule I-1 SCHEDULE II LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
Lock-Box Bank Lock-Box Account Bank of America, N.A. 100561 3750203390 281181 3750203390 198247 3750203390 96823 7188101154 91760 7188101154 91286 7188101154 96696 7188101154 54521 123570522 N/A 3750682319 First Union National Bank N/A 2095380336562 PNC Bank, National Association 5092 2285978 64 2285978 840 2285978 910013 2286671
Schedule II-1 SCHEDULE III TRADE NAMES
Organizational Name Trade Names / Fictitious Names York Receivables Funding LLC None
Schedule III-1 ANNEX A TO RECEIVABLES PURCHASE AGREEMENT FORM OF INFORMATION PACKAGE Annex A-2 ANNEX B TO RECEIVABLES PURCHASE AGREEMENT FORM OF PURCHASE NOTICE December 21, 2001 PNC Bank, National Association One PNC Plaza, 3rd Floor 249 Fifth Avenue Pittsburgh, PA 15222-2707 Ladies and Gentlemen: Reference is hereby made to the Receivables Purchase Agreement, dated as of December 21, 2001 (as heretofore amended or supplemented, the " Receivables Purchase Agreement"), among York Receivables Funding LLC ("Seller "), York International Corporation, as Servicer, Market Street Funding Corporation, Liberty Street Funding Corp., The Bank of Nova Scotia, the various other Purchaser Groups from time to time a party thereto and PNC Bank National Association, (the "Administrator"). Capitalized terms used in this Purchase Notice and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. This letter constitutes a Purchase Notice pursuant to Section 1.2(a) of the Receivables Purchase Agreement. Seller desires to sell an undivided variable interest in a pool of receivables on ___________, [2001], for a purchase price of $____________. Subsequent to this Purchase, the Aggregate Investment will be $___________. Each Purchaser's Purchaser Group Ratable Share of such Purchase is set forth on Schedule I attached hereto. Seller hereby represents and warrants as of the date hereof, and as of the date of Purchase, as follows: (i) the representations and warranties contained in Exhibit III of the Receivables Purchase Agreement are correct on and as of such dates as though made on and as of such dates and shall be deemed to have been made on such dates; (ii) no Termination Event or Unmatured Termination Event has occurred and is continuing, or would result from such purchase; (iii) after giving effect to the purchase proposed hereby, the Purchased Interest will not exceed 100% and the Aggregate Investment will not exceed the Purchase Limit; and (iv) the Facility Termination Date shall not have occurred. IN WITNESS WHEREOF, the undersigned has caused this Purchase Notice to be executed by its duly authorized officer as of the date first above written. Annex B-1 YORK RECEIVABLES FUNDING LLC By: ______________________________________________ Name Printed__________________________________ Title:________________________________________ Annex B-2 SCHEDULE I TO PURCHASE NOTICE Purchaser Group Purchaser Ratable Share Annex B-3 ANNEX C TO RECEIVABLES PURCHASE AGREEMENT FORM OF ASSUMPTION AGREEMENT THIS ASSUMPTION AGREEMENT (this "Agreement"), dated as of [______ __, ____], is among YORK RECEIVABLES FUNDING LLC (the "Seller"), [________], as purchaser (the "[_____]Conduit Purchaser"), [________], as the related committed purchaser (the "[______] Related Committed Purchaser" and together with the Conduit Purchaser, the "[_____] Purchasers"), and [________], as agent for the Purchasers (the "[______] Purchaser Agent" and together with the Purchasers, the "[_______] Purchaser Group"). BACKGROUND The Seller and various others are parties to a certain Receivables Purchase Agreement dated as of December 21, 2001 (as amended through the date hereof, the "Receivables Purchase Agreement"). Capitalized terms used and not otherwise defined herein have the respective meaning assigned to such terms in the Receivables Purchase Agreement. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. This letter constitutes an Assumption Agreement pursuant to Section 1.2(e) of the Receivables Purchase Agreement. The Seller desires [the [_____] Purchasers] [the [______] Related Committed Purchaser] to [become Purchasers under] [increase its existing Commitment under] the Receivables Purchase Agreement and upon the terms and subject to the conditions set forth in the Receivables Purchase Agreement, the [________] Purchasers agree to [become Purchasers thereunder] [increase its Commitment in an amount equal to the amount set forth as the "Commitment" under the signature of the [______] Related Committed Purchaser hereto]. Seller hereby represents and warrants to the [________] Purchasers as of the date hereof, as follows: (i) the representations and warranties contained in Exhibit III of the Receivables Purchase Agreement are correct on and as of such dates as though made on and as of such dates and shall be deemed to have been made on such dates; (ii) no Termination Event or Unmatured Termination Event has occurred and is continuing, or would result from such purchase; and (iii) the Facility Termination Date shall not have occurred. SECTION 2. Upon execution and delivery of this Assumption Agreement by the Seller and each member of the [______] Purchaser Group, satisfaction of the other conditions to assignment specified in Section 1.2(e) of the Receivables Purchase Agreement (including the consent of the Administrator and each of the other Purchasers party thereto) and receipt by the Administrator of counterparts of this Agreement (whether by facsimile or otherwise) executed by Annex C-1 each of the parties hereto, [the [_____] Purchasers shall become a party to, and have the rights and obligations of Purchasers under, the Receivables Purchase Agreement] [the [______] Related Committed Purchaser shall increase its Commitment in the amount set forth as the "Commitment" under the signature of the [______] Related Committed Purchaser, hereto]. SECTION 3. Each party hereto hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, any Conduit Purchaser, 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 Notes issued by such Conduit Purchaser is paid in full. The covenant contained in this paragraph shall survive any termination of the Receivables Purchase Agreement. SECTION 4. THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement may not be amended, supplemented or waived except pursuant to a writing signed by the party to be charged. This Agreement may be executed in counterparts, and by the different parties on different counterparts, each of which shall constitute an original, but all together shall constitute one and the same agreement. (continued on following page) Annex C-2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written. [___________], as a Conduit Purchaser By: ______________________________________________ Name Printed:_________________________________ Title:________________________________________ [Address] [___________], as a Related Committed Purchaser By: ______________________________________________ Name Printed:_________________________________ Title:________________________________________ [Address] [Commitment] [_____________], as Purchaser Agent for [_________] By: ______________________________________________ Name Printed:_________________________________ Title:________________________________________ [Address] Annex C-3 YORK RECEIVABLES FUNDING LLC, as Seller By:__________________________________________________ Name Printed:________________________________________ Title:_______________________________________________ Consented and Agreed: PNC BANK, NATIONAL ASSOCIATION, as Administrator By:__________________________________________________ Name Printed:________________________________________ Title:_______________________________________________ Consented and Agreed: [THE PURCHASERS] Annex C-4 ANNEX D TO RECEIVABLES PURCHASE AGREEMENT FORM OF TRANSFER SUPPLEMENT WITH RESPECT TO YORK RECEIVABLES FUNDING LLC RECEIVABLES PURCHASE AGREEMENT [------- --, ------] Section 1. [Commitment assigned: $_______ Assignor's remaining Commitment: $_______ Investment allocable to Commitment assigned: $_______ Investment assigned:](1) Assignor's remaining Investment: $_______ Discount (if any) allocable to Investment assigned: $_______ Discount(if any) allocable to Assignor's remaining Investment: $_______ Section 2. Effective Date of this Transfer Supplement: [__________] Upon execution and delivery of this Transfer Supplement by transferee and transferor and the satisfaction of the other conditions to assignment specified in [Section 6.3(c)] [Section 6.3(e)] of the Receivables Purchase Agreement, from and after the effective date specified above, the transferee shall become a party to, and have the rights and obligations of a [Conduit Purchaser] [Related Committed Purchaser] under, the Receivables Purchase Agreement dated as of December 21, 2001 (as amended through the date hereof, the Receivables Purchase Agreement), among YORK RECEIVABLES FUNDING LLC, YORK INTERNATIONAL CORPORATION and various other parties. - ----------------------- 1 Bracketed language is only applicable to assignments by Related Committed Purchasers pursuant to Section 6.3(c). Annex D-1 ASSIGNOR [_________], as a [Related Committed Purchaser for [_______]] [Conduit Purchaser] By: ____________________________________________________________ Name:_______________________________________________________ Title:______________________________________________________ ASSIGNEE: [_________], as a [Related Committed Purchaser for [_______]] [Conduit Purchaser] By: ____________________________________________________________ Name:_______________________________________________________ Title:______________________________________________________ [Address] [Commitment Assigned](2) - --------------------- 2 Bracketed language is only applicable to assignments by Related Committed Purchasers pursuant to Section 6.3(c). Annex D-2 Accepted as of date first above written: [--------------------------------------------------], as Purchaser Agent for the [______] Purchaser Group By: ________________________________________________ Name:___________________________________________ Title:__________________________________________ Annex D-3 ANNEX E TO RECEIVABLES PURCHASE AGREEMENT FORM OF PAYDOWN NOTICE December 21, 2001 PNC Bank, National Association One PNC Plaza, 3rd Floor 249 Fifth Avenue Pittsburgh, PA 15222-2707 Ladies and Gentlemen: Reference is hereby made to the Receivables Purchase Agreement, dated as of December 21, 2001 (as heretofore amended or supplemented, the " Receivables Purchase Agreement"), among York Receivables Funding LLC ("Seller "), York International Corporation, as Servicer, Market Street Funding Corporation, Liberty Street Funding Corp., The Bank of Nova Scotia, the various other Purchaser Groups from time to time a party thereto and PNC Bank National Association, (the "Administrator"). Capitalized terms used in this Purchase Notice and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Purchase Agreement. This letter constitutes a Paydown Notice pursuant to Section 1.4(f)(i) of the Receivables Purchase Agreement. Seller desires to reduce the Aggregate Investment on ______________, ___ by(3) the application of $____________ in cash to pay the Aggregate Investment and Discount to accrue (until such cash can be used to pay commercial paper notes) with respect to such Aggregate Investment, together with all cost related to such reduction of Aggregate Investment. - ----------------- 3 Notice must be given at least five Business Days' prior to the requested paydown date, in the case of reductions in excess of $10,000,000, or at least two Business Days prior to the requested paydown date, in case of reductions of $10,000,000 or less. Annex E-1 IN WITNESS WHEREOF, the undersigned has caused this Paydown Notice to be executed by its duly authorized officer as of the date first above written. YORK RECEIVABLES FUNDING LLC By: ____________________________________________ Name Printed:_______________________________ Title:______________________________________ Annex E-2 TABLE OF CONTENTS
Page 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...............................4 Section 1.4 Settlement Procedures........................................4 Section 1.5 Fees.........................................................9 Section 1.6 Payments and Computations, Etc...............................9 Section 1.7 Increased Costs.............................................10 Section 1.8 Requirements of Law.........................................11 Section 1.9 Inability to Determine Euro-Rate............................12 Section 1.10 Extension of Termination Date...............................13 ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1 Representations and Warranties; Covenants...................14 Section 2.2 Termination Events..........................................14 ARTICLE III INDEMNIFICATION Section 3.1 Indemnities by the Seller...................................14 Section 3.2 Indemnities by the Servicer.................................16 ARTICLE IV ADMINISTRATION AND COLLECTIONS Section 4.1 Appointment of the Servicer.................................17 Section 4.2 Duties of the Servicer......................................18 Section 4.3 Lock-Box Account Arrangements...............................19 Section 4.4 Enforcement Rights..........................................19 Section 4.5 Responsibilities of the Seller..............................21 Section 4.6 Servicing Fee...............................................21 ARTICLE V THE AGENTS Section 5.1 Appointment and Authorization...............................21 Section 5.2 Delegation of Duties........................................23 Section 5.3 Exculpatory Provisions......................................23 Section 5.4 Reliance by Agents..........................................23 Section 5.5 Notice of Termination Events................................24 Section 5.6 Non-Reliance on Administrator, Purchaser Agents and Other Purchasers..........................................24 Section 5.7 Administrators and Affiliates...............................25 Section 5.8 Indemnification.............................................25
-i- TABLE OF CONTENTS (continued)
Page Section 5.9 Successor Administrator.....................................25 ARTICLE VI MISCELLANEOUS Section 6.1 Amendments, Etc.............................................26 Section 6.2 Notices, Etc................................................26 Section 6.3 Successors and Assigns; Participations; Assignments.........27 Section 6.4 Costs, Expenses and Taxes...................................29 Section 6.5 No Proceedings; Limitation on Payments......................29 Section 6.6 GOVERNING LAW AND JURISDICTION..............................29 Section 6.7 Execution in Counterparts...................................30 Section 6.8 Survival of Termination.....................................30 Section 6.9 WAIVER OF JURY TRIAL........................................30 Section 6.10 Sharing of Recoveries.......................................31 Section 6.11 Right of Setoff.............................................31 Section 6.12 Entire Agreement............................................31 Section 6.13 Headings....................................................31 Section 6.14 Purchaser Groups' Liabilities...............................31 Section 6.15 Confidentiality.............................................32
EXHIBIT I Definitions EXHIBIT II Conditions of Purchases EXHIBIT III Representations and Warranties EXHIBIT IV Covenants EXHIBIT V Termination Events EXHIBIT VI Supplemental Perfection Representations, Warranties and Covenants SCHEDULE I Credit and Collection Policy SCHEDULE II Lock-Box Banks and Lock-Box Accounts SCHEDULE III Trade Names SCHEDULE IV Fiscal Months ANNEX A Form of Information Package ANNEX B Form of Purchase Notice ANNEX C Form of Assumption Agreement ANNEX D Form of Transfer Supplement ANNEX E Form of Paydown Notice -ii- EX-4.7 4 w58431ex4-7.txt PURCHASE AND SALE AGREEMENT EXHIBIT 4.7 PURCHASE AND SALE AGREEMENT Dated as of December 21, 2001 between VARIOUS ENTITIES LISTED ON SCHEDULE I, as the Originators and YORK RECEIVABLES FUNDING LLC THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of December 21, 2001, is entered into between VARIOUS ENTITIES LISTED ON SCHEDULE I (each, an "Originator"; and collectively, "Originators"), and YORK RECEIVABLES FUNDING LLC a Delaware limited liability company (the "Company"). DEFINITIONS Unless otherwise indicated herein, capitalized terms used in this Agreement are defined in Exhibit I to the Receivables Purchase Agreement of even date herewith (as the same may be amended, supplemented or otherwise modified from time to time, the "Receivables Purchase Agreement") among the Company, as the Seller, York International Corporation (individually, "York"), as the initial Servicer, Market Street Funding Corporation, Liberty Street Funding Corp., The Bank of Nova Scotia, the members of the various other Purchaser Groups from time to time a party thereto, and PNC Bank, National Association, as the Administrator. All references herein to months are to Fiscal Months unless otherwise expressly indicated. BACKGROUND: 1. The Company is a special purpose limited liability company, all of the issued and outstanding shares of which are owned by York International Corporation. 2. The Originators generate Receivables in the ordinary course of their businesses. 3. The Originators, in order to finance their respective businesses, wish to sell Receivables to the Company, and the Company is willing to purchase Receivables from the Originators, on the terms and subject to the conditions set forth herein. 4. The Originators and the Company intend this transaction to be a true sale of Receivables by each Originator to the Company, providing the Company with the full benefits of ownership of the Receivables, and the Originators and the Company do not intend the transactions hereunder to be characterized as a loan from the Company to any Originator. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I AGREEMENT TO PURCHASE AND SELL SECTION 1.1 Agreement To Purchase and Sell. On the terms and subject to the conditions set forth in this Agreement, each Originator, severally and for itself, agrees to sell to the Company, and the Company agrees to purchase from such Originator, from time to time on or after the Closing Date, but before the Purchase and Sale Termination Date, all of such Originator's right, title and interest in and to: (a) each Receivable of such Originator that existed and was owing to such Originator at the closing of such Originator's business on October 28, 2001 (the "Cut-off Date") other than Receivables contributed pursuant to Section 1.6 (the "Contributed Receivables"); (b) each Receivable generated by such Originator from and including the Cut-off Date to and including the Purchase and Sale Termination Date (other than any Receivable later contributed pursuant to the second sentence of Section 3.1); (c) all rights to, but not the obligations of such Originator under all Related Security; (d) all monies due or to become due to such Originator with respect to any of the foregoing; (e) all books and records of such Originator related to any of the foregoing and all rights, remedies, powers, privileges, title and interest of such Originator in each lock-box and related lock-box address and account to which Collections are sent, all amounts on deposit therein, all certificates and instruments, if any, from time to time evidencing such accounts and amounts on deposit therein, and all related agreements between such Originator and each Lock-Box Bank; and (f) all collections and other proceeds and products of any of the foregoing (as defined in the applicable UCC) that are or were received by such Originator on or after the Cut-off Date, 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, invoice price, finance charges, interest and all other charges) in respect of Receivables, or are applied to such, amounts owed by the Obligors (including, without limitation, any insurance payments that such Originator or the Servicer applies in the ordinary course of its business to amounts owed in respect of any Receivable, and net proceeds of sale or other disposition of repossessed goods or other collateral or property of the Obligors in respect of Receivables or any other parties directly or indirectly liable for payment of such Receivables). 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 the Originators set forth in this Agreement and each other Transaction Document. No obligation or liability to any Obligor on any Receivable is intended to be assumed by the Company hereunder, and any such assumption is expressly disclaimed. The Company's foregoing commitment to purchase Receivables and the proceeds and rights described in clauses (c) through (f) (collectively, the "Related Rights") is herein called the "Purchase Facility." SECTION 1.2 Timing of Purchases. (a) Closing Date Purchases. Each Originator's entire right, title and in (i) each Receivable that existed and was owing to such Originator at the Cut-off Date (other than Contributed Receivables), (ii) all Receivables created by such Originator from and including the Cut-off Date, to and including the Closing Date (other than Contributed Receivables), and (iii) all Related Rights with respect thereto automatically shall be deemed to have been sold by such Originator to the Company on the Closing Date. (b) Subsequent Purchases. After the Closing Date, until the Purchase and Sale Termination Date, each Receivable and the Related Rights generated by each Originator 2 shall be deemed to have been sold by such Originator to the Company immediately (and without further action) upon the creation of such Receivable. SECTION 1.3 Consideration for Purchases. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to make Purchase Price payments to the Originators in accordance with Article III and to reflect all contributions in accordance with Section 1.6. SECTION 1.4 Purchase and Sale Termination Date. The "Purchase and Sale Termination Date" shall be the earliest to occur of (a) the date the Purchase Facility is terminated pursuant to Section 8.2, (b) the Facility Termination Date and (c) the Payment Date immediately following the day on which Originators shall have given written notice to the Company at or prior to 10:00 a.m. (New York City time) that the Originators desire to terminate this Agreement. SECTION 1.5 Intention of the Parties. It is the express intent of the parties hereto that the transfers of the Receivables and Related Rights by the Originators to the Company, as contemplated by this Agreement be, shall be treated as sales or contributions, as applicable (without recourse except as provided herein), of all of the Originators' right, title and interest in, to and under the Receivables or the Contributed Receivables, as applicable, and Related Rights, and not as loans secured by the Receivables and Related Rights. If, however, notwithstanding the intent of the parties, such transactions are deemed to be loans, each Originator hereby grants to the Company a first priority security interest in all of such Originator's right, title and interest in and to: (i) the Receivables and the Related Rights now existing and hereafter created by such Originator, (ii) all monies due or to become due and all amounts received with respect thereto, (iii) all books and records of such Originator related to any of the foregoing, and all rights, remedies, powers, privileges, title and interest of such Originator in each lock-box and related lock-box address and account to which Collections are sent, all amounts on deposit therein, all certificates and instruments, if any, from time to time evidencing such accounts and amounts on deposit therein, and all related agreements between such Originator and each Lock-Box Bank; and (iv) all collections and other proceeds and products of any of the foregoing to secure all of such Originator's obligations hereunder. SECTION 1.6 Contribution of Receivables. On the Closing Date, York shall, and hereby does, contribute to the capital of the Company Receivables and Related Rights consisting of each Receivable of York that existed and was owing to York on the Closing Date beginning with the oldest of such Receivables and continuing chronologically thereafter such that the aggregate Outstanding Balance of all such Contributed Receivables shall be equal to $20,000,000 Notwithstanding anything in this Agreement to the contrary, no Originator shall be prevented from contributing Receivables to the Company from time to time; provided, however that such Originator shall provide the Administrator with prior written notice of the date and amount of each such contribution. Contributions made in connection with the immediately preceding sentence (i) shall have no effect on the aggregate Purchase Price of any Receivables sold by any Originator to the Company on the date of such contribution and (ii) shall not effect the aggregate outstanding balance of any Company Note. 3 SECTION 1.7 Additional Originators. Additional Persons may be added as Originators hereunder, with the consent of the Company, the Purchaser Agents and the Administrator, provided that following conditions are satisfied on or before the date of such addition: (a) The Servicer shall have given the Purchaser Agents, and the Administrator and the Company at least thirty days prior written notice of such proposed addition and the identity of the proposed additional Originator and shall have provided such other information with respect to such proposed additional Originator as the Administrator or the Purchaser Agents may reasonably request; (b) such proposed additional Originator has executed and delivered to the Company, the Purchaser Agents and the Administrator an agreement substantially in the form attached hereto as Exhibit C (a "Joinder Agreement"); (c) such proposed additional Originator has delivered to the Company, Purchaser Agents and the Administrator each of the documents with respect to such Originator described in Sections 4.1 and 4.2 to the extent applicable; (d) the receivables intended to be sold by such additional Originator to the Company hereunder shall be Receivables; and (e) no Purchase and Sale Termination Date shall have occurred. ARTICLE II PURCHASE REPORT; CALCULATION OF PURCHASE PRICE SECTION 2.1 Purchase Report. On the Closing Date and on each Settlement Date, the Servicer shall deliver to the Company and each Originator a report in substantially the form of Exhibit A (each such report being herein called a "Purchase Report") setting forth, among other things: (a) Receivables purchased by the Company from each Originator on the Closing Date (in the case of the Purchase Report to be delivered on the Closing Date); (b) Receivables purchased by the Company from each Originator during the period commencing on the Settlement Date immediately preceding such Settlement Date to (but not including) such Settlement Date (in the case of each subsequent Purchase Report); and (c) the calculations of reductions of the Purchase Price for any Receivables as provided in Section 3.3 (a) and (b). --------------- ---- SECTION 2.2 Calculation of Purchase Price. The "Purchase Price" to be paid to each Originator for the Receivables that are purchased hereunder from such Originator shall be determined in accordance with the following formula: PP = OB x FMVD where: 4 PP = Purchase Price for each Receivable as calculated on the relevant Payment Date. OB = The Outstanding Balance of such Receivable on the relevant Payment Date. FMVD= Fair Market Value Discount, as measured on such Payment Date, which is equal to the quotient (expressed as percentage) of (a) one divided by (b) the sum of (i) one, plus (ii) the product of (A) the Prime Rate on such Payment Date plus 0.25% and (B) a fraction, the numerator of which is the Turnover Rate (calculated as of the last day of the Yield Period next preceding such Payment Date) and the denominator of which is 12. "Payment Date" means (i) the Closing Date and (ii) each Business Day thereafter that Originators are open for business. "Prime Rate" means a per annum rate equal to the "Prime Rate" as published in the "Money Rates" section of The Wall Street Journal or if such information ceases to be published in The Wall Street Journal, such other publication as determined by the Administrator in its reasonable discretion. ARTICLE III PAYMENT OF PURCHASE PRICE SECTION 3.1 Initial Purchase Price Payment. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to pay to each Originator the Purchase Price for the purchase to be made from such Originator on the Closing Date partially in cash (in an amount to be agreed between the Company and such Originator and set forth in the initial Purchase Report) and partially by issuing a promissory note in the form of Exhibit B to such Originator with an initial principal balance equal to the remaining Purchase Price (each such promissory note, as it may be amended, supplemented, endorsed or otherwise modified from time to time, together with all promissory notes issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, each being herein called a "Company Note"). SECTION 3.2 Subsequent Purchase Price Payments. On each Payment Date subsequent to the Closing Date, on the terms and subject to the conditions set forth in this Agreement, the Company shall pay to each Originator the Purchase Price for the Receivables generated by such Originator on such Payment Date: (a) First, in cash to the extent the Company has cash available therefor; and (b) Second, to the extent any portion of the Purchase Price remains unpaid, the principal amount outstanding under the applicable Company Note shall be increased by an amount equal to such remaining Purchase Price. 5 The Servicer shall make all appropriate record keeping entries with respect to each of the Company Notes to reflect the foregoing payments and reductions made pursuant to Section 3.3, and the Servicer's books and records shall constitute rebuttable presumptive evidence of the principal amount of, and accrued interest on, each of the Company Notes at any time. Furthermore, the Servicer shall hold the Company Notes for the benefit of the applicable Originator. Each Originator hereby irrevocably authorizes the Servicer to mark the Company Notes "CANCELED" and to return such Company Notes to the Company upon the final payment thereof after the occurrence of the Purchase and Sale Termination Date. SECTION 3.3 Settlement as to Specific Receivables and Dilution. (a) If, on the day of purchase or contribution of any Receivable from an Originator hereunder, any of the representations or warranties set forth in Sections 5.4 and 5.12 are not true with respect to such Receivable or as a result of any action of such Originator or any inaction of such Originator, on any subsequent day, any of such representations or warranties set forth in Sections 5.4 and 5.12 is no longer true with respect to such Receivable, 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 Receivable shall be reduced by an amount equal to the Outstanding Balance of such Receivable and shall be accounted to such Originator as provided in clause (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 or cause the Servicer to deliver such funds to such Originator. (b) 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 setoff or dispute between any 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 Originator), then the Purchase Price or 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 clause (c) below. (c) Any reduction in the Purchase Price or Contributed Value of any Receivable pursuant to clause (a) or (b) above shall be applied as a credit for the account of the Company against the Purchase Price of Receivables subsequently purchased by the Company from such Originator hereunder; provided, however if there have been no purchases of Receivables from such Originator (or insufficiently large purchases of Receivables) to create a Purchase Price sufficient to so apply such credit against, the amount of such credit: (i) shall be paid in cash to the Company by such Originator in the manner and for application as described in the following proviso, or (ii) shall be deemed to be a payment under, and shall be deducted from the principal amount outstanding under, the Company Note payable to such Originator; 6 provided, further, that at any time (y) when a Termination Event or Unmatured Termination Event exists under the Receivables Purchase Agreement or (z) on or after the Purchase and Sale Termination Date, the amount of any such credit shall be paid by such Originator to the Company by deposit in immediately available funds into the relevant Lock-Box Account for application by the Servicer to the same extent as if Collections of the applicable Receivable in such amount had actually been received on such date. SECTION 3.4 Reconveyance of Receivables. In the event that an Originator has paid to the Company the full Outstanding Balance of any Receivable pursuant to Section 3.3, the Company shall reconvey such Receivable to such Originator, without representation or warranty, but free and clear of all liens, security interests, charges, and encumbrances created by the Company. ARTICLE IV CONDITIONS OF PURCHASES SECTION 4.1 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 and substance satisfactory to the Company: (a) An Originator Assignment Certificate in the form of Exhibit D from each Originator, duly completed, executed and delivered by each Originator; (b) A copy of the resolutions of the Board of Directors (or a duly constituted and authorized committee thereof) 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; (c) Good standing certificates for each Originator issued as of a recent date acceptable to the Servicer by the Secretary of State of the jurisdiction of such Originator's organization and the jurisdiction where such Originator maintains it's chief executive office; (d) A certificate of the Secretary or Assistant Secretary of each Originator certifying the names and true signatures of the officers authorized on such Person's behalf to sign the Transaction Documents to be delivered by it (on which certificate the Servicer and the Company may conclusively rely until such time as the Servicer shall receive from such Person a revised certificate meeting the requirements of this clause (d)); (e) The certificate or articles of incorporation or other organizational document of each Originator duly certified by the Secretary of State of the jurisdiction of such Originator's organization as of a recent date, together with a copy of the by-laws of such Originator, each duly certified by the Secretary or an Assistant Secretary of such Originator; (f) Originals of 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 the Administrator, as assignee of the Company) of the Receivables generated by such Originator as may be necessary or, in the Servicer's or the Administrator's 7 opinion, desirable under the UCC of all appropriate jurisdictions to perfect the Company's ownership interest in all Receivables and such other rights, accounts, instruments and moneys (including, without limitation, Related Security) in which an ownership or security interest may be assigned to it hereunder; (g) A written search report from a Person satisfactory to the Company listing all effective financing statements that name the Originators as debtors or sellers and that are filed in the jurisdictions in which filings were made pursuant to the foregoing clause (f), together with copies of such financing statements (none of which, except for those described in the foregoing clause (f), shall cover any Receivable or any Related Rights which are to be sold to the Company hereunder), and tax and judgment lien search reports from a Person satisfactory to the Servicer showing no evidence of such liens filed against any Originator; (h) A favorable opinion of Blank Rome Comisky & McCauley LLP, counsel to the Originators, in form and substance satisfactory to the Servicer and the Administrator; (i) A Company Note in favor of each Originator, duly executed by the Company; and (j) A certificate from an officer of each Originator to the effect that the Servicer and such Originator have placed on the most recent, and have taken all steps reasonably necessary to ensure that there shall be placed on each subsequent, data processing report that it generates which are of the type that a proposed purchaser or lender would use to evaluate the Receivables, the following legend (or the substantive equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF DECEMBER 21, 2001, AS THE SAME MAY FROM TO TIME TO TIME BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED, BETWEEN CERTAIN ENTITIES LISTED ON SCHEDULE I THERETO, AS ORIGINATORS, AND YORK RECEIVABLES FUNDING LLC, AS PURCHASER, AND AN UNDIVIDED, FRACTIONAL OWNERSHIP INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN SOLD TO THE ADMINISTRATOR ON BEHALF OF THE PURCHASERS PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 21, 2001 AS THE SAME MAY FROM TO TIME TO TIME BE AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED, AMONG YORK RECEIVABLES FUNDING LLC, AS SELLER, YORK INTERNATIONAL CORPORATION, AS SERVICER, MARKET STREET FUNDING CORPORATION, LIBERTY STREET FUNDING CORP., THE BANK OF NOVA SCOTIA, THE MEMBERS OF THE VARIOUS OTHER PURCHASER GROUPS FROM TIME TO TIME A PARTY THERETO, AND PNC BANK, NATIONAL ASSOCIATION, AS ADMINISTRATOR."; and (k) Such other approvals, opinions or documents as the Administrator or the Issuer may reasonably request. SECTION 4.2 Certification as to Representations and Warranties. Each Originator, by accepting the Purchase Price related to each purchase of Receivables generated by such Originator, shall be deemed to have certified that the representations and warranties contained in 8 Article V are true and correct on and as of such day, with the same effect as though made on and as of such day. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR In order to induce the Company to enter into this Agreement and to make purchases hereunder, each Originator hereby makes, with respect to itself, the representations and warranties set forth in this Article V. SECTION 5.1 Organization and Good Standing. Such Originator has been duly incorporated or formed and is validly existing as a corporation, limited liability company or partnership, as applicable, in good standing under the laws of its jurisdiction of incorporation or formation, 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. SECTION 5.2 Due Qualification. Such Originator is located and is qualified to transact business as a foreign corporation, limited liability company or partnership, as applicable, in good standing in all jurisdictions in which (a) the ownership or lease of its property or the conduct of its business requires such licensing or qualification and (b) the failure to be so licensed or qualified would be reasonably likely to have a Material Adverse Effect. SECTION 5.3 Power and Authority; Due Authorization. Such Originator has (a) all necessary power, authority and legal right (i) to execute and deliver, and perform its obligations under, each Transaction Document to which it is a party and (ii) to generate, own, sell, contribute and assign Receivables on the terms and subject to the conditions herein and therein provided; and (b) duly authorized such execution and delivery and such sale, contribution and assignment and the performance of such obligations by all necessary corporate action. SECTION 5.4 Valid Sale; Binding Obligations. Each sale or contribution, as the case may be, of Receivables made by such Originator pursuant to this Agreement shall constitute a valid sale or contribution, as the case may be, transfer, and assignment of Receivables to the Company, enforceable against creditors of, and purchasers from, such Originator; and this Agreement constitutes, and each other Transaction Document to be signed by such Originator, when duly executed and delivered, will constitute, a legal, valid, and binding obligation of such Originator, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. SECTION 5.5 No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents, and the fulfillment of the terms hereof or thereof, will not (a) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under (i) such Originator's certificate or articles of incorporation or bylaws, limited partnership agreements, articles of organization or limited liability company agreements, as applicable or (ii) any indenture, loan agreement, mortgage, deed of trust, or other material agreement or instrument to which it is a 9 party or by which it is bound, (b) result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument, other than the Transaction Documents, or (c) violate any law or any order, rule or regulation applicable to it of any court or of any state or foreign regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over it or any of its properties. SECTION 5.6 Proceedings. Except as set forth in Schedule 5.6, there is no action, suit, proceeding or investigation pending before any court, regulatory body, arbitrator, administrative agency, or other tribunal or governmental instrumentality (a) asserting the invalidity of any Transaction Document, (b) seeking to prevent such Originator from transferring any Receivable hereunder (or in the case such transfer does not constitute a sale under any applicable law, from granting or maintaining the security interest in any Receivable) to the Purchaser or the consummation of any of the transactions contemplated by any Transaction Document or (c) seeking any determination or ruling that is reasonably likely to have a Material Adverse Effect. SECTION 5.7 Bulk Sales Acts. No transaction contemplated hereby requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. SECTION 5.8 Government Approvals. Except for the filing of the UCC financing statements referred to in Article IV, all of which, at the time required in Article IV, shall have been duly made and shall be in full force and effect, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for Originator's due execution, delivery and performance of any Transaction Document to which it is a party. SECTION 5.9 Financial Condition. (a) Material Adverse Effect. Since June 30, 2001, no event has occurred that has had, or is reasonably likely to have, a Material Adverse Effect. (b) Solvent. On the date hereof, and on the date of each purchase hereunder (both before and after giving effect to such purchase), such Originator shall be Solvent. SECTION 5.10 Licenses, Contingent Liabilities, and Labor Controversies. (a) Such Originator has not failed to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure to obtain would be reasonably likely to have a Material Adverse Effect. (b) There are no labor controversies pending against such Originator that have had (or are reasonably likely to have) a Material Adverse Effect. SECTION 5.11 Margin Regulations. No use of any funds acquired by any Originator under this Agreement will conflict with or contravene any of Regulations, T, U and X promulgated by the Federal Reserve Board from time to time. 10 SECTION 5.12 Quality of Title. (a) Each Receivable of such Originator (together with the Related Rights with respect to such Receivable) which is to be sold to the Company hereunder is or shall be owned by such Originator, free and clear of any Adverse Claim, except as provided herein and in the Receivables Purchase Agreement. Whenever the Company makes a purchase or accepts a contribution hereunder, it shall have acquired and shall continue to have maintained a valid and perfected ownership interest (free and clear of any Adverse Claim) in all Receivables generated by such Originator and all Collections related thereto, and in Originator's entire right, title and interest in and to the Related Rights with respect thereto. (b) No effective financing statement or other instrument similar in effect covering any Receivable generated by such Originator or any Related Rights is on file in any recording office except such as may be filed in favor of the Company or the Originators, as the case may be, in accordance with this Agreement or in favor of the Administrator, on behalf of the Purchasers in accordance with the Receivables Purchase Agreement. (c) Unless otherwise identified to the Company on the date of the purchase or contribution hereunder, each Receivable purchased hereunder is on the date of purchase or contribution an Eligible Receivable. SECTION 5.13 Accuracy of Information. All factual written information heretofore or contemporaneously furnished (and prepared) by such Originator to the Company or the Administrator for purposes of or in connection with any Transaction Document or any transaction contemplated hereby or thereby is, and all other such factual written information hereafter furnished (and prepared) by such Originator to the Company or the Administrator pursuant to or in connection with any Transaction Document will be, true and accurate in all material respects on the date as of which such information is dated or certified. SECTION 5.14 Offices. Such Originator's principal place of business and chief executive office is located at the address set forth on Schedule 5.14A, and the office where such Originator keeps its books, records and documents evidencing its Receivables, the related Contracts and all other agreements related to such Receivables are located at the addresses specified in Schedule 5.14B (or such other locations, notified to the Servicer and the Administrator in accordance with Section 6.1(f), in the jurisdictions where all action required by Section 7.3 has been taken and completed). The Originator's organization type, jurisdiction of organization and organizational number are set forth on Schedule 5.14A. SECTION 5.15 Trade Names. Such Originator does not use any trade name other than its actual corporate name and the trade names set forth in Schedule 5.15. From and after the date that fell five (5) years before the date hereof, except as set forth in Schedule 5.15, 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. SECTION 5.16 Taxes. Such Originator has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by 11 appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 5.17 Compliance with Applicable Laws. Such Originator is in compliance with the requirements of all applicable laws, rules, regulations and orders of all governmental authorities, a breach of any of which, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect. SECTION 5.18 Reliance on Separate Legal Identity. Such Originator acknowledges that the Purchasers, the Purchaser Agents and the Administrator are entering into the Receivables Purchase Agreement in reliance upon the Company's identity as a legal entity separate from such Originator. SECTION 5.19 Investment Company. Such Originator 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, such Originator 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. SECTION 5.20 Valid Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). SECTION 5.21 Perfection Representation. The perfection representations and warranties set forth in Exhibit VI of the Receivables Purchase Agreement shall be a part of this Agreement for all purposes. ARTICLE VI COVENANTS OF THE ORIGINATORS SECTION 6.1 Affirmative Covenants. 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 on which all other amounts owed by the Originator under this Agreement or the Receivables Purchase Agreement to the Seller, the Issuer, the Administrator and any other Indemnified Party or Affected Person shall be paid in full, each Originator will, unless the Administrator and the Company shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to the Receivables generated by it and the Contracts and other agreements related thereto except where the failure to so comply would not materially and adversely affect the collectibility of such Receivables or the rights of the Company hereunder. 12 (b) Preservation of Corporate Existence. Preserve and maintain its existence as a corporation, partnership or limited liability company, as applicable, and all rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation, partnership or limited liability company, as applicable, in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would be reasonably likely to have a Material Adverse Effect. (c) Receivables Reviews. (i) At any time and from time to time during regular business hours, but no more frequently than annually unless (x) a Purchase and Sale Termination Event or an Unmatured Purchase and Sale Termination Event has occurred and is continuing or (y) or in the opinion of the Administrator (with consent or at the direction of the Majority Purchasers) reasonable grounds for insecurity exist with respect to the collectibility of a material portion of the Receivables or with respect to such Originator's performance or ability to perform in any material respect its obligations under the Agreement, as reasonably requested in advance (unless a Purchase and Sale Termination Event or an Unmatured Purchase and Sale Termination Event exists) by the Administrator or the Company, permit the Company or the Administrator, or their respective agents or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in possession or under the control of each Originator relating to Receivables, including, without limitation, the related Contracts and purchase orders and other agreements related thereto, and (B) to visit the offices and properties of such Originator for the purpose of examining such materials described in clause (i)(A) next above and to discuss matters relating to Receivables originated by it or the performance hereunder with any of the officers or employees of each Originator having knowledge of such matters, and (ii) without limiting the foregoing clause (i) above, from time to time on reasonable request of the Administrator, permit certified public accountants or other auditors acceptable to the Company and Administrator to conduct, at the Company's expense, a review of such Originator's books and records with respect to such Receivables. (d) Keeping of Records and Books of Account. Maintain and implement administrative and operating procedures (including, without limitation, an ability to re-create records evidencing Receivables it generates in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of such Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (e) Performance and Compliance with Receivables and Contracts. Timely and fully perform and comply, in all material respects with all provisions, covenants and other promises required to be observed by it under the Contracts and all other agreements related to the Receivables that it generates. (f) Location of Records. Keep its principal place of business and chief executive office, and the offices where it keeps its records concerning or related to Receivables, at the address(es) referred to in Schedule 5.14 or, upon 15 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. 13 (g) Credit and Collection Policies. Comply in all material respects with its Credit and Collection Policy in connection with the Receivables that it generates and all Contracts and other agreements related thereto. (h) Post Office Boxes. On or prior to the date hereof, deliver to the Servicer (on behalf of the Company) a certificate from an authorized officer of such Originator to the effect that (i) the name of the renter of all post office boxes into which Collections may from time to time be mailed have been changed to the name of the Company (unless such post office boxes are in the name of the relevant Lock-Box Banks) and (ii) all relevant postmasters have been notified that each of the Servicer and the Administrator are authorized to collect mail delivered to such post office boxes (unless such post office boxes are in the name of the relevant Lock-Box Banks). (i) Transaction Documents. Comply in all material respects with the Transaction Documents to which it is a party. (j) Change Affecting UCC. At least 30 days before any change in such Originator's name or any other change requiring the amendment of UCC financing statements, provide to Company and Servicer notice setting forth such changes and the effective date thereof and, upon the effectiveness of such change, take all steps necessary to amend such financing statements to reflect such change. (k) Perfection Covenants. The perfection covenants set forth in Exhibit VI to the Receivables Purchase Agreement shall be a part of this Agreement for all purposes. SECTION 6.2 Reporting Requirements. 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 on which all other amounts owed by the Originator under this Agreement or the Receivables Purchase Agreement to the Seller, the Issuer, the Administrator and any other Indemnified Party or Affected Person shall be paid in full, each Originator will, unless the Servicer (on behalf of the Company) shall otherwise consent in writing, furnish to the Company and the Administrator: (a) Purchase and Sale Termination Events. As soon as possible after the Originator has knowledge of the occurrence of, and in any event within five Business Days after the Originator has knowledge of the occurrence of each Purchase and Sale Termination Event or each Unmatured Purchase and Sale Termination Event in respect of such Originator, the statement of the chief financial officer or chief accounting officer of such Originator describing such Purchase and Sale Termination Event or Unmatured Purchase and Sale Termination Event and the action that such Originator proposes to take with respect thereto, in each case in reasonable detail; (b) Proceedings. As soon as possible and in any event within three Business Days after Originator otherwise has knowledge thereof, written notice of (i) litigation, investigation or proceeding of the type described in Section 5.6 not previously disclosed to the Company and (ii) all material adverse developments that have occurred with respect to any previously disclosed litigation, proceedings and investigations; and 14 (c) Other. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the conditions or operations, financial or otherwise, of such Originator as the Company, the Purchasers, the Purchaser Agents or the Administrator may from time to time reasonably request in order to protect the interests of the Company, the Purchasers, the Purchaser Agents or the Administrator under or as contemplated by the Transaction Documents. SECTION 6.3 Negative Covenants. 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 on which all other amounts owed by the Originator under this Agreement or the Receivables Purchase Agreement to the Seller, the Issuer, the Administrator and any other Indemnified Party or Affected Person shall be paid in full, each Originator agrees that, unless the Servicer (on behalf of the Company) and the Administrator shall otherwise consent in writing, it shall not: (a) Sales, Liens, Etc. Except as otherwise provided herein or in any other Transaction Document, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Receivable or related Contract or Related Security, or any interest therein, or any Collections thereon, or assign any right to receive income in respect thereof. (b) Extension or Amendment of Receivables. Except as otherwise permitted in Section 4.2(a) of the Receivables Purchase Agreement, extend, amend or otherwise modify the terms of any Receivable in any material respect generated by it, or amend, modify or waive, in any material respect, any Contract related thereto (which term or condition relates to payments under, or the enforcement of, such Contract). (c) Change in Business or Credit and Collection Policy. Make any change in the character of its business or alter its Credit and Collection Policy, to the extent that such change or alteration would, in either case, materially adversely change the credit standing required of particular Obligors or potential Obligors or impair the collectibility of a material portion of the Receivables generated by it. (d) Receivables Not to be Evidenced by Promissory Notes or Chattel Paper. Take any action to cause or permit any Receivable generated by it to become evidenced by any "instrument" or "chattel paper" (as defined in the applicable UCC). (e) Mergers, Acquisitions, Sales, etc. (i) Be a party to any merger or consolidation, except a merger or consolidation where such Originator is the surviving entity or is merged or consolidated with another Originator, or (ii) directly or indirectly sell, transfer, assign, convey or lease (other than to another Originator or wholly-owned Subsidiary thereof) (A) whether in one or a series of transactions, all or substantially all of its assets or (B) any Receivables or any interest therein (other than pursuant to this Agreement). (f) Location of Chief Executive Offices and Records. Move its principal place of business and chief executive office (as such terms are used in the UCC) and the offices where it keeps its records concerning or related to the Receivables, to an address other than the 15 addresses set forth on Schedule 5.14 or, upon 30 days' prior written notice to the Company and the Administrator, at such other locations in jurisdictions where all action required by Section 7.3 shall have been taken and completed. (g) Lock-Box Banks. Make any changes in its instructions to Obligors regarding Collections or add or terminate any bank as a Lock-Box Bank unless the requirements of paragraph 2(g) of Exhibit IV to the Receivables Purchase Agreement have been met. (h) Accounting for Purchases. Account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than as sales of the Receivables and Related Rights by such Originator to the Company. (i) 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 Document. SECTION 6.4 Substantive Consolidation. Each Originator hereby acknowledges that this Agreement and the other Transaction Documents are being entered into in reliance upon the Company's identity as a legal entity separate from such Originator and its Affiliates. Therefore, from and after the date hereof, each Originator shall take all reasonable steps necessary to make it apparent to third Persons that the Company is an entity with assets and liabilities distinct from those of such Originator and any other Person, and is not a division or department of such Originator, 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, such Originator shall take such actions as shall be required in order that: (a) such Originator shall not be involved in the day to day management of the Company; (b) such Originator shall maintain separate corporate records and books of account from the Company and otherwise will observe corporate formalities and have a separate area from the Company for its business; (c) the financial statements and books and records of such Originator shall be prepared after the date of creation of the Company to reflect and shall reflect the separate existence of the Company; provided, that the Company's assets and liabilities may be included in a consolidated financial statement issued by an affiliate of the Company; provided, however, that any such consolidated financial statement or the notes thereto shall make clear that the Company's assets are not available to satisfy the obligations of such affiliate; (d) except as permitted by the Receivables Purchase Agreement, (i) such Originator shall maintain its assets separately from the assets of the Company, (ii) and the Originator's assets, and records relating thereto, have not been, are not, and shall not be, commingled with those of the Company; (e) all of the Company's business correspondence and other communications shall be conducted in the Company's own name and on its own stationery; 16 (f) such Originator shall not act as an agent for the Company, other than York International Corporation in its capacity as the Servicer, and in connection therewith, shall present itself to the public as a servicing agent for the Company and a legal entity separate from the Company; (g) such Originator shall not conduct any of the business of the Company in its own name; (h) such Originator shall not pay any liabilities of the Company out of its own funds or assets; (i) such Originator shall maintain an arm's-length relationship with the Company; (j) such Originator shall not assume or guarantee or become obligated for the debts of the Company or hold out its credit as being available to satisfy the obligations of the Company or seek credit for its own account based on the assets of the Company; (k) such Originator shall not acquire obligations of the Company; (l) such Originator shall allocate fairly and reasonably overhead or other expenses that are properly shared with the Company, including, without limitation, shared office space; (m) such Originator shall identify and hold itself out as a separate and distinct entity from the Company; (n) such Originator shall correct any known misunderstanding respecting its separate identity from the Company; (o) such Originator shall not enter into, or be a party to, any transaction with the Company, except in the ordinary course of its business and on terms which are intrinsically fair and not less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party; and (p) such Originator shall not pay the salaries of the Company's employees, if any. The provisions of this Section 6.4 shall survive any termination of this Agreement. ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF RECEIVABLES SECTION 7.1 Rights of the Company. Each Originator hereby authorizes the Company, 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, including, without limitation, indorsing the name of such Originator on checks 17 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. SECTION 7.2 Responsibilities of the Originators. Anything herein to the contrary notwithstanding: (a) Collection Procedures. Each Originator agrees to direct its respective Obligors to make payments of Receivables directly to a post office box related to the relevant Lock-Box Account at a Lock-Box Bank. Each Originator further agrees to transfer any Collections that it receives directly to the Servicer (for the Company's account) within one (1) Business Day of receipt thereof, and agrees that all such Collections shall be deemed to be received in trust for the Company and shall be maintained and segregated separate and apart from all other funds and monies of Originator until transfer of such Collections to the Servicer. (b) Each Originator shall perform its obligations hereunder, and the exercise by the Company or its designee of its rights hereunder shall not relieve such Originator from such obligations. (c) None of the Company, the Servicer or the Administrator shall have any obligation or liability to any Obligor or any other third Person with respect to any Receivables, Contracts related thereto or any other related agreements, nor shall the Company, the Servicer, the Purchasers, the Purchaser Agents or the Administrator be obligated to perform any of the obligations of such Originator thereunder. (d) Each Originator hereby grants to the Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of such Originator all steps necessary or advisable to endorse, 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. SECTION 7.3 Further Action Evidencing Purchases. Each Originator agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Servicer may reasonably request in order to perfect, protect or more fully evidence the Receivables and Related Rights purchased or contributed by the Company hereunder, or to enable the Company to exercise or enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, upon the request of the Servicer, such Originator will: (a) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; and (b) mark the master data processing records that evidence or list (i) such Receivables and (ii) related Contracts with the legend set forth in Section 4.1(j). 18 Each Originator hereby authorizes the Company or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Rights now existing or hereafter generated by 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 the performance of, such agreement or obligation, and the expenses of the Company or its designee incurred in connection therewith shall be payable by Originator as provided in Section 9.1. SECTION 7.4 Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to any Originator shall, except as otherwise specified by such Obligor or required by applicable law and unless otherwise instructed by the Servicer (with the prior written consent of the Administrator) or the Administrator, be applied as a Collection of any Receivable or Receivables of such Obligor to the extent of any amounts then due and payable thereunder before being applied to any other indebtedness of such Obligor. ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS SECTION 8.1 Purchase and Sale Termination Events. Each of the following events or occurrences described in this Section 8.1 shall constitute a "Purchase and Sale Termination Event": (a) A Termination Event (as defined in the Receivables Purchase Agreement) shall have occurred and, in the case of a Termination Event (other than one described in paragraph (f) of Exhibit V of the Receivables Purchase Agreement), the Administrator, shall have declared the Facility Termination Date to have occurred; or (b) Any Originator shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for one (1) Business Day; or (c) Any representation or warranty made or deemed to be made by any Originator (or any of its officers) under or in connection with this Agreement, any other Transaction Documents, or any other information or report delivered pursuant hereto or thereto shall prove to have been false or incorrect in any material respect when made or deemed made; provided, however, if the violation of this paragraph (c) by any Originator may be cured without any potential or actual detriment to the Company, the applicable Originator shall have 15 Business Days from the earlier of (i) such Originator's actual knowledge of such failure and (ii) notice to such Originator of such failure to so cure any such violation before a Purchase and Sale Termination Event shall occur so long as such Originator is diligently attempting to effect such cure; or (d) Any Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and such failure shall remain unremedied for 15 Business Days after written notice thereof shall have been given by the Servicer to such Originator. 19 SECTION 8.2 Remedies. (a) Optional Termination. Upon the occurrence of a Purchase and Sale Termination Event, the Company (and not the Servicer) shall have the option, by notice to the Originators (with a copy to the Administrator), to declare the Purchase and Sale Termination Date. (b) Remedies Cumulative. Upon any termination of the Purchase Facility pursuant to Section 8.2(a), the Company shall have, in addition to all other rights and remedies under this Agreement, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. ARTICLE IX INDEMNIFICATION SECTION 9.1 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 hereby agrees to indemnify the Company and each of its 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 failure of such Originator to perform its obligations under this Agreement or any other Transaction Document, or arising out of the claims asserted against a Purchase and Sale Indemnified Party relating to the transactions contemplated herein or therein or the use of proceeds thereof or therefrom, excluding, however, (i) Purchase and Sale Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Purchase and Sale Indemnified Party, (ii) any indemnification which has the effect of recourse for non-payment of the Receivables to any indemnitor (except as otherwise specifically provided under this Section 9.1) and (iii) any tax based upon or measured by net income property, or gross receipts. Without limiting but subject to the foregoing, each Originator, severally for itself alone, shall indemnify each Purchase and Sale Indemnified Party for Purchase and Sale Indemnified Amounts relating to or resulting from: (a) the transfer by such Originator of an interest in any Receivable to any Person other than the Company; (b) the breach of any representation or warranty made by such Originator (or any of its officers) under or in connection with this Agreement or any other Transaction Document, or any information or report delivered by Originator pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made; (c) the failure by such Originator to comply with any applicable law, rule or regulation with respect to any Receivable generated by such Originator or the related Contract, or the nonconformity of any Receivable generated by such Originator or the related Contract with any such applicable law, rule or regulation; 20 (d) the failure to vest and maintain vested in the Company an ownership interest in the Receivables generated by such Originator free and clear of any Adverse Claim, other than an Adverse Claim arising solely as a result of an act of the Company, the Purchaser or the Administrator whether existing at the time of the purchase or contribution of such Receivables or at any time thereafter; (e) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or purported Receivables generated by such Originator, whether at the time of any purchase or contribution or at any subsequent time; (f) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable or purported Receivable generated by such Originator (including, without limitation, a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the services related to any such Receivable or the furnishing of or failure to furnish such services; (g) any product liability claim arising out of or in connection with services that are the subject of any Receivable generated by such Originator; and (h) any tax or governmental fee or charge (other than any tax excluded pursuant to clause (iii) in the proviso to the preceding sentence), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Receivables generated by such Originator or any Related Security connected with any such Receivables. If for any reason the indemnification provided above in this Section 9.1 is unavailable to a Purchase and Sale Indemnified Party or is insufficient to hold such Purchase and Sale Indemnified Party harmless, then each of the Originators, severally and for itself, shall contribute to the amount paid or payable by such Purchase and Sale Indemnified Party to the maximum extent permitted under applicable law. ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments, etc. (a) The provisions of this Agreement may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and executed by the Company and each Originator (with the prior written consent of the Administrator). (b) No failure or delay on the part of the Company, the Servicer, any Originator or any third party beneficiary in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company, the Servicer or any Originator in any case shall entitle it to any notice 21 or demand in similar or other circumstances. No waiver or approval by the Company or the Servicer under this Agreement shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval under this Agreement shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. (c) The Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter thereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter thereof, superseding all prior oral or written understandings. SECTION 10.2 Notices, etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be sent or delivered to each party hereto at its address set forth under its name on the signature pages hereof (or in any Joinder Agreement pursuant to which it became a party hereto) or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. SECTION 10.3 No Waiver; Cumulative Remedies. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, each Originator hereby authorizes the Company, at any time and from time to time, to the fullest extent permitted by law, to set off, against any obligations of such Originator to the Company arising in connection with the Transaction Documents (including, without limitation, amounts payable pursuant to Section 9.1) that are then due and payable or that are not then due and payable but are accruing in respect of the then current Yield Period, any and all indebtedness at any time owing by the Company to or for the credit or the account of such Originator. SECTION 10.4 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. No Originator may assign any of its rights hereunder or any interest herein without the prior written consent of the Company, except as otherwise herein specifically provided. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time as the parties hereto shall agree. The rights and remedies with respect to any breach of any representation and warranty made by any Originator pursuant to Article V and the indemnification and payment provisions of Article IX and Section 10.6 shall be continuing and shall survive any termination of this Agreement. SECTION 10.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 10.6 Costs, Expenses and Taxes. In addition to the obligations of the Originators under Article IX, each Originator, severally and for itself alone, agrees to pay on demand: 22 (a) to the Company (and any successor and permitted assigns thereof) all reasonable costs and expenses incurred by such Person in connection with the enforcement of this Agreement and the other Transaction Documents; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents to be delivered hereunder, and agrees to indemnify each Purchase and Sale Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 10.7 SUBMISSION TO JURISDICTION. EACH PARTY HERETO HEREBY IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF STATE OF NEW YORK OR THE FEDERAL COURT 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, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; (d) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION 10.2; AND (e) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 10.7 SHALL AFFECT THE COMPANY'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY ORIGINATOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS. SECTION 10.8 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT (a) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND (b) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD PARTY BENEFICIARY OF THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY. SECTION 10.9 Captions and Cross References; Incorporation by Reference. The various captions (including, without limitation, the table of contents) in this Agreement are included for 23 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. SECTION 10.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 10.11 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 (but not its obligations), shall be assigned by the Company pursuant to the Receivables Purchase Agreement, and each Originator consents to such assignment. Each of the parties hereto acknowledges and agrees that the Administrator, the Purchaser Agents and the Purchasers are third party beneficiaries of the rights of the Company arising hereunder and under the other Transaction Documents to which any Originator is a party. SECTION 10.12 No Proceeding. (a) Each Originator hereby agrees that it will not institute against, or cause to be instituted against the Company, or join any other Person in instituting, against the Company any Insolvency Proceeding so long as any of the Company Notes remains outstanding and for at least one year and one day following the day on which the aggregate outstanding principal amount of each Company Note is paid in full. (b) Each Originator hereby agrees that it will not institute against, or cause to be instituted against, any Conduit Purchaser or join any other Person in instituting against any Conduit Purchaser, any Insolvency Proceeding so long as any Notes shall be outstanding and for at least one year and one day after the latest maturing Note issued by such Conduit Purchaser is paid in full. The provisions of this Section 10.12(b) shall survive any termination of this Agreement. SECTION 10.13 Limited Recourse. Except as explicitly set forth herein, the obligations of the Company under this Agreement or any other Transaction Documents to which it is a party are solely the obligations of the Company. No recourse under any Transaction Document shall be had against, and no liability shall attach to, any officer, employee, director, or beneficiary, whether directly or indirectly, of the Company. [SIGNATURE PAGES FOLLOW] 24 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. YORK RECEIVABLES FUNDING LLC By: _______________________________________ Name:__________________________________ Title:_________________________________ Address: York Receivables Funding LLC 1403 Foulk Road, Suite 102 Wilmington, Delaware 19803 Attention: James P. Corcoran Telephone: (717) 771-7438 Facsimile: (717) 771-6843 With a copy to: Address: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103-6998 Attention: Michael Medveckus Telephone: (215) 569-5335 Facsimile: (215) 569-5399 S-1 ORIGINATORS: YORK INTERNATIONAL CORPORATION By: _______________________________________ Name:__________________________________ Title:_________________________________ Address: York International Corporation 631 S. Richland Avenue York, Pennsylvania 17403 Attention: James P. Corcoran Telephone: (717) 771-7438 Facsimile: (717) 771-6843 BRISTOL COMPRESSORS, INC. By: _______________________________________ Name:__________________________________ Title:_________________________________ Address: Bristol Compressors, Inc. 15185 Industrial Park Road Bristol, VA 24201 Attention: James P. Corcoran Telephone: (276) 466-2423 Facsimile: (276) 466-2423 S-2 Schedule I LIST OF ORIGINATORS York International Corporation Bristol Compressors, Inc. Schedule I-1 Schedule 5.6 PROCEEDINGS NONE. Schedule 5.6-1 Schedule 5.14A CHIEF EXECUTIVE OFFICE/ORGANIZATION
JURISDICTION OF ORGANIZATIONAL ORGANIZATION AND IDENTIFICATION ORIGINATOR TYPE OF ORGANIZATION CHIEF EXECUTIVE OFFICE NUMBER ---------- -------------------- ---------------------- --------------- York International Corporation Delaware 631 S. Richland Avenue 2164946 York, Pennsylvania 17403 Bristol Compressors, Inc. Delaware 15185 Industrial Park Road 2411779 Bristol, VA 24201
Schedule 5.14A-1 Schedule 5.14B LOCATION OF BOOKS AND RECORDS OF EACH ORIGINATOR
ORIGINATOR LOCATION OF BOOKS AND RECORDS - ---------- ----------------------------- York International Corporation 631 S. Richland Avenue York, Pennsylvania 17403 Bristol Compressors, Inc. 15185 Industrial Park Road Bristol, Virginia 24201
Schedule 5.14B-1 Schedule 5.15 TRADE NAMES Legal Name Trade Names ---------- ----------- Schedule 5.15-1 Exhibit A FORM OF PURCHASE REPORT Originator: Purchaser: York Receivables Funding LLC Payment Date: 1. Outstanding Balance of Receivables Purchased: 2. Fair Market Value Discount: 1/{1 + [(Prime Rate + 0.25%) x Turnover Rate]} 12 Where: Prime Rate = __________ Turnover Rate = __________ 3. Purchase Price (1 x 2) = $ __________ Exhibit A-1 Exhibit B FORM OF COMPANY NOTE December ___, 2001 FOR VALUE RECEIVED, the undersigned, [YORK RECEIVABLES FUNDING LLC], a Delaware limited liability company ("Company"), promises to pay to [NAME OF THE ORIGINATOR], a _________ [CORPORATION] [LIMITED LIABILITY COMPANY] [LIMITED PARTNERSHIP] (the "Originator"), on the terms and subject to the conditions set forth herein and in the Purchase and Sale Agreement referred to below, the aggregate unpaid Purchase Price of all Receivables purchased by the Company from the Originator pursuant to such Purchase and Sale Agreement, as such unpaid Purchase Price is shown in the records of the Servicer. 1. Purchase and Sale Agreement. This Company Note is one of the Company Notes described in, and is subject to the terms and conditions set forth in, that certain Purchase and Sale Agreement of even date herewith (as the same may be amended, supplemented, amended and restated or otherwise modified in accordance with its terms, the "Purchase and Sale Agreement"), between the Company and the various entities listed on Schedule I thereto, including the Originator. Reference is hereby made to the Purchase and Sale Agreement for a statement of certain other rights and obligations of the Company and the Originator. 2. Definitions. Capitalized terms used (but not defined) herein have the meanings assigned thereto in Exhibit I to the Receivables Purchase Agreement (as defined in the Purchase and Sale Agreement). In addition, as used herein, the following terms have the following meanings: "Bankruptcy Proceedings" has the meaning set forth in clause (b) of paragraph 9 hereof. "Final Maturity Date" means the Payment Date immediately following the date that falls one hundred twenty one (121) days after the Purchase and Sale Termination Date. "Interest Period" means the period from and including a Settlement Date (or, in the case of the first Interest Period, the date hereof) to but excluding the next Settlement Date. "Prime Rate" has the meaning assigned thereto in the Purchase and Sale Agreement. "Receivables Purchase Agreement" means the Receivables Purchase Agreement, dated as of December 21, 2001, entered into among the York Receivables Funding LLC, York International Corporation, Market Street Funding Corporation, Liberty Street Funding Corp., The Bank of Nova Scotia, the members of the various other Purchaser Groups from time to time a party thereto and PNC Bank, National Association. "Senior Interests" means, collectively, (i) all accrued and unpaid Discount, (ii) all fees payable by the Company to the Senior Interest Holders pursuant to the Receivables Purchase Agreement, (iii) all amounts payable pursuant to Section 1.7 and 1.8 of the Receivables Purchase Exhibit B-1 Agreement, (iv) the Aggregate Investment and (v) all other obligations owed by the Company to the Senior Interest Holders under the Receivables Purchase Agreement and other Transaction Documents that are due and payable, together with any and all interest and Discount accruing on any such amount after the commencement of any Bankruptcy Proceedings, notwithstanding any provision or rule of law that might restrict the rights of any Senior Interest Holder, as against the Company or anyone else, to collect such interest. "Senior Interest Holders" means, collectively, the Purchasers, the Administrator and the Indemnified Parties. "Subordination Provisions" means, collectively, clauses (a) through (l) of paragraph 9 hereof. "Telerate Screen Rate" means, for any Interest Period, the rate for thirty day commercial paper denominated in dollars which appears on Page 1250 of the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying dollar commercial paper rates) at approximately 9:00 a.m., New York City time, on the first day of such Interest Period. 3. Interest. Subject to the Subordination Provisions set forth below, the Company promises to pay interest on this Company Note as follows: (a) Prior to the Final Maturity Date, the aggregate unpaid Purchase Price from time to time outstanding during any Interest Period shall bear interest at a rate per annum equal to the Telerate Screen Rate for such Interest Period as determined by the Servicer; and (b) From (and including) the Final Maturity Date to (but excluding) the date on which the entire aggregate unpaid Purchase Price payable to the Originator is fully paid, such aggregate unpaid Purchase Price from time to time outstanding shall bear interest at a rate per annum equal to the Prime Rate. 4. Interest Payment Dates. Subject to the Subordination Provisions set forth below, the Company shall pay accrued interest on this Company Note on each Settlement Date, and shall pay accrued interest on the amount of each principal payment made in cash on a date other than a Settlement Date at the time of such principal payment. 5. Basis of Computation. Interest accrued hereunder that is computed by reference to the Telerate Screen Rate shall be computed for the actual number of days elapsed on the basis of a 360-day year, and interest accrued hereunder that is computed by reference to the rate described in paragraph 3(b) of this Company Note shall be computed for the actual number of days elapsed on the basis of a 365- or 366-day year. 6. Principal Payment Dates. Subject to the Subordination Provisions set forth below, payments of the principal amount of this Company Note shall be made as follows: (a) The principal amount of this Company Note shall be reduced by an amount equal to each payment deemed made pursuant to Section 3.3(c)(ii) of the Purchase and Sale Agreement; and Exhibit B-2 (b) The entire remaining unpaid Purchase Price of all Receivables purchased by the Company from the Originator pursuant to the Purchase and Sale Agreement shall be due and payable on the Final Maturity Date. Subject to the Subordination Provisions set forth below, the principal amount of and accrued interest on this Company Note may be prepaid on any Business Day without premium or penalty. 7. Payment Mechanics. All payments of principal and interest hereunder are to be made in lawful money of the United States of America. 8. Enforcement Expenses. In addition to and not in limitation of the foregoing, but subject to the Subordination Provisions set forth below and to any limitation imposed by applicable law, the Company agrees to pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the Originator in seeking to collect any amounts payable hereunder which are not paid when due. 9. Subordination Provisions. The Company covenants and agrees, and the Originator and any other holder of this Company Note (collectively, the Originator and any such other holder are called the "Holder"), by its acceptance of this Company Note, likewise covenants and agrees on behalf of itself and any holder of this Company Note, that the payment of the principal amount of and interest on this Company Note is hereby expressly subordinated in right of payment to the payment and performance of the Senior Interests to the extent and in the manner set forth in the following clauses of this paragraph 9: (a) No payment or other distribution of the Company's assets of any kind or character, whether in cash, securities, or other rights or property, shall be made on account of this Company Note except to the extent such payment or other distribution is (i) permitted under paragraph 1(m) of Exhibit IV of the Receivables Purchase Agreement or (ii) made pursuant to clause (a) or (b) of paragraph 6 of this Company Note; (b) In the event of any dissolution, winding up, liquidation, readjustment, reorganization or other similar event relating to the Company, whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency or receivership proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of the Company or any sale of all or substantially all of the assets of the Company other than as permitted by the Purchase and Sale Agreement (such proceedings being herein collectively called "Bankruptcy Proceedings"), the Senior Interests shall first be paid and performed in full and in cash before the Originator shall be entitled to receive and to retain any payment or distribution in respect of this Company Note. In order to implement the foregoing during any Bankruptcy Proceeding: (i) all payments and distributions of any kind or character in respect of this Company Note to which Holder would be entitled except for this clause (b) shall be made directly to the Administrator (for the benefit of the Senior Interest Holders); (ii) Holder shall promptly file a claim or claims, in the form required in any Bankruptcy Proceedings, for the full outstanding amount of this Company Note, and shall use commercially reasonable efforts to cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Administrator (for the benefit of the Senior Interest Holders) until the Senior Interests shall have been paid and performed in full and in cash; and (iii) Holder Exhibit B-3 hereby irrevocably agrees that the Purchasers (or the Administrator acting on the Purchasers' behalf), in the name of Holder or otherwise, may demand, sue for, collect, receive and receipt for any and all such payments or distributions, and file, prove and vote or consent in any such Bankruptcy Proceedings with respect to any and all claims of Holder relating to this Company Note, in each case until the Senior Interests shall have been paid and performed in full and in cash; (c) In the event that Holder receives any payment or other distribution of any kind or character from the Company or from any other source whatsoever, in respect of this Company Note, other than as expressly permitted by the terms of this Company Note, such payment or other distribution shall be received in trust for the Senior Interest Holders and shall be turned over by Holder to the Administrator (for the benefit of the Senior Interest Holders) forthwith. Holder will mark its books and records so as clearly to indicate that this Company Note is subordinated in accordance with the terms hereof. All payments and distributions received by the Administrator in respect of this Company Note, to the extent received in or converted into cash, may be applied by the Administrator (for the benefit of the Senior Interest Holders) first to the payment of any and all expenses (including reasonable attorneys' fees and legal expenses) paid or incurred by the Senior Interest Holders in enforcing these Subordination Provisions, or in endeavoring to collect or realize upon this Company Note, and any balance thereof shall, solely as between the Originator and the Senior Interest Holders, be applied by the Administrator (in the order of application set forth in Section 1.4(d)(ii) of the Receivables Purchase Agreement) toward the payment of the Senior Interests; but as between the Company and its creditors, no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Interests; (d) Notwithstanding any payments or distributions received by the Senior Interest Holders in respect of this Company Note, while any Bankruptcy Proceedings are pending Holder shall not be subrogated to the then existing rights of the Senior Interest Holders in respect of the Senior Interests until the Senior Interests have been paid and performed in full and in cash. If no Bankruptcy Proceedings are pending, Holder shall only be entitled to exercise any subrogation rights that it may acquire (by reason of a payment or distribution to the Senior Interest Holders in respect of this Company Note) to the extent that any payment arising out of the exercise of such rights would be permitted under paragraph 1(m) of Exhibit IV of the Receivables Purchase Agreement; (e) These Subordination Provisions are intended solely for the purpose of defining the relative rights of Holder, on the one hand, and the Senior Interest Holders on the other hand. Nothing contained in these Subordination Provisions or elsewhere in this Company Note is intended to or shall impair, as between the Company, its creditors (other than the Senior Interest Holders) and Holder, the Company's obligation, which is unconditional and absolute, to pay Holder the principal of and interest on this Company Note as and when the same shall become due and payable in accordance with the terms hereof or to affect the relative rights of Holder and creditors of the Company (other than the Senior Interest Holders); (f) Holder shall not, until the Senior Interests have been paid and performed in full and in cash, (i) cancel, waive, forgive, transfer or assign, or commence legal proceedings to enforce or collect, or subordinate to any obligation of the Company, howsoever created, arising Exhibit B-4 or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, other than the Senior Interests, this Company Note or any rights in respect hereof or (ii) convert this Company Note into an equity interest in the Company, unless Holder shall have received the prior written consent of the Administrator and the Purchasers in each case; (g) Holder shall not, without the advance written consent of the Administrator and the Purchasers, commence, or join with any other Person in commencing, any Bankruptcy Proceedings with respect to the Company until at least one year and one day shall have passed since the Senior Interests shall have been paid and performed in full and in cash; (h) If, at any time, any payment (in whole or in part) of any Senior Interest is rescinded or must be restored or returned by a Senior Interest Holder (whether in connection with Bankruptcy Proceedings or otherwise), these Subordination Provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made; (i) Each of the Senior Interest Holders may, from time to time, at its sole discretion, without notice to Holder, and without waiving any of its rights under these Subordination Provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Senior Interests; (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Interests; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Senior Interests, or release or compromise any obligation of any nature with respect to any of the Senior Interests; (iv) amend, supplement, amend and restate, or otherwise modify any Transaction Document; and (v) release its security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property securing any of the Senior Interests, or extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property; (j) Holder hereby waives: (i) notice of acceptance of these Subordination Provisions by any of the Senior Interest Holders; (ii) notice of the existence, creation, non-payment or non-performance of all or any of the Senior Interests; and (iii) all diligence in enforcement, collection or protection of, or realization upon, the Senior Interests, or any thereof, or any security therefor; (k) Each of the Senior Interest Holders may, from time to time, on the terms and subject to the conditions set forth in the Transaction Documents to which such Persons are party, but without notice to Holder, assign or transfer any or all of the Senior Interests, or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Senior Interests shall be and remain Senior Interests for the purposes of these Subordination Provisions, and every immediate and successive assignee or transferee of any of the Senior Interests or of any interest of such assignee or transferee in the Senior Interests shall be entitled to the benefits of these Subordination Provisions to the same extent as if such assignee or transferee were the assignor or transferor; and Exhibit B-5 (l) These Subordination Provisions constitute a continuing offer from the holder of this Company Note to all Persons who become the holders of, or who continue to hold, Senior Interests; and these Subordination Provisions are made for the benefit of the Senior Interest Holders, and the Administrator may proceed to enforce such provisions on behalf of each of such Persons. 10. General. No failure or delay on the part of the Originator 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 amendment, modification or waiver of, or consent with respect to, any provision of this Company Note shall in any event be effective unless (i) the same shall be in writing and signed and delivered by the Company and Holder and (ii) all consents required for such actions under the Transaction Documents shall have been received by the appropriate Persons. 11. Maximum Interest. Notwithstanding anything in this Company Note to the contrary, the Company shall never be required to pay unearned interest on any amount outstanding hereunder and shall never be required to pay interest on the principal amount outstanding hereunder at a rate in excess of the maximum interest rate that may be contracted for, charged or received under applicable federal or state law (such maximum rate being herein called the "Highest Lawful Rate"). If the effective rate of interest which would otherwise by payable under this Company Note would exceed the Highest Lawful Rate, or if the holder of this Company Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Company under this Company Note to a rate in excess of the Highest Lawful Rate, then (i) the amount of interest which would otherwise by payable by the Company under this Company Note shall be reduced to the amount allowed by applicable law, and (ii) any unearned interest paid by the Company or any interest paid by the Company in excess of the Highest Lawful Rate shall be refunded to the Company. Without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by the Originator under this Company Note that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to the Originator (such Highest Lawful Rate being herein called the "Originator's Maximum Permissible Rate") shall be made, to the extent permitted by usury laws applicable to the Originator (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the actual period during which any amount has been outstanding hereunder all interest at any time contracted for, charged or received by the Originator in connection herewith. If at any time and from time to time (i) the amount of interest payable to the Originator on any date shall be computed at the Originator's Maximum Permissible Rate pursuant to the provisions of the foregoing sentence and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Originator would be less than the amount of interest payable to the Originator computed at the Originator's Maximum Permissible Rate, then the amount of interest payable to the Originator in respect of such subsequent interest computation period shall continue to be computed at the Originator's Maximum Permissible Rate until the total amount of interest payable to the Originator shall equal the total amount of interest which would have been payable to the Originator if the total amount of interest had been computed without giving effect to the provisions of the foregoing sentence. Exhibit B-6 12. No Negotiation. This Company Note is not negotiable except that is may be assigned to any Affiliate of the Originator. 13. GOVERNING LAW. THIS COMPANY NOTE HAS BEEN DELIVERED IN THE STATE OF _________, AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF _________. 14. Captions. Paragraph captions used in this Company Note are for convenience only and shall not affect the meaning or interpretation of any provision of this Company Note. Exhibit B-7 YORK RECEIVABLES FUNDING LLC By: ________________________________ Name:___________________________ Title:__________________________ Exhibit B-8 Exhibit C FORM OF JOINDER AGREEMENT THIS JOINDER AGREEMENT, dated as of ___________, 20__ (this "Agreement") is executed by__________, a corporation organized under the laws of __________ (the "Additional Seller"), with its principal place of business located at __________. BACKGROUND: A. York Receivables Funding LLC (the "Buyer") and each entity listed on Schedule I thereto (collectively, the "Sellers"), have entered into that certain Purchase and Sale Agreement, dated as of December 21, 2001 (as amended through the date hereof, and as it may be further amended from time to time, the "Purchase and Sale Agreement"). B. The Additional Seller desires to become a Seller pursuant to Section 1.7 of the Purchase and Sale Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Additional Seller hereby agrees as follows: SECTION 1. Definitions. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned thereto in the Purchase and Sale Agreement or in the Receivables Purchase Agreement (as defined in the Purchase and Sale Agreement). SECTION 2. Transaction Documents. The Additional Seller hereby agrees that it shall be bound by all of the terms, conditions and provisions of, and shall be deemed to be a party to (as if it were an original signatory to), the Purchase and Sale Agreement and each of the other relevant Specified Documents. From and after the later of the date hereof and the date that the Additional Seller has complied with all of the requirements of Section 1.7 of the Purchase and Sale Agreement, the Additional Seller shall be a Seller for all purposes of the Purchase and Sale Agreement and all other Transaction Documents. The Additional Seller hereby acknowledges that it has received copies of the Purchase and Sale Agreement and the other Transaction Documents. SECTION 3. Representations and Warranties. The Additional Seller hereby makes all of the representations and warranties set forth in Article V (to the extent applicable) of the Purchase and Sale Agreement as of the date hereof (unless such representations or warranties relate to an earlier date, in which as of such earlier date), as if such representations and warranties were fully set forth herein. The Additional Seller hereby represents and warrants that the chief place of business and chief executive office of the Additional Seller, and the offices where the Additional Seller keeps all of its Records and Related Security is as follows: --------------------------------- --------------------------------- --------------------------------- --------------------------------- Exhibit C-1 The Additional Seller hereby represents and warrants that it is a [CORPORATION], [LIMITED LIABILITY COMPANY] [LIMITED PARTNERSHIP] organized in _______________________ and its organizational number is _________________________. SECTION 4. Miscellaneous. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. This Agreement is executed by the Additional Seller for the benefit of the Buyer, and its assigns, and each of the foregoing parties may rely hereon. This Agreement shall be binding upon, and shall inure to the benefit of, the Additional Seller and its successors and permitted assigns. [SIGNATURE PAGES FOLLOW] Exhibit C-2 IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by its duly authorized officer as of the date and year first above written. [NAME OF ADDITIONAL SELLER] By: _________________________ Name:____________________ Title:___________________ Consented to: YORK RECEIVABLES FUNDING LLC By: _________________________ Name:____________________ Title:___________________ PNC BANK, NATIONAL ASSOCIATION, as Administrator and a Purchaser Agent By: _________________________ Name:____________________ Title:___________________ THE BANK OF NOVA SCOTIA, as a Purchaser Agent By: _________________________ Name:____________________ Title:___________________ Exhibit C-3 Exhibit D FORM OF ORIGINATOR ASSIGNMENT CERTIFICATE ORIGINATOR ASSIGNMENT CERTIFICATE Reference is made to the Purchase and Sale Agreement of even date herewith (as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, the "Purchase and Sale Agreement") between the undersigned, the various entities listed on Schedule I, as Originators, and York Receivables Funding LLC (the "Company"). Unless otherwise defined herein, capitalized terms used herein have the meanings provided in the Purchase and Sale Agreement or in Exhibit I to the Receivables Purchase Agreement (as defined in the Purchase and Sale Agreement), as applicable. The undersigned hereby sells, assigns and transfers unto the Company and its successors and assigns all right, title and interest of the undersigned in and to: (a) each Receivable of the undersigned that existed and was owing to the undersigned as of the Cut-off Date other than Receivables contributed pursuant to Section 1.6 of the Purchase and Sale Agreement; (b) each Receivable generated by the undersigned from and including the Cut-off Date to and including the Purchase and Sale Termination Date (other than any Receivable later contributed pursuant to the second sentence of Section 3.1 of the Purchase and Sale Agreement); (c) all rights to, but not the obligations under, all Related Security; (d) all monies due or to become due with respect to any of the foregoing; (e) all books and records of the undersigned related to any of the foregoing and all rights, remedies, powers, privileges, title and interest of such Originator in each lock-box and related lock-box address and account to which Collections are sent, all amounts on deposit therein, all certificates and instruments, if any, from time to time evidencing such accounts and amounts on deposit therein, and all related agreements between such Originator and each Lock-Box Bank; and (f) all collections and other proceeds and products of any of the foregoing (as defined in the applicable UCC) that are or were received by the undersigned on or after the Cut-off Date, including, without limitation, all funds which either are received by the undersigned, the Company or the Servicer from or on behalf of the Obligors in payment of any amounts owed (including, without limitation, invoice price, finance charges, interest and all other charges) in respect of Receivables, or are applied to such amounts owed by the Obligors (including, without limitation, insurance payments that the undersigned or the Servicer applies in the ordinary course of its business to amounts owed in respect of any Receivable and net proceeds of sale of other disposition of repossessed goods or other collateral or property of the Obligors in respect of Exhibit D-1 Receivables or any other parties directly or indirectly liable for payment of such Receivables). This Originator Assignment Certificate is made without recourse but on the terms and subject to the conditions set forth in the Transaction Documents to which the undersigned is a party. The undersigned acknowledges and agrees that the Company and its successors and assigns are accepting this Originator Assignment Certificate in reliance on the representations, warranties and covenants of the undersigned contained in the Transaction Documents to which the undersigned is a party. THIS ORIGINATOR ASSIGNMENT CERTIFICATE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE PURCHASE AND SALE AGREEMENT AND THE INTERNAL LAWS OF THE STATE OF NEW YORK. Exhibit D-2 IN WITNESS WHEREOF, the undersigned has caused this Originator Assignment Certificate to be duly executed and delivered by its duly authorized officer this ___ day of _____________, 2001. [ORIGINATOR] By: ______________________________________ Name:_________________________________ Title:________________________________ S-1 TABLE OF CONTENTS
Page ARTICLE I AGREEMENT TO PURCHASE AND SELL SECTION 1.1 Agreement To Purchase and Sell............................................................ 1 SECTION 1.2 Timing of Purchases....................................................................... 2 SECTION 1.3 Consideration for Purchases............................................................... 3 SECTION 1.4 Purchase and Sale Termination Date........................................................ 3 SECTION 1.5 Intention of the Parties.................................................................. 3 SECTION 1.6 Contribution of Receivables............................................................... 3 SECTION 1.7 Additional Originators.................................................................... 4 ARTICLE II PURCHASE REPORT; CALCULATION OF PURCHASE PRICE SECTION 2.1 Purchase Report........................................................................... 4 SECTION 2.2 Calculation of Purchase Price............................................................. 5 ARTICLE III PAYMENT OF PURCHASE PRICE SECTION 3.1 Initial Purchase Price Payment............................................................ 5 SECTION 3.2 Subsequent Purchase Price Payments........................................................ 6 SECTION 3.3 Settlement as to Specific Receivables and Dilution........................................ 6 SECTION 3.4 Reconveyance of Receivables............................................................... 7 ARTICLE IV CONDITIONS OF PURCHASES SECTION 4.1 Conditions Precedent to Initial Purchase.................................................. 7 SECTION 4.2 Certification as to Representations and Warranties........................................ 9 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR SECTION 5.1 Organization and Good Standing............................................................ 10 SECTION 5.2 Due Qualification......................................................................... 10 SECTION 5.3 Power and Authority; Due Authorization.................................................... 10 SECTION 5.4 Valid Sale; Binding Obligations........................................................... 10 SECTION 5.5 No Violation.............................................................................. 10 SECTION 5.6 Proceedings............................................................................... 11 SECTION 5.7 Bulk Sales Acts........................................................................... 11 SECTION 5.8 Government Approvals...................................................................... 11 SECTION 5.9 Financial Condition....................................................................... 11 SECTION 5.10 Licenses, Contingent Liabilities, and Labor Controversies................................. 11
i SECTION 5.11 Margin Regulations........................................................................ 11 SECTION 5.12 Quality of Title.......................................................................... 12 SECTION 5.13 Accuracy of Information................................................................... 12 SECTION 5.14 Offices................................................................................... 12 SECTION 5.15 Trade Names............................................................................... 13 SECTION 5.16 Taxes..................................................................................... 13 SECTION 5.17 Compliance with Applicable Laws........................................................... 13 SECTION 5.18 Reliance on Separate Legal Identity....................................................... 13 SECTION 5.19 Investment Company........................................................................ 13 SECTION 5.20 Valid Contracts........................................................................... 13 SECTION 5.21 Perfection Representation................................................................. 13 ARTICLE VI COVENANTS OF THE ORIGINATORS SECTION 6.1 Affirmative Covenants..................................................................... 14 SECTION 6.2 Reporting Requirements.................................................................... 16 SECTION 6.3 Negative Covenants........................................................................ 16 SECTION 6.4 Substantive Consolidation................................................................. 18 ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF RECEIVABLES SECTION 7.1 Rights of the Company..................................................................... 19 SECTION 7.2 Responsibilities of the Originators....................................................... 19 SECTION 7.3 Further Action Evidencing Purchases....................................................... 20 SECTION 7.4 Application of Collections................................................................ 21 ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS SECTION 8.1 Purchase and Sale Termination Events...................................................... 21 SECTION 8.2 Remedies.................................................................................. 21 ARTICLE IX INDEMNIFICATION SECTION 9.1 Indemnities by the Originators............................................................ 22 ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments, etc........................................................................... 23 SECTION 10.2 Notices, etc.............................................................................. 24 SECTION 10.3 No Waiver; Cumulative Remedies............................................................ 24
ii SECTION 10.4 Binding Effect; Assignability............................................................. 24 SECTION 10.5 Governing Law............................................................................. 25 SECTION 10.6 Costs, Expenses and Taxes................................................................. 25 SECTION 10.7 SUBMISSION TO JURISDICTION................................................................ 25 SECTION 10.8 WAIVER OF JURY TRIAL...................................................................... 25 SECTION 10.9 Captions and Cross References; Incorporation by Reference................................. 26 SECTION 10.10 Execution in Counterparts................................................................. 26 SECTION 10.11 Acknowledgment and Agreement.............................................................. 26 SECTION 10.12 No Proceeding............................................................................. 26 SECTION 10.13 Limited Recourse.......................................................................... 27
SCHEDULES Schedule I List of Originators Schedule 5.6 Proceedings Schedule 5.14A Chief Executive Offices/Organization Schedule 5.14B Location of Books and Records Schedule 5.15 Trade Names EXHIBITS Exhibit A Form of Purchase Report Exhibit B Form of Company Note Exhibit C Form of Joinder Agreement Exhibit D Form of Originator Assignment Certificate iii EX-12 5 w58431ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 YORK INTERNATIONAL CORPORATION STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar amounts in thousands)
Years Ended December 31, ----------------------------------------------------------------------------- 1997 1998 1999 2000 2001 Earnings before taxes and cumulative effect of accounting change $ 78,468 $ 187,303 $ 118,082 $ 120,969 $ 36,965 Distributed income of equity affiliates 1,238 542 1,035 4,782 2,939 Interest expense, net 40,876 41,527 61,150 81,587 67,150 Interest component of rental expense 11,800 10,948 13,513 13,454 14,455 Less: Equity in earnings of affiliates (5,342) (126) (5,660) (6,368) (2,444) ----------------------------------------------------------------------------- $ 127,040 $ 240,194 $ 188,120 $ 214,424 $ 119,065 ----------------------------------------------------------------------------- Interest expense, net $ 40,876 $ 41,527 $ 61,150 $ 81,587 $ 67,150 Interest component of rental expense 11,800 10,948 13,513 13,454 14,455 ----------------------------------------------------------------------------- $ 52,676 $ 52,475 $ 74,663 $ 95,041 $ 81,605 ----------------------------------------------------------------------------- Fixed charge coverage ratio 2.4 4.6 2.5 2.3 1.5 -----------------------------------------------------------------------------
EX-13 6 w58431ex13.txt ANNUAL FINANCIAL STATEMENTS EXHIBIT 13 YORK INTERNATIONAL CORPORATION ANNUAL FINANCIAL STATEMENTS AND REVIEW OF OPERATIONS 2001 CONTENTS DESCRIPTION OF BUSINESS 1 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3 MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS 14 INDEPENDENT AUDITORS' REPORT 14 CONSOLIDATED FINANCIAL STATEMENTS 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19 SUMMARY OF QUARTERLY RESULTS 41 TRADING AND DIVIDEND INFORMATION 41
DESCRIPTION OF BUSINESS York International Corporation and its consolidated subsidiaries (the Company, which may be referred to as we, us or our) are a full-line, global designer and manufacturer of heating, ventilating, air conditioning and refrigeration (HVAC&R) products. We believe that we are the third largest manufacturer and marketer of such products in the United States and one of the leading companies in the HVAC&R industry internationally. Our air conditioning systems range from a one ton* unit for a small residence to the large systems installed in high-rise residential and commercial buildings. In 2001, our products were sold in over 125 countries through over 1,000 sales and distribution facilities and are in use in such diverse locations as the Kuala Lumpur City Centre in Malaysia, the British Houses of Parliament, the Tokyo World Trade Center, the Pentagon, NASA's Vehicle Assembly Building at Kennedy Space Center, NASA's Johnson Space Center, the Los Angeles International Airport, the Jeddah Airport, the Overseas Union Bank Centre in Singapore, the Sydney Opera House, the Atlantic City Convention Center, the English Channel Eurotunnel, the Hong Kong Convention and Exhibition Centre, and the Lantau Airport Railway in Hong Kong. We were founded in 1874 in York, Pennsylvania. From 1956 until 1986, we were part of Borg-Warner Corporation (Borg-Warner). In 1986, we were spun off to Borg-Warner shareholders and became an independent, publicly held company. In 1988, we were purchased in a leveraged buyout. In 1991, we completed a public offering of our common stock. During the 1990's, we expanded our worldwide presence through growth and acquisitions. In 1999, we further expanded our refrigeration business by acquiring all of the outstanding capital stock of Sabroe A/S, a Danish company. The acquisition established the York Refrigeration Group as the world leader in supplying industrial refrigeration systems and products. Headquartered in York, Pennsylvania, we have manufacturing facilities in 10 states and 8 foreign countries. As of December 31, 2001, we employed approximately 23,600 people worldwide. Our principal executive offices are located at 631 South Richland Avenue, York, Pennsylvania 17403, and our telephone number is (717) 771-7890. PRODUCTS AND MARKETS All of our products are in the HVAC&R industry, and we operate solely in this industry. Within HVAC&R, our business is comprised of four segments: Engineered Systems Group, York Refrigeration Group, Unitary Products Group and Bristol Compressors. Engineered Systems Group produces heating, air conditioning and thermal storage equipment designed for commercial applications in retail stores, office buildings, shopping malls, manufacturing facilities, hospitals, universities, airports and marine vessels. York Refrigeration Group produces commercial and industrial refrigeration systems and gas compression equipment, designed for the food, beverage, chemical and petrochemical processing industries as well as marine applications. Unitary Products Group produces heating and air conditioning solutions designed for use in residential and light commercial applications. Bristol Compressors manufactures reciprocating and scroll compressors for our use and for sale to original equipment manufacturers and wholesale distributors. Our engineered systems products and refrigeration and gas compression equipment are designed specifically for the customer's needs and applications. * The cooling capacity of air conditioning units is measured in tons. One ton of cooling capacity is equivalent to 12,000 BTUs and is generally adequate to air condition approximately 500 square feet of residential space. 1 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share data and other information) 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Statements of Operations Data: Net sales $ 3,930,677 $3,897,403 $3,877,029 $3,300,015 $3,193,657 Gross profit 750,786 825,949 787,628 699,097 636,226 Acquisition, integration, restructuring and other charges (a) 70,504 49,679 54,532 -- -- Income from operations 101,671 169,286 163,945 228,704 114,002 Interest expense, net 67,150 81,587 61,150 41,527 40,876 Gain on divestitures -- 26,902 9,627 -- -- Income before income taxes and cumulative effect of accounting change 36,965 120,969 118,082 187,303 78,468 (Benefit) provision for income taxes (9,024) 14,362 41,303 50,810 31,075 Income before cumulative effect of accounting change 45,989 106,607 76,779 136,493 47,393 Net income 45,989 106,607 75,882 136,493 47,393 Basic earnings per share: Income before cumulative effect of accounting change 1.19 2.80 1.93 3.38 1.11 Net income 1.19 2.80 1.91 3.38 1.11 Diluted earnings per share: Income before cumulative effect of accounting change 1.17 2.78 1.93 3.36 1.10 Net income 1.17 2.78 1.91 3.36 1.10 Weighted average common shares and common equivalents outstanding: Basic 38,626 38,107 39,637 40,402 42,550 Diluted 39,147 38,281 39,832 40,622 43,040 Cash dividends per share $ 0.60 $ 0.60 $ 0.60 $ 0.48 $ 0.48 Capital expenditures 98,126 93,971 104,065 64,638 66,854 Depreciation and amortization of property, plant and equipment 59,655 63,115 64,171 57,785 52,776 Amortization of deferred charges and unallocated excess of cost over net assets acquired 27,024 28,443 24,119 17,059 15,978 Balance Sheet Data: Working capital 472,830 548,801 485,234 521,054 535,123 Total assets 2,572,509 2,812,056 2,905,407 2,133,443 2,020,612 Long-term debt 724,378 831,354 854,494 362,724 452,344 Stockholders' equity $ 739,434 $ 748,976 $ 731,930 $ 730,799 $ 646,285 Other information: Employees 23,600 24,600 25,000 20,600 20,300 Backlog (in thousands) $ 851,950 $1,018,464 $1,065,096 $ 879,473 $ 834,466 Total debt as a percent of total capital 50.7% 54.5% 56.7% 36.2% 44.7% Current ratio 1.61 1.60 1.48 1.66 1.78 Book value per share $ 18.85 $ 19.52 $ 19.08 $ 18.27 $ 15.91 - -----------------------------------------------------------------------------------------------------------------
(a) In 2001, 2000 and 1999, we recorded charges to operations for restructuring and other cost reduction initiatives. Also, in 2000 and 1999, we recorded charges for acquisition, integration and restructuring activities related to the 1999 Sabroe acquisition. See notes 13 and 14 to the accompanying consolidated financial statements. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth net sales and earnings before interest and taxes (EBIT) by segment:
(in thousands) 2001 2000 1999 - ------------------------------------------------------------------------------------------ Net Sales: Engineered Systems Group $ 1,930,263 $ 1,859,817 $ 1,769,990 York Refrigeration Group 932,133 997,013 903,623 Unitary Products Group 766,441 767,248 854,782 Bristol Compressors 509,706 525,716 581,836 Eliminations (207,866) (252,391) (233,202) - ------------------------------------------------------------------------------------------ Net Sales $ 3,930,677 $ 3,897,403 $ 3,877,029 - ------------------------------------------------------------------------------------------ EBIT: Engineered Systems Group $ 131,516 $ 118,617 $ 121,874 York Refrigeration Group 57,327 65,089 40,632 Unitary Products Group 59,083 51,661 81,456 Bristol Compressors 39,445 47,809 61,631 Eliminations, general corporate expenses and other non-allocated items (183,256) (107,522) (135,988) Gain on divestitures -- 26,902 9,627 - ------------------------------------------------------------------------------------------ EBIT $ 104,115 $ 202,556 $ 179,232 - ------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS 2001 AS COMPARED TO 2000 Consolidated Operations Net sales for 2001 increased 0.9% to $3,930.7 million from $3,897.4 million for 2000. (See further discussion below under Segment Analysis.) Net sales in the United States decreased 1.0% to $1,870.8 million, and international net sales increased 2.6% to $2,059.9 million. Order backlog as of December 31, 2001 was $852.0 million compared to $1,018.5 million as of December 31, 2000. Gross profit decreased 9.1% to $750.8 million (19.1% of net sales) in 2001 as compared to $825.9 million (21.2% of net sales) in 2000. In 2001, we recorded $14.4 million of restructuring charges related to inventory write-downs and warranty accruals, $30.0 million of one-time costs related to cost reduction actions, $8.2 million related to a discontinued product line, and a $5.8 million write-off of a long-term receivable. In 2000, we settled the Grantley accident insurance claim and recorded a $9.1 million benefit. The benefit was partially offset by an unrelated $2.8 million insurance claim settlement related to a 1991 project. In 2000, we also recorded charges of $4.5 million, principally relating to inventory write-downs and warranty accruals as part of the 2000 cost reduction program, and $0.5 million of operating costs related to the cost reduction actions. Excluding the benefit and charges discussed above, gross profit decreased 1.9% to $809.2 million (20.6% of net sales) in 2001 from $824.6 million (21.2% of net sales) in 2000. The decrease was primarily due to the impact of competitive margin pressures, changes in product mix, and increased investments relating to our service and distribution activities. Selling, general and administrative expense decreased 4.7% to $578.6 million (14.7% of net sales) in 2001 from $607.0 million (15.6% of net sales) in 2000. In 2000, we recorded $6.7 million of executive severance costs and $0.6 million related to cost reduction actions. Excluding the costs related to executive severance and cost reduction actions, selling, general and administrative expenses decreased 3.5% to $578.6 million (14.7% of net sales) in 2001 from $599.6 million (15.4% of net sales) in 2000. The decrease was primarily due to benefits of staff reductions and other cost reduction efforts, partially offset by increased engineering and product development costs. 3 In October 2000, we announced the initiation of a cost reduction process, which included plant closures and divestitures, product line and facility rationalizations, selling, general and administrative expense reductions and other one-time costs. In the second quarter of 2001, we expanded the scope of the cost reduction process to include additional plant closings and staff reductions. In 2001 and 2000, we recorded charges to operations of $84.9 million and $52.6 million, respectively, related to these cost reduction actions, including the $14.4 million and $4.1 million, respectively, charged to cost of goods sold as discussed above. The 2001 and 2000 charges included $28.7 million and $36.0 million, respectively, in write-downs of various assets and $56.2 million and $16.6 million, respectively, in accruals for severance and other costs. As of December 31, 2001, the closing of one facility was still in process. Consequently, we anticipate additional costs of $5 to $10 million to be incurred in 2002 relating to the announced actions. In 2000, we also recorded expenses of $1.6 million for York Refrigeration Group acquisition and integration activities. In 2000, we recorded a gain on divestitures of $26.9 million, primarily relating to the sale of Northfield Freezing Systems (Northfield). There was no similar transaction in 2001. Equity in earnings of affiliates was $2.4 million in 2001 as compared to $6.4 million in 2000. The decrease was primarily due to reduced earnings at Clima Roca and Scroll Technologies resulting from declines in sales volume. In 2001, EBIT decreased 48.6% to $104.1 million compared to $202.6 million in 2000. Excluding the charges, benefit and gain on divestitures discussed above, EBIT increased 0.7% to $233.1 million in 2001 compared to $231.4 million in 2000. Excluding the currency translation impact, EBIT, exclusive of the charges, benefit and gain on divestitures, increased 1.5% in 2001 over 2000. In 2001, net interest expense decreased 17.7% to $67.2 million from $81.6 million in 2000 due to lower average debt and lower interest rates. The income tax benefit for 2001 related to both U.S. and non-U.S. operations. The effective tax rate was (24.4%) for 2001 compared to 11.9% for 2000. The lower effective tax rate is primarily due to a $20 million tax benefit recorded in connection with the disposition of foreign operations. The tax rate for ongoing operations was 29.3% in 2001 as compared to 31.0% in 2000. Net income, as a result of the above factors, was $46.0 million in 2001 as compared to $106.6 million in 2000. Segment Analysis The discussion below of each segment's EBIT relates to ongoing operations and excludes the charges, benefit and gain on divestitures discussed above. Engineered Systems Group (ESG) net sales increased 3.8% to $1,930.3 million in 2001 from $1,859.8 million in 2000. The increase is primarily due to strength in the global service business, partially offset by declines in shipments of chillers, particularly in North America and Europe. Excluding the currency translation impact, net sales increased 5.7% over 2000. EBIT increased 10.9% to $131.5 million (6.8% of net sales) in 2001 from $118.6 million (6.4% of net sales) in 2000 primarily due to the increased service revenue and manufacturing cost reductions. Excluding the currency translation impact, EBIT increased 9.3% over 2000. York Refrigeration Group (YRG) net sales decreased 6.5% to $932.1 million in 2001 from $997.0 million in 2000. The decrease reflects declines in the North American food and beverage and process refrigeration equipment markets. Also, YRG's focus on improving the quality of its contracting business in Europe resulted in a planned reduction in contracting revenue. Excluding the currency translation impact, net sales decreased 1.7% from 2000. EBIT decreased 11.9% to $57.3 million (6.2% of net sales) in 2001 from $65.1 million (6.5% of net sales) in 2000. The decrease was due to pricing pressures and reduced volume in the North American market, partially offset by the benefits of cost reduction actions. Excluding the currency translation impact, EBIT decreased 6.0% from 2000. Unitary Products Group (UPG) net sales decreased 0.1% to $766.4 million in 2001 from $767.2 million in 2000 as a result of declines in the North American unitary and manufactured housing markets, partially offset by the development of new distribution activities in 2001. EBIT increased 14.4% to $59.1 million (7.7% of net sales) in 2001 from $51.7 million (6.7% of net sales) in 2000. The improvement reflected the benefits of the cost reduction process, partially offset by costs associated with distribution changes. 4 Bristol Compressors (Bristol) net sales decreased 3.0% to $509.7 million in 2001 from $525.7 million in 2000 due to the decline in the North American unitary market, partially offset by increased international sales. EBIT decreased 17.5% to $39.4 million (7.7% of net sales) in 2001 from $47.8 million (9.1% of net sales) in 2000 due to a higher ratio of lower-margin international product sales. RESULTS OF OPERATIONS 2000 AS COMPARED WITH 1999 Consolidated Operations Net sales for 2000 increased 0.5% to $3,897.4 million from $3,877.0 million for 1999. (See further discussion below under Segment Analysis.) Net sales in the United States decreased 6.1% to $1,890.0 million, and international net sales increased 7.7% to $2,007.4 million. Order backlog as of December 31, 2000 was $1,018.5 million compared to $1,065.1 million as of December 31, 1999. Gross profit increased 4.9% to $825.9 million (21.2% of net sales) in 2000 as compared to $787.6 million (20.3% of net sales) in 1999. In 2000, we settled the Grantley accident insurance claim and recorded a $9.1 million benefit. The benefit was partially offset by an unrelated $2.8 million insurance claim settlement related to a 1991 project. In 2000, we also recorded charges of $4.5 million, principally relating to inventory write-downs and warranty accruals as part of the 2000 cost reduction program, and $0.5 million of operating costs related to the cost reduction actions. In 1999, we recorded charges of $15.8 million, primarily to write-down inventory to the lower of cost or market. The discontinuance of a UPG product line resulted in additional inventory write-downs of $4.6 million and warranty charges of $2.0 million in 1999. Excluding the benefit and charges discussed above, gross profit increased 1.8% to $824.6 million (21.2% of net sales) in 2000 from $810.0 million (20.9% of net sales) in 1999. The gross profit improvement was due to the inclusion of the Sabroe acquisition for the full year, YRG integration synergies, improved margins on YRG contracts, the higher margin ESG service revenue and improved factory performance in ESG. These improvements were partially offset by the impact of the domestic unitary and room air conditioner compressor sales volume reductions. Selling, general and administrative expenses increased 6.6% to $607.0 million (15.6% of net sales) in 2000 from $569.2 million (14.7% of net sales) in 1999. In 2000, we recorded $6.7 million of executive severance costs and $0.6 million related to cost reduction actions. Excluding the costs related to executive severance and cost reduction actions, selling, general and administrative expenses increased 5.4% to $599.6 million (15.4% of net sales) in 2000 from $569.2 million (14.7% of net sales) in 1999. The increase was due to the inclusion of the Sabroe acquisition and the related amortization of intangibles for the full year and investment in product development and information technology. In October 2000, we announced the initiation of a cost reduction process which included plant closures and divestitures, product line and facility rationalizations, selling, general and administrative expense reductions and other one-time costs. In 2000, we recorded charges to operations of $52.6 million related to these cost reduction actions, including the $4.5 million charged to cost of goods sold as discussed above. The charges included $36.0 million in write-downs of various assets and $16.6 million in accruals for severance and other costs. In 2000, we also recorded expenses of $1.6 million for YRG acquisition and integration activities. In 2000, we recorded a gain on divestitures of $26.9 million, primarily relating to the sale of Northfield. In 1999, we recorded a $9.6 million gain on the sale of Viron. Equity in earnings of affiliates was $6.4 million in 2000 as compared to $5.7 million in 1999. The improvement was primarily the result of improved performance in the Clima Roca operation. In 2000, EBIT increased 13.0% to $202.6 million compared to $179.2 million in 1999. Excluding the charges, benefit and gains on divestitures discussed above and restructuring and integration charges in 1999, EBIT decreased 6.2% to $231.4 million compared to $246.5 million in 1999. Excluding the currency translation impact, EBIT, exclusive of the charges, benefit and gains on divestitures, increased 2.2% in 2000 over 1999. In 2000, net interest expense increased 33.4% to $81.6 million from $61.2 million in 1999 due to the full year impact of borrowings related to the Sabroe acquisition and higher average interest rates. 5 Provision for income taxes of $14.4 million for 2000 related to both U.S. and non-U.S. operations. The effective tax rate was 11.9% for 2000 compared to 35.0% for 1999. The lower effective tax rate is primarily from the recognition of certain deferred tax benefits resulting from tax planning activities and the recognition of tax benefits from foreign net operating loss carryforwards. These benefits were partially offset by the tax effect of the gain on divestitures. The tax rate for ongoing operations was 31.0% in 2000. Net income, as a result of the above factors, was $106.6 million in 2000 as compared to $75.9 million in 1999. Segment Analysis The discussion below of each segment's EBIT relates to ongoing operations and excludes the charges, benefit and gains on divestitures discussed above. Engineered Systems Group net sales increased 5.1% to $1,859.8 million in 2000 from $1,770.0 million in 1999, primarily due to increased volume in the global service business, strength in the North America equipment business and the successful introduction of new products. These increases were partially offset by the impact of currency translation and the 1999 sale of Viron. Excluding the currency translation impact and the Viron divestiture, sales increased 12.1% over 1999. EBIT decreased 2.7% to $118.6 million (6.4% of net sales) in 2000 from $121.9 million (6.9% of net sales) in 1999 primarily due to the impact of currency translation and the sale of Viron. The decreases were somewhat offset by increased volume in higher margin global service revenue, strength in North America equipment revenue, the successful introduction of new products and improved factory performance. Excluding the currency translation impact and the Viron divestiture, EBIT increased 5.4% over 1999. York Refrigeration Group net sales increased 10.3% to $997.0 million in 2000 from $903.6 million in 1999. The increase was primarily due to the full year inclusion of the Sabroe acquisition, partially offset by the impact of currency translation and the divestiture of Northfield. Excluding the currency translation impact and the Northfield divestiture, net sales increased 29.9% over 1999. EBIT increased 60.2% to $65.1 million (6.5% of net sales) in 2000 from $40.6 million (4.5% of net sales) in 1999 due to including the full year of Sabroe earnings, integration synergies and higher contracting margins offset by the Northfield sale. Excluding the currency translation impact and the Northfield divestiture, EBIT increased 101.6% over 1999. Unitary Products Group net sales decreased 10.2% to $767.2 million in 2000 from $854.8 million in 1999 as a result of a decline in the domestic unitary market, weakness in the manufactured housing market and the impact of higher than normal levels of inventory in the distribution channels. EBIT decreased 36.6% to $51.7 million (6.7% of net sales) in 2000 from $81.5 million (9.5% of net sales) in 1999 as a result of lower volume, increased investment in product development and marketing, and lower margins in international unitary markets. Bristol Compressors net sales decreased 9.6% to $525.7 million in 2000 from $581.8 million in 1999 due primarily to a reduction in room air conditioner compressor sales and a weaker domestic unitary market. EBIT decreased 22.4% to $47.8 million (9.1% of net sales) in 2000 from $61.6 million (10.6% of net sales) in 1999 as a result of lower volume and lower levels of production in the second half of 2000 due to the slow-down in the domestic unitary market. LIQUIDITY AND CAPITAL RESOURCES Working capital requirements are generally met through a combination of internally generated funds, bank lines of credit, commercial paper borrowings, financing of trade receivables and credit terms from suppliers which approximate receivable terms to our customers. Additional sources of working capital include customer deposits and progress payments. Working capital decreased $76.0 million to $472.8 million as of December 31, 2001 as compared to $548.8 million as of December 31, 2000. The decrease was primarily due to reductions in inventories and receivables, partially offset by decreases in notes payable and current portion of long-term debt and accounts payable and accrued expenses. The improvement reflected our increased emphasis on asset utilization. The current ratio was 1.61 as of December 31, 2001 as compared to 1.60 as of December 31, 2000. Capital expenditures were $98.1 million in 2001 as compared to $94.0 million in 2000. Capital expenditures currently anticipated for expanded capacity, cost reductions and the introduction of new products during 6 2002 are expected to be in excess of depreciation and amortization. These expenditures will be funded from a combination of operating cash flows, availability under credit agreements and commercial paper borrowings. Cash dividends of $0.60 per share were paid on common stock in 2001 and 2000. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend upon such factors as our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. Total indebtedness was $761.0 million as of December 31, 2001, primarily consisting of $500.0 million of senior notes and $197.7 million of commercial paper. On June 1, 1998, we issued $200 million of 6.70% fixed rate senior notes having a maturity of ten years from the date of issue. On August 6, 2001, we issued $200 million of 6.625% fixed rate senior notes due August 2006. The remaining $100 million ten-year senior notes bear interest at a 6.75% fixed rate and are due March 2003. Commercial paper borrowings are expected to be reborrowed in the ordinary course of business. The interest rate on the commercial paper was 2.38% as of December 31, 2001. As of December 31, 2001, we have available a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $300 million 364-Day Credit Agreement, which expires on May 28, 2002 (collectively, the New Agreements). As of December 31, 2000, we had available a $400 million 364-day Revolving Credit Agreement and a $500 million Amended Credit Agreement that were cancelled on May 30, 2001. As of December 31, 2001 and 2000, no amounts were outstanding under the agreements. The $400 million Five Year Credit Agreement provides for borrowings at London InterBank Offering Rate (LIBOR) plus 0.75% or 0.875%, and the $300 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.775% or 0.90%, based on the amount of facility utilization. We pay annual fees of 0.125% on the $400 million facility and 0.10% on the $300 million facility. The New Agreements allow for borrowings at specified bid rates. As of December 31, 2001 and December 31, 2000, the three-month LIBOR rate was 1.86% and 6.36%, respectively. The New Agreements contain financial covenants requiring us to maintain certain financial ratios and standard provisions limiting leverage and liens. We were in compliance with these financial covenants as of December 31, 2001 and 2000. We have additional domestic bank lines that provide for total borrowings of $100 million as of December 31, 2001 and 2000, of which $100.0 million and $93.8 million, respectively, were unused. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provided for available borrowings of $386.3 million and $349.3 million as of December 31, 2001 and 2000, respectively, of which $276.1 million and $301.0 million, respectively, were unused. Generally, borrowings against these credit facilities have been guaranteed by us to assure availability of funds at favorable rates. Pursuant to the terms of a revolving facility, we sell our trade receivables to a wholly-owned, consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis up to $175 million undivided ownership interest in the purchased trade receivables to bank conduits. We continue to service the receivables. No servicing asset or liability has been recognized as our cost to service the receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $175 million of undivided interest in trade receivables as of December 31, 2001. The proceeds from the sale were reflected as a reduction of receivables in the accompanying consolidated balance sheet as of December 31, 2001. The discount rate on the trade receivables sold was 2.00% as of December 31, 2001. Excluded from receivables in the accompanying consolidated balance sheet as of December 31, 2000 was $175 million of trade receivables sold pursuant to a prior sales agreement, which was replaced by the current facility. The discount rate on the trade receivables sold was 6.66% as of December 31, 2000. In 1999, we sold certain machinery and equipment for net proceeds of $82.4 million and entered into a five year operating lease for the use of the machinery and equipment. At the end of the lease term, we may purchase the leased assets, return the leased assets to the lessor or extend the lease for up to five additional years. If we choose to return the leased assets at the end of the initial lease term, we are obligated to pay the lessor a maximum of $33.8 million. 7 The following tables summarize our contractual obligations and other commercial commitments as of December 31, 2001:
PAYMENTS DUE BY PERIOD Contractual Obligations LESS THAN AFTER 5 (in thousands) TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS YEARS ================================================================================================================= Notes payable and capital lease obligations $ 760,982 $ 36,604 $ 104,379 $ 403,567 $ 216,432 Operating leases 153,200 36,548 88,581 18,619 9,452 Unconditional purchase obligations 15,184 15,184 -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total contractual cash obligations $ 929,366 $ 88,336 $ 192,960 $ 422,186 $ 225,884 - -----------------------------------------------------------------------------------------------------------------
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD TOTAL Other Commercial Commitments AMOUNTS LESS THAN OVER 5 (in thousands) COMMITTED 1 YEAR 1-3 YEARS 4-5 YEARS YEARS ========================================================================================================= Standby and trade letters of credit $ 29,843 $ 25,516 $ 4,327 $ -- $ -- Performance guarantees 180,324 168,566 10,139 935 684 Guarantee of affiliate debt (a) 24,763 24,763 -- -- -- - --------------------------------------------------------------------------------------------------------- Total commercial commitments $ 234,930 $ 218,845 $ 14,466 $ 935 $ 684 - ---------------------------------------------------------------------------------------------------------
(a) We and another company participate in a manufacturing joint venture, Scroll Technologies (Scroll). We have guaranteed our share of the indebtedness of Scroll. In the event of financial difficulties at Scroll, we would be obligated to fund the guaranteed amount. We believe that we will be able to satisfy our principal and interest payment obligations and our working capital and capital expenditure requirements from operating cash flows together with the availability under the New Agreements. The New Agreements and commercial paper borrowings support seasonal working capital needs and are available for general corporate purposes. Seasonal working capital needs could increase due to shipment delays or an unusually cool summer season. Our ability to finance operations in the commercial paper market is dependent upon maintaining satisfactory credit ratings. If our credit ratings would be lowered by the rating agencies, we have the ability to borrow under the New Agreements as long as we continued to meet the financial covenants or until expiration of the New Agreements. The primary financial covenants are the earnings before interest, taxes and depreciation and amortization (EBITDA) interest coverage and the debt to capital ratio, as defined under the New Agreements. As of December 31, 2001, our EBITDA interest coverage was 4.8, exceeding the minimum requirement of 3.5. As of December 31, 2001 our debt to capital ratio was 51%, below the maximum allowed of 63%. Our senior notes due in 2003 could be accelerated for payout only in a limited circumstance. The acceleration would occur in the event we repurchased over 20% of our shares in a twelve month period and our credit ratings were lowered by one full ratings letter. Because our obligations under the New Agreements and revolving trade receivables purchase facility bear interest at floating rates, our interest costs are sensitive to changes in prevailing interest rates. In the ordinary course of business, we enter into various types of transactions that involve contracts and financial instruments. We enter into these financial instruments to manage financial market risk, including foreign exchange, commodity price and interest rate risk. Financial instruments are more fully discussed in note 2 to the accompanying consolidated financial statements and under the caption Market Risk on page 10. Employee stock plans include the 1992 Employee Stock Purchase Plan (ESPP), as amended, and the Amended and Restated 1992 Omnibus Stock Plan (1992 Plan). The ESPP authorizes employees to purchase up to 2.5 million shares of our common stock, inclusive of 0.5 million shares authorized by the stockholders in May 2001. The 1992 Plan authorizes the issuance of up to 8.4 million shares of our common stock as stock option or restricted share awards. As of December 31, 2001, 0.6 million and 1.3 million shares remained available for purchase or grant under the ESPP and 1992 Plan, respectively. 8 We are authorized by the Board of Directors to purchase our common stock from time to time on the open market. We purchased 0.3 million and 2.1 million shares in 2000 and 1999, respectively. We are authorized to repurchase up to an additional 1.6 million shares of our common stock through 2003. We believe that these employee stock plans provide valuable incentives to a broad range of employees by giving them a direct equity interest in the Company. We further believe that funding the required shares through share repurchases will mitigate the dilutive impact such employee stock plans would otherwise have. OUTLOOK All of our segments are facing a challenging worldwide economic environment; however, we expect our improved cost structure, service and parts growth, improvements in working capital, interest savings and tax rate reductions to offset declines in volume and margins. Specifically, in 2002 we anticipate: - A 5 to 15% decline in equipment market levels during 2002, and an overall revenue decline of approximately 5%. In conjunction with the market declines and general economic uncertainties, we expect gross margin pressure on most equipment segments, particularly in Europe and North America, and a negative impact on costs due to reduced volume. - Service and parts revenue growth within ESG and YRG. We continue to make investments to expand service opportunities, grow national and global customer relationships, and improve productivity. - Increased pension and post-retirement expense of approximately $10 million due to lower plan asset values and changing rate assumptions resulting from market conditions. - Reduced interest expense due to lower average borrowing levels and reduced interest rates. - A lower effective tax rate for ongoing operations, primarily due to discontinuance of goodwill amortization, resulting from the adoption of a new accounting standard, and effective tax planning strategies. - Reduction of working capital investment within each segment. INFLATION We believe inflation has not had a significant impact on our consolidated results of operations for the periods presented. We were able to substantially offset the effect of inflation through cost reduction programs in 2001. We do not anticipate inflation having a significant impact on the future results of operations. CYCLICALITY We are exposed to cyclicality, particularly as it relates to new construction. Generally, ESG and YRG are impacted by changes in commercial construction, while UPG and Bristol are impacted by residential construction. Exposure to cyclicality is partially mitigated by our emphasis on the service, repair and replacement market. As the installed base of heating, air conditioning and refrigeration equipment has grown and aged, we derive a significant portion of our revenue from the service, repair and replacement market. In 2001, 2000 and 1999 on a worldwide basis, service, repair and replacement revenue accounted for an estimated 44%, 43% and 42%, respectively, of our net sales, while new construction revenue accounted for the remaining 56%, 57% and 58%, respectively. SEASONALITY Sales of UPG equipment historically have been seasonal. Demand for residential air conditioning equipment in the new construction and replacement market varies according to the season, with increased demand generally in the summer months. Demand in the residential replacement market generally peaks in early summer for air conditioners and in the fall for furnaces. Demand for hermetic compressors in the original equipment market generally increases from January through July as manufacturers increase production to meet anticipated seasonal demand. We provide incentives for distributors to purchase products in advance of seasonal sales. These incentives, together with advance production schedules, somewhat reduce the impact of seasonal fluctuations on our sales of residential equipment. Requirements for service and repair parts for ESG products and the YRG contracting business also increase during summer months. The overall effect of 9 seasonality is partially mitigated by sales of our ESG and YRG equipment, for which demand is less seasonal. MARKET RISK We are exposed to market risk associated with changes in foreign currency exchange rates, certain commodity prices and interest rates. We do not typically hedge our market risk exposures beyond three years and do not anticipate any material changes in our primary market risk exposures in 2002. We do not hold or issue derivative instruments for trading purposes. We mitigate the risk that the counter-party to currency, commodity and interest rate financial instruments will fail to perform by only entering into financial instruments with major international financial institutions. Financial instruments are discussed in more detail in note 2 to the accompanying consolidated financial statements. Currency Rate Risk We have manufacturing facilities in eight foreign countries and our products are sold in over 125 countries throughout the world. As a result, we are exposed to movements in various currencies against the United States Dollar and against the currencies in which we manufacture. The major foreign currencies in which foreign currency risks exist are the Euro, Danish Krone, British Pound Sterling, Chinese Renminbi, Canadian Dollar, Mexican Peso and Brazilian Real. Based on a sensitivity analysis of our estimated 2002 foreign exchange currency exposures, a uniform 10% strengthening of the value of the United States Dollar against these foreign exchange currency exposures is estimated to result in a $13.2 million reduction in 2002 forecasted income from operations. In addition to its direct effect, changes in foreign currency exchange rates will also potentially affect future sales volumes, foreign currency sales prices and hedging strategies. The sensitivity analysis described above does not reflect these potential changes. In January 2002, a devaluation of the Argentine Peso occurred. Because our exposures in Argentina were partially hedged and certain receivables were insured, the impact of the January 2002 devaluation on our consolidated results was not material. While we will take actions to mitigate the impacts of future currency devaluations, there is no assurance that such future devaluations in Argentina or elsewhere will not adversely affect our results. We manage our foreign currency risks by hedging our foreign currency exposure with foreign currency forward contracts and purchased option contracts. Through our foreign currency hedging activities, we seek to minimize the risk that cash flows resulting from the sale of products, manufactured in a currency different from the currency used by the selling subsidiary, will be affected by changes in foreign currency exchange rates. We do not, however, hedge foreign exposures that are considered immaterial or in highly correlated currencies. Foreign currency contracts are matched to foreign currency exposures and are executed to minimize foreign exchange transaction costs. Commodity Price Risk We purchase raw material commodities and are at risk for fluctuations in the market price of those commodities. In connection with the purchase of major commodities, principally copper for manufacturing requirements, we enter into commodity forward contracts to effectively fix the cost of the commodity to us. These contracts require each settlement between us and our counter-party to coincide with cash market purchases of the actual commodity. 10 Interest Rate Risk We manage our interest rate risk by entering into both fixed and variable rate debt at the lowest possible costs. This includes $100 million of senior notes that bear interest at a 6.75% fixed rate which are due March 2003, $200 million of senior notes that bear interest at a 6.625% fixed rate which are due August 2006, and $200 million of senior notes that bear interest at a 6.70% fixed rate which are due June 2008. Short-term borrowings, typically bank loans and commercial paper, are entered into and renewed in the ordinary course of business and have maturity dates that support seasonal working capital needs. Our non-U.S. subsidiaries maintain bank credit facilities for borrowings in their functional currency on a floating rate basis. In addition, we enter into interest rate swap contracts in order to achieve a cost effective mix of fixed and variable rate indebtedness. The following table provides information, as of December 31, 2001, concerning our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates by contractual maturity dates. For interest rate swaps, the table presents notional principal amounts and weighted average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the interest rate swaps. Weighted average variable rates are generally based on LIBOR as of the reset dates. The cash flows of these instruments are denominated in a variety of currencies. Unless otherwise indicated, the information is presented in U.S. dollar equivalents. PRINCIPAL PAYMENTS AND INTEREST RATE DETAIL BY CONTRACTUAL MATURITY DATES
FAIR VALUE (ASSETS)/ (IN THOUSANDS) 2002 2003 2004 2005 2006 THEREAFTER TOTAL LIABILITIES ================================================================================================================================= Short-term debt Variable rate (U.S. dollars) $ 2,076 $ -- $ -- $ -- $ -- $ -- $ 2,076 $ 2,076 Average interest rate 3.79% -- -- -- -- -- Variable rate (other currencies) $ 30,887 $ -- $ -- $ -- $ -- $ -- $ 30,887 $ 30,887 Average interest rate 12.50% -- -- -- -- -- Long-term debt Fixed rate (U.S. dollars) $ 201 $ 100,212 $ 228 $ 245 $ 202,387 $ 200,774 $504,047 $ 506,002 Average interest rate 6.31% 6.75% 6.33% 6.34% 6.62% 6.70% Fixed rate (other currencies) $ 2,770 $ 1,831 $ 1,819 $ 1,672 $ 1,450 $ 15,658 $ 25,200 $ 25,200 Average interest rate 6.34% 6.76% 6.73% 6.65% 6.55% 6.31% Variable rate (U.S. dollars) $ 670 $ 234 $ 55 $ 55 $ 197,758 $ -- $198,772 $ 198,772 Average interest rate (a) 3.09% 3.31% 4.38% 4.38% 2.38% -- Interest Rate Derivatives Fixed to variable rate interest rate swaps (U.S. dollars) $ -- $ -- $ -- $ -- $ 100,000 $ -- $100,000 $ (2,125) Average pay rate (b) $ -- $ -- $ -- $ -- $ -- $ -- Average receive rate -- -- -- -- 6.63% -- - ----------------------------------------------------------------------------------------------------------------------------------
(a) Variable rate specified is based upon LIBOR plus the specified margin over LIBOR. (b) The average pay rate is based upon 6-month forward LIBOR, which was 2.0% as of December 31, 2001. 11 CRITICAL ACCOUNTING POLICIES Preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Many of the estimates and assumptions require significant judgment. Future actual results could differ from those estimates and assumptions and could have a significant impact to our consolidated results of operations, financial position and cash flows. The following accounting policies require significant judgment in the preparation of the consolidated financial statements: - Our accrual for future warranty costs requires us to estimate future warranty claims frequency and costs, as well as identify significant unusual product defects. Our estimates are based upon historical warranty claims experience over the past five years and current claim trends. When no warranty claims history is available for new or reengineered products, estimated warranty costs are based upon the warranty claims history of similar products. When we identify significant unusual product defects, we accrue for the expected related costs separately. This has in the past and could in the future result in fluctuations to our recorded liabilities or the related expense. - Our allowance for doubtful receivables, recognition of impairment charges and accruals for contingencies require significant judgment in estimating expected cash flow or costs to be incurred. Our judgments are based upon historical experience and current market conditions. We recognize significant changes in our estimates as a result of events, such as a deterioration of the credit status of a customer, business restructuring actions, or material reductions in product and sales volumes. - Accounting for income taxes requires us to make judgments relating to such items as the realizability of deferred tax assets, including the future utilization of tax loss carryforwards. Our judgments are based upon projections of future taxable income and our current strategies for the foreseeable future. For more details relating to our deferred tax assets and liabilities, tax loss carryforwards, and related valuation allowances, see note 12 to the accompanying consolidated financial statements. - Determination of our liabilities for pension and post retirement benefits includes significant assumptions relating to compensation and health care cost trends, discount rates and rate of return on plan assets. Our assumptions are based upon current market and health care trends. These assumptions are discussed in note 10 to the accompanying consolidated financial statements. The footnotes to the accompanying consolidated financial statements provide additional information on accounting policies and assumptions used by us. NEW ACCOUNTING STANDARDS Effective July 1, 2001, we adopted Statement of Financial Accounting Standard (SFAS) No. 141, "Business Combinations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations and specifies criteria for the recognition and reporting of intangible assets apart from goodwill. SFAS No. 141 did not materially impact our consolidated financial statements. Effective January 1, 2002 we will adopt SFAS No. 142, "Goodwill and Other Intangible Assets," as required. Under SFAS No. 142, we will no longer amortize goodwill and other intangible assets with indefinite useful lives, but instead will test those assets for impairment at least annually. Intangible assets with definite useful lives will be amortized over such lives to their estimated residual values. We are required to assess, in accordance with the provisions of SFAS No. 142, whether there is an indication that any goodwill or other intangible assets with indefinite useful lives are impaired no later than June 30, 2002. As soon as possible after a determination that any goodwill or other intangible assets with indefinite useful lives may be impaired, but not later than December 31, 2002, we must re-compute the amount of such goodwill or other intangible assets with indefinite useful lives in accordance with the provisions of SFAS No. 142. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle. We estimate the adoption of SFAS No. 142 will result in a significant cumulative effect adjustment that may 12 exceed $200 million. Amortization expense related to goodwill was $24.3 million, $25.5 million and $20.3 million in 2001, 2000 and 1999, respectively. Effective January 1, 2002 we will adopt SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," as required. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. Adoption of SFAS No. 144 is not expected to materially impact our consolidated financial statements. FORWARD-LOOKING INFORMATION - RISK FACTORS To the extent we have made "forward-looking statements," certain risk factors could cause actual results to differ materially from those anticipated in such forward-looking statements including, but not limited to competition, government regulation, environmental considerations and the successful implementation of our cost reduction actions. Unseasonably cool spring or summer weather could adversely affect our UPG residential air conditioning business and, similarly, the Bristol compressor business. Bristol is also dependent on the successful development and introduction of new products. The ESG air conditioning business could be affected by a slowdown in the large chiller market and by the acceptance of new product introductions. YRG could be adversely affected by the effects of declining European currencies. Both YRG and ESG could be negatively impacted by reductions in commercial construction. In addition, our overall performance could be affected by declining worldwide economic conditions or slowdowns resulting from world events, including the September 11, 2001 terrorist attacks on the United States. 13 MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Stockholders of York International Corporation: The management of York International Corporation is responsible for the preparation of the accompanying consolidated financial statements. In management's opinion, the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company believes that the accounting systems and related controls that it maintains are sufficient to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets. These systems and controls are tested and evaluated regularly by the Company's internal auditors as well as by the independent auditors in connection with their annual audit. The directors of York International Corporation have established an Audit Committee currently comprised of three outside directors. The Audit Committee meets with management, the internal auditors and the independent auditors and monitors generally the accounting affairs of the Company. The Audit Committee also recommends to the stockholders the selection of the independent auditors. /S/ Michael R. Young /S/ C. David Myers Michael R. Young C. David Myers President and Vice President and Chief Executive Officer Chief Financial Officer February 15, 2002 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders, York International Corporation: We have audited the accompanying consolidated balance sheets of York International Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of York International Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001. /S/ KPMG LLP KPMG LLP Harrisburg, Pennsylvania February 15, 2002 14 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (in thousands, except per share data) 2001 2000 - ------------------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 39,434 $ 26,425 Receivables, net 613,892 680,467 Inventories 515,260 641,097 Prepayments and other current assets 81,883 109,820 - ------------------------------------------------------------------------------------------------------------------ Total current assets 1,250,469 1,457,809 - ------------------------------------------------------------------------------------------------------------------ Deferred income taxes 56,149 56,114 Investments in affiliates 24,957 24,913 Property, plant and equipment, net 480,999 484,297 Unallocated excess of cost over net assets acquired 651,673 693,668 Deferred charges and other assets 108,262 95,255 - ------------------------------------------------------------------------------------------------------------------ Total assets $ 2,572,509 $ 2,812,056 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 36,604 $ 64,268 Accounts payable and accrued expenses 735,962 829,623 Income taxes 5,073 15,117 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 777,639 909,008 - ------------------------------------------------------------------------------------------------------------------ Long-term warranties 43,751 40,728 Long-term debt 724,378 831,354 Postretirement and postemployment benefits 208,195 203,695 Other long-term liabilities 79,112 78,295 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 1,833,075 2,063,080 - ------------------------------------------------------------------------------------------------------------------ Stockholders' equity: Common stock $.005 par value; 200,000 shares authorized; issued 45,616 shares in 2001 and 45,377 shares in 2000 228 227 Additional paid-in capital 723,980 720,685 Retained earnings 449,089 426,322 Accumulated other comprehensive losses (196,870) (138,544) Treasury stock, at cost; 6,394 shares in 2001 and 7,005 shares in 2000 (236,938) (259,601) Unearned compensation (55) (113) - ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 739,434 748,976 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 2,572,509 $ 2,812,056 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 15 CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, (in thousands, except per share data) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 3,930,677 $ 3,897,403 $ 3,877,029 Cost of goods sold 3,179,891 3,071,454 3,089,401 - --------------------------------------------------------------------------------------------------------------------------------- Gross profit 750,786 825,949 787,628 Selling, general and administrative expenses 578,611 606,984 569,151 Acquisition, integration, restructuring and other charges 70,504 49,679 54,532 - --------------------------------------------------------------------------------------------------------------------------------- Income from operations 101,671 169,286 163,945 Interest expense, net 67,150 81,587 61,150 Gain on divestitures -- (26,902) (9,627) Equity in earnings of affiliates (2,444) (6,368) (5,660) - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change 36,965 120,969 118,082 (Benefit) provision for income taxes (9,024) 14,362 41,303 - --------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 45,989 106,607 76,779 Cumulative effect of accounting change - write-off of start-up costs, net of tax of $442 -- -- 897 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 45,989 $ 106,607 $ 75,882 - --------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share: Income before cumulative effect of accounting change $ 1.19 $ 2.80 $ 1.93 Accounting change -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Net income 1.19 2.80 1.91 - --------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share: Income before cumulative effect of accounting change 1.17 2.78 1.93 Accounting change -- -- (.02) - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 1.17 $ 2.78 $ 1.91 - --------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and common equivalents outstanding: Basic 38,626 38,107 39,637 Diluted 39,147 38,281 39,832 - ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, (in thousands) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 45,989 $ 106,607 $ 75,882 - --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (losses): Foreign currency translation adjustments (50,795) (66,947) (13,722) Cash flow hedges: Transition adjustment, net of tax of $(525) (976) -- -- Reclassification adjustment, net of tax of $1,950 3,622 -- -- Net derivative losses, net of tax of $(3,937) (7,311) -- -- Minimum pension liability adjustments, net of tax of $(1,200), $(223) and $386 in 2001, 2000 and 1999, respectively (2,866) (451) 785 - --------------------------------------------------------------------------------------------------------------------------- Total other comprehensive losses (58,326) (67,398) (12,937) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ (12,337) $ 39,209 $ 62,945 - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 16 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (in thousands) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 45,989 $ 106,607 $ 75,882 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 59,655 63,115 64,171 Amortization of deferred charges and unallocated excess of cost over net assets acquired 27,024 28,443 24,119 Provision for doubtful receivables 7,847 9,004 10,899 Effect of non-cash charges 28,694 36,502 58,807 Gain on divestitures -- (26,902) (9,627) Deferred income taxes 126 (7,653) (12,755) Cumulative effect of accounting change -- -- 897 Loss on sale of fixed assets 1,301 3,335 4,360 Other 5,462 (1,443) (2,020) Change in assets and liabilities net of effects from acquisitions and divestitures: Receivables, net 57,820 19,297 (43,215) Inventories 112,394 (53,753) 10,896 Prepayments and other current assets 26,858 (7,296) (4,042) Accounts payable and accrued expenses (102,629) (16,595) (80,787) Income taxes (10,468) (26,996) (26,831) Other long-term assets and liabilities (7,381) (1,415) 1,990 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 252,692 124,250 72,744 - --------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of and investments in other companies, net of cash acquired (3,178) (5,832) (407,766) Proceeds from divestitures, net -- 41,826 35,512 Capital expenditures (98,126) (93,971) (104,065) Proceeds from sale of fixed assets 2,491 5,543 1,155 - --------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (98,813) (52,434) (475,164) - --------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net payments on short-term debt (14,297) (34,396) (57,635) Net (payments) proceeds of commercial paper borrowings (255,198) 56,053 396,847 Net proceeds from issuance of senior notes 197,623 -- -- Net payments on other long-term debt (67,270) (84,398) (13,180) Proceeds from sale lease-back -- -- 82,397 Proceeds from sale of receivables -- -- 75,000 Common stock issued 21,100 8,033 13,636 Treasury stock purchases (52) (7,525) (54,237) Dividends paid (23,222) (22,814) (23,818) - --------------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (141,316) (85,047) 419,010 - --------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 446 142 178 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 13,009 (13,089) 16,768 Cash and cash equivalents at beginning of year 26,425 39,514 22,746 - --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 39,434 $ 26,425 $ 39,514 - --------------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash paid (received) for: Interest $ 63,212 $ 81,752 $ 59,484 Income taxes (3,469) 44,244 62,306 Non-cash investing activities, acquisitions of business: Fair value of tangible and intangible assets acquired $ 6,820 $ 9,554 $ 877,276 Cash paid (3,178) (5,832) (407,766) Liabilities assumed $ 3,642 $ 3,722 $ 469,510 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 17 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED OTHERS ADDITIONAL COMPRE- UNEARNED COMMON PAID-IN RETAINED HENSIVE TREASURY COMPEN- (in thousands, except per share data) STOCK CAPITAL EARNINGS LOSSES STOCK SATION - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 $223 $ 700,959 $ 290,465 $ (58,209) $(199,037) $(3,602) Net income -- -- 75,882 -- -- -- Cash dividends ($.60 per share) -- -- (23,818) -- -- -- Purchase of treasury stock, at cost -- -- -- -- (54,237) -- Issuance of common stock: Employee stock purchase plan 1 4,803 -- -- -- -- Executive stock agreements, net -- 953 -- -- -- (919) Stock options exercised and other 1 7,878 -- -- -- -- Tax effect of options exercised -- 729 -- -- -- -- Other comprehensive losses -- -- -- (12,937) -- -- Amortization of unearned compensation -- -- -- -- -- 2,795 - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $225 $ 715,322 $ 342,529 $ (71,146) $(253,274) $(1,726) Net income -- -- 106,607 -- -- -- Cash dividends ($.60 per share) -- -- (22,814) -- -- -- Purchase of treasury stock, at cost -- -- -- -- (7,525) -- Issuance of common stock: Employee stock purchase plan 2 7,310 -- -- -- -- Executive stock agreements, net -- (1,593) -- -- (26) 1,583 Stock options exercised and other -- (467) -- -- 1,224 -- Tax effect of options exercised -- 113 -- -- -- -- Other comprehensive losses -- -- -- (67,398) -- -- Amortization of unearned compensation -- -- -- -- -- 30 - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $227 $ 720,685 $ 426,322 $(138,544) $(259,601) $ (113) Net income -- -- 45,989 -- -- -- Cash dividends ($.60 per share) -- -- (23,222) -- -- -- Purchase of treasury stock, at cost -- -- -- -- (52) -- Issuance of common stock: Employee stock purchase plan 1 6,139 -- -- (1) -- Stock options exercised and other -- (7,755) -- -- 22,716 -- Tax effect of options exercised -- 4,911 -- -- -- -- Other comprehensive losses -- -- -- (58,326) -- -- Amortization of unearned compensation -- -- -- -- -- 58 - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 $228 $ 723,980 $ 449,089 $(196,870) $(236,938) $ (55) - -------------------------------------------------------------------------------------------------------------------------------- COMMON SHARES (in thousands, except per share data) TOTAL ISSUED TREASURY - --------------------------------------------------------------------------------- Balance, December 31, 1998 $ 730,799 44,616 4,621 Net income 75,882 -- -- Cash dividends ($.60 per share) (23,818) -- -- Purchase of treasury stock, at cost (54,237) -- 2,078 Issuance of common stock: Employee stock purchase plan 4,804 206 -- Executive stock agreements, net 34 23 1 Stock options exercised and other 7,879 217 -- Tax effect of options exercised 729 -- -- Other comprehensive losses (12,937) -- -- Amortization of unearned compensation 2,795 -- -- - --------------------------------------------------------------------------------- Balance, December 31, 1999 $ 731,930 45,062 6,700 Net income 106,607 -- -- Cash dividends ($.60 per share) (22,814) -- -- Purchase of treasury stock, at cost (7,525) -- 299 Issuance of common stock: Employee stock purchase plan 7,312 315 -- Executive stock agreements, net (36) -- 39 Stock options exercised and other 757 -- (33) Tax effect of options exercise 113 -- -- Other comprehensive losses (67,398) -- -- Amortization of unearned compensation 30 -- -- - --------------------------------------------------------------------------------- Balance, December 31, 2000 $ 748,976 45,377 7,005 Net income 45,989 -- -- Cash dividends ($.60 per share) (23,222) -- -- Purchase of treasury stock, at cost (52) -- 2 Issuance of common stock: Employee stock purchase plan 6,139 236 -- Stock options exercised and other 14,961 3 (613) Tax effect of options exercise 4,911 -- -- Other comprehensive losses (58,326) -- -- Amortization of unearned compensation 58 -- -- - --------------------------------------------------------------------------------- Balance, December 31, 2001 $ 739,434 45,616 6,394 - ---------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS York International Corporation (the Company, which may be referred to as we, us or our) is a full-line, global designer and manufacturer of heating, ventilating, air conditioning and refrigeration (HVAC&R) equipment comprised of four segments: Engineered Systems Group, York Refrigeration Group, Unitary Products Group and Bristol Compressors. We market our products and services throughout the world, and our customers range from residential contractors to design builders, commercial contractors, building owners and original equipment manufacturers. USE OF ESTIMATES Preparation of the consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America (U.S.), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of York International Corporation and its wholly-owned and majority-owned subsidiaries. We eliminate all significant intercompany transactions. CASH AND CASH EQUIVALENTS We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES We state inventories at the lower of cost or market using the last-in, first-out (LIFO) or first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment at cost, less accumulated depreciation. Maintenance and repairs are expensed as incurred. Significant improvements and renewals are capitalized and depreciated. Depreciation is computed generally on a straight-line basis over the estimated useful lives of the assets as follows: Buildings 15-30 years Machinery and equipment 3-12 years
UNALLOCATED EXCESS OF COST OVER NET ASSETS ACQUIRED We amortize unallocated excess of cost over net assets acquired on a straight-line basis over periods of up to 40 years. Accumulated amortization related to such excess as of December 31, 2001 and 2000, was $156.1 million and $133.8 million, respectively. Amortization expense was $24.3 million, $25.5 million and $20.3 million in 2001, 2000 and 1999, respectively. We assess the recoverability or impairment, if any, of the elements of this intangible asset by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operations or the long-lived assets to which the unallocated excess is attributed. Effective January 1, 2002 we will adopt Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets," as required. Under SFAS No. 142, we will no longer amortize goodwill and other intangible assets with indefinite useful lives, but instead will test those assets for impairment at least annually. Intangible assets with definite useful lives will be amortized over such lives to their estimated residual values. We are required to assess, in accordance with the provisions of SFAS No. 142, whether there is an indication that any goodwill or other intangible assets with indefinite useful lives are impaired no later than June 30, 2002. As soon as possible after a determination that any goodwill or other intangible assets with indefinite useful lives may be impaired, but not later than December 31, 2002, we must re-compute the amount of such goodwill or other intangible assets with indefinite useful lives in accordance with the provisions of SFAS No. 142. Any transitional impairment loss will be recognized as the 19 cumulative effect of a change in accounting principle. We estimate the adoption of SFAS No. 142 will result in a significant cumulative effect adjustment that may exceed $200 million. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS We provide postretirement and postemployment benefits to certain of our employees and former employees. These benefits include pension, salary continuance, severance, life insurance and health care. Benefits are accrued over the employees' service periods or at the date of the event triggering the benefit. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment to SFAS No. 133, on January 1, 2001. These statements require that all derivative instruments be recognized in the balance sheet at fair value and establish criteria for the designation of hedges and the determination of effectiveness of hedging relationships for fair value and cash flow hedges. SFAS No. 133 required the transition adjustment, resulting from the adoption of these statements, to be reported as the cumulative effect of a change in accounting principle. The amount of transition adjustment recorded in accumulated other comprehensive losses as a result of recognizing the fair value of derivatives, designated as cash flow hedges, was a net unrealized loss of $1.5 million. There were no transition adjustments relating to hedges of net investments in foreign operations or fair value hedges. The amount of transition adjustment recorded in cost of goods sold during 2001 as a result of recognizing the fair value of derivatives, not qualifying as hedges, was a net gain of $0.6 million. We are exposed to market risk associated with changes in interest rates, foreign currency exchange rates, and certain commodity prices. To enhance our ability to manage these market risks, we enter into derivative instruments, pursuant to our policies, for periods consistent with the related underlying exposures. Derivative instruments are designated as either fair value hedges, cash flow hedges, net investment hedges, or non-qualifying hedges at inception of the hedge. The changes in fair value of these hedging instruments are offset in part or in whole by corresponding changes in fair value or cash flows of the underlying exposures being hedged. We mitigate the risk that the counter-party to these derivative instruments will fail to perform by only entering into derivative instruments with major financial institutions. We do not typically hedge our market risk exposures beyond three years and do not hold or issue derivative instruments for trading purposes. Recognized gains or losses for the year ended December 31, 2001 as a result of the discontinuance of cash flow hedges were immaterial. During the year ended December 31, 2001, the amount recognized in cost of goods sold due to ineffectiveness of commodity cash flow hedges was a net loss of $0.6 million. As of January 1, 2001 and during the year ended December 31, 2001, we had no outstanding derivative instruments relating to hedges of net investments in foreign operations. Certain derivative instruments are not designated as hedging instruments as they hedge immaterial exposures. Currency Rate Hedging We manufacture and sell our products in a number of countries throughout the world, and therefore, are exposed to movements in various currencies against the United States Dollar and against the currencies in which we manufacture. Through our currency hedging activities, we seek to minimize the risk that cash flows resulting from the sale of products, manufactured in a currency different from the currency used by the selling subsidiary, will be affected by changes in foreign currency exchange rates. We do not, however, hedge foreign exposures that are considered immaterial or in highly correlated currencies. We manage our foreign currency risks by hedging our foreign currency exposures with foreign currency derivative instruments (forward contracts and purchased option contracts). Foreign currency derivative instruments are matched to the underlying foreign currency exposures and are executed to minimize foreign exchange transaction costs. Changes in fair value of foreign currency derivative instruments, qualifying as cash flow hedges, are reported in accumulated other comprehensive income. The gains or losses on these hedges are reclassified in earnings as the underlying hedged items affect earnings. As of December 31, 2001, we forecasted that the amount of net losses in accumulated other comprehensive losses that will be reclassified into earnings within the next twelve months is not significant. 20 Commodity Price Hedging We purchase raw material commodities and are at risk for fluctuations in the market price of those commodities. In connection with the purchase of major commodities, principally copper for manufacturing requirements, we enter into commodity forward contracts to effectively fix our cost of the commodity. These contracts require each settlement between our counterparty and us to coincide with cash market purchases of the actual commodity. Changes in the fair value of commodity derivative instruments qualifying as cash flow hedges are reported in accumulated other comprehensive income. The gains or losses are reclassified in earnings as the underlying hedged items affect earnings. As of December 31, 2001, we forecasted that $5.8 million of net losses in accumulated other comprehensive losses will be reclassified into earnings within the next twelve months. Interest Rate Hedging We manage our interest rate risk by entering into both fixed and variable rate debt at the lowest possible costs. In addition, we enter into interest rate swap contracts in order to achieve a cost effective mix of fixed and variable rate indebtedness. Under these contracts, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated from an agreed upon referenced notional amount. The notional amounts are not exchanged and no other cash payments are made unless the contract is terminated prior to maturity. We have designated our outstanding interest rate swap contracts as fair value hedges of an underlying fixed rate debt obligation. The fair value of these contracts is recorded in other long-term assets or liabilities with a corresponding increase or decrease in the fixed rate debt obligation. The change in fair values of both the fair value hedge instruments and the underlying debt obligations are recorded as equal and offsetting unrealized gains and losses in the interest expense component of the consolidated statements of operations. All existing fair value hedges are 100% effective. As a result, there is no impact on current earnings resulting from hedge ineffectiveness. REVENUE RECOGNITION For HVAC&R equipment and parts sales, revenue is recognized when title transfers pursuant to shipping terms. For equipment sales under long-term contractual arrangements, revenue is recognized on a percentage of completion basis. Service revenues are recognized upon performance of the service. Revenue under long-term service agreements is recognized over the period of the service agreement. Revenue relating to installation is recorded based on the fair value of the service and recognized upon completion. Amounts billed to customers related to shipping and handling are included in revenue at the time of shipment. We include shipping and handling costs in cost of goods sold. INCOME TAXES We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings of foreign operations are reinvested in the business and no provision for domestic income tax or foreign withholding tax is made on such earnings until distributed. PRODUCT RELATED EXPENSES We charge advertising, research and development, and other product-related costs to expense as incurred. Advertising expense was $27.7 million, $34.7 million and $26.6 million in 2001, 2000 and 1999, respectively. Research and development costs were $46.2 million, $46.9 million, and $41.0 million in 2001, 2000 and 1999, respectively. We accrue estimated warranty costs at the time of sale. Estimated warranty costs are based upon the historical trend of warranty claims and include estimated costs for labor and parts. Warranty expense was $74.3 million, $59.5 million and $65.7 million in 2001, 2000 and 1999, respectively. 21 EARNINGS PER SHARE Basic earnings per share is based upon the weighted average common shares outstanding during the period. Diluted earnings per share is based upon the weighted average outstanding common shares and common share equivalents. FOREIGN CURRENCY TRANSLATION The functional currency for the majority of our foreign operations is the applicable local currency. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in currency translation adjustments in accumulated other comprehensive losses. Gains or losses resulting from foreign currency transactions are included in the results of operations. ACCOUNTING FOR STOCK-BASED COMPENSATION We apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our stock-based compensation plans. Information related to stock-based compensation awards is presented in note 17 to the consolidated financial statements along with the disclosures required under SFAS No. 123, "Accounting for Stock-Based Compensation." START-UP ACTIVITIES In 1999, we adopted AICPA Statement of Position (SOP) 98-5, "Reporting on the Cost of Start-Up Activities," which requires that costs of start-up activities, including organization costs, be expensed as incurred. In January 1999, we recorded a charge of $0.9 million, net of $0.4 million in related income taxes, to write-off start-up activities in accordance with the SOP. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 and 1999 consolidated financial statements to conform to the 2001 presentation. NOTE 2--FINANCIAL INSTRUMENTS FOREIGN CURRENCY INSTRUMENTS The following table reflects the notional and estimated fair values of forward currency contracts outstanding as of December 31, 2001 and 2000. Foreign currency amounts were translated at current exchange rates as of the reporting date. Fair values reflect the estimated net amount that we would receive to terminate the contracts, as of the reporting date, based on quoted market prices.
2001 2000 ----------------------------------------------------------- (USD equivalents in thousands) Notional Amount Fair Value Notional Amount Fair Value - ----------------------------------------------------------------------------------------------- Forwards $92,514 $1,768 $108,315 $1,414 - -----------------------------------------------------------------------------------------------
The following table summarizes our contractual amounts of forward currency contracts as of December 31, 2001 and 2000. Foreign currency amounts were translated at current exchange rates as of the reporting date. The "buy" amounts represent the U.S. dollar equivalent of commitments to purchase currencies and the "sell" amounts represent the U.S. dollar equivalent of commitments to sell currencies. 22
2001 2000 ------------------------------------------------------- (USD equivalents in thousands) BUY SELL BUY SELL - ---------------------------------------------------------------------------------------------- Brazilian Real $ -- $ 3,643 $ -- $ -- Canadian Dollar -- 5,313 -- -- Danish Krone 44,186 5,054 59,917 4,134 EURO 9,430 28,569 5,661 55,310 British Pound Sterling 3,530 1,304 9,936 1,371 Japanese Yen -- 428 -- 2,230 Norwegian Krone 847 6,786 1,211 4,055 Singapore Dollar 178 2,093 -- 1,793 South African Rand -- 3,023 -- 1,087 Swedish Krona 7,203 6,462 20,084 1,535 Other Currencies -- 3,703 1,162 1,547 U.S. Dollar 26,979 24,979 10,800 34,481 - ----------------------------------------------------------------------------------------------
COMMODITY CONTRACTS The following table reflects the pounds hedged, notional amount and estimated fair value of our commodity hedging contracts outstanding as of December 31, 2001 and 2000.
COPPER EXPOSURE, 2001 (in thousands) - ------------------------------------------------------------------------ Year POUNDS HEDGED NOTIONAL AMOUNT FAIR VALUE - ------------------------------------------------------------------------ 2002 38,400 $31,964 $(5,511) 2003 39,000 29,544 (1,261) 2004 18,000 13,200 331 - ------------------------------------------------------------------------ COPPER EXPOSURE, 2000 (in thousands) - ------------------------------------------------------------------------ Year POUNDS HEDGED NOTIONAL AMOUNT FAIR VALUE - ------------------------------------------------------------------------ 2001 36,000 $31,677 $(1,204) 2002 28,800 24,836 (863) - ------------------------------------------------------------------------
INTEREST RATE INSTRUMENTS As of December 31, 2001 we had interest rate swap contracts to pay variable interest, based on the six-month LIBOR rate, and receive a fixed rate of interest of 6.625% on a notional amount of $100 million. As of December 31, 2001, the fair value of these swap contracts was an unrealized gain of $2.1 million.
2001 2000 --------------------------------------------------------------------------- (USD equivalents in thousands) NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE - ------------------------------------------------------------------------------------------------------------------------ Interest rate swaps: Fixed to variable rates $100,000 $2,125 $ -- $ -- - ------------------------------------------------------------------------------------------------------------------------
23 OTHER FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of our other financial instruments are as follows:
2001 2000 ----------------------------------------------------------------- CARRYING FAIR CARRYING FAIR (in thousands) AMOUNT VALUE AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 39,434 $ 39,434 $ 26,425 $ 26,425 Bank loans (primarily foreign currency) 32,963 32,963 47,260 47,260 Long-term debt: Domestic bank lines -- -- 6,200 6,200 Commercial paper 197,702 197,702 452,900 452,900 Senior notes at 6.75% 100,000 102,570 100,000 98,235 Senior notes at 6.625% 200,000 202,185 -- -- Senior notes at 6.70% 200,000 197,200 200,000 182,820 Other (primarily foreign bank loans) 30,317 30,317 89,262 89,262 - --------------------------------------------------------------------------------------------------------------------
The fair values of each of our long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using our current borrowing rate for similar debt instruments of comparable maturity. NOTE 3--RECEIVABLES, NET Receivables, net consists of:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------- Customers, trade $555,772 $618,112 Affiliate receivables, trade 3,970 7,758 Other receivables 79,825 79,148 - ----------------------------------------------------------------------------------- 639,567 705,018 Less allowance for doubtful receivables 25,675 24,551 - ----------------------------------------------------------------------------------- Receivables, net $613,892 $680,467 - -----------------------------------------------------------------------------------
Pursuant to the terms of a revolving facility, we sell our trade receivables to a wholly-owned, consolidated subsidiary, York Receivables Funding LLC (YRFLLC). In turn, YRFLLC sells, on a revolving basis, up to $175 million undivided ownership interest in the purchased trade receivables to bank conduits. We continue to service the receivables. No servicing asset or liability has been recognized as our cost to service the receivables approximates the servicing income. In accordance with the facility, YRFLLC has sold $175 million of undivided interest in trade receivables as of December 31, 2001. The proceeds from the sale were reflected as a reduction of receivables in the accompanying consolidated balance sheet as of December 31, 2001. The discount rate on the trade receivables sold was 2.00% as of December 31, 2001. Excluded from receivables in the accompanying consolidated balance sheet at December 31, 2000 was $175 million of receivables sold pursuant to a prior sales agreement, which was replaced by the current facility. The discount rate on the receivables sold was 6.66% as of December 31, 2000. 24 NOTE 4--INVENTORIES Inventories consist of:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------- Raw material $143,148 $187,136 Work in progress 101,575 122,232 Finished goods 270,537 331,729 - ----------------------------------------------------------------------------------- Inventories $515,260 $641,097 - -----------------------------------------------------------------------------------
Inventories valued under the LIFO method comprised approximately 25% and 35% of the December 31, 2001 and 2000 totals, respectively. If valued under the FIFO method, inventories would have been greater by $11.1 million and $11.0 million as of December 31, 2001 and 2000, respectively. NOTE 5--PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consist of:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------- Current deferred income tax assets, net $ 43,090 $ 43,254 Prepaid insurance 3,562 19,332 Prepaid materials and supplies 12,392 18,220 Deferred employee benefits -- 10,266 Other 22,839 18,748 - ----------------------------------------------------------------------------------- Prepayments and other current assets $ 81,883 $109,820 - -----------------------------------------------------------------------------------
NOTE 6--INVESTMENTS IN AFFILIATES We own interests in affiliate operations located in Malaysia, Cyprus, Saudi Arabia, Spain, Denmark, Japan, Korea, Morocco, South Africa and the United States. These investments are accounted for using the equity method of accounting and total $25.0 million and $24.9 million as of December 31, 2001 and 2000, respectively. Dividends received from affiliates were $2.9 million, $4.8 million and $1.0 million in 2001, 2000 and 1999, respectively. NOTE 7--PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consists of:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------- Land $ 30,441 $ 32,559 Buildings 186,607 175,559 Machinery and equipment 579,595 586,669 Construction in progress 64,765 53,330 Capital leases 2,793 12,365 - ----------------------------------------------------------------------------------- 864,201 860,482 Less accumulated depreciation and amortization 383,202 376,185 - ----------------------------------------------------------------------------------- Property, plant and equipment, net $480,999 $484,297 - -----------------------------------------------------------------------------------
Amortization of plant and equipment under capital leases has been included in depreciation and amortization expense. Accumulated amortization was $2.0 million and $4.7 million as of December 31, 2001 and 2000, respectively. 25 NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of:
(in thousands) 2001 2000 - --------------------------------------------------------------------------------------------- Accounts payable, trade and other $441,533 $505,263 Employee compensation, benefits and related accruals 143,428 166,956 Warranties and claims 50,806 51,068 Accrued insurance 21,569 24,521 Other accrued expenses 78,626 81,815 - --------------------------------------------------------------------------------------------- Accounts payable and accrued expenses $735,962 $829,623 - ---------------------------------------------------------------------------------------------
NOTE 9--NOTES PAYABLE AND LONG-TERM DEBT As of December 31, 2001 and 2000, our borrowings consisted of senior notes, commercial paper issuances and various other bank and term loans. The commercial paper issuances and certain bank loans are expected to be reborrowed in the ordinary course of business, depending on our financing needs. In addition, we have available a $400 million Five Year Credit Agreement, which expires on May 29, 2006, and a $300 million 364-Day Credit Agreement, which expires on May 28, 2002 (collectively, the New Agreements). As of December 31, 2000, we had available a $400 million 364-day Revolving Credit Agreement and a $500 million Amended Credit Agreement that were cancelled on May 30, 2001. As of December 31, 2001 and 2000, no amounts were outstanding under the agreements. The $400 million Five Year Credit Agreement provides for borrowings at London InterBank Offering Rate (LIBOR) plus 0.75% or 0.875%, and the $300 million 364-Day Credit Agreement provides for borrowings at LIBOR plus 0.775% or 0.90%, based on the amount of facility utilization. We pay annual fees of 0.125% on the $400 million facility and 0.10% on the $300 million facility. The New Agreements allow for borrowings at specified bid rates. As of December 31, 2001 and December 31, 2000, the three-month LIBOR rate was 1.86% and 6.36%, respectively. The New Agreements contain financial covenants requiring us to maintain certain financial ratios and standard provisions limiting leverage and liens. We were in compliance with these financial covenants as of December 31, 2001 and 2000. We have additional domestic bank lines that provide for total borrowings of $100 million as of December 31, 2001 and 2000, of which $100.0 million and $93.8 million, respectively, were unused. Our non-U.S. subsidiaries maintain bank credit facilities in various currencies that provided for available borrowings of $386.3 million and $349.3 million as of December 31, 2001 and 2000, respectively, of which $276.1 million and $301.0 million, respectively, were unused. Generally, borrowings against these credit facilities have been guaranteed by us to assure availability of funds at favorable rates. 26 Notes payable and long-term debt consist of:
(in thousands) 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- Notes payable and current portion of long-term debt: Bank loans (primarily foreign currency) $ 32,963 $ 47,260 Current portion of long-term debt 3,641 17,008 - --------------------------------------------------------------------------------------------------------------------------- Total $ 36,604 $ 64,268 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt: Domestic bank lines at an average 7.40% in 2000 $ -- $ 6,200 Commercial paper, 2.38% interest in 2001 and 6.96% interest in 2000 197,702 452,900 Senior notes, 6.75% interest, due March 2003 100,000 100,000 Senior notes, 6.625% interest, due August 2006 200,000 -- Senior notes, 6.70% interest, due June 2008 200,000 200,000 Other (primarily foreign bank loans) at an average rate of 6.38% in 2001 and 5.02% in 2000 30,317 89,262 - --------------------------------------------------------------------------------------------------------------------------- Total 728,019 848,362 Less current portion (3,641) (17,008) - --------------------------------------------------------------------------------------------------------------------------- Noncurrent portion $724,378 $831,354 - ---------------------------------------------------------------------------------------------------------------------------
Annual principal payments on long-term debt are as follows for the fiscal years indicated:
(in thousands) - ------------------------------------------------------------------ 2002 $ 3,641 2003 102,277 2004 2,102 2005 1,972 2006 401,595 Thereafter 216,432 - ------------------------------------------------------------------
Interest expense is net of interest income of $8.6 million, $8.7 million and $5.1 million in 2001, 2000 and 1999, respectively. NOTE 10--POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS A majority of our U.S. employees participate in noncontributory pension plans, and a majority of our non-U.S. employees participate in contributory or noncontributory pension plans. Plans covering salaried and management employees provide pension benefits that are based on the employee's compensation several years before retirement. Plans covering hourly employees and union members generally provide stated benefit amounts for each year of service. Contributions to the plans are based upon the projected unit credit actuarial funding method and are limited to amounts that are currently deductible for tax reporting purposes. We also have an unfunded supplemental benefit plan for certain members of senior management. In addition to retirement income benefits, we have several unfunded postretirement health and life insurance plans covering certain employees who were hired before February 1, 1993 and retire under the normal, early or disability retirement provisions of any one of our domestic defined benefit pension plans. Former employees who retired prior to February 1, 1993, contribute to the cost of the plans, although we pay the majority of the cost. Employees retiring after February 1, 1993, contribute to the cost of the plans based on an indexed service-related premium. Employees hired after February 1, 1993, are not eligible for the plans. 27 The following table sets forth the funded status and amounts recognized in our consolidated balance sheets:
PENSION BENEFITS OTHER BENEFITS ---------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $(438,545) $(400,765) $(101,272) $(117,693) Sale of company 249 -- -- -- Service cost (16,818) (16,442) (1,520) (2,129) Interest cost (29,675) (28,060) (7,336) (8,389) Contributions by plan participants (873) (969) (878) (663) Actuarial loss (gain) 10,594 (3,640) 5,294 6,387 Plan assumptions (24,237) (8,778) (4,146) 1,266 Benefits paid 27,468 30,853 8,375 7,899 Plan amendments (4,265) (9,561) (1,624) 12,050 Curtailments -- -- 6,119 -- Foreign exchange 5,649 (1,183) -- -- Other (79) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year (470,532) (438,545) (96,988) (101,272) - ---------------------------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year 437,768 473,429 -- -- Actual return on plan assets (29,855) (6,280) -- -- Contributions by employer 6,133 11,092 7,497 7,236 Contributions by plan participants 873 969 878 663 Benefits paid (27,468) (30,853) (8,375) (7,899) Foreign exchange (3,684) (10,589) -- -- - ---------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 383,767 437,768 -- -- - ---------------------------------------------------------------------------------------------------------------------------- Funded status (86,765) (777) (96,988) (101,272) Unrecognized prior service cost 33,051 35,855 (14,322) (12,239) Unrecognized loss (gain) 9,553 (80,785) (1,539) (5,429) - ---------------------------------------------------------------------------------------------------------------------------- Net amount recognized $ (44,161) $ (45,707) $(112,849) $(118,940) - ---------------------------------------------------------------------------------------------------------------------------- Amounts recognized in consolidated balance sheets: Prepaid benefit cost $ 41,369 $ 37,845 $ -- $ -- Accrued benefit liability (99,346) (88,755) (112,849) (118,940) Intangible asset 9,076 4,529 -- -- Accumulated other comprehensive income 4,740 674 -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net amount recognized $ (44,161) $ (45,707) $(112,849) $(118,940) - ----------------------------------------------------------------------------------------------------------------------------
28 Net periodic benefit costs include the following components:
PENSION BENEFITS OTHER BENEFITS ------------------------------------------------------------------------- (in thousands) 2001 2000 1999 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost: Service cost - benefits earned during the period $ 16,818 $ 16,442 $ 17,995 $ 1,520 $ 2,129 $ 2,642 Interest cost on projected benefit obligations 29,675 28,060 25,415 7,336 8,389 8,131 Expected return on plan assets (40,199) (39,970) (32,238) -- -- -- Amortization of prior service cost 3,238 3,356 352 (1,236) 92 529 Amortization of net gain (6,244) (4,111) (347) (430) (293) (127) Curtailments -- -- -- (6,119) -- -- Other 2,734 -- 250 336 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ 6,022 $ 3,777 $ 11,427 $ 1,407 $ 10,317 $ 11,175 - ---------------------------------------------------------------------------------------------------------------------------------
Weighted average assumptions as of December 31 are as follows:
PENSION BENEFITS OTHER BENEFITS ------------------------------------------------------------ 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------ Discount rate 7.25% 7.75% 7.25% 7.75% Expected return on plan assets 9.75% 9.75% -- -- Rate of compensation increase 4.75% 4.75% -- -- - ------------------------------------------------------------------------------------------------------------
Unrecognized net gains and losses in excess of the corridor are amortized over an average of approximately 13 years, the estimated remaining service period of employees. Net assets of the pension trust consist primarily of common stocks and debt securities. For measurement purposes a 7.5% annual rate of increase in the cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually to 4.5% for 2007 and thereafter. Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
(in thousands) 1% INCREASE 1% DECREASE - ------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 1,545 $ (1,245) Effect on postretirement benefit obligation 14,997 (12,287) - -------------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $313.9 million, $270.3 million and $203.8 million, respectively, as of December 31, 2001 and $129.7 million, $126.2 million and $81.3 million, respectively, as of December 31, 2000. Certain employees also participate in various investment plans. Under the plans, the employees may voluntarily contribute a percentage of their compensation. We contribute a cash amount based on the participants' contributions. Our contributions were approximately $1.6 million, $1.8 million and $1.8 million in 2001, 2000 and 1999, respectively. NOTE 11--COMMITMENTS AND CONTINGENCIES SALE LEASEBACK In December 1999, we sold certain machinery and equipment for net proceeds of $82.4 million and entered into a five year operating lease for the use of the machinery and equipment. At the end of the lease term, we may purchase the leased assets at fair market value, return the leased assets to the lessor or extend the lease for up to five additional years. If we choose to return the leased assets at the end of the initial lease term, we are obligated to pay the lessor a maximum of $33.8 million. The book value of the machinery and equipment sold was $40.4 million. The excess of the proceeds over the book value was deferred and is 29 included in other long-term liabilities in the accompanying consolidated balance sheets. The excess of the deferred gain over the maximum return obligation is being amortized over the lease term. LEASES We have numerous non-cancelable leases with terms exceeding one year. At December 31, 2001, lease commitments, including the return obligation on the sale leaseback, for all of our operating leases are as follows:
(in thousands) - ------------------------------------------- 2002 $ 36,548 2003 30,490 2004 58,091 2005 10,785 2006 7,834 Thereafter 9,452 - ------------------------------------------- Total $153,200 - -------------------------------------------
Total rental expense was $43.4 million, $40.4 million and $40.5 million in 2001, 2000 and 1999, respectively. CONTINGENT LIABILITIES Our contingent liabilities consist of:
(in thousands) 2001 2000 - ------------------------------------------------------------------------ Standby and trade letters of credit $ 29,843 $ 20,371 Performance guarantees 180,324 205,990 Guarantee of affiliate debt 24,763 22,000 - ------------------------------------------------------------------------
We issue performance guarantees to certain customers to support our performance under the terms of the related sales. Contingent liabilities are expected to expire and be replaced with similar items in the normal course of business. We believe that various current claims and litigation have been adequately provided for or are covered by insurance. Therefore, the resolution of such matters is not expected to materially affect our financial position or future earnings. OTHER COMMITMENTS As of December 31, 2001, we have unconditional purchase obligations to purchase raw materials in the amount of $15.2 million. 30 NOTE 12--INCOME TAXES Components of earnings and taxes consist of:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes: U.S $ (1,104) $ 74,770 $ 89,971 Non-U.S 38,069 46,199 28,111 - ----------------------------------------------------------------------------------------------------------------------------------- 36,965 120,969 118,082 - ----------------------------------------------------------------------------------------------------------------------------------- Income tax (benefit) expense: Current: U.S. Federal (23,841) 2,370 30,556 State 1,305 459 892 Non-U.S 9,833 16,376 18,287 - ----------------------------------------------------------------------------------------------------------------------------------- Total current (12,703) 19,205 49,735 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred: U.S 949 22,644 1,488 Non-U.S 2,730 (27,487) (9,920) - ----------------------------------------------------------------------------------------------------------------------------------- Total Deferred 3,679 (4,843) (8,432) - ----------------------------------------------------------------------------------------------------------------------------------- (Benefit) provision for income taxes $ (9,024) $ 14,362 $ 41,303 - -----------------------------------------------------------------------------------------------------------------------------------
Income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes as a result of the following:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Tax expense at statutory rate $ 12,938 $ 42,339 $ 41,329 Increase (decrease) resulting from: Equity in earnings of affiliates/minority interest 630 (173) (693) Taxes on foreign earnings (24,106) (34,775) 880 State income taxes-current 848 298 580 Purchase accounting adjustments 8,403 8,708 6,811 State income taxes-deferred 40 2,877 (239) Export incentives (3,955) (5,725) (5,496) Other (3,822) 813 (1,869) - ----------------------------------------------------------------------------------------------------------------------------------- (Benefit) provision for income taxes $ (9,024) $ 14,362 $ 41,303 - -----------------------------------------------------------------------------------------------------------------------------------
In 2001, taxes on foreign earnings include a $20 million tax benefit recognized in connection with a restructuring action involving the disposition of foreign operations. In 2000, taxes on foreign earnings include $17.1 million in tax benefits recognized in connection with foreign tax loss carryforwards and $14.8 million in tax benefits recognized in connection with foreign tax planning actions. 31 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2001 and 2000 are presented below:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 5,218 $ 3,533 Inventories, including uniform capitalization 12,431 18,823 Accrued expenses, due to accrual for financial reporting purposes 17,579 9,375 Warranty reserves, due to accrual for financial reporting purposes 25,894 23,253 Postretirement and postemployment benefits 65,684 66,630 Foreign tax loss carryforwards 49,174 51,806 Foreign tax credit carryforwards 3,000 -- Other 966 10,997 - ----------------------------------------------------------------------------------------------------------------------------------- 179,946 184,417 Valuation allowances for foreign tax loss carryforwards (30,615) (23,823) - ----------------------------------------------------------------------------------------------------------------------------------- Total deferred tax assets, net of valuation allowances 149,331 160,594 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Plant, equipment and intangible assets due to purchase accounting adjustments and differences in depreciation and amortization 31,833 41,253 Inventory, due to purchase accounting adjustments 18,259 15,765 Other -- 4,208 - ----------------------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 50,092 61,226 - ----------------------------------------------------------------------------------------------------------------------------------- Net deferred tax assets $ 99,239 $ 99,368 - -----------------------------------------------------------------------------------------------------------------------------------
Based on our historical and current pre-tax earnings as well as projections of future taxable income, management believes it is more likely than not that we will realize the net deferred tax assets. The $6.8 million increase in the valuation allowance during 2001 is attributable to increased tax losses in jurisdictions where management believes it is unlikely the tax benefit will be realized. The majority of those tax losses which are subject to expiration limitations expire over the next five years. The remainder of the tax losses carry no expiration date. The IRS has initiated an examination of our Federal income tax returns for 1997, 1998 and 1999. Various other federal, state and foreign tax returns are under examination by the applicable authorities. We do not anticipate any material effect to our consolidated financial statements resulting from these examinations. Neither income taxes nor foreign withholding taxes have been provided on $204 million and $157 million of cumulative undistributed earnings of foreign subsidiaries and affiliates at December 31, 2001 and 2000, respectively. These earnings are considered to be permanently invested in the businesses and, under the tax laws, are not subject to such taxes until distributed as dividends. If the earnings were not considered permanently invested, approximately $26 and $18 million of deferred income taxes, consisting of foreign withholding taxes and additional U.S. tax net of foreign tax credits, would have been provided at December 31, 2001 and 2000, respectively. NOTE 13--ACQUISITIONS AND DIVESTITURES In June 1999, we acquired all of the outstanding capital stock of Sabroe A/S (Sabroe), a Danish company, for $407.1 million in cash and assumed debt of $216.0 million. Sabroe was a world leader in supplying refrigeration systems and products. The acquisition was accounted for under the purchase method of accounting and the Sabroe assets, liabilities and results of operations, since acquisition, are included in the consolidated financial statements. The final allocation of the purchase price reflected acquisition expenses of $7.3 million, deferred taxes of $30.4 million, restructuring costs of $25.1 million and a deferred tax asset of $9.0 million relating to a pre-acquisition loss carryforward. The allocation of the purchase price and other costs resulted in the following components of 32 intangible assets, based on independent appraisals and other information, and related straight-line amortization periods:
(in thousands) INTANGIBLE ASSETS AMORTIZATION PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- Unallocated excess of cost over net assets acquired $ 440,338 30 years Trademark and tradenames 35,480 30 years Proprietary technology and patents 2,050 15 years - ----------------------------------------------------------------------------------------------------------------------------------- Total intangibles $ 477,868 - -----------------------------------------------------------------------------------------------------------------------------------
We executed a plan for integrating Sabroe into the York Refrigeration Group. The Sabroe portion of the plan included the Retech and Norrkoping manufacturing plant closures in Denmark and Sweden, respectively, certain duplicate sales and service office closures in Europe and Asia, product rationalizations, workforce reductions and other costs. The following summarizes the restructuring costs:
NON-CASH ACCRUALS NON-CASH ACCRUALS WRITE-DOWNS ESTABLISHED UTILIZED WRITE-DOWNS ESTABLISHED UTILIZED UTILIZED REMAINING (in thousands) IN 1999 IN 1999 IN 1999 IN 2000 IN 2000 IN 2000 IN 2001 ACCRUALS - ----------------------------------------------------------------------------------------------------------------------------------- Fixed asset write-downs $ 2,542 $ -- $ -- $ 3,406 $ -- $ -- $ -- $-- Inventory write-downs 1,849 -- -- 2,187 -- -- -- -- Severance costs -- 9,299 3,402 -- 2,155 7,052 1,000 -- Contractual obligations -- 1,911 336 -- 32 458 1,149 -- Other -- 632 276 -- 1,983 1,860 479 -- - ----------------------------------------------------------------------------------------------------------------------------------- $ 4,391 $ 11,842 $ 4,014 $ 5,593 $ 4,170 $ 9,370 $ 2,628 $ -- - -----------------------------------------------------------------------------------------------------------------------------------
The following unaudited pro forma summary combines the consolidated results of operations of York and Sabroe as if the acquisition had occurred at the beginning of 1999. The pro forma summary includes adjustments for amortization expense as a result of unallocated excess of cost over net assets acquired and other intangible assets as presented above, interest expense on acquisition debt issued to finance the purchase, adjusted depreciation expense as a result of new fixed assets bases and the estimated income tax effect of the pro forma adjustments. The pro forma summary is for informational purposes only and may not necessarily reflect our results of operations had Sabroe operated as part of York for the period presented.
1999 ------------------------------------------- PRO FORMA (in thousands, except per share data) HISTORICAL (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $ 3,877,029 $ 4,110,601 Income before cumulative effect of accounting change 76,779 70,313 Net income 75,882 69,416 Diluted earnings per share: Income before cumulative effect of accounting change $ 1.93 $ 1.76 Net income $ 1.91 $ 1.74 - -----------------------------------------------------------------------------------------------------------------------------------
In 2000, we recorded gains of $26.9 million on the sale of Northfield Freezing Systems and another small business. In 1999, we recorded a gain of $9.6 million on the sale of Viron, our performance contracting business. 33 NOTE 14--CHARGES TO OPERATIONS In 2001, 2000 and 1999, we recorded charges relating to plant closings and divestitures, product line and facility rationalizations, selling, general and administrative expense reductions and other one-time costs. In 2000 and 1999, we recorded various charges to operations relating to the acquisition of Sabroe and the related restructuring and integration of the York Refrigeration business. The charges are summarized as follows:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Fixed asset write-downs $ 15,549 $ 12,655 $ 1,851 Receivable write-downs 4 1,548 1,773 Inventory write-downs 12,443 3,499 8,851 Other asset write-downs 698 18,337 -- Warranty accrual 1,975 629 -- Severance and other accruals 54,253 15,929 15,915 Refrigeration - acquisition and integration: Acquisition option -- -- 12,700 Integration expenses -- 985 5,414 Fixed asset write-downs -- 8 8,176 Inventory write-downs -- 365 6,907 Severance and other accruals -- (630) 8,703 Sabroe restructuring accruals -- 847 -- - ----------------------------------------------------------------------------------------------------------------------------------- Total charges to operations $ 84,922 $ 54,172 $ 70,290 - ----------------------------------------------------------------------------------------------------------------------------------- Charges reflected in cost of goods sold $ 14,418 $ 4,493 $ 15,758 - ----------------------------------------------------------------------------------------------------------------------------------- Acquisition, integration, restructuring and other charges $ 70,504 $ 49,679 $ 54,532 - -----------------------------------------------------------------------------------------------------------------------------------
The 2001 and 2000 charges included write-downs for the impairment of fixed assets and other assets relating to facilities to be closed or divested and other impaired assets. These actions included the plant closure of the Unitary Products Group factory in Elyria, Ohio, the Engineered Systems Group Airside factory in Portland, Oregon, the York Refrigeration Group facility in San Antonio, Texas, the Bristol compressor plant in Sparta, North Carolina, and factories in Asquith, Australia; Montevideo, Uruguay; and Barlassina, Italy. Severance and other accruals included planned reductions in workforce throughout the Company. Of the approximately 2,350 salary and wage employee reductions planned, approximately 250 remained as of December 31, 2001. Details of the accruals are as follows:
ACCRUALS ACCRUALS ACCRUAL ESTABLISHED UTILIZED ESTABLISHED UTILIZED REDUCTION REMAINING (in thousands) IN 2000 IN 2000 IN 2001 IN 2001 IN 2001 ACCRUALS - ----------------------------------------------------------------------------------------------------------------------------------- Severance $ 11,075 $ 5,549 $ 30,057 $ 22,726 $ 2,129 $ 10,728 Contractual obligations 4,153 3,415 5,725 2,884 568 3,011 Other 818 218 23,973 21,163 830 2,580 - ----------------------------------------------------------------------------------------------------------------------------------- $ 16,046 $ 9,182 $ 59,755 $ 46,773 $ 3,527 $ 16,319 - -----------------------------------------------------------------------------------------------------------------------------------
The 1999 charges included asset and inventory write-downs in Latin America and Eastern Europe as a result of economic conditions in those regions. Additional inventory write-downs resulted from the discontinuation of certain ESG operations, primarily in the U.S. and Australia. Severance and other accruals related to various workforce reductions, closing costs for the ESG Airside factory in Salisbury, North Carolina and certain contractual obligations. Workforce reductions included the severance of approximately 530 salary and wage employees. All accruals relating to the 1999 other charges were fully utilized as of December 31, 2000. 34 REFRIGERATION--ACQUISITION AND INTEGRATION In 1999, a currency option to fix the price of the Sabroe acquisition resulted in costs and a loss. Integration expenses consisted of employee relocations, office integration activities, product training and sign and logo changes. Other Refrigeration Group charges related primarily to the closure of the Gram manufacturing facility in Denmark, the closure of duplicate sales and service offices in Europe and Asia and work force reductions. Work force reductions included the severance of approximately 450 salary and wage employees. All accruals relating to the refrigeration acquisition and integration were fully utilized as of December 31, 2001. NOTE 15--GRANTLEY ACCIDENT In 1998, we incurred damage to the Grantley manufacturing facility in York, PA, when tanks used for testing ruptured. The accident caused substantial damage to our facility, which was subsequently rebuilt. We obtained reimbursement under our insurance programs for both property damage and business interruption relating to the Grantley facility, and reached a final settlement in 2000. During 2000 and 1999, we received payments of $17.0 million and $27.5 million, respectively. Pursuant to generally accepted accounting principles, the costs of reconstructing and replacing property damaged or destroyed in the accident were recorded in the applicable property accounts, and the difference between the net book value of the assets damaged or destroyed and the related insurance recovery was included in operations. During 2000 and 1999, we recorded credits to cost of goods sold of $9.1 million and $6.0 million, respectively. NOTE 16--SEGMENT INFORMATION Our global business operates in the HVAC&R industry and is segmented as the Engineered Systems Group, York Refrigeration Group, Unitary Products Group, and Bristol Compressors. Engineered Systems Group (ESG) produces heating and air conditioning solutions for buildings ranging from small office buildings and fast food restaurants to large commercial and industrial complexes. ESG manufactures air-cooled and water-cooled chillers, central air handling units, variable air volume units, and control equipment to monitor and control the entire system, and provides maintenance and service. ESG also supplies specially designed chilled water systems for use on naval and commercial marine vessels. York Refrigeration Group (YRG) produces screw and reciprocating compressors, condensers, evaporators, heat exchangers, process refrigeration systems, hygienic air distribution systems, gas compression systems and automated plant control systems and provides refrigeration contracting, maintenance and service. Unitary Products Group (UPG) produces heating and air conditioning solutions for buildings ranging from private homes and apartments to small commercial buildings. UPG products include ducted central air conditioning and heating systems (air conditioners, heat pumps and furnaces), ductless mini-splits, and light commercial heating and cooling equipment. Bristol Compressors manufactures reciprocating and scroll compressors for our use and for sale to original equipment manufacturers and wholesale distributors. In 2001, we reorganized our operating segments. The primary change was that all air conditioning businesses in Europe, Asia, the Middle East and Latin America, portions of which were previously reported in UPG, were combined and reported as part of overall ESG operations. Prior year amounts were reclassified to conform to the current presentation. 35 The following table represents our operating results by segment:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales: Engineered Systems Group $1,930,263 $1,859,817 $1,769,990 York Refrigeration Group 932,133 997,013 903,623 Unitary Products Group 766,441 767,248 854,782 Bristol Compressors 509,706 525,716 581,836 Eliminations(1) (207,866) (252,391) (233,202) - ----------------------------------------------------------------------------------------------------------------------------------- 3,930,677 3,897,403 3,877,029 - ----------------------------------------------------------------------------------------------------------------------------------- (1)Eliminations include the following intersegment net sales: Engineered Systems Group 23,473 44,432 26,158 York Refrigeration Group 24,630 23,668 27,783 Unitary Products Group 57,415 64,330 57,673 Bristol Compressors 102,348 119,961 121,588 - ----------------------------------------------------------------------------------------------------------------------------------- Eliminations 207,866 252,391 233,202 - ----------------------------------------------------------------------------------------------------------------------------------- Income from operations: Engineered Systems Group 129,525 114,836 119,239 York Refrigeration Group 56,635 63,988 40,248 Unitary Products Group 59,083 51,661 81,456 Bristol Compressors 39,684 46,323 58,990 Eliminations, general corporate expenses and other non-allocated items (183,256) (107,522) (135,988) - ----------------------------------------------------------------------------------------------------------------------------------- 101,671 169,286 163,945 - ----------------------------------------------------------------------------------------------------------------------------------- Equity in (earnings) losses of affiliates: Engineered Systems Group (1,991) (3,781) (2,635) York Refrigeration Group (692) (1,101) (384) Bristol Compressors 239 (1,486) (2,641) - ----------------------------------------------------------------------------------------------------------------------------------- (2,444) (6,368) (5,660) - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before interest and taxes: Engineered Systems Group 131,516 118,617 121,874 York Refrigeration Group 57,327 65,089 40,632 Unitary Products Group 59,083 51,661 81,456 Bristol Compressors 39,445 47,809 61,631 Eliminations, general corporate expenses and other non-allocated items (183,256) (107,522) (135,988) Gain on divestitures -- 26,902 9,627 - ----------------------------------------------------------------------------------------------------------------------------------- 104,115 202,556 179,232 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense, net 67,150 81,587 61,150 Income before income taxes and cumulative effect of accounting change 36,965 120,969 118,082 (Benefit) provision for income taxes (9,024) 14,362 41,303 - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change $ 45,989 $ 106,607 $ 76,779 - -----------------------------------------------------------------------------------------------------------------------------------
36
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- (continued) Total assets: Engineered Systems Group $ 989,540 $ 1,088,779 $ 985,896 York Refrigeration Group 548,930 611,053 668,206 Unitary Products Group 306,918 323,045 317,264 Bristol Compressors 214,630 222,934 217,792 Eliminations and other non-allocated assets 512,491 566,245 716,249 - ----------------------------------------------------------------------------------------------------------------------------------- 2,572,509 2,812,056 2,905,407 - ----------------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization of property, plant and equipment: Engineered Systems Group 20,031 21,719 22,534 York Refrigeration Group 14,088 13,991 15,087 Unitary Products Group 9,163 9,801 11,522 Bristol Compressors 13,351 11,941 10,536 Other non-allocated depreciation and amortization 3,022 5,663 4,492 - ----------------------------------------------------------------------------------------------------------------------------------- 59,655 63,115 64,171 - ----------------------------------------------------------------------------------------------------------------------------------- Capital expenditures: Engineered Systems Group 31,464 36,513 50,222 York Refrigeration Group 21,659 18,121 17,579 Unitary Products Group 24,584 18,344 14,558 Bristol Compressors 18,374 17,039 15,698 Other non-allocated capital expenditures 2,045 3,954 6,008 - ----------------------------------------------------------------------------------------------------------------------------------- $ 98,126 $ 93,971 $ 104,065 - -----------------------------------------------------------------------------------------------------------------------------------
Other non-allocated costs for management reporting include goodwill amortization, certain pension costs, integration costs, restructuring costs, other corporate costs, interest and income taxes. Non-allocated assets primarily consist of prepaid pension expenses, deferred tax assets, goodwill, LIFO inventory reserves and other corporate assets. For management reporting, intersegment sales are recorded on a cost-plus basis and are recorded at cost by the buying segment. Business unit management performance is based on earnings before interest and taxes, capital employed, and earnings per share. Our sales are 48% to the United States and 52% to non-U.S. countries in 2001 and 2000, and 52% to the United States and 48% to non-U.S. countries for 1999. No single non-U.S. country or single customer accounts for greater than 10% of our sales. Information related to United States and non-U.S. sales to outside customers, based on the location of the assets generating the sales, is as follows:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales: United States $ 2,172,996 $ 2,134,559 $ 2,319,778 Other 1,757,681 1,762,844 1,557,251 - ----------------------------------------------------------------------------------------------------------------------------------- $ 3,930,677 $ 3,897,403 $ 3,877,029 - -----------------------------------------------------------------------------------------------------------------------------------
37 Included in United States sales are export sales of $314.0 million, $264.9 million and $307.0 million in 2001, 2000 and 1999, respectively. The location of our net property, plant and equipment is as follows:
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment: United States 58% 56% 53% Denmark 22% 24% 23% Other 20% 20% 24% - ----------------------------------------------------------------------------------------------------------------------------------- 100% 100% 100% - -----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001, 2000 and 1999, Denmark was the only non-U.S. country with greater than 10% of our consolidated net property, plant and equipment. NOTE 17--STOCKHOLDERS' EQUITY We provide an employee stock purchase plan that authorizes employees to purchase up to 2,500,000 shares of our common stock, inclusive of 500,000 shares authorized by the stockholders in May 2001. The purchase price is 85% of the lower of the fair market value of shares at the beginning or end of the period. No compensation expense is recorded in connection with employee purchases of shares. As of December 31, 2001, 554,022 shares were available for employee purchases. Employees purchased shares under the plan as follows:
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Shares purchased (in thousands) 235 315 206 Weighted average purchase price per share $ 26.06 $ 23.16 $ 23.32 - -----------------------------------------------------------------------------------------------------------------------------------
We also provide a stock plan that authorizes the issuance of up to 8,380,000 shares of our common stock through stock option or restricted share awards. Under the plan, the exercise price of stock options is equal to the fair market value of our common stock on the grant date. The maximum term of stock options is 10 years. Up to 3% of the total outstanding shares are available for restricted share awards that may be granted under the plan at a price determined by the Board of Directors. The Board of Directors determines vesting requirements for awards at the time of grant. No restricted share awards were granted in 2001 or 2000. In 1999, key employees were granted 23,500 shares of restricted stock generally vesting over four years. Accordingly, unearned compensation of $0.9 million was recorded as a charge to stockholders' equity in 1999. Information regarding stock options under the plan is as follows (shares in thousands): 38
2001 2000 1999 ------------------------------------------------------------------------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding, January 1, 5,583 $ 34.68 5,826 $ 35.64 3,097 $ 42.97 Granted 759 28.46 440 24.90 3,304 29.41 Exercised (615) 24.31 (33) 22.94 (217) 41.36 Canceled (542) 37.39 (650) 37.29 (358) 41.32 - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding, December 31, 5,185 $ 34.72 5,583 $ 34.68 5,826 $ 35.64 - ----------------------------------------------------------------------------------------------------------------------------------- Exercisable, December 31, 4,246 $ 36.03 4,215 $ 38.07 3,050 $ 42.05 - ----------------------------------------------------------------------------------------------------------------------------------- Available, December 31, 1,284 1,501 756 - -----------------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- --------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE REMAINING EXERCISE EXERCISE Range of Exercise Price SHARES CONTRACTUAL LIFE PRICE SHARES PRICE - ----------------------------------------------------------------------------------------------------------------------------------- $19.63 - $28.25 1,945 8.5 $ 25.34 1,071 $ 23.16 $30.75 - $38.25 1,344 6.4 35.27 1,312 35.32 $39.00 - $45.38 1,397 4.9 42.77 1,392 42.78 $46.00 - $54.88 499 4.4 47.28 471 47.32 - ----------------------------------------------------------------------------------------------------------------------------------- $19.63 - $54.88 5,185 6.6 $ 34.72 4,246 $ 36.03 - -----------------------------------------------------------------------------------------------------------------------------------
We are authorized by the Board of Directors to purchase our common stock from time to time on the open market. We purchased 0.3 million and 2.1 million shares in 2000 and 1999, respectively. We are authorized to repurchase up to an additional 1.6 million shares of our common stock through 2003. We apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for our plans. Accordingly, no compensation expense has been recognized for the stock-based compensation plans other than for restricted share and performance-based awards. Had compensation expense for all stock option and employee stock purchase plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," our net income and earnings per share would have been reduced to the pro forma amounts indicated below.
(in thousands, except per share data) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Net income - as reported $ 45,989 $ 106,607 $ 75,882 Net income - pro forma 38,057 97,884 65,462 Diluted earnings per share - as reported 1.17 2.78 1.91 Diluted earnings per share - pro forma 0.97 2.56 1.64 - -----------------------------------------------------------------------------------------------------------------------------------
Pro forma net income and earnings per share reflect only stock options granted after 1994. Therefore, the full impact of calculating compensation expense under SFAS No. 123 for stock options is not reflected in the pro forma net income and earning per share amounts presented above because compensation expense for stock options granted prior to January 1, 1995 is not considered. Since the determination of fair value of all stock options granted includes variable factors, including volatility, and additional stock option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects on reported net income and earnings per share for future years. 39 The per share weighted average fair value of stock options granted during 2001, 2000 and 1999 is calculated as $11.04, $9.77 and $10.47, respectively, on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions based on the date of grant are as follows:
2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Dividend yield 2.1% 2.4% 2.1% Volatility 40.0% 36.5% 31.4% Risk-free interest rate 4.8% 6.2% 5.5% Expected life 6.7 years 7.6 years 7.6 years - -----------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive losses consist of:
(in thousands) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Foreign currency translation adjustments $ 188,888 $ 138,093 Cash flow hedges 4,665 -- Minimum pension liability adjustments 3,317 451 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive losses $ 196,870 $ 138,544 - -----------------------------------------------------------------------------------------------------------------------------------
NOTE 18--EARNINGS PER SHARE RECONCILIATION OF SHARES OUTSTANDING Net income as set forth in the consolidated statements of operations is used in the computation of basic and diluted earnings per share information. Reconciliations of shares used in the computations of earnings per share are as follows:
(in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding used in the computation of basic earnings per share 38,626 38,107 39,637 Effect of dilutive securities: Non-vested restricted shares 3 5 61 Stock options 518 169 134 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalents used in the computation of diluted earnings per share 39,147 38,281 39,832 - -----------------------------------------------------------------------------------------------------------------------------------
Stock options for 3.2 million shares, 3.9 million shares and 2.7 million shares in 2001, 2000 and 1999, respectively, are not included in the earnings per share computation because their effect would have been anti-dilutive. 40 SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
FIRST SECOND THIRD FOURTH (in thousands, except per share data) QUARTER QUARTER QUARTER QUARTER - ----------------------------------------------------------------------------------------------------------------------------------- 2001 Net sales $ 942,105 $ 1,077,472 $ 946,932 $ 964,168 Gross profit 181,324 209,558 177,254 182,650 Net (loss) income (8,994) 32,816 16,691 5,476 (Loss) earnings per share: Basic (0.23) 0.85 0.43 0.14 Diluted (0.23) 0.84 0.42 0.14 - ----------------------------------------------------------------------------------------------------------------------------------- 2000 Net sales $ 897,004 $ 1,066,397 $ 948,967 $ 985,035 Gross profit 186,004 238,830 195,695 205,420 Net income 23,095 45,687 15,256 22,569 Earnings per share: Basic 0.61 1.20 0.40 0.59 Diluted 0.60 1.20 0.40 0.59 - -----------------------------------------------------------------------------------------------------------------------------------
TRADING AND DIVIDEND INFORMATION
DIVIDENDS HIGH LOW DECLARED - ----------------------------------------------------------------------------------------------------------------------------------- 2001 Fourth quarter $ 39.99 $ 27.02 $ 0.15 Third quarter 40.00 27.13 0.15 Second quarter 36.79 26.65 0.15 First quarter 33.30 27.10 0.15 - ----------------------------------------------------------------------------------------------------------------------------------- 2000 Fourth quarter $ 30.88 $ 22.88 $ 0.15 Third quarter 29.44 19.00 0.15 Second quarter 29.12 21.12 0.15 First quarter 27.81 18.12 0.15 - -----------------------------------------------------------------------------------------------------------------------------------
The trademarks AIR PRO; BRISTOL; FRASER-JOHNSTON; GUARDIAN; LUXAIRE; TEMPMASTER, ACUAIR; FRICK; FRIGIDCOIL; IMECO; PACE, RECO, SNOMAX, SOURCE 1, the SUNFLAKE DESIGN and YORK are registered in the United States Patent and Trademark Office by York International Corporation or its affiliates. SABROE; NOVENCO; RETECH; GRAM REFRIGERATION; RECOLD; and RITE COIL are trademarks of York International Corporation or its affiliates. 41 EX-21 7 w58431ex21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 YORK INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT
Name and Jurisdiction of Incorporation Percent of Ownership - ---------------------- -------------------- York Air Conditioning and Refrigeration, Inc. (Delaware) 100% York F C Corporation (Delaware) 100% Bristol Compressors, Inc (Delaware) 100% Bristol Compressors Purchasing, Inc. (Delaware) 100% Bristol Compressors Sparta, Inc. (Delaware) 100% Bristol Scroll Compressors Co. LLC. (Delaware) 100% Codorus Acceptance Corp. (Delaware) 100% Coil Services, Inc. (Delaware) 100% Frigid Coil/Frick, Inc. (Delaware) 100% IMECO, Inc. (Delaware) 100% Natkin Service Company (Delaware) 100% Evcon Holdings Inc. (Delaware) 100% Evcon Industries, Inc. (Delaware) 100% York International (SA), Inc. (Delaware) 100% York Snow, Inc. (Delaware) 100% York International Treasury Services Inc. (Delaware) 100% York Receivables Funding LLC (Delaware) 100% United Mechanical Services, Inc. (Connecticut) 100% Temperature Industries International Inc (Missouri) 100% General Refrigermetics Corporation (New York) 100% York International Ltd. (Canada) 100% Sabroe M&M Refrigeration, Inc. (Canada) 100% Evcon Supply (Canada) 100% York International G.e.s.m.b.H. (Austria) 100% York International EOOD (Bulgaria) 100% Y.I.C. Limited (Cyprus) 100% York International Spol.s.r.o. (Czech Republic) 100% York International A/S (Denmark) 100% YORK Refrigeration ApS (Denmark) 100% YORK Koleteknik ApS (Denmark) 100% YORK Refrigeration Marine Controls ApS (Denmark) 100% YORK Refrigeration, Foundry ApS (Denmark) 100% Retech Refrigeration Technologies ApS (Denmark) 100% Novenco ApS (Denmark) 100% Novenco Hi-Pres ApS (Denmark) 100% Reffin Holding ApS (Denmark) 100% Oy Novenco AB (Finland) 100% York International S.A.S. (France) 100% York France S.A.S. (France) 100% York Systems S.A.S. (France) 100% York Neige S.A.S. (France) 100%
EXHIBIT 21 (CON'T) YORK INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT (CON'T)
Name and Jurisdiction of Incorporation Percent of Ownership - ---------------------- -------------------- Duplan Engineering S.A.S. (France) 100% IMEF S.A.S. (France) 100% Sabroe S.A.S. (France) 100% Franchise Refrigeration S.A.S. (France) 100% York France Management S.A.S. (France) 100% York International Holdings GmbH (Germany) 100% York International GmbH & Co. KG (Germany) 100% YORK Industriekalte GmbH & CO. KG (Germany) 100% York Verwaltungs Gmbh (Germany) 100% Sigma Frigo Therm Handellgeselschaft Gmbh (Germany) 100% Aircon GmbH (Germany) 100% BMK Kaelte and Energie-Technik Gmbh (Germany) 100% York Hellas S.A. (Greece) 100% York International KFT (Hungary) 100% YORK Refrigeration Ltd. Hungary (Hungary) 100% York A.C.R. Ltd. (Ireland) 100% York International S.r.l. (Italy) 100% YORK Refrigeration Italia S.r.l. (Italy) 100% York Neve S.r.l. (Italy) 100% York International SIA (Latvia) 100% YORK International Holding B.V. (Netherlands) 100% Novenco B.V. (Netherlands) 100% York International B.V. (Netherlands) 100% YORK - Inham-Refrigeration BV (Netherlands) 100% York Refrigeration Nederland BV (Netherlands) 100% Novenco A.S. (Norway) 100% YORK Kulde AS (Norway) 100% York International sp.zo.o (Poland) 100% York Refrigeration, S.U., Lda. (Portugal) 100% York International SRL (Romania) 100% York International AOZT (Russia) 100% York International Spol.s.r.o. (Slovak Republic) 100% Supremeair (Proprietary) Limited (South Africa) 100% Sabroe South Africa Pty Ltd. (South Africa) 100% YORK Refrigeration, S.L. (Spain) 100% York Holding AB (Sweden) 100% York Refrigeration Sweden AB (Sweden) 100% YORK Marine AB (Sweden) 100% YORK International AB (Sweden) 100% YORK Bonus Energi AB (Sweden) 100% Sabroe Refrigeration AB (Sweden) 100%
EXHIBIT 21 (CON'T) YORK INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT (CON'T)
Name and Jurisdiction of Incorporation Percent of Ownership - ---------------------- -------------------- York International Ukraine (Ukraine) 100% Sabroe (UK) Holdings Ltd (UK) 100% York Refrigeration Ltd (UK) 100% Sabroe Limited (UK) 100% Gram Refrigeration (UK) Ltd. (UK) 100% Preston Refrigeration Limited (UK) 100% VACR Limited (UK) 100% York CEE Holdings Ltd. (UK) 100% York Finance Limited (UK) 100% York Food Systems Limited (UK) 100% York International (Holdings) Ltd. (UK) 100% York International Limited (UK) 100% Procardia (UK) 100% TTF Air Conditioning and Refrigeration Ltd. (UK) 100% YORK Refrigeration Scotland Limited (UK) 100% York Refrigeration Argentina S.A. (Argentina) 100% YORK Engenharia e Servicos Ltda. (Brazil) 100% York International Ltda. (Brazil) 100% SAR Sul Americana Refrigeracao Ltda. (Brazil) 100% Sabroe Latin America S.A. (Cayman Islands) 100% YORK Refrigeration Chile S/A (Chile) 100% York International Comercial Limitada (Chile) 100% York International Ltda (Colombia) 100% York International S.A. (Colombia) 100% York International del Ecuador C.A. Interyork (Ecuador) 100% York International, S.A. de C.V. (Mexico) 100% York Aire, S.A. de C.V. (Mexico) 100% Sabroe de Mexico S.A. de C. V. (Mexico) 100% YORK Refrigeration Peru S/A (Peru) 100% York International S.R.L. (Peru) 100% York International S.A. (Uruguay) 100% Saditel S.A. (Uruguay) 100% Idalco S.A. (Uruguay) 100% York International S.A. (Venezuela) 100% York International Australia Pty, Ltd. (Australia) 100% YORK Refrigeration Australia Pty. Ltd. (Australia) 100% YORK Thermfresh Pty Ltd (Australia) 100% York Shanghai Air Conditioning and Refrigeration International Trading Co., Ltd. (China) 100% York Wuxi Compressor Company, Ltd. (China) 100% York International (Northern Asia) Limited (Hong Kong) 100% YORK Refrigeration India Ltd (India) 100% PT York Aditama Teknik (Indonesia) 100%
EXHIBIT 21 (CON'T) YORK INTERNATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT (CON'T)
Name and Jurisdiction of Incorporation Percent of Ownership - ---------------------- -------------------- YORK Japan Co. Ltd (Japan) 100% York International CH (Korea) 100% York New Zealand Limited (New Zealand) 100% Sabroe Limited (New Zealand) 100% York Philippines, Inc. (Philippines) 100% York Refrigeration Philippines, Inc. (Philippines) 100% Southeast Asia Pte Ltd. (Philippines) 100% York International Pte. Ltd. (Singapore) 100% Sabroe Properties Co., Ltd. (Thailand) 100% Sabroe Service Co., Ltd. (Thailand) 100% YORK Refrigeration (Thailand) Co. Ltd (Thailand) 100% York A/C and Refrigeration Co. Ltd (Thailand) 100% York Industrial (Thailand) Co., Ltd. (Thailand) 100% UPG International Ltd. (Thailand) 100% York Air Conditioning & Refrigeration Ltd. Co. (Egypt) 100% Arduman Mumessillik Klima Sanayi ve Ticaret AS (Turkey) 100% Arduman Klima Sanayi Servisi AS (Turkey) 100% York Air Conditioning and Refrigeration FZE (U.A.E.) 100% York Guangzhou Air Conditioning and Refrigeration Co. Ltd. (China) 97% York-Wuxi Air Conditioning and Refrigeration Co. Ltd. (China) 80% YORK Refrigeration Marine (China) Ltd. (China) 75% Sabroe de Colombia Ltda (Colombia) 60% York-Taiwan, Inc. (Taiwan) 60% York Refrigeration Marine U.S. Inc (Delaware) 50% Sabroe Finland Oy (Finland) 50%
EX-23 8 w58431ex23.txt ACCOUNTANT'S CONSENT EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors and Stockholders York International Corporation: We consent to incorporation by reference in the Registration Statements on Form S-3 (File No. 333-59678) and Forms S-8 (File No. 33-25440 1989 Employee Stock Option Plan, File No. 333-2384 Amended and Restated 1992 Omnibus Stock Plan and File No. 33-64684 1992 Omnibus Stock Plan and 1992 Employee Stock Purchase Plan) of York International Corporation of our reports dated February 15, 2002, relating to the consolidated balance sheets of York International Corporation and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2001 and the related financial statement schedule, which reports appear in or are incorporated by reference in the December 31, 2001 annual report on Form 10-K of York International Corporation. Our report on the consolidated financial statements refers to the change by the Company in 2001 in its method of accounting for derivative instruments and hedging activities. /S/KPMG LLP KPMG LLP Harrisburg, Pennsylvania March 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----