-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WAqlz6RH9Zw2rFX13CPPeCywF1noJJUXWEcTs7z69fOOTO962YinrhUiYi0S0ZSw KrpSm6YsRGEnf01WfCrB5w== 0000088204-94-000002.txt : 19940323 0000088204-94-000002.hdr.sgml : 19940323 ACCESSION NUMBER: 0000088204-94-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALED AIR CORP CENTRAL INDEX KEY: 0000088204 STANDARD INDUSTRIAL CLASSIFICATION: 3080 IRS NUMBER: 221682767 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07834 FILM NUMBER: 94517209 BUSINESS ADDRESS: STREET 1: PARK 80 EAST CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2017917600 FORMER COMPANY: FORMER CONFORMED NAME: CHAVANNES M A DATE OF NAME CHANGE: 19670406 10-K 1 TEXT OF 93 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) for the fiscal year ended December 31, 1993, OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the transition period from to Commission File Number 1-7834 SEALED AIR CORPORATION (Exact name of registrant as specified in its charter) State or other jurisdiction of incorporation or organization: Delaware I.R.S. Employer Identification Number: 22-1682767 Address of principal executive offices: Park 80 East, Saddle Brook, New Jersey 07662-5291 Registrant's telephone number, including area code: (201) 791-7600 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, par value New York Stock Exchange $0.01 per share Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant on March 15, 1994 was approximately $555,231,000. The number of outstanding shares of the registrant's Common Stock as of March 15, 1994 was 19,879,355. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's 1993 Annual Report to Stockholders are incorporated by reference into Part I and Part II of this Annual Report on Form 10-K. Portions of the registrant's definitive proxy statement for its 1994 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. PART I Item 1. Business Sealed Air Corporation (together with its subsidiaries, the "Company") is engaged primarily in the manufacture and sale of a wide variety of protective and specialty packaging materials and systems. The Company's operations are conducted primarily in North America, Europe and the Far East, and its products are distributed in these areas as well as in other parts of the world. Information by geographic area, including net sales, operating profit and identifiable assets, for each of the three years in the period ended December 31, 1993 appears in Note 4 of the Notes to Consolidated Financial Statements, which are contained in the Company's 1993 Annual Report to Stockholders. Such Note is incorporated herein by reference. Products The Company's principal protective and specialty packaging products are engineered products, surface protection and other cushioning products, and food packaging products. Certain of these products are also produced for non-packaging applications. The Company also manufactures and sells certain other products discussed below. The net sales contributed by each class of product for each of the five years in the period ended December 31, 1993 appears in the table under the caption "Selected Financial Data" in the Company's 1993 Annual Report to Stockholders, which data is incorporated herein by reference. Engineered Products The Company's engineered products include its Instapak(R) polyurethane foam packaging systems, specialty polyethylene foams for packaging and non-packaging uses, and Korrvu(R) suspension packaging. Instapak(R) Systems Instapak(R) polyurethane foam packaging systems consist of proprietary blends of polyurethane chemicals and specially designed dispensing equipment, certain features of which are patented. The Company also manufactures a line of Instamate(R) polyolefin films, which are high-performance plastic films designed for use with Instapak(R) packaging systems. Most of the Company's net sales from Instapak(R) systems are attributable to the sale of the polyurethane chemicals and polyolefin films used in the systems installed at customer locations. Instapak(R) chemicals, films and equipment are marketed as integrated packaging systems to provide protective packaging for a wide variety of products, including computer, electronic, office, medical and communications equipment, compressors and motors, furniture and spare parts, and void-fill packaging of office supplies, books, cosmetics and other small products for distribution. Instapak(R) systems are also used to produce polyurethane foams used in certain non-packaging applications, including Instapak(R)-Floral, a foam introduced in 1993 for use as a design base for artificial flower arrangements. An Instapak(R) packaging system allows a customer to create protective cushions for products of any shape and thus to tailor its protective packaging to its individual products and needs. When Instapak(R) chemicals are mixed together and dispensed, they expand up to 200 times their liquid volume within seconds after they are dispensed to form a foam cushion. Because Instapak(R) chemicals expand significantly in volume only when mixed together, the storage space required for the chemicals before use is very low. The Company purchases chemicals from various suppliers, including major chemical companies, and blends these chemicals according to its own proprietary formulations. The Company offers its Instapak(R) customers a family of protective packaging foams, ranging from low-density foams used for light cushioning and void-fill applications to heavy-duty foams used for blocking and bracing heavy items. The Company produces a number of dispensing equipment models for low, medium and high volume use and maintains an ongoing program to develop new equipment models to meet evolving customer needs. Hand-held equipment models range from low-volume single station systems to microprocessor-controlled multiple station systems. The Company also offers its high speed Instapacker(TM) automated system and its VersaPacker(TM) system, a bench-top version of the Instapacker(TM) system, both of which produce ready-to-use foam cushions consisting of Instamate(R) film bags filled with Instapak(R) foam. Generally, customers may either buy or lease equipment from the Company for use with Instapak(R) systems. The Instapak(R) foam-in-place process generally involves either dispensing liquid chemicals into a container and separating the product being packaged from the rising foam cushion with Instamate(R) film or producing foam-filled Instamate(R) film bags that are inserted into the container with the product being packaged. Once the container is closed and sealed, the expanding foam cushion fills the box and completes the package for shipment. The foam cushions either encapsulate the product in its container or, in the case of foam-filled bags, can be used as top or bottom cushions or as a void-fill material to restrain the product in its shipping container. Customers are also able to produce pre-formed Instapak(R) foam cushions for use in packaging a wide range of products. The Company offers assistance to its customers in producing, or in preparing the molds used to produce, such pre- formed cushions. The Company offers Instamolder(TM) semi- automated cushion molding equipment that produces Instapak(R) cushions using the Instapacker(TM) system. Specialty Polyethylene Foams The Company manufactures and sells extruded plank foams and Polylam(R) laminated foams for packaging and non-packaging applications. Extruded plank foam is offered in varying densities and thicknesses up to 4 inches. Polylam(R) foam is produced in various densities and laminated into thicknesses ranging up to 6 inches. These polyethylene foams are generally sold to fabricators and converters for packaging and non- packaging applications in which a clean, non-abrasive material is required with such properties as shock absorption, vibration dampening, thermal insulation or buoyancy. These foams can be produced in various colors and are available in anti-static and flame-retardant forms. In packaging applications, these foams are fabricated into a wide range of protective packaging shapes, forms and die-cuts for designed packages in which a clean, attractive appearance and cushioning or blocking and bracing performance is needed. Non-packaging applications for specialty foams include construction, automotive, sporting and athletic equipment products. During 1993, the Company introduced post- consumer recycled content into certain of its specialty polyethylene foam product lines. Korrvu(R) Suspension Packaging The Company is engaged in the development, manufacture and sale of Korrvu(R) suspension packaging, which is covered by certain patents. A Korrvu(R) package suspends the product to be packaged in the air space of its shipping container between two strong, flexible low-slip films. Surface Protection and Other Cushioning Products The Company's surface protection and other cushioning products include air cellular cushioning materials, protective and durable mailers, thin polyethylene foams, paper packaging products, automated packaging systems and certain other packaging products. Air Cellular Cushioning Materials The Company manufactures and markets air cellular cushioning materials primarily under the trademarks AirCap(R) and PolyCap(R). These materials consist of air bubbles encapsulated between two layers of plastic film, each containing a barrier layer to retard air loss, that form a pneumatic cushion to protect products from damage through shock or vibration during shipment. The Company's PolyCap(R) R line of air cellular cushioning material is similar to AirCap(R) cushioning in construction except that its plastic film contains a lighter barrier layer. The Company's air cellular cushioning materials are used by a wide variety of end users, including both manufacturers and retailers. AirCap(R) cushioning is used primarily to protect a wide variety of lightweight and medium-weight delicate items, such as instruments, electronic components and glassware, that have no limitation on their shipping and shelf-life cycles. PolyCap(R) R cushioning is used primarily for a wide variety of lightweight products that have a relatively short shipping and shelf-life cycle. The Company also markets anti-static and flame-retardant forms of its air cellular cushioning materials. The Company's air cellular cushioning materials are produced in various forms, including continuous rolls, perforated rolls and sheets, depending on customer preference. These materials can be used alone or laminated to other materials such as paper or cardboard. They are also available in bag form (marketed under the trademark Bubblebags(R)), primarily used to provide product protection to small parts. The Company's air cellular cushioning materials can be varied in the size, shape and spacing of their encapsulated air bubbles and the thickness of the plastic to provide specific types of performance in protective packaging and cushioning. Since the beginning of 1993, the Company has broadened the use of post-industrial and post- consumer recycled polyethylene resin content in its Aircap(R) and Polycap(R) R product lines. The Company also manufactures and sells adhesive-coated air cellular cushioning material under the trademark Bubble Mask(R) and cohesive air cellular cushioning material under the trademark Cold Seal(R) AirCap(R). Polypride(TM) air cellular materials, added to the Company's product line in 1993, are multi-web materials with high tensile strength used primarily as furniture wrapping. Protective and Durable Mailers The Company manufactures and markets a variety of protective and durable mailers that are made in several standard sizes and are used for mailing or shipping a wide variety of items for which clean, lightweight preconstructed protective packages are desirable. They can provide the user with significant postage savings, ease of use and enhanced product protection relative to other types of mailers and shipping containers. The Company's protective mailers include lightweight, tear-resistant, heat-sealable mailers marketed under the trademark Jiffylite(R) that are lined with air cellular cushioning material. The Company's Jiffylite(R) R line of mailers are made from recycled kraft paper and the Company's PolyCap(R) R air cellular cushioning materials. These products also include the widely used Jiffy(TM) padded mailers made from recycled kraft paper padded with macerated recycled newspaper, Jiffy(TM) reinforced mailers, which are highly tear resistant and moisture retardant, Jiffy(TM) utility mailers, which are low-cost, lightweight mailers without padding, and Jiffy(TM) Rigi Bag(R) mailers, which are rigid mailers without padding that are well suited for products such as books and photographs. The Company also manufactures and markets Jiffy(TM) foam-lined mailers and Jiffy(TM) floppy disk mailers, which are lined with thin polyethylene foam. During 1993, the Company increased the recycled content of the kraft paper used in many of these mailer lines and introduced post-consumer recycled content into the foam lining of certain foam mailer products. During 1993, the Company expanded its mailer product line with its acquisition of the Shurtuff(R) durable plastic mailer product line. These mailers, which are produced from coextruded polyethylene film, are lightweight, water-resistant, tamper-evident and puncture-proof and are used by a wide range of customers, including air courier, mail order, banking, security and office supply services. Thin Polyethylene Foams In addition to the specialty polyethylene foams described previously, the Company manufactures thin polyethylene foams in roll or sheet form in low, medium and special densities, in flat, ribbed or bag form and in a number of colors and thicknesses up to one-half inch. The Company also sells thin polyethylene foam that has anti-static properties and foam laminate products in which the foam is laminated to paper, polyethylene film or other substrates for specialized applications. The Company's Quicksilver(TM) polyethylene film and foam laminates have cohesive properties for masking and other applications. During 1993, the Company introduced post-consumer recycled content into certain of its thin polyethylene foam product lines. Low-density thin polyethylene foam manufactured by the Company is marketed primarily in the United States, Canada and Europe under the trademark Cell-Aire(R) and is used primarily for surface protection and light-duty cushioning. Medium-density thin polyethylene foam is marketed in the United States under the trademark Cellu-Cushion(R) as a cushioning material to protect products from damage through shock or vibration during shipment. The Company also manufactures special density polyethylene foams for a variety of packaging and non-packaging applications. Paper Packaging Products The Company manufactures recycled kraft, tissue and creped paper in the United States. Some of such paper is used as a raw material in the manufacture of the Company's protective mailer and food packaging products or sold to unaffiliated customers. The Company also manufactures and sells paper packaging products under the trademarks Kushion Kraft(R), Custom Wrap(TM), Jiffy(TM) Padwrap(R), and Void Kraft(TM) for industrial surface protection, furniture surface protection, moving and storage blankets, and for use as cushioning or void fill in various packaging applications. Packaging Systems The Company produces and markets the Instasheeter(TM) high-speed converting system, designed for on-line packaging applications, which automatically converts the Company's flexible packaging materials, including air cellular cushioning materials, thin polyethylene foam and paper packaging materials, described above, into sheets of a pre-selected size and quantity. The Company also produces and markets the Accu-Cut(TM) converting system, an economical system for converting the Company's flexible packaging materials in off-line packaging applications. The Company's Jiffy Packer(TM) high-speed dunnage system, which is marketed in Europe under the name Paper Boy(TM) and in Japan under the name EcoPacker(TM), produces paper dunnage material on site from the Company's 3-ply Void Kraft(TM) recycled kraft paper. During 1993, the Company introduced a benchtop version of the Jiffy Packer(TM) system. During 1993, the Company began selling its VoidPak(TM) inflatable packaging system, which consists of a compact, portable inflator and self-sealing inflatable plastic bags, available in several sizes. When inflated, the bags can be used in a wide range of void fill applications, and they can be deflated and re-inflated for reuse. Other Packaging Products The Company participates in a joint venture called PolyMask Corporation with Minnesota Mining and Manufacturing Company ("3M") that manufactures and sells protective tapes consisting of adhesive-coated polyethylene films marketed by 3M. These products are used primarily for protecting the surfaces of polished metal, glass, plastic and other materials from abrasion during fabrication, handling and shipping. This joint venture is accounted for using the equity method. Food Packaging Products The Company manufactures in the United States and the Netherlands and sells in the United States, Canada, the Far East, Europe and other areas certain food packaging products, including primarily Dri-Loc(R) absorbent pads, certain features of which are covered by U.S. patents. The Company has also introduced other absorbent pads that utilize the features of its Dri-Loc(R) pads, including the Company's Pad-Loc(TM) pad for the poultry processor industry. These products are used in meat, fish and poultry trays to absorb excess fluids. The Company's Dri-Loc(R) pads consist of two layers of polyethylene film sealed on all four sides which enclose a layer of fluffed virgin wood-pulp fibers. On one side, the layer of film has tiny holes that permit fluids to be absorbed and retained by the enclosed fibers. The Company believes that Dri- Loc(R) pads are more effective and aesthetically attractive than conventional absorbent pads. The Company also manufactures conventional padding, sold as individual pads and in roll stock form for use by converters and processors to prepad trays. This padding consists of layers of bleached crepe tissue with one or two outer layers of polyethylene film. The Company also sells supermarket display case liners, which are similar in construction to conventional padding, under the trademark Cellu Liner(TM). Other Products The Company's other products consist primarily of loose-fill polystyrene packaging, products that control static electricity, and recreation and energy conservation products. Subsidiaries of the Company in Hong Kong, Malaysia, Mexico, Singapore and Taiwan produce loose-fill polystyrene packaging for sale under the trademark Mic-Pac(TM) to customers in those countries. In addition to air cellular cushioning materials and polyethylene foam with anti-static properties, the Company sells other products related to the elimination and neutralization of static electricity, including conductive shielding bags, floor mats, worktable coverings, and wrist and foot straps. Static control products, which are sold primarily in the United States and the Far East, are used principally by manufacturers of static-sensitive microelectronic devices. Subsidiaries of the Company in Canada and Europe manufacture translucent air cellular material similar to AirCap(R) cushioning that is fabricated into solar pool covers. In the United States, the Company manufactures and sells solar heating systems for swimming pools that use thermostatically controlled pumps to circulate pool water through plastic solar collector panels. Foreign Operations The Company has subsidiaries in Canada, England, France, Italy, Mexico, Spain and Sweden that manufacture certain of its surface protection and other cushioning products, a subsidiary in the Netherlands that produces Instapak(R) chemicals, Instamate(R) films and Dri-Loc(R) pads, a 50%-owned joint venture in Canada that manufactures specialty and thin polyethylene foams, and a subsidiary in Germany that manufactures Korrvu(R) suspension packaging. Together with a sales and marketing subsidiary in Belgium, these subsidiaries market most of the Company's products in Canada, Mexico and Europe. During 1993, the Company introduced its Instapak(R) products into Mexico, established two new manufacturing operations for air cellular cushioning materials in Europe, and expanded the sale of Dri-Loc(R) food packaging products in Europe and the Far East. Subsidiaries of the Company in Hong Kong, Japan, Malaysia, Singapore and Taiwan are engaged primarily in the marketing of Instapak(R) products in those countries and other countries in the Far East. Certain of these subsidiaries also produce or market certain of the Company's other protective packaging products. A new subsidiary was established in early 1994 in Korea to market Instapak(R) and other products in that country. The Company has foreign licensees that manufacture certain of its surface protection and other cushioning products in Australia, Chile, England, Germany, Italy, Japan, South Africa and Sweden. Licensing revenues are not material to the Company's consolidated financial statements. During 1993, 1992 and 1991, foreign net sales represented approximately 27%, 30% and 32%, respectively, of the Company's total net sales, while operating profit from foreign operations represented approximately 20%, 25% and 32%, respectively, of the Company's total operating profit. For a discussion of the factors affecting these changes in foreign net sales and operating profit, see Management's Discussion and Analysis of Results of Operations and Financial Condition, which appears in the Company's 1993 Annual Report to Stockholders and is incorporated by reference into Item 7 of this Annual Report on Form 10-K. In maintaining its foreign operations, the Company runs the risks inherent in such operations, including those of currency fluctuations. Marketing, Distribution and Customers The Company employs several hundred sales and account representatives in the countries in which it has operations who market the Company's products through a large number of distributors, fabricators and converters as well as directly to end users. In the United States and certain other countries, the Company has separate sales and marketing groups for its engineered products, its surface protection and other cushioning products, its food packaging products and certain of its other products. These groups often work together to develop market opportunities for the Company's products. To assist its marketing efforts and to provide specialized customer services, the Company maintains packaging laboratories in many of its United States and foreign facilities. These laboratories are staffed by professional packaging engineers and equipped with drop-testing and other equipment used to develop and test cost-effective package designs to meet the particular protective packaging requirements of each customer. Certain of these laboratories also design and construct molds for Instapak(R) packaging customers who prefer to use preformed foam cushions. The Company has no material long-term contracts for the distribution of its protective packaging products. In 1993, no customer or affiliated group of customers accounted for as much as 5% of the Company's consolidated net sales. Raw Materials The raw materials utilized in the Company's operations generally have been readily available on the open market and are purchased from several suppliers, reprocessed from scrap generated in the Company's manufacturing operations or obtained through participation in recycling programs. The principal raw materials used in the Company's operations include polyethylene resins and films, polyurethane chemicals, and paper and wood pulp products (including recycled or reprocessed paper products, resins, films and chemicals) and blowing agents used in foam products. Product Development The Company incurred expenses of $9,168,000 related to Company-sponsored research and development in 1993 compared with $9,414,000 during 1992 and $9,876,000 during 1991. The Company maintains a continuing effort to develop new products based on its existing product lines as well as new packaging and non- packaging applications for its products. The Company also maintains ongoing efforts to add or increase recycled or reprocessed content in its product lines. Patents and Licenses The Company is the owner or licensee of a number of United States and foreign patents and patent applications that relate to certain of its products, manufacturing processes and equipment. While some of these patents and licenses, as well as certain trademarks which the Company owns, offer some protection and competitive advantage for the Company's products and their manufacture, the Company believes that its success depends primarily on its marketing, engineering and manufacturing skills and on its research and product technology. Competition The Company's engineered products and its surface protection and other cushioning products compete with similar products made by others and with a number of other packaging materials, including various forms of paper packaging products, expanded plastics, corrugated die cuts, loosefill packaging materials, and, for protective mailers, also with envelopes, reinforced bags, boxes and other containers and various corrugated materials. Heavy-duty applications of the Company's engineered products also compete with various types of molded foam plastics, fabricated foam plastics and mechanical shock mounts and with wood blocking and bracing systems. Certain firms producing competing products are well established and may have greater financial resources than the Company. Competition for most of the Company's protective packaging products is based primarily on packaging performance characteristics, service and price. As discussed below under "Environmental Matters," the Company is also subject to competitive factors affecting packaging materials that are based upon customers' environmental preferences. Because of the light but bulky nature of the Company's air cellular, polyethylene foam and protective mailer products, significant freight savings may be realized by locating manufacturing facilities for these products near markets. To realize the benefit of such savings, the Company has facilities for manufacturing these products in various locations in proximity to major markets in North America and Europe. The Company believes that it is the leading manufacturer of air cellular cushioning materials containing a barrier layer and polyurethane foam packaging systems in the geographic areas in which it sells these products. There are a number of competing manufacturers of food packaging products in the United States, Canada and Europe. The Company believes that its Dri-Loc(R) products have a competitive advantage over conventional pads because of their efficiency and aesthetic appearance. Conventional pads and display case liners compete primarily on the basis of price, absorbency and service. The Company believes it is one of the leading suppliers of meat, fish and poultry absorbent pads to supermarkets and poultry processors in the United States. Environmental Matters The Company, like other manufacturers, is subject to various laws, rules and regulations in the countries, jurisdictions and localities in which it operates regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company believes that compliance with current environmental laws and regulations has not had a material effect on the Company's capital expenditures or financial position. In response to the United States Clean Air Act Amendments of 1990 and regulations thereunder, which prohibit the sale of packaging foams manufactured with chlorofluorocarbons ("CFCs") and hydrochlorofluorocarbons ("HCFCs") in the United States after the end of 1993, and the Montreal Protocol, as amended, during 1993 the Company completely eliminated the use of CFC and HCFC blowing agents in its polyurethane and polyethylene foam products and processes. The Company's capital expenditures for environmentally related projects related to such transition have not been material. In some jurisdictions in which the Company's packaging products are sold or used, laws and regulations have been adopted or proposed that seek to regulate, among other things, recycled or reprocessed content, sale or disposal of packaging materials. In addition, customer demand has increased during the last few years for packaging materials that are viewed as being "environmentally responsible" and that minimize the generation of solid waste. While these issues have become a competitive factor in the marketplace for packaging materials, the Company maintains active programs designed to comply with these laws and regulations, to monitor their evolution, and to meet such customer demand. The Company believes that its protective packaging materials offer superior packaging protection, enabling customers to achieve lower package cube and weight using the Company's protective packaging materials than with many alternative packaging methods, thereby reducing the disposal of damaged products as well as the generation of packaging waste. Because the Company offers both plastic-based and paper-based protective packaging materials, customers can select the protective packaging materials that they consider to best meet their performance and cost needs and environmental preferences. A number of the Company's product lines incorporate recycled or reprocessed content, and the Company maintains ongoing efforts to add or increase recycled or reprocessed content in many of its product lines. The Company also supports its customers' interests in eliminating waste by offering or participating in collection programs for certain of the Company's products or product packaging and for materials used in certain of the Company's products, including a program with Dow Chemical Company aimed at recovering and recycling polyethylene materials from customers, an Instapak(R) foam return program with return sites throughout the United States, collection programs for packaging materials in Germany and elsewhere in Europe, and local newspaper collection programs to obtain materials used to produce Jiffy(TM) padded mailers and certain other products. Whenever possible, materials collected through these collection programs are reprocessed and either reused in the Company's operations or offered to other manufacturers for use in other products. Certain of the Company's protective packaging products can be reused and, as an alternative to recycling or disposal in solid waste landfills, are suitable fuel sources for waste-to-energy conversion facilities. Employees At December 31, 1993, the Company had approximately 2,750 employees, with approximately 250 employees covered by collective bargaining agreements. The Company believes that its employee relations are satisfactory. Item 2. Properties The Company's products are manufactured at twenty-two locations in the United States, three other locations in North America, including facilities in Puerto Rico, Canada and Mexico, nine locations in Europe, including facilities in England, France, Germany, Italy, the Netherlands, Spain and Sweden, and four locations in the Far East, including facilities in Hong Kong, Malaysia, Singapore and Taiwan. In the United States, the Company's Instapak(R) products are manufactured at a facility in Connecticut and its surface protection and other cushioning products, its food packaging products and certain of its other products are manufactured at facilities in California, Illinois, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania and Texas. The Company occupies other facilities containing sales, technical or administrative offices at several locations in the United States and abroad and maintains sales offices in Belgium and Japan. The Company owns twenty-one of its manufacturing facilities, certain of which are owned subject to mortgages or similar financing arrangements. The balance of the Company's manufacturing facilities are located in leased premises. The Company's manufacturing facilities are located in general purpose buildings in which the Company's specialized machinery for the manufacture of one or more products is contained. Item 3. Legal Proceedings In December 1992, the United States Environmental Protection Agency ("EPA") issued a unilateral administrative order under Section 106 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), to the Company and approximately sixteen other persons, including several major corporations, whom it alleged to be potentially responsible parties ("PRPs"), ordering the listed PRPs to undertake certain interim remedial actions at a National Priorities List site known as the Skinner Landfill in West Chester, Ohio (the "Site"). The Company understands that the EPA designated the Company as a PRP for the Site based on the EPA's allegation that the Company is a successor to a company that the EPA alleges disposed of wastes at the Site in the years 1958 through 1963. Based upon the information currently available about the Site, the Company believes that there is no basis for the EPA's position that the Company should be properly designated as a PRP with respect to the Site, and accordingly the Company advised the EPA that it did not intend to comply with the order. To the Company's knowledge, the EPA has not yet determined whether to commence an action to attempt to enforce the order against the Company. However, the Company believes, based upon the available information about the Site, that it had sufficient cause not to comply with the order, and the Company intends to defend its position should such an action be commenced. The Company is also involved in various lawsuits and administrative and other proceedings (including environmental proceedings relating to superfund sites and other alleged clean- up obligations) incidental to its business. The Company believes that the outcome of any such lawsuits or other proceedings (including the environmental matter described above) will not have a material adverse effect on its consolidated financial statements. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1993. Executive Officers of the Registrant The information appearing in the following table sets forth the current position or positions held by each executive officer of the Company, his age as of March 15, 1994, the year in which he first was elected to his current position and the year in which he first was elected an officer of the Company: Name and Age as of First Elected to First Elected Current Position March 15, 1994 Current Position an Officer T. J. Dermot Dunphy 61 1971 1971 President, Chief Executive Officer and Director Elmer N. Funkhouser III 52 1984 1982 Senior Vice President William V. Hickey 49 1990 1980 Senior Vice President- Finance Warren H. McCandless 53 1991 1990 Senior Vice President Dale Wormwood 59 1991 1989 Senior Vice President Peter B. Ayrton 59 1992 1992 Vice President James A. Bixby 50 1990 1990 Vice President Bruce A. Cruikshank 51 1990 1990 Vice President Jean-Luc Debry 48 1992 1992 Vice President Robert A. Pesci 48 1990 1990 Vice President Horst Tebbe 53 1986 1986 Vice President Robert M. Grace, Jr. 47 1981 1981 General Counsel and Secretary All of the Company's officers serve at the pleasure of the Board of Directors. All officers have been employed by the Company or its subsidiaries for more than five years. In December 1989, Mr. Funkhouser entered into an agreement with the U.S. Department of Justice pursuant to which he pled guilty to a misdemeanor charge relating to willful disclosure of a false document prepared and filed by a former employee of the Company with the U.S. Department of the Treasury. There are no family relationships among any of the Company's officers or directors. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The information appearing under the caption "Common Stock Information" in the Company's 1993 Annual Report to Stockholders is incorporated herein by reference. Item 6. Selected Financial Data The information appearing under the caption "Selected Financial Data" in the Company's 1993 Annual Report to Stockholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information appearing under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1993 Annual Report to Stockholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Interim Financial Information (Unaudited) The information appearing under the caption "Interim Financial Information (Unaudited)" in the Company's 1993 Annual Report to Stockholders is incorporated herein by reference. Financial Statements and Schedules See Index to Consolidated Financial Statements and Schedules on page F-2 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There has been no change in the independent auditors of the Company's financial statements during 1992 or 1993 or subsequent thereto. PART III Item 10. Directors and Executive Officers of the Registrant Part of the information required in response to this Item is set forth in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant," and the balance will be set forth in the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders under the caption "Information Concerning Nominees." All such information is incorporated herein by reference. Item 11. Executive Compensation The information required in response to this Item will be set forth in the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders under the caption "Directors' Compensation" and under the subheadings "Summary Compensation Table" and "Compensation Committee Interlocks and Insider Participation" under the caption "Executive Compensation," and such information is incorporated herein by reference. Such incorporated information does not include the information under the subheadings "Report of Organization and Compensation Committee on Executive Compensation" and "Common Stock Performance Comparison" under the caption "Executive Compensation" in such Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required in response to this Item will be set forth in the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders under the caption "Voting Securities," and such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Not applicable. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as a part of this Annual Report on Form 10-K: (i) Financial Statements and Financial Statement Schedules See Index to Consolidated Financial Statements and Schedules on page F-2 herein. (ii) Exhibits Exhibit Description Number 3.1 Unofficial Composite Certificate of Incorporation of the Company as currently in effect. (Exhibit (2)(B) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1992, File No. 1-7834, is incorporated herein by reference.) 3.2 Amendment to the By-Laws of the Company adopted on December 16, 1993. 3.3 By-Laws of the Company as currently in effect. 4 Indenture dated as of July 1, 1989 between the Company and The First National Bank of Boston, as Trustee. (Exhibit 4.1 to the Company's Registration Statement on Form S-2, Registration No. 33-28940, is incorporated herein by reference.) 10.1 Contingent Stock Plan of the Company, as amended. (Exhibit 4(c) to the Company's Registration Statement on Form S-8, Registration No. 33-41734, is incorporated herein by reference.)* 10.2 Restricted Stock Plan for Non-Employee Directors of the Company. (Exhibit A to the Company's Proxy Statement for the annual meeting held on May 17, 1991, File No. 1-7834, is incorporated herein by reference.)* 10.3 Revolving Credit Agreement between United Jersey Bank and the Company dated March 10, 1994. 13 Portions of the Company's 1993 Annual Report to Stockholders that are incorporated by reference into this Annual Report on Form 10-K. 22 Subsidiaries of the Company. 24 Consent of KPMG Peat Marwick. *Compensatory plan or arrangement of management required to be filed as an exhibit to this report on Form 10-K. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the fiscal quarter ended December 31, 1993. 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. SEALED AIR CORPORATION (Registrant) Date: March 22, 1994 By T. J. DERMOT DUNPHY T. J. Dermot Dunphy President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date By T. J. DERMOT DUNPHY March 22, 1994 T. J. Dermot Dunphy President and Director (Principal Executive Officer) By WILLIAM V. HICKEY March 22, 1994 William V. Hickey Senior Vice President-Finance (Principal Financial Officer and Principal Accounting Officer) By JOHN K. ARMSTRONG March 22, 1994 John K. Armstrong Director By JOHN K. CASTLE March 22, 1994 John K. Castle Director By LAWRENCE R. CODEY March 22, 1994 Lawrence R. Codey Director By CHARLES F. FARRELL, JR. March 22, 1994 Charles F. Farrell, Jr. Director By DAVID FREEMAN March 22, 1994 David Freeman Director By SHIRLEY A. JACKSON March 22, 1994 Shirley A. Jackson Director By ALAN H. MILLER March 22, 1994 Alan H. Miller Director By R. L. SAN SOUCIE March 22, 1994 R. L. San Soucie Director Page F-1 SEALED AIR CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Years ended December 31, 1993, 1992 and 1991 Page F-2 SEALED AIR CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedules Page Independent Auditors' Report * Financial Statements: Consolidated Statements of Earnings for the years ended December 31, 1993, 1992 and 1991 * Consolidated Balance Sheets - December 31, 1993 and 1992 * Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1993, 1992 and 1991 * Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 * Notes to Consolidated Financial Statements * Independent Auditors' Report on Schedules F-3 Schedules: V - Property, Plant and Equipment F-4 VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment F-5 VIII - Valuation and Qualifying Accounts F-6 IX - Short-Term Borrowings F-7 X - Supplementary Income Statement Information F-8 ______________________________ *The information required appears on pages 17 through 30 of the Company's 1993 Annual Report to Stockholders and is incorporated by reference into this Annual Report on Form 10-K. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. Page F-3 Independent Auditors' Report on Schedules The Board of Directors and Shareholders Sealed Air Corporation: Under date of January 19, 1994, we reported on the consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, shareholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. S/KPMG Peat Marwick KPMG Peat Marwick Short Hills, New Jersey January 19, 1994 Page F-4 SEALED AIR CORPORATION AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands of dollars)
ADDITIONS AT COST BALANCE AT PROPERTY & TRANSFERS OTHER BEGINNING CAPITAL EQUIPMENT RETIREMENTS BETWEEN ADDITIONS/ BALANCE AT CLASSIFICATION OF YEAR EXPENDITURES ACQUIRED(1) OR DISPOSALS CLASSIFICATIONS (DEDUCTIONS)(2) END OF YEAR 1993 Land and buildings $ 50,086 $ 1,447 $ - $ - $ 9,077 $ (1,952) $ 58,658 Machinery and equipment 113,749 2,200 4,453 845 5,207 (2,982) 121,782 Leasehold improvements 5,523 1,058 14 1,748 (28) (617) 4,202 Furniture and fixtures 10,680 256 28 1,361 834 (257) 10,180 Construction in progress 5,094 17,513 - - (15,090) (131) 7,386 Totals $185,132 $ 22,474 $ 4,495 $ 3,954 $ - $ (5,939) $202,208 1992 Land and buildings $ 49,052 $ 373 $ 778 $ 37 $ 395 $ (475) $ 50,086 Machinery and equipment 108,564 1,460 353 484 7,324 (3,468) 113,749 Leasehold improvements 5,397 79 - - 133 (86) 5,523 Furniture and fixtures 10,036 300 - 427 937 (166) 10,680 Construction in progress 4,922 9,014 - - (8,789) (53) 5,094 Totals $177,971 $ 11,226 $ 1,131 $ 948 $ - $ (4,248) $185,132 1991 Land and buildings $ 47,828 $ 2,171 $ - $ 8 $ 265 $ (1,204) $ 49,052 Machinery and equipment 81,955 3,151 26,421 1,612 6,413 (7,764) 108,564 Leasehold improvements 4,441 483 - 14 528 (41) 5,397 Furniture and fixtures 9,680 147 - 138 688 (341) 10,036 Construction in progress 2,174 9,993 685 - (7,894) (36) 4,922 Totals $146,078 $ 15,945 $ 27,106 $ 1,772 $ - $ (9,386) $177,971 (1) Property, plant and equipment of companies acquired at dates of acquisition (see note 3 of Notes to Consolidated Financial Statements). (2) Principally foreign currency translation adjustments and, in 1991, assets of businesses sold (see notes 1 and 3 of the Notes to Consolidated Financial Statements).
Page F-5 SEALED AIR CORPORATION AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands of dollars)
BALANCE AT ADDITIONS OTHER NET(1) BEGINNING CHARGED RETIREMENTS ADDITIONS/ BALANCE AT CLASSIFICATION OF YEAR TO INCOME OR DISPOSALS (DEDUCTIONS) END OF YEAR 1993 Buildings $11,874 $ 1,895 $ - $ (306) $13,463 Machinery and equipment 50,648 10,849 657 (1,575) 59,265 Leasehold improvements 2,992 525 1,407 (393) 1,717 Furniture and fixtures 7,456 1,065 1,278 (230) 7,013 Totals $72,970 $14,334 $ 3,342 $ (2,504) $81,458 1992 Buildings $10,362 $ 1,599 $ - $ (87) $11,874 Machinery and equipment 41,571 10,576 282 (1,217) 50,648 Leasehold improvements 2,555 527 - (90) 2,992 Furniture and fixtures 6,958 1,068 339 (231) 7,456 Totals $61,446 $13,770 $ 621 $(1,625) $72,970 1991 Buildings $ 9,017 $ 1,475 $ - $ (130) $10,362 Machinery and equipment 38,098 8,207 511 (4,223) 41,571 Leasehold improvements 2,319 580 10 (334) 2,555 Furniture and fixtures 5,967 1,206 99 (116) 6,958 Totals $55,401 $11,468 $ 620 $(4,803) $61,446 (1) Principally foreign currency translation adjustments, transfers between asset classifications and, in 1992, assets of businesses sold (see notes 1 and 3 of the Notes to Consolidated Financial Statements).
Page F-6 SCHEDULE VIII SEALED AIR CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands of dollars)
ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF YEAR EXPENSES ACCOUNTS(1) DEDUCTIONS(2) END OF YEAR Year ended December 31, 1993- Allowance for doubtful accounts $2,665 $ 734 $ 6 $ 730 $2,675 Year ended December 31, 1992- Allowance for doubtful accounts $2,872 $ 716 $ 20 $ 943 $2,665 Year ended December 31, 1991- Allowance for doubtful accounts $2,586 $1,084 $ 799 $1,597 $2,872 (1) Primarily recoveries of bad debts and allowance for doubtful accounts of companies acquired at dates of acquisition. (2) Primarily accounts receivable balances written off.
Page F-7 SEALED AIR CORPORATION AND SUBSIDIARIES SCHEDULE IX SHORT-TERM BORROWINGS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands of dollars)
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE AVERAGE OUTSTANDING OUTSTANDING INTEREST CATEGORY OF AGGREGATE BALANCE AT INTEREST DURING DURING THE RATE DURING SHORT-TERM BORROWINGS END OF YEAR RATE THE YEAR YEAR(1) THE YEAR(2) Year ended December 31, 1993- Bank Borrowings $ 5,557 12.1% $ 6,723 $ 4,718 14.4% Year ended December 31, 1992- Bank Borrowings $ 3,511 16.2% $ 9,907 $ 7,151 13.8% Year ended December 31, 1991- Bank Borrowings $ 9,361 8.6% $17,121 $10,447 11.6% (1) Based on average of month-end balances during the year. (2) Based on total interest expense on short-term borrowings for each year divided by the average of month-end amounts outstanding during the year.
Page F-8 SCHEDULE X SEALED AIR CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In thousands of dollars)
CHARGED TO COSTS AND EXPENSES 1993 1992 1991 Maintenance and repairs $ 6,507 $ 6,428 $ 7,102 Amortization of intangible assets, pre-operating costs and similar deferrals: Deferred financing and other costs $ 2,612 $ 2,655 $ 4,341 Deferred compensation 2,929 2,802 2,889 Patents, patent applications and rights 1,306 1,257 1,027 Excess of cost over fair value of net assets acquired 562 303 845 Other 1,577 1,822 840 Total $ 8,986 $ 8,839 $ 9,942
EX-3.2 2 EXHIBIT 3.2 TO 93 FORM 10-K EXHIBIT 3.2 RESOLVED that the first and second sentences of Article III, Section 1, of the By-Laws of the Corporation, as heretofore amended, shall be and are amended effective immediately to read in their entirety as follows: "The number of directors which shall constitute the whole board of directors shall be fixed from time to time by resolution of the board of directors, but no decrease in the number of directors effected by any such resolution shall change the term of any director in office at the time that any such resolution is adopted." EX-3.3 3 EXHIBIT 3.3 TO 93 FORM 10-K EXHIBIT 3.3 BY LAWS OF SEALED AIR CORPORATION (as amended through December 16, 1993) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in Wilmington, Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places within and without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place. Meetings of the stockholders shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors. Section 2. Annual Meetings. Annual meetings of stockholders shall, unless otherwise provided by the board of directors, be held on the third Friday in may each year if not a legal holiday, and if a legal holiday, then on the next full business day following, at 11:00 A.M., at which the stockholders shall elect a board of directors, vote upon the ratification of the selection of the independent auditors selected for the Corporation for the then current fiscal year of the Corporation, and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meetings. Written notice of the annual meeting, stating the place, date and hour thereof, shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Section 4. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order with the address of and the number of voting shares registered in the name of each. Such list shall be open for ten days prior to the meeting to the examination of any stockholders, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held, and shall be produced and kept at the time and place of said meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special Meetings. Special meetings of the stockholders may be called by the president, by resolution of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Any such resolution or request shall state the purpose or purposes of the proposed meeting. Section 6. Notice of Special Meetings. Written notice of a special meeting of stockholders, stating the place, date, hour and purpose thereof, shall be given by the secretary to each stockholder entitled to vote thereat, not less than ten nor more than sixty days before the date fixed for the meeting. Section 7. Business Transacted. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, so long as the adjournment is not for more than thirty days and a new record date is not fixed for the adjourned meeting, until a quorum shall be present or represented. If a quorum shall be present or represented a such adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 9. Vote Required. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Proxies, Etc. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. No proxy or power of attorney to vote shall be used to vote at a meeting of the stockholders unless it shall have been filed with the secretary of the meeting when required by the inspectors of election. Section 11. Inspectors of Election. In advance of any meeting of the stockholders, the board of directors or the presiding officer of such meeting shall appoint two or more inspectors of election to act at such meeting or at any adjournments thereof and make a written report thereof. One or more persons may also be designated by the board of directors or such presiding officer as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer of such meeting shall appoint one or more inspectors to act at such meeting. No director or nominee for the office of director at such meeting shall be appointed an inspector of election. Each inspector, before entering on the discharge of his duties, shall first take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors of election shall, in accordance with the requirements of the Delaware General Corporation Law, (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period and file with the secretary of the meeting a record of the disposition of any challenges made to any determination by the inspectors, and (v) make and file with the secretary of the meeting a certificate of their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. Section 12. Action by Consent. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote, or less than all but not less than the holders of a majority of the stock entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; provided that the written consent shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; and provided further that prompt notice shall be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III DIRECTORS Section 1. Number. The number of directors which shall constitute the whole board of directors shall be fixed from time to time by resolution of the board of directors, but no decrease in the number of directors effected by any such resolution shall change the term of any director in office at the time that any such resolution is adopted. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and each of the directors so chosen shall hold office until the next annual election and until his successor is elected and qualified or until his earlier resignation or removal. Section 3. Authority. The business of the Corporation shall be managed by or under the direction of its board of directors which shall exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders or are not by these by-laws or by resolution of the board of directors or a committee thereof in either case not inconsistent with the statutes, the certificate of incorporation or these by-laws, authorized or directed to be done by the officers of the Corporation. Section 4. Place of Meeting. The board of directors of the Corporation or any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meeting. The first meeting of each newly elected board of directors shall be held immediately following the adjournment of the meeting of stockholders. No notice of such meeting shall be necessary to the directors in order legally to constitute the meeting, provided a quorum be present. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors. Section 6. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. Section 7. Special Meetings. Special meetings of the board of directors may be called by the president and shall be called by the secretary upon the instructions of the president or on the written request of at least two directors. Notice of special meetings of the board of directors shall be given to each director at least three calendar days before the meeting if by mail or at least the calendar day before the meeting if given in person or by telephone, telegraph, telex or similar means of electronic transmission. The notice need not specify the business to be transacted. Section 8. Emergency Meetings. In the event of an emergency which in the judgment of the president requires immediate action, a special meeting may be convened without notice, consisting of those directors who are immediately available in person or by telephone and can be joined in the meeting in person or by conference telephone. The actions taken at such a meeting shall be valid if at least a quorum of the directors participates either personally or by conference telephone. Section 9. Quorum; Vote Required. At meetings of the board of directors, a majority of the directors at the time in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 10. Committees. The board of directors may, by resolution adopted by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in the resolution, shall have any exercise the powers of the board of directors in the management of the business and affairs of the Corporation, including the power and authority to declare a dividend, to authorize the issuance of stock, and to adopt a Certificate of Ownership and Merger pursuant to Section 253 of the Delaware General Corporation Law, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided that no such committee shall have the power or authority to amend the certificate of incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amend the by- laws of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless the board of directors designates one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, the members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the board of directors to act at the meeting in the place of any absent or disqualified member of such committee. At meetings of any such committee, a majority of the members or alternate members of such committee shall constitute a quorum for the transaction of business, and the act of a majority of members or alternate members present at any meeting at which there is a quorum shall be the act of the committee. Section 11. Minutes of Committee Meetings. The committees shall keep regular minutes of their proceedings and, when requested to do so by the board, shall report the same to the board of directors. Section 12. Action by Written Consent. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. Section 13. Participation by Conference Telephone. The members of the board of directors or any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 14. Compensation of Directors. The Directors may be paid their expenses of attendance at each meeting of the board of directors or of any special or standing committee thereof. The board of directors may establish by resolution from time to time the fees to be paid to each director who is not an officer or employee of the Corporation or any of its subsidiaries for serving as a director of the Corporation, for serving on any special or standing committee of the board of directors, and for attending meetings of the board of directors or of any special or standing committee thereof. No such payment shall preclude any such director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV NOTICES Section 1. Giving of Notice. Notices to directors and stockholders mailed to them at their addresses appearing on the books of the Corporation shall be deemed to be given at the time when deposited in the United States mail. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. Selection of Officers. The officers of the Corporation shall be chosen by the board of directors at its first meeting after each annual meeting of stockholders and shall be a president, who shall be a director, one or more vice presidents, a general counsel and a secretary. Any number of offices may be held by the same person. Section 2. Other Officers. The board of directors may appoint such other officers, assistant officers and agents as it desires who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 3. Term of Office, Etc. The officers of the Corporation shall hold office at the pleasure of the board of directors. Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the board of directors may be removed at any time by the board of directors. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the board of directors. Section 4. President. The president shall be the chief executive officer of the Corporation, shall preside at all meetings of the stockholders and the board of directors, shall have the responsibility for the general and active management and control of the affairs and business of the Corporation, shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him by the board of directors, and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall have the authority to sign all contracts and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers and agents of the Corporation. Section 5. Vice Presidents. The vice presidents shall act under the direction of the president and in the absence or disability of the president shall perform the duties and exercise the powers of the president. They shall perform such other duties and have such other powers as the president or the board of directors may from time to time prescribe. The board of directors may designate one or more executive or senior vice presidents or may otherwise specify the order of seniority of the vice presidents, and in that event the duties and powers of the president shall descend to the vice presidents in such specified order of seniority. Section 6. Vice President-Finance. One of the vice presidents shall be designated as the vice president-finance. The vice president-finance of the Corporation shall be, and shall have the usual powers of, the chief financial officer and the chief accounting officer of the Corporation. Subject to the direction of the president and not in limitation of his powers as chief financial officer and chief accounting officer, the vice president- finance shall have the custody of corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation is such depositories as may be designated under authority of the board of directors, shall maintain adequate records of all assets, liabilities and transactions of the Corporation and see that adequate audits thereof are currently and regularly made. He shall disburse the funds of the Corporation as may be ordered under authority of the president or the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors at its regular meetings, or when the president or the board of directors so requires, an account of the financial condition of the Corporation and an account of all his transactions as vice president-finance of the Corporation. He shall also supervise the accounts of any company which the Corporation controls by stock ownership or otherwise. He shall have all of the powers of a treasurer of a corporation and shall be the officer designated to sign any instrument for which the signature of a treasurer of a corporation is needed by reason of any requirement of statute, by-law or otherwise. Section 7. Secretary. The secretary shall act under the direction of the president. Subject to the direction of the president, he shall attend all meetings of the board of directors and all meetings of the stockholders and record the proceedings in a book to be kept for that purpose, and he shall perform like duties for the standing committees of the board of directors when requested to do so. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, shall have charge of the original stock books, stock transfer books and stock ledgers of the Corporation, and shall perform such other duties as may be prescribed by the president or the board of directors. He shall have custody of the seal of the Corporation and cause it to be affixed to any instrument requiring it, and when so affixed, it may be attested by his signature. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 8. Assistant Secretaries. The assistant secretaries in order of their seniority, unless otherwise determined by the president or the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary. They shall perform such other duties and have such other powers as the president or the board of directors may from time to time prescribe. Section 9. General Counsel. The general counsel of the Corporation shall act under the direction of the president of the Corporation, shall be the chief legal officer of the Corporation, shall have all the usual duties and responsibilities of the general counsel of a corporation, shall supervise and have general responsibility for the legal affairs of the Corporation, and shall render to the board of directors at its regular meetings, or when the board of directors or the president so requires, reports of matters affecting the legal affairs of the Corporation. ARTICLE VI CERTIFICATES OF STOCK Section 1. Issuance. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the president or a vice president and the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Facsimile Signatures. If a certificate is countersigned (a) by a transfer agent other than the Corporation or its employee, or (b) by a registrar other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The seal of the Corporation or a facsimile thereof may, but need not, be affixed to certificates of stock. Section 3. Lost Certificates, Etc. The board of directors may establish procedures for the issuance of a new certificate of stock in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed and may in connection therewith require, among other things, the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed and the giving by such person to the Corporation of a bond in such sum as may be specified pursuant to such procedures as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation, if it shall be satisfied that all provisions of the certificate of incorporation, of the by-laws and of the law regarding the transfer of shares have been duly complied with, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. Registered Stockholders. The Corporation shall be entitled to recognize the person registered on its books as the owner of shares to be the exclusive owner for all purposes including voting and dividends, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 6. Record Date. In order that the Corporationmay determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty or less than ten days before the date of such meeting, and not more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. ARTICLE VII MISCELLANEOUS Section 1. Declaration of Dividends. Dividends upon the shares of the capital stock of the Corporation may be declared and paid by the board of directors from the funds legally available therefor. Dividends may be paid in cash, in property, or in shares of the capital stock of the corporation. Section 2. Reserves. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for such purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve. Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VIII INDEMNIFICATION Section 1. In General. Any person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom is the legal representative, is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation or for its benefit as a director, officer, employee or agent of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under and pursuant to any procedure specified in or pursuant to the General Corporation Law of the State of Delaware, as amended from time to time, from and against any and all expenses, liabilities and losses (including without limitation attorney's fees, judgments, fines and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right which may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such directors, officers, employees, agents or representatives may have or hereafter acquire and, without limiting the generality of the foregoing, they shall be entitled to their respective rights of indemnification under any by-law, agreement, vote of stockholders or the board of directors, provision of law or otherwise, as well as their rights under this Article. Section 2. Insurance. The board of directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity, or arising out of such status, whether or not the Corporation would have the power to indemnify such person against such liability. Section 3. Additional Indemnification. The board of directors may from time to time adopt further by-laws with respect to indemnification and may amend these by-laws and such by-laws to provide at all times the fullest indemnification permitted by the General Corporation Law of the State of Delaware, as amended from time to time. ARTICLE IX AMENDMENTS Section 1. By the Stockholders. The by-laws may be amended by a majority vote of all the stock issued and outstanding and entitled to vote at any annual or special meeting of the stockholders, provided that notice of intention to amend shall have been contained in the notice of the meeting. Section 2. By the Board of Directors. The board of directors by a majority vote of the whole board at any meeting may amend these by-laws, including by-laws adopted by the stockholders, but the stockholders may from time to time specify particular provisions of the by-laws which shall not be amended by the board of directors. EX-10.3 4 EXHIBIT 10.3 TO 93 FORM 10-K REVOLVING CREDIT AGREEMENT between UNITED JERSEY BANK and SEALED AIR CORPORATION March 10, 1994 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT is made as of March 10, 1994 between United Jersey Bank, a banking institution of the State of New Jersey (the "Bank"), and Sealed Air Corporation, a Delaware corporation (the "Borrower"). W I T N E S S E T H: WHEREAS, the Borrower, certain of its subsidiaries, various financial institutions and Bankers Trust Company, as agent ("Bankers Trust") are parties to that certain Credit Agreement dated as of April 27, 1989, as amended by thirteen amendments thereto (the "Sealed Air I Credit Agreement"); and WHEREAS, the Borrower, various financial institutions and Bankers Trust are parties to that certain Credit Agreement dated as of May 22, 1991 and amended and restated as of August 15, 1991, as amended by three amendments thereto (the "Sealed Air II Credit Agreement" and together with the Sealed Air I Credit Agreement, the "Prior Credit Agreements"); and WHEREAS, the Borrower has requested the Bank to extend certain credit and make certain loans to the Borrower in an aggregate amount not to exceed $35,000,000 for the purpose of, among other things, repaying all amounts owing by the Borrower under the Prior Credit Agreements; and WHEREAS, the Bank is willing to extend such credit and make such loans to the Borrower upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto hereby agree as follows: I. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following words and terms shall have the following meanings: "Adjusted Net Worth" as of the end of any fiscal year of the Borrower shall mean (i) Cumulative EBITDA as of the end of such fiscal year less (ii) the sum of (a) cumulative cash interest expense of the Borrower and its Subsidiaries, (b) cumulative Dividends (other than the special one-time dividend of $40 per share paid by the Borrower to the holders of record of the Borrower's common stock on May 8, 1989) paid on its capital stock and (c) cumulative cash tax expense not previously deducted in calculating EBITDA for such fiscal year of the Borrower and its Subsidiaries, in each case for the period commencing on January 1, 1989 and ending as of the end of such fiscal year. "Advance" shall have the meaning ascribed to such term in Section 2.1 hereof. "Affiliate" shall mean, with respect to any Person, any other Person (i) directly or indirectly controlling (including, but not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of the voting securities of such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall mean this Revolving Credit Agreement together with any and all exhibits, amendments or supplements hereto. "Applicable Margin" shall mean (i) in the case of LIBO Rate Loans, 75 basis points and (ii) in the case of Secondary CD Based Rate Loans, 87.5 basis points; provided that on each date upon which the annual or quarterly financial statements required pursuant to the provisions hereof are delivered, if no Event of Default then exists and the ratio of EBITDA to Consolidated Cash Interest Expense determined for each of the four consecutive fiscal quarters ending on the last day covered by such financial statements is within the range set forth below in column 1, then the Applicable Margin for each type of Fixed Rate Loan shall be reduced to the respective amount of basis points set forth in columns 2 and 3, as the case may be, opposite the ratio set forth in column 1, (x) if such date is a date upon which quarterly financial statements are delivered in respect of the first or second quarterly accounting period in any fiscal year, for the period commencing on such date and ending on the next date upon which quarterly financial statements are delivered (or if not delivered, on the last date on which required to be delivered) pursuant to the provisions hereof, (y) if such date is a date upon which quarterly financial statements are delivered in respect of the third quarterly accounting period in any fiscal year, for the period commencing on such date and ending on the next date upon which annual financial statements are delivered (or if not delivered, on the last date on which required to be delivered) pursuant to the provisions hereof, and (z) if such date is a date upon which annual financial statements are delivered, for the period commencing on such date and ending on the next date upon which quarterly financial statements are delivered (or if not delivered, on the last day on which required to be delivered) pursuant to the provisions hereof: (1) (2) (3) Interest Coverage LIBO Rate Secondary CD Based Ratio Loans Rate Loans 3.1:1 to 4:1 50 62.5 4.1:1 or better 45 57.5 Notwithstanding the foregoing, for the period from the date hereof until the first date upon which annual or quarterly financial statements required pursuant to the provisions hereof are delivered, the Applicable Margin shall mean (i) in the case of LIBO Rate Loans, 50 basis points and (ii) in the case of Secondary CD Based Rate Loans, 62.5 basis points. "Application" shall mean the application or similar agreement used by the Bank from time to time in connection with the issuance of letters of credit. "Available Commitment" shall mean an amount equal to the excess, if any, of (i) the Commitment, over (ii) the aggregate principal amount of all Advances and L/C Obligations then outstanding. "Bank" shall mean United Jersey Bank, a banking insti- tution of the State of New Jersey, and its successors and assigns. "Bank Costs" shall mean all filing, recording, publi- cation and search fees incurred in connection with and relating to the Borrower paid by the Bank; all reasonable out-of-pocket costs incurred and sums expended by the Bank, with or without suit, to correct any default, to enforce any right or remedy of the Bank, or in connection with any other provision of any Loan Document; all reasonable out-of-pocket costs of suit incurred by the Bank in enforcing or defending this Agreement or any other Loan Document or any portion thereof; all reasonable out-of-pocket costs and expenses including reasonable attorneys' fees and expenses incurred by the Bank in preparing, reviewing, enforcing, amending, modifying, administering, defending or otherwise concerning this Agreement or any other Loan Document or any portion hereof or thereof; and whether or not suit is brought, all out-of-pocket costs of arbitration and insolvency proceedings. "Base Rate" shall mean the rate of interest announced from time to time by the Bank as its "base rate" or "base lending rate". This rate of interest is determined from time to time by the Bank as a means of pricing some loans to its customers and is neither tied to any external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers of the Bank. "Base Rate Loan" shall mean a Loan bearing interest at the Floating Rate. "Borrower" shall mean Sealed Air Corporation, a Delaware corporation, and its successors and assigns. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which state or federally chartered banks in the State of New Jersey are authorized to close. "Capital Lease" shall mean any lease which, in accordance with the Statement of Financial Accounting Standards No. 13, issued in November 1976 by the Financial Accounting Standards Board and as in effect on the date hereof, is required to be capitalized on the books of the lessee. "Capitalized Lease Obligations" shall mean Indebtedness represented by obligations under a Capital Lease and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with the principles referred to in the preceding definition. "Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than three months from the date of acquisition, (ii) time deposits and certificates of deposit of (a) the Bank or any commercial bank incorporated in the United States or any State thereof or the District of Columbia of recognized standing having capital and surplus in excess of $100,000,000 or (b) any commercial bank of recognized standing having capital and surplus in excess of the local currency equivalent of $100,000,000 incorporated in a country where the Borrower has one or more locally operating Subsidiaries, and that is, as of the date hereof, providing banking services to the Borrower or any of its Subsidiaries, in either case with maturities of not more than three months from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above, provided that there shall be no restriction on the maturities of such underlying securities pursuant to this clause (iii) entered into with a bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by the parent corporation of the Bank or any commercial bank (provided that the parent corporation and the bank are both incorporated in the United States) of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing not more than three months after the date of acquisition by such Person, (v) bankers acceptances and current accounts maintained at (a) any bank meeting the qualifications specified in clause (ii) above, in either case with maturities of not more than three months from the date of acquisition by such Person, and (vi) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (v) above. "Commitment" shall mean $35,000,000, or such lower amount to which the Commitment shall be reduced by the Borrower in accordance with the terms hereof. "Consolidated Cash Interest Expense" for any period shall mean Consolidated Interest Expense for such period less the sum of (i) amortization of debt discount and debt issuance costs and (ii) amortization of non-cash discount and non-cash costs of any Hedging Agreements of the Borrower and its Subsidiaries on a consolidated basis for such period. "Consolidated Current Assets" shall mean, at any time, the current assets of the Borrower and its Subsidiaries determined on a consolidated basis (excluding cash and Cash Equivalents), provided that the then Available Commitment shall be considered a current asset of the Borrower in making the foregoing determination, and provided further, that any current deferred assets resulting from the application of Financial Accounting Standards Board Statement No. 109 shall not be considered current assets for purposes of making the foregoing determination. "Consolidated Current Liabilities" shall mean, at any time, the current liabilities of the Borrower and its Subsidiaries determined on a consolidated basis, provided that for purposes of making the foregoing determination, the following shall not be considered current liabilities: (i) the current portion of Funded Debt and any current deferred liabilities resulting from the application of Financial Accounting Standards Board Statement No. 109, (ii) accrued interest on the Permanent Subordinated Debentures and (iii) an amount equal to the outstanding principal balance of all term loan borrowings under the Prior Credit Agreements immediately prior to the date hereof. "Consolidated Interest Expense" for any period shall mean total interest expense (including Capitalized Lease Obligations and amortization of debt discount and debt issuance costs) of the Borrower and its Subsidiaries on a consolidated basis for such period. "Cumulative EBITDA" shall mean, as of the end of any fiscal year of the Borrower, EBITDA for the period (taken as one accounting period) commencing January 1, 1989 and ending as of the last day of such fiscal year. "Default" shall mean any of the events specified in Article IX hereof which, with the passage of time or giving of notice or both, would constitute an Event of Default. "Dividends" shall mean with respect to any Person all dividends declared or paid by such Person, whether in cash or by the distribution of property (other than capital stock of such Person), and any money or other property paid or distributed by such Person in connection with the purchase, redemption, cancellation or retirement of any capital stock of such Person, other than the repurchase by the Borrower of its Common Stock under its Contingent Stock Plan. "Domestic Subsidiary" shall mean a Subsidiary incorporated or organized under the laws of the United States or any State thereof which conducts all or substantially all of its business in the United States. "EBIT" shall mean, for any period, the consolidated net income of the Borrower and its Subsidiaries, before interest expense and provision for income taxes and without giving effect to any extraordinary gains and gains from sales of assets (other than sales of inventory in the ordinary course of business); provided that the gains resulting from aggregate gross proceeds of all sales of up to $1,000,000 of assets in the ordinary course of business (other than any such sale of assets the value of which individually exceeds $500,000) in the fiscal year in which such period occurs shall be considered gains from sales of assets for the purpose of the foregoing calculation only to the extent such gains exceed losses relating to such sales. "EBITDA" for any period shall mean EBIT, adjusted by (i) adding thereto the amount of (a) all amortization of goodwill and other intangibles, (b) depreciation, (c) all non-cash contributions or accruals to or with respect to deferred profit sharing plans and (d) all non-cash compensation and accruals, in each case to the extent deducted in arriving at EBIT for such period, and (ii) subtracting therefrom the amount of all non-cash gains that were added in arriving at EBIT for such period other than such gains arising from sales of inventory in the ordinary course of business. "Event of Default" shall mean any of the events specified in Article IX hereof, provided that any requirement for notice or lapse of time or any other condition has been satisfied. "Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Bank from three federal funds brokers of recognized standing selected by it. "Fixed Rate(s)" shall mean the LIBO Rate and the Secondary CD Based Rate, individually and collectively. "Fixed Rate Loan(s)" shall mean a Loan which bears interest at a Fixed Rate. "Floating Rate" shall have the meaning set forth in Section 2.3 hereof. "Funded Debt" shall at the time of determination thereof mean Indebtedness of the Borrower and its Subsidiaries which by its terms is payable more than one year from such date or which may be extended at the option of the respective borrower under a revolving credit or similar agreement to a date more than one year from such date of determination. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "Guarantee" shall mean, as to any Person, any obligation of such Person guaranteeing any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Guarantee shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Hedging Agreements" shall mean as to any Person (i) any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement under which such Person is a party or beneficiary and (ii) any swap, futures, forward or option agreements or other agreements or arrangements designed to limit or eliminate the risk and/or exposure of such Person to fluctuations in currency exchange rates. "Indebtedness" shall mean as to any Person, without duplication (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the face amount of all letters of credit issued for the account of such Person and all drafts drawn thereunder, (iii) all Capitalized Lease Obligations, (iv) all Guarantees, (v) obligations of such Person in respect of banker's acceptances or similar obligations issued or created for the account of such Person, (vi) all liabilities of such Person arising under Hedging Agreements and (vii) all indebtedness, obligations and liabilities of the type described in this definition secured by any Lien upon any property of such Person, regardless of whether such indebtedness, obligations or liabilities have been assumed by such Person. "L/C Commitment" shall mean $3,000,000. "L/C Obligations" shall mean, at any time, an amount equal to the aggregate then undrawn and unexpired amount of outstanding Letters of Credit. "Letter(s) of Credit" shall mean one or more letters of credit issued by the Bank for the account of the Borrower hereunder. "LIBO Rate" shall have the meaning ascribed to such term in Section 2.3 hereof. "LIBO Rate Loan" shall mean a Loan bearing interest at the LIBO Rate. "Lien" shall mean any lien, mortgage, hypothecation, pledge, charge, encumbrance, deposit arrangement, assignment or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature, including any conditional sale or other title retention agreement or other security interest or encumbrance of any kind in respect of any property or Person or upon the income, rents or profits therefrom, and further including any Capitalized Lease having substantially the same economic effect as any of the foregoing. "Loan" shall mean any Advance or other borrowing by the Borrower under the Loan Documents. "Loan Documents" shall mean all agreements, instruments, certificates and documents evidencing or relating to the Obligations arising under this Agreement, including without limitation, this Agreement, the Note and each Application and Letter of Credit. "Maturity Date" shall mean the date which is 364 days from the date hereof. "Note" shall mean the revolving credit note executed by the Borrower and delivered to the Bank pursuant to Section 2.2 hereof. "Obligations" shall mean all loans, advances, extensions of credit, debts, liabilities, obligations, payments, guarantees, covenants and duties owing by the Borrower to the Bank of any kind and description arising under this Agreement, whether direct or indirect, voluntary or involuntary, absolute or contingent, due or to become due, now existing or hereafter incurred or created and further including all Bank Costs. "Permanent Subordinated Debentures" shall mean the Borrower's $170,000,000 12-5/8% Senior Subordinated Notes due July, 1999 issued pursuant to the Indenture dated as of July 1, 1989 between the Borrower and The First National Bank of Boston, as Trustee. "Person" shall mean any individual, corporation, partnership, association, joint stock company, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof. "Prior Credit Agreements" shall have the meaning ascribed to such term in the second WHEREAS clause of this Agreement. "Secondary CD Based Rate" shall have the meaning ascribed to such term in Section 2.3 hereof. "Secondary CD Based Rate Loan" shall mean a Loan bearing interest at the Secondary CD Based Rate. "Significant Subsidiary" shall mean a Domestic Subsidiary meeting the definition set forth in Rule 1-02 of Regulation S-X as promulgated by the Securities and Exchange Commission. "Stated Amount" of each Letter of Credit shall mean the maximum amount available to be drawn thereunder (regardless of whether any conditions for drawing could then be met). "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. II. REVOLVING CREDIT 2.1 Advances. From time to time, during the period from the date hereof until the Maturity Date, in the manner hereinafter set forth, the Borrower may borrow from the Bank, and, upon the request of the Borrower and upon the terms and conditions contained herein, the Bank shall lend to the Borrower a sum or sums ("Advances") which will not exceed the Available Commitment at such time. 2.2 Revolving Credit Note. The indebtedness of the Borrower to the Bank resulting from all Advances made from time to time and otherwise arising hereunder shall be evidenced by a revolving credit note (the "Note"), the form of which is attached hereto as Exhibit A, made payable to the Bank, dated the date hereof, signed by the Borrower and delivered to the Bank. All Advances made by the Bank to the Borrower shall be noted by the Bank on the reverse side or last page of the Note, and the Bank is authorized to make such notations which shall be prima facia evidence of the principal amount outstanding thereunder at any time; provided, however, that any failure to make such a notation (or any errors in notation) shall not limit or otherwise affect the obligation of the Borrower hereunder or under the Note, which is and shall remain absolute and unconditional. All amounts outstanding under the Note shall be due and payable on the Maturity Date. 2.3 Interest Rate. The Note shall bear interest in the manner hereinafter provided (computed on the basis of the actual number of days elapsed in a year of 360 days) on the principal amount thereof remaining unpaid from time to time. Except with respect to Fixed Rate Loans, interest shall be payable quarterly in arrears on the last Business Day of each calendar quarter, commencing on the last Business Day of the first calendar quarter following the date of the Note and continuing on the last Business Day of each calendar quarter thereafter until the Note shall be paid in full. Interest shall accrue and be payable at the following rates: (a) Except as provided in subsection (b) below, the Note shall bear interest from the date thereof on the outstanding daily principal balance thereunder at a fluctuating rate per annum equal to the Floating Rate. As used herein, the term "Floating Rate" shall mean the greater of (i) the Base Rate minus one hundred basis points or (ii) the Federal Funds Rate plus seventy five basis points. Each change in the Base Rate or the Federal Funds Rate shall be effective as of the opening of business on the day on which such change shall be announced and be effective. (b) Provided no Default or Event of Default shall then exist, the Borrower may, in accordance with the terms and conditions set forth herein, elect to have all or any portion of the outstanding principal balance of the Note, in an amount equal to or greater than $1,000,000, bear interest at one of the following rates for any Interest Period (as such term is hereinafter defined): (i) A rate per annum (the "LIBO Rate") equal to the Applicable Margin plus the Base LIBO Rate (as hereinafter defined) of the Bank applicable to such Interest Period. The "Base LIBO Rate" applicable to a particular Interest Period shall mean a rate per annum equal to the product arrived at by multiplying the Fixed LIBO Rate (as hereinafter defined) applicable to such Interest Period by a fraction (expressed as a decimal), the numerator of which shall be the number one (1.0) and the denominator of which shall be the number one (1.0) minus the aggregate reserve percentages (expressed as a decimal) from time to time established by the Board of Governors of the Federal Reserve System of the United States and any other banking authority to which the Bank is now or hereafter subject, including, but not limited to any reserve on "Eurocurrency Liabilities" as defined in Regulation D (or any successor provision) of the Board of Governors of the Federal Reserve System of the United States at the ratios provided in such Regulation from time to time, it being agreed that any portion of the Note bearing interest at a LIBO Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such Regulation, and it being further agreed that such Eurocurrency Liabilities shall be deemed to be subject to such reserve requirements without benefit of or credit for prorations, exceptions or offsets that may be available to the Bank from time to time under such Regulation and irrespective of whether such Bank actually maintains all or any portion of such reserve. The "Fixed LIBO Rate" applicable to a particular Interest Period shall mean a rate per annum equal to the rate of interest at which U.S. dollar deposits in an amount approximately equal to the portion of the Note which will bear interest at a particular LIBO Rate during such Interest Period, and with maturities comparable to the last day of such Interest Period, are offered in immediately available funds in the London Interbank Market by leading banks in the Eurodollar Market at 11:00 a.m., London time, three Business Days prior to the commencement of such Interest Period. Each determination of the LIBO Rate, the Base LIBO Rate and the Fixed LIBO Rate applicable to a particular Interest Period shall be made by the Bank and shall be conclusive and binding upon the Borrower absent manifest error. (ii) A rate per annum (the "Secondary CD Based Rate") equal to the Applicable Margin plus the Reserve Adjusted Secondary CD Rate. The "Reserve Adjusted Secondary CD Rate" shall mean the average of the Secondary Certificate of Deposit Rates reported, for the latest day for which such rates shall have been reported as of two (2) Business Days prior to the first day of the relevant Interest Period, in Federal Reserve Statistical Release H.15 - Selected Interest Rates (or any comparable successor publication) for certificates of deposit having a maturity closest to the relevant Interest Period adjusted for any reserves that the Bank may now or hereafter be required or may elect to maintain (irrespective of whether the Bank actually maintains all or any portion of such reserve) and any assessment rate for insurance of time deposits made in United States Dollars at the offices of the Bank then charged by the Federal Deposit Insurance Corporation, or any successor thereof, all as determined by the Bank. (iii) As used herein, "Interest Period" shall mean 30, 60, 90 or 180 days, as designated by the Borrower, with respect to Advances which bear interest at the Secondary CD Based Rate, and one-month, two-months, three-months or six-months, as designated by the Borrower, with respect to Advances which bear interest at the LIBO Rate. For purposes of the foregoing, the period of time commencing on any day of any month and continuing until the same date of the immediately following month shall be deemed a period of one month. No Interest Period shall extend beyond the Maturity Date. (c) The Borrower shall pay (i) all accrued and unpaid interest on the outstanding principal amount of each Fixed Rate Loan on the last day of the Interest Period applicable thereto (the "Fixed Rate Interest Payment Date") and (ii) for each Fixed Rate Loan having an Interest Period which exceeds 90 days or three months, as the case may be, all unpaid interest accrued on such Fixed Rate Loan on the last Business Day of such 90 day or three month period following the making of such Fixed Rate Loan and on the Fixed Rate Interest Payment Date; provided, however, that if any Fixed Rate Interest Payment Date shall not be a Business Day, then such payment shall be made on the next succeeding Business Day, unless, with respect to a LIBO Rate Loan, the next such succeeding Business Day falls in the next calendar month, in which case such payment shall be made in the next preceding Business Day. Unless the Borrower shall have requested a further Fixed Rate Loan in accordance with the terms hereof, each Fixed Rate Loan shall automatically convert to a Base Rate Loan on and as of the Fixed Rate Interest Payment Date applicable thereto. (d) Notwithstanding the foregoing, at no time shall the Note bear interest at more than six interest rates. (e) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall bear interest at a rate per annum equal to the Base Rate plus three and one-half percent (3.5%) per annum and shall be payable on demand. 2.6 Prepayments. (a) The Borrower shall have the right to prepay the principal amount of the Note, in whole or in part, at one time or from time to time. Except as described below with respect to Fixed Rate Loans, there shall be no premium or penalty as the result of such prepayment. Any prepayment of the Note shall not permanently reduce the amount which may be borrowed pursuant to Section 2.1 hereof and the Borrower may borrow, prepay and reborrow in the manner provided herein. Each prepayment shall be made in immediately available funds and shall be made (i) in the case of Base Rate Loans, upon one Business Day's prior notice and (ii) in the case of Fixed Rate Loans, upon three Business Day's prior notice and shall be accompanied by accrued interest to the date of such prepayment (and in the case of Fixed Rate Loans, the applicable payments required under Section 3.2 hereof). (b) If at any time the outstanding principal amount of Advances hereunder exceeds the Available Commitment of the Bank at such time, such excess amount shall be immediately due and payable. It is expressly agreed that the foregoing does not in any way impair or restrict the rights of the Bank under Section 3.2 hereof. 2.7 Use of Proceeds. All amounts advanced to the Borrower hereunder shall be used for repayment of all amounts outstanding under the Prior Credit Agreements and thereafter for working capital and general corporate purposes. 2.8 Disbursement Procedure for Advances. All requests for Advances shall be in writing or by telephone (promptly confirmed in writing for Fixed Rate Loans) and shall state (i) the principal amount requested, (ii) the requested date of advance and (iii) with respect to Fixed Rate Loans, the interest rate selected and the applicable Interest Period. Each request (i) for a Base Rate Loan shall be made no later than 11:00 a.m. on the requested date of advance, (ii) for a Secondary CD Based Rate Loan shall be made at least two Business Days prior to the requested date of advance and (iii) for a LIBO Rate Loan shall be made at least three Business Days prior to the requested date of advance. Each Loan shall be in a minimum principal amount of $1,000,000. 2.9 Commitment Fee. The Borrower agrees to pay to the Bank a commitment fee on the average daily unused portion of the Available Commitment from time to time, from the date hereof until the earlier of the Maturity Date or the termination of the Commitment as provided in Section 2.10 hereof, at the rate of 1/4 of 1% per annum, payable, in arrears, on the last Business Day of each calendar quarter following the date hereof and on the Maturity Date (or upon such earlier date as the Commitment shall be terminated). The commitment fee shall be computed on the basis of the actual number of days elapsed over a year of 360 days (having 12 months of 30 days each). 2.10 Termination or Reduction of the Commitment. The Borrower shall have the right, upon no less than three Business Days' prior written notice to the Bank, to terminate in whole or reduce in part the unused portion of the Available Commitment, provided that each partial reduction shall be in the amount of $5,000,000. Simultaneously with any termination of the Available Commitment, the Borrower shall pay the aforesaid commitment fee as accrued and unpaid to the date thereof. 2.11 Net Payments. The Borrower shall make each payment hereunder and under the Note not later than 12:00 Noon (New York City time) on the day when due in lawful money of the United States of America and in immediately available funds to the Bank at its office set forth in Section 12.1 hereof, without set-off or counterclaim, and in the case of any Fixed Rate Loan, without deduction or withholding for any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (but excluding, except as provided below, any tax imposed on or measured by the net income of the Bank) and all interest, penalties or similar liabilities with respect thereto (collectively, "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due hereunder, under the Note or under any other Loan Document, after withholding or deduction for or on account of any Taxes, will be not less than the amount provided for herein or in the Note. The Borrower will furnish to the Bank within 45 days after such payment of any Taxes, or any withholding or deduction on account thereof, certified copies of tax receipts evidencing such payment by the Borrower. The Borrower will indemnify and hold harmless the Bank, and reimburse the Bank upon its written request, for the amount of any Taxes so levied or imposed and paid or withheld by the Bank. If the Bank shall obtain a refund, credit or deduction as a result of the payment or indemnification for any Taxes made by the Borrower to the Bank pursuant to this Section, the Bank shall pay to the Borrower an amount with respect to such refund, credit or deduction equal to any net tax benefit actually received by the Bank as a result thereof which the Bank determines, in its sole discretion, to be attributable to such payment. 2.12 Business Days. Whenever any payment to be made hereunder or under the Note shall be stated to be due on any day other than a Business Day, then, except as otherwise provided in Section 2.5 hereof, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of payment of interest (or commitment fee). 2.13 Charge. Without in any way limiting any right of offset, counterclaim or banker's lien which the Bank may otherwise have at law, the Borrower hereby irrevocably authorizes and directs the Bank, if and to the extent any payment of principal, interest or any fee is not otherwise made on any day when due, to charge against the Borrower's account or accounts at the Bank, an amount or amounts equal in the aggregate to such aforesaid sums as are due and payable from time to time to the Bank. III. SPECIAL PROVISIONS 3.1 Alternate Interest Rate. If within one Business Day of any date that the Borrower requests a Fixed Rate Loan, the Bank shall determine in its sole discretion, reasonably exercised, that it is unable to quote the requested Fixed Rate or that it is unable to fund the requested Fixed Rate Loan for the Interest Period requested, the Bank shall promptly notify the Borrower of such determination and no Fixed Rate Loan shall be made by the Bank on the borrowing date for which such request was made. Upon receipt of such notification, the Borrower may withdraw any outstanding request for a Fixed Rate Loan by giving written notice of withdrawal to the Bank prior to such borrowing date. Unless withdrawn in accordance with this Section 3.1, any outstanding request for such Fixed Rate Loan shall be deemed to be a request for a Base Rate Loan in equal principal amount, and such Base Rate Loan shall be made on such borrowing date. 3.2 Indemnification. Except as provided in Section 3.1 hereof, each request for a Fixed Rate Loan shall be irrevocable and binding upon the Borrower. The Borrower hereby agrees to indemnify the Bank, upon demand by the Bank at any time, against any and all actual losses (including any actual loss of profit), costs or expenses which the Bank may at any time or from time to time sustain or incur as a consequence of: (a) any breach by the Borrower of its obligation to borrow on the borrowing date specified in any Borrowing Notice requesting a Fixed Rate Loan, (b) any failure by the Borrower to pay punctually on the due date thereof, any amount payable by the Borrower to the Bank on Fixed Rate Loans, (c) the acceleration of the time of payment of any of the Borrower's obligations in respect of Fixed Rate Loans in accordance with any of the provisions of this Agreement, (d) the repayment or prepayment of the principal of any of the Fixed Rate Loans on a date other than the end of the applicable Interest Period or (e) the conversion of a Fixed Rate Loan to a Base Rate Loan on a date other than the end of the applicable Interest Period. Such losses, costs or expenses shall include, without limitation, (i) any costs incurred by the Bank in carrying funds which were to have been borrowed by the Borrower or in carrying funds to cover any overdue principal, overdue interest or any other overdue sums payable by the Borrower to the Bank in respect of Fixed Rate Loans, (ii) any interest payable by the Bank to the lenders of the funds referred to in the immediately preceding clause (i), and (iii) any actual losses (including any actual loss of profit) incurred or sustained by the Bank in liquidating or reemploying funds acquired from third parties to make any of the Fixed Rate Loans or to fund or maintain all or any part of the principal of any of the Fixed Rate Loans. 3.3 Changes in Circumstances. If at any time, the Bank shall reasonably determine that: (a) the Bank is unable to obtain funds in the principal amount specified in any request for a Fixed Rate Loan for periods equal to the specified Interest Period; (b) the Fixed Rate does not or will not accurately reflect the cost to the Bank of obtaining or maintaining any Fixed Rate Loan during any Interest Period despite the Borrower's compliance with its obligations under Section 3.4 hereof; provided, however, that the foregoing shall not apply to market fluctuations of the Reserve Adjusted Secondary CD Rate or the Fixed LIBO Rate or to changes in the Base LIBO Rate or the Secondary CD Based Rate which are within the Bank's discretion and control; or (c) any present or future law or regulation (or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof) has made or will make it unlawful for the Bank to make or maintain any Fixed Rate Loan or to comply with any of the Bank's obligations in respect of any Fixed Rate Loans; then, in each case, the Bank may promptly give notice of such determination and reasons for the determination to the Borrower. Upon such notification, the Bank's obligation to make Fixed Rate Loans shall be suspended until the Bank determines that the circumstances described in subparagraphs (a), (b) and (c) of this Section 3.3 have ceased to exist. Following the Bank's notice under subparagraphs (b) or (c) of this Section 3.3, all outstanding applicable Fixed Rate Loans of the Bank shall be converted to Base Rate Loans at the end of the applicable Interest Period; provided, however, that if it shall be unlawful for the conversion of such Fixed Rate Loans to Base Rate Loans to be effective as of the end of the applicable Interest Period, such conversion shall be deemed to occur as of the date of such notice by the Bank. 3.4 Additional Costs and Expenses. The Borrower recognizes that the cost to the Bank of making or maintaining Fixed Rate Loans or any portion thereof may fluctuate, and the Borrower agrees to pay to the Bank, within ten (10) days after written demand, an additional amount or amounts as the Bank shall reasonably determine will compensate the Bank for additional costs incurred by the Bank in maintaining Fixed Rate Loans or any portion thereof as a result of: (i) the imposition after the date of any Fixed Rate Loan of, or changes after the date of any Fixed Rate Loan in, the reserve requirements promulgated by the Board of Governors of the Federal Reserve System of the United States, including, but not limited to, any reserve on Eurocurrency Liabilities as defined in Regulation D of the Board of Governors of the Federal Reserve System of the United States at the ratios provided in such Regulation from time to time, it being agreed that the portion or portions of the Note bearing interest at Fixed Rates shall be deemed to constitute Eurocurrency Liabilities, as defined by the such Regulation, and it being further agreed that such Eurocurrency Liabilities shall be deemed to be subject to such reserve requirements without benefit of, or credit for, prorations, exceptions or offsets that may be available to the Bank or from time to time under such regulations, and irrespective of whether the Bank actually maintains all or any portion of the reserve; or (ii) any change, after the date of any Fixed Rate Loan, in any applicable laws, rules or regulations or in the interpretation or administration thereof by any domestic or foreign governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) or by any domestic or foreign court changing the basis of taxation of payments to the Bank of the principal of or the interest on any Fixed Rate Loan or any other payments made hereunder (other than taxes imposed on all or any portion of the overall net income of the Bank), or imposing, modifying or applying any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, credit extended by, or any other acquisition of funds for loans by the Bank, or imposing on the Bank or on the London Interbank Market any other condition affecting this Agreement or the portion or portions of the Note bearing interest at Fixed Rates so as to increase the cost to the Bank of making or maintaining Fixed Rate Loans or to reduce the amount of any sum received or receivable by the Bank under the Note (whether of principal, interest or otherwise); or (iii) if after the date of any Fixed Rate Loan, the Bank shall have determined that the applicability of any law, rule, regulation or guideline adopted or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy, or any change therein, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any domestic or foreign governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank or by the Bank's parent holding company, if any, with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital, or on the capital of the Bank's parent holding company, if any, as a consequence of the Bank's obligations with respect to the Advances or under a Note or this Agreement, to a level below that which the Bank, or the Bank's parent holding company, if any, could have achieved but for such adoption, change or compliance (taking into consideration the Bank's, or the Bank's, parent holding company's policies, if any, with respect to capital adequacy). Any amount or amounts payable by the Borrower to the Bank in accordance with the provisions of this Section shall be paid within ten (10) days of receipt by the Borrower from the Bank of a statement setting forth the amount or amounts due and the basis for the determination from time to time of such amount or amounts, which statement shall be conclusive and binding upon the Borrower absent manifest error. Failure on the part of the Bank to demand compensation for any increased costs in any Interest Period shall not constitute a waiver of the Bank's right to demand compensation for any increased costs incurred during any such Interest Period or in any other or subsequent or prior Interest Period; provided, however, the Borrower shall have no liability for any such claims not made by the Bank within one year following the full payment of all Advances owing to the Bank hereunder. IV. LETTERS OF CREDIT 4.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the Bank agrees to issue standby letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day prior to the Maturity Date in such form as may be approved from time to time by the Bank; provided that the Bank shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the Available Commitment would be less than zero. (b) Each Letter of Credit shall (i) be denominated in U.S. Dollars and shall be a standby letter of credit issued to support obligations of the Borrower, contingent or otherwise, to provide credit support for workers' compensation, other insurance programs and other corporate purposes and (ii) expire no later than one Business Day prior to the Maturity Date. (c) Each Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the laws of the State of New Jersey. (d) The Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Bank to exceed any limits imposed by, any applicable law, treaty, rule or regulation of any governmental, regulatory or judicial authority. 4.2 Procedure for Issuance of Letters of Credit. The Borrower may from time to time request that the Bank issue a Letter of Credit by delivering to the Bank at its address for notices specified herein an Application therefor, completed to the satisfaction of the Bank, and such other certificates, documents and other papers and information as the Bank may reasonably request. Upon receipt of any Application, the Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Bank and the Borrower. The Bank shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. 4.3 Fees, Commissions and Other Bank Charges. (a) The Borrower shall pay to the Bank a non-refundable letter of credit fee in respect of each Letter of Credit (the "Letter of Credit Fee") for the period from and including the date of issuance of such Letter of Credit to and including the termination date of such Letter of Credit, computed at the rate of one percent (1%) per annum on the average daily Stated Amount of such Letter of Credit. Letter of Credit Fees shall accrue and be due and payable in immediately available funds quarterly in arrears on the last Business Day of each calendar quarter of each year and, with respect to each Letter of Credit, on the date upon which such Letter of Credit terminates in accordance with its terms. (b) In addition to the foregoing fees and commissions, the Borrower shall pay or reimburse the Bank for such normal and customary costs and expenses as are incurred or charged by the Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. 4.4 Reimbursement Obligation of the Borrower. (a) The Borrower agrees to reimburse the Bank on each date on which the Bank notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the Bank for the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by the Bank in connection with such payment. Each such payment shall be made to the Bank at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Base Rate Loans. (c) Each drawing under any Letter of Credit shall constitute a request by the Borrower to the Bank for a Base Rate Loan in the amount of such drawing, and each such Base Rate Loan shall be deemed to have been made as of the date of such drawing. 4.5 Obligations Absolute. (a) The Borrower's obliga- tions under Section 4.4(a) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Bank or any beneficiary of a Letter of Credit. (b) The Borrower also agrees with the Bank that the Bank shall not be responsible for, and the Borrower's reimbursement obligations hereunder shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. (c) The Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Bank's gross negligence or willful misconduct. (d) The Borrower agrees that any action taken or omitted by the Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New Jersey, shall be binding on the Borrower and shall not result in any liability of the Bank to the Borrower. 4.6 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Bank shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Bank to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 4.7 Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article IV, the provisions of this Article IV shall apply. V. CONDITIONS PRECEDENT 5.1 Conditions Precedent to Initial Advance. The obligation of the Bank to make the initial Advance hereunder or to issue the initial Letter of Credit (whichever is earlier) is subject to the following conditions precedent: (a) The Bank shall have received each and every one of the following on or before the day of such Advance or the issuance of such Letter of Credit (as the case may be) in form and substance satisfactory to the Bank: (i) An originally executed copy of this Agreement and the Note; (ii) A copy of the certificate of incorporation and bylaws of the Borrower, in each case, certified as a true copy by the Secretary or an Assistant Secretary of the Borrower; (iii) A good standing certificate with respect to the Borrower issued as of a recent date by the Secretary of State of the State of Delaware and the Secretary of State or other appropriate State official of each of the States set forth on Schedule I attached hereto; (iv) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the Note; (v) A copy of the resolutions approved by the Board of Directors of the Borrower authorizing the execution, delivery and performance by the Borrower of each of the Loan Documents, certified as a true copy by the Secretary or an Assistant Secretary of the Borrower; (vi) A certificate of the Borrower, dated as of such date, to the effect that (a) each of the representations and warranties of the Borrower set forth herein are true, correct and complete with the same effect as though such representations and warranties were made on and as of such date and (b) no Default or Event of Default then exists and is continuing; (vii) An opinion of counsel to the Borrower substan- tially in the form set forth in Exhibit B attached hereto; (viii) A search report issued or prepared by a state official or private search firm acceptable to the Bank as of a recent date setting forth a list (and complete copies thereof) of (i) all UCC-1 financing statements in which the Borrower is named as debtor which are then on file or of record and (ii) all federal and state tax liens imposed upon or asserted against the Borrower or its properties or assets, in each case, as may be found in the files and records of the Secretary of State of the State of Delaware and the Secretary of State or other appropriate state official of each of the States set forth on Schedule I attached hereto; (ix) a Certificate, duly executed and delivered by an authorized officer of Bankers Trust, the Borrower and certain of its Subsidiaries, dated as of such date, substantially in the form of Exhibit C attached hereto; (x) Such other approvals, opinions, certificates or documents as the Bank may reasonably request; and (b) No event, action or proceeding shall have occurred (and the Bank shall not have become aware of facts or conditions not previously known) since December 31, 1993 which, in the opinion of the Bank, could reasonably be expected to materially adversely affect (i) the operations, business, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or (ii) the rights and remedies of the Bank, or the ability of the Borrower to perform its obligations, under any of the Loan Documents. 5.2 Conditions Precedent to Additional Advances. The Bank shall have no obligation to make any additional Advance subsequent to the initial Advance or to issue any additional Letter of Credit subsequent to the initial Letter of Credit unless the following conditions precedent have been either satisfied or waived by the Bank prior to or concurrently with the making of such Advance or the issuance of such Letter of Credit: (a) The Loan Documents shall be in full force and effect and no Default or Event of Default shall exist and be continuing; and (b) Each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. Each borrowing by, and Letter of Credit issued on behalf of, the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Loan and/or Letter of Credit that the conditions contained in this Section 5.2 have been satisfied. VI. REPRESENTATIONS AND WARRANTIES 6. In order to induce the Bank to enter into this Agreement and, among other things, make the Advances and issue the Letters of Credit, the Borrower hereby represents, warrants and agrees that: 6.1 Organization; Power; Qualification. The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has the full power and authority to own and operate its properties and assets and to carry on the business now conducted by it and (iii) is qualified or authorized to do business and in good standing in all jurisdictions wherein the character of the property owned or the nature of the business conducted by the Borrower makes such qualification or authorization necessary, except such jurisdictions in which the lack of qualification or authorization does not materially adversely effect the business, results of operations or financial condition of the Borrower. 6.2 Authorization of Agreement. The Borrower has full power and authority to execute, deliver and perform any action or step which may be necessary to carry out the terms of the Loan Documents; each Loan Document to which the Borrower is a party has been duly executed and delivered by the Borrower and is the legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, or other laws relating to or affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether considered in a proceeding in equity or at law). 6.3 No Legal Bar. The execution, delivery and performance of the Loan Documents will not (i) violate any provision of any existing law, statute, rule, regulation or ordinance (ii) conflict with, result in a breach of or constitute a default under (a) the certificate of incorporation or by-laws of the Borrower or (b) any order, judgment, award or decree of any court, governmental authority, bureau or agency known to the Borrower, or (c) any mortgage, indenture, lease, contract or other agreement or undertaking to which the Borrower is a party and which is material to its business or operations or by which the Borrower or any of its material properties or assets may be bound, or (iii) result in the creation or imposition of any lien or other encumbrance upon or with respect to any property or asset now owned by the Borrower other than in favor of the Bank. 6.4 Consent. No consent, license, permit, approval or authorization of, exemption by, notice to, report to, or registration, filing or declaration with any Person is required in connection with the execution, delivery, performance or validity of the Loan Documents or the transactions contemplated thereby. 6.5 Compliance With Law. Neither the Borrower nor any of its Subsidiaries is in violation of any applicable law, rule, regulation, statute, ordinance, or any order, judgment, award or decree of any court, governmental authority, bureau or agency, the violation of which would reasonably be expected to have a material adverse affect on the business, assets, liabilities, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole. 6.6 Environmental Matters. The Borrower and each of its Subsidiaries have substantially complied with, and on the date hereof are in substantial compliance with, all applicable environmental laws, rules and regulations and the requirements of any material permits issued thereunder, and there are no pending or, to the best knowledge of the Borrower after due inquiry, threatened claims involving environmental matters against the Borrower or any of its Subsidiaries or any real property owned or operated by the Borrower or any of its Subsidiaries that individually or in the aggregate could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. Neither the Borrower nor any of its Subsidiaries has at any time generated, used, treated or stored any hazardous materials or hazardous wastes (as such terms are defined in federal or state environmental legislation or regulation) on, or transported the same to or from, any real property owned or operated by the Borrower or any of its Subsidiaries where such generation, use, treatment or storage has violated or could reasonably be expected to violate any environmental law, rule or regulation in a manner which could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.7 Properties. The Borrower and each of its Subsidiaries have good title to all properties owned by them which are properly classified as "current assets" in accordance with GAAP, including all current assets reflected in the balance sheets of the Borrower as referred to in Section 6.12 (except as sold or otherwise disposed of since the date of such balance sheet), free and clear of all Liens, other than Liens otherwise permitted by Section 8.1. 6.8 No Default. Neither the Borrower nor any of its Subsidiaries is in default in any material respect in the payment or performance of any of its obligations or in the performance of any mortgage, indenture, lease, contract or other agreement or undertaking to which it is a party or by which it or any of its properties or assets may be bound, which default may materially adversely affect the business or operations of the Borrower and its Subsidiaries taken as a whole, and no Default or Event of Default has occurred and is continuing. Neither the Borrower nor any of its Subsidiaries is in default under any order, award or decree of any court, arbitrator, or governmental authority binding upon or affecting it or by which any of its properties or assets may be bound or affected, and no such order, award or decree, if any, materially adversely affects the ability of the Borrower to carry on its business as presently conducted or to perform its obligations under the Loan Documents. 6.9 No Litigation. No litigation, investigation or proceeding of or before any court, arbitrator or governmental authority is currently pending, nor, to the knowledge of the Borrower, threatened, against the Borrower or any of its Subsidiaries or any of their respective properties and revenues, which, if adversely determined, would materially adversely affect the ability of the Borrower to carry on its business as presently conducted or to perform its obligations under the Loan Documents. 6.10 No Burdensome Restrictions. Neither the Borrower nor any of its Subsidiaries is a party to nor is bound by any contract or agreement or instrument nor subject to any restriction materially and adversely affecting the business, results of operations or financial condition of the Borrower and its Subsidiaries taken as a whole. 6.11 Tax Returns and Payments. All federal, state and other tax returns of the Borrower and its Subsidiaries required by law to be filed have been duly filed, and all federal, state and other taxes, assessments and governmental charges or levies upon the Borrower and its Subsidiaries or any of their respective properties, income, profits or assets which are due and payable have been paid, except such tax returns the nonfiling of which, and such taxes the non-payment of which, would not have a material adverse effect upon the business, assets, liabilities, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole and except for such taxes and assessments which the Borrower is disputing in good faith and for which the Borrower has established adequate reserves on its books for the payment of such disputed taxes or assessments in accordance with GAAP. 6.12 Financial Statements. The Borrower has furnished to the Bank copies of (i) the consolidated balance sheets of the Borrower and its Subsidiaries as of December 31, 1992 and December 31, 1993 and the related consolidated statements of income, shareholders' equity (deficit) and cash flows for the fiscal years then ended, certified (in the case of the December 31, 1992 statements) by KPMG Peat Marwick, certified public accountants, and (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of September 30, 1993 and the related unaudited consolidated statements of income, shareholders' equity (deficit) and cash flows for the nine months then ended, certified by the chief financial officer of the Borrower. Such financial statements present fairly the consolidated financial condition and results of operations of the Borrower and its Subsidiaries as of the dates and for the periods indicated (subject, with respect to the unaudited statements, to audit and normal year-end adjustments), and such year-end balance sheets, and, to the best of the Borrower's knowledge, such unaudited interim balance sheet (in each case, together with the notes thereto) show all known direct liabilities and all known contingent liabilities of a material nature of the Borrower and its Subsidiaries in accordance with GAAP as of the dates and for the periods indicated. 6.13 No Adverse Changes. Since December 31, 1993, no material adverse change has occurred in the business, assets, liabilities, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole. 6.14 ERISA. (a) The Borrower and each of its Subsidiaries is in compliance in all material respects with the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and all regulations issued thereunder. (b) No "employee benefit plan", as defined in Section 3 of ERISA, maintained by Borrower or any of its Subsidiaries, as from time to time in effect (the "Plans"), nor any trusts created thereunder, nor any trustee or administrator thereof, has engaged in a "prohibited transaction," as defined in Section 4975 of the Internal Revenue Code of 1986, as amended, which could subject the Borrower, any Subsidiary, any Plan or any such trust, or any trustee or administrator thereof, or any party dealing with any Plan or any such trust to the tax or penalty on prohibited transactions imposed by said Section 4975. Neither any of the Plans nor any such trusts have been terminated, nor has there been any "reportable event," as defined in Section 4043 of ERISA, or any "accumulated funding deficiency" (as defined therein) with respect thereto. Neither the Borrower nor any of its Subsidiaries has incurred any liability to the Pension Benefit Guaranty Corporation. 6.15 Federal Reserve Regulations. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations U and X of the Board of Governors of the Federal Reserve System). No part of any of the Advances hereunder shall be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. 6.16 Subsidiaries. None of the Borrower's Domestic Subsidiaries are Significant Subsidiaries. 6.17 Solvency. On and as of the date hereof and the date of each Advance or issuance of Letters of Credit hereunder, and after giving effect to all Obligations which may be created hereunder, (i) the sum of the assets, at a fair valuation, of the Borrower and its Subsidiaries taken as a whole will exceed their debts, (ii) the Borrower and its Subsidiaries taken as a whole have not incurred and do not intend to, or believe that they will, incur debts beyond their ability to pay such debts as such debts mature, and (iii) the Borrower and its Subsidiaries taken as a whole will have sufficient capital and assets with which to conduct their businesses. For purposes of this Section, the term "debt" means any liability on a claim, and the term "claim" means a right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 6.18 Use of Proceeds. The initial Advance hereunder shall be applied to the payment in full of all amounts outstanding under the Prior Credit Agreements and each Advance thereafter shall be used by the Borrower for working capital and general corporate purposes. 6.19 Certain Regulations. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, nor a "holding company" or 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, nor otherwise subject to any foreign or domestic, federal, state, local or municipal law, statute, regulation, ordinance or executive order which limits its ability to incur Indebtedness. 6.20 Intellectual Property. Each of the Borrower and its Subsidiaries owns or licenses all material patents, trademarks, service marks, tradenames, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, or each has obtained assignments of all licenses and other rights of whatever nature necessary for the conduct of its business as now and contemplated to be conducted, in each case, to the Borrower's knowledge, without any conflict with or infringement of the rights of others which, or the failure to obtain which, as the case may be, is likely to result in a material adverse effect on the business, operations, property, assets, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 6.21 Permanent Subordinated Debentures. The Borrower is not in violation of, and is in full compliance with, all of the terms and provisions of the Permanent Subordinated Debentures, all of which terms and provisions are valid, binding and enforceable in accordance with their respective terms, and all Loans and Obligations hereunder constitute "Senior Indebtedness" as defined therein. 6.22 Accuracy and Completeness of Information. No document furnished or statement made in writing to the Bank by the Borrower in connection with the negotiation, preparation or execution of this Agreement or any of the other Loan Documents contains any untrue statement of a material fact or omits to state any such material fact necessary in order to make the statements contained therein not misleading. VII. AFFIRMATIVE COVENANTS 7. The Borrower covenants and agrees that until all the Obligations have been satisfied and paid in full and the Bank has no further obligation to make any Advance or issue, or pay any draw under, any Letter of Credit hereunder, the Borrower will comply with the following covenants: 7.1 Preservation of Existence. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve and maintain in full force and effect its corporate existence and all contracts, rights, licenses, permits, franchises, patents, trademarks and trade names, all of the foregoing to the extent the same are, in its reasonable judgment, necessary or material to the proper conduct of its business and shall qualify and remain qualified as a foreign corporation and authorized to do business in each jurisdiction in which the character of the property owned or the nature of the business conducted by it makes such qualification or authorization necessary, except such jurisdictions in which the lack of qualification or authorization does not materially adversely affect the business, results of operation or financial condition of the Borrower and its Subsidiaries taken as a whole. 7.2 Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, ordinances, governmental rules and regulations to which it or its properties or assets is, or might become subject (unless the same shall be contested in good faith and by appropriate proceedings and such contest shall operate to stay any such non-compliance), the noncompliance with which would materially interfere with the performance of the Borrower's obligations under the Loan Documents or with the proper conduct of its business. 7.3 Accounting Methods; Inspections. The Borrower will maintain a system of accounting established and administered in all material respects in accordance with GAAP and will keep adequate records and books of account in which complete entries will be made in all material respects in accordance with GAAP. The Borrower will permit officers and representatives of the Bank to visit and inspect any of the properties or assets of the Borrower or any of its Subsidiaries and to examine and make extracts of the books of account of the Company or any of its Subsidiaries at all reasonable times and to such reasonable extent as the Bank may reasonably request. 7.4 Maintenance of Property; Insurance. The Borrower will, and will cause each of its Subsidiaries to, keep all material property necessary in its business in good working order and condition, subject to ordinary wear and tear and routine maintenance. The Borrower will, and will cause each of its Subsidiaries to, maintain with reputable insurance companies, to the same extent and in such amounts and manner as do companies engaged in similar lines of business under similar circumstances, insurance on its business, fixed assets, inventory and other properties, workers' compensation or similar insurance as required by law and adequate public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any property owned, occupied or controlled by it. 7.5 Payment of Taxes. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its properties or assets before the same shall become delinquent; provided, however, that none of the foregoing need be paid while being contested in good faith and by appropriate proceedings, so long as adequate book reserves have been established in accordance with GAAP with respect thereto and the Borrower's or such Subsidiary's title to, and its right to use, its properties are not materially adversely affected thereby. 7.6 Information Covenants. The Borrower will furnish the following information to the Bank: (a) Monthly Reports. Within 30 days after the end of each fiscal month other than the last such month of any fiscal quarter of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such month and the related consolidated statements of income and sources and uses of cash for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth comparative figures for the corresponding month in the prior fiscal year (except that the statement of sources and uses of cash need only be presented on a current year-to-date basis). (b) Quarterly Financial Statements. As soon as practicable and, in any case, within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, which financial statements shall be certified by the chief financial officer of the Borrower as presenting fairly, in accordance with GAAP consistently applied throughout the period involved, the financial condition of the Borrower and its Subsidiaries as at the end of such period and the results of operations and changes in cash flows for such period and for the elapsed portion of the fiscal year ended with the last day of such period, in each case on the basis presented and subject only to normal year-end auditing adjustments. (c) Annual Statements; No-Default Certificate. As soon as practicable and, in any case, within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, certified by KPMG Peat Marwick or other independent certified public accountants of recognized national standing, whose certificate shall state that such consolidated financial statements have been prepared in accordance with GAAP consistently applied and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary. Together with such financial statements, the Borrower shall deliver a certificate of such accountants (a) stating that in making the examination necessary for the certification of such consolidated financial statements they have obtained no knowledge of any Default, or if they shall have obtained knowledge of any such Default, disclosing each such Default and its nature, when it occurred and whether it is continuing and (b) which shall have attached the calculations made which are required to establish whether or not the Borrower was, as of the date of such statements, in compliance with the financial covenants contained in Sections 8.6, 8.7 and 8.8 of this Agreement. (d) Certificate. At the time the financial statements are furnished pursuant to subsections (b) and (c) above, the Borrower shall also furnish a certificate of the chief executive officer or chief financial officer of the Borrower setting forth as at the end of such quarterly period or fiscal year, as the case may be, the calculations required to establish whether or not the Borrower was in compliance with the financial covenants contained in Sections 8.6, 8.7 and 8.8 of this Agreement as of the end of such quarterly period or fiscal year, as the case may be, and stating that no event has occurred which constitutes a Default or an Event of Default under any of the Loan Documents or, if such an event has occurred, disclosing each such event or failure and its nature, when it occurred, whether it is continuing and the steps being taken by the Borrower with respect to such event or failure. (e) Copies of Other Reports. As soon as practicable, copies of all such financial statements and reports (including proxy statements) as the Borrower shall send to its stockholders and of all registration statements filed with respect to any material public offering of securities (other than registration statements relating solely to stock option plans available to employees or to other employee benefit plans) and all regular, special or periodic reports (including reports on Form 8- K) which the Borrower shall file, or may be required to file, with the Securities and Exchange Commission; (f) Notice of Litigation and Other Matters. Prompt notice of: (i) the commencement of any proceeding or investigation by or before any governmental body and any action and proceeding in any court or before any arbitrator against or in any other way relating adversely to the Borrower or any of its Subsidiaries or any of their respective properties, assets or businesses, which is required to be disclosed in any Form 10-K, 10- Q or 8-K under the federal securities laws; (ii) any written notice received from any administrative official or agency relating to any order or ruling which would materially and adversely affect the operations of the Borrower and its Subsidiaries taken as a whole; (iii) any amendment of the certificate of incorporation or by-laws of the Borrower which materially adversely affects its ability to perform its Obligations under any of the Loan Documents; and (iv) any Default or Event of Default by the Borrower hereunder or any default under the Permanent Subordinated Debentures or any other Indebtedness for money borrowed (which exceeds $5,000,000 in the aggregate) to which the Borrower is a party or by which any of its properties may be bound. (g) ERISA. (i) As soon as possible, and in any event within 30 days after any executive officer of the Borrower knows or has reason to know that any material reportable event (as defined in Section 4043 of ERISA) with respect to any Plan has occurred, a statement of the chief financial officer setting forth details as to such reportable event and the action that the Borrower proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the Pension Benefit Guaranty Corporation; and (ii) Promptly after receipt thereof, a copy of any notice the Borrower may receive from the Pension Benefit Guaranty Corporation relating to the intention of said Corporation to terminate any Plan or to appoint a trustee to administer any Plan. (h) Other Information. From time to time, such other information or documents, including without limitation, all "management letters" received from any certified public accountants, as the Bank may reasonably request. 7.7 Accuracy and Completeness of Information. The Borrower covenants that all written information, reports, statements and other papers and data furnished to the Bank by the Borrower pursuant to any provision or term of any of the Loan Documents shall be, at the time the same is so furnished, complete and correct in all material respects. VIII. NEGATIVE COVENANTS 8. The Borrower covenants and agrees that until all the Obligations have been satisfied and paid in full and the Bank has no further obligation to make any Advance or issue, or pay any draw under, any Letter of Credit hereunder, the Borrower will comply with the following covenants: 8.1 Liens. The Borrower shall not, nor shall it permit any of its Domestic Subsidiaries to, create, assume or incur or cause to be created, assumed or incurred, or permit to exist, any Liens on any properties or assets which are properly classified as "current assets" under GAAP, other than: (a) Liens in favor of the Bank; (b) Liens upon (i) any current assets acquired (whether by purchase, merger or otherwise) after the date hereof (and not theretofore owned by the Borrower or any of its Subsidiaries) or (ii) any current assets now owned or hereafter acquired securing the purchase price thereof or created or incurred simultaneously with, or within 180 days after, such acquisition or existing at the time of such acquisition (whether or not assumed) if (x) such Liens shall be limited to the current assets so acquired, (y) the amount of the obligations or indebtedness secured by such Liens shall not be increased after the date of the acquisition of such current assets, and (z) the aggregate amount of the obligations or indebtedness secured by such Lien shall not exceed the lower of the cost or fair value (as reasonably determined by the Borrower) of the current assets at the time of the acquisition thereof; (c) Liens (1) for taxes, assessments or governmental charges or levies not yet delinquent or thereafter payable without penalty or interest or which are being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted and for which reserves have been established in accordance with GAAP with respect thereto and as to which foreclosure, distraint, sale or other similar proceedings shall not have been commenced, and (2) of carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due or which are being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted and for which reserves have been established in accordance with GAAP with respect thereto; (d) (1) Liens incurred or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance, social security and other like laws, or (2) cash deposits made or other Liens incurred in the ordinary course of business to secure the performance of letters of credit, bids, tenders, public or statutory obligations, surety, customs, appeal and performance bonds and other similar obligations not incurred in connection with the borrowing of money or the obtaining of advances or the payment of the deferred purchase price of property; (e) judgment and other similar Liens arising in connection with court proceedings; provided that the execution or other enforcement of such Liens is effectively stayed, the claims secured thereby are being actively contested in good faith by appropriate proceedings, adequate book reserves have been established in accordance with GAAP with respect thereto and no Default or Event of Default arises or is created as a result thereof; (f) junior and subordinated Liens in form and substance satisfactory to the Bank executed in favor of the holders of the Permanent Subordinated Debentures as required by the indenture or indentures governing the Permanent Subordinated Debentures;and (g) rights of set-off or other similar statutory Liens granted to banks or other financial institutions with respect to monies, deposits or other funds held by, in, or on behalf of, such banks or financial institutions. 8.2 Significant Subsidiaries. The Borrower shall not, nor shall permit any of its Subsidiaries to, establish, create, acquire or maintain any Significant Subsidiary unless the Borrower shall cause, as it shall elect (i) such Significant Subsidiary to execute and deliver to the Bank an unconditional guaranty of all Obligations, which guaranty shall be in form and substance satisfactory to the Bank in all respects or (ii) all of the capital stock of such Significant Subsidiary to be pledged to the Bank (as a first priority lien) in a manner satisfactory to the Bank in all respects or (iii) this Agreement to be amended (in a manner satisfactory to the Bank) so that the Available Commitment shall not exceed at any time the sum of (a) 80% of the eligible accounts receivable of the Borrower and its Domestic Subsidiaries on a consolidated basis and (b) 50% of the eligible inventory of the Borrower and its Domestic Subsidiaries on a consolidated basis, in each case, as such eligibility shall be determined by the Bank in accordance with its then prevailing practices and procedures. 8.3 Accounts Receivable. The Borrower shall not, nor shall it permit any of its Domestic Subsidiaries to, grant any extension of the time of payment of any of its accounts receivable, or compromise, compound or settle the same for less than the full amount thereof, or release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon, in each case, except (i) as otherwise arising in the ordinary course of business, consistent with past practice, and which, in the aggregate, will not have a material adverse effect upon the business, assets, results of operation, condition (financial or otherwise) or property of the Borrower and its Subsidiaries taken as a whole and (ii) as may be required under the terms of any liquidation or reorganization of any account debtor or other Person liable thereon. 8.4 Permanent Subordinated Debentures. The Borrower shall not repay, prepay, redeem or otherwise purchase or acquire for value any of the Permanent Subordinated Debentures if, as a result thereof, the outstanding principal amount of Permanent Subordinated Debentures shall be less than $125,000,000. 8.5 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, with any Affiliate of the Borrower or any of its Subsidiaries, other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate; provided, however, that the foregoing shall not apply to loans and advances incurred or made in the ordinary course of business and consistent with past practice or intercompany transactions between or among the Company and its Subsidiaries in accordance with their respective ordinary course of business. 8.6 Minimum Adjusted Net Worth. The Borrower will not permit Adjusted Net Worth as of December 31, 1994 to be less than $200,000,000. 8.7 Current Ratio. The Borrower will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities as of the last day of any fiscal quarter to be less than 1.1:1. 8.8 Interest Coverage Ratio. The Borrower will not permit the ratio of EBITDA to Consolidated Cash Interest Expense for any period of four consecutive fiscal quarters (taken as one accounting period) to be less than 2.4:1. IX. EVENTS OF DEFAULT 9. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental body. 9.1 The Borrower (i) fails to pay any principal amount payable under the Note or hereunder on any date when due or (ii) fails to make any payment of interest or any other fee or amount payable under the Note or hereunder within 5 days from any day when due. 9.2 If any warranty or representation made by the Borrower contained herein or in any document furnished in compliance with the provisions hereof is false or incorrect in any material respect when made. 9.3 The Borrower shall default in the performance or observance of any covenant or agreement set forth in Sections 8.3, 8.4, 8.6, 8.7 or 8.8 of this Agreement. 9.4 The Borrower shall default in the performance or observance of any other covenant or agreement contained in this Agreement or in the Note (which is not the subject of Section 9.1 or 9.3 above) and such default shall continue unremedied for 30 days after notice from the Bank of such default. 9.5 The Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness for money borrowed which exceeds $5,000,000 in the aggregate (other than the Note), beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created, (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with or without the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness shall be declared due and payable prior to its stated maturity. 9.6 (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets, which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii) or (iii) above; or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due. Notwithstanding the foregoing, the provisions of Section 9.6 shall not apply to any Subsidiary which is not material to the business, assets, operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole. 9.7 A final judgment shall be entered against the Borrower or any of its Subsidiaries by any court for the payment of money which, together with all other outstanding judgments against the Borrower and its Subsidiaries exceeds $5,000,000 in the aggregate on a consolidated basis, which judgment is not fully covered by insurance, or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or any subsidiary which together with other such property subject to other such process, exceeds in value $5,000,000 in the aggregate on a consolidated basis and, if within 30 days after the entry, issue or levy thereof, such judgment, warrant or process shall not have been discharged or stayed pending appeal, or, if within 30 days after the expiration of any such stay, such judgment, warrant or process shall not have been discharged. 9.8 (i) A reportable event (as defined in Section 4043(b) of Title IV of ERISA) shall have occurred with respect to any Plan of the Borrower or any Subsidiary or any Plan of the Borrower or any Subsidiary shall have been voluntarily terminated as provided in Section 4041(a) of ERISA and the guaranteed, nonfunded, nonforfeitable benefits (as such terms are defined in Section 4022 of ERISA) of any such Plan that has been voluntarily terminated or with respect to which a reportable event has occurred, when included in the consolidated financial statements of the Borrower on a pro forma basis as a current liability and as a deduction from net worth, would cause the Borrower to be in violation of any of the provisions hereof; (ii) A trustee shall be appointed by a United States District Court to administer any Plan; or (iii) the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan. X. REMEDIES 10.1 Upon the occurrence of an Event of Default set forth in Section 9.6, the Bank shall have no obligation to make any further Advance or issue any Letter of Credit, and all amounts outstanding (with accrued interest thereon) and all other amounts owing under the Note and this Agreement, including without limitation, the undrawn amount of any Letter of Credit, shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower. 10.2 Upon the occurrence of any other Event of Default, the Bank shall have no obligation to make any further Advance or issue any Letter of Credit and the Bank may, by written notice to the Borrower, declare all amounts outstanding (with accrued interest thereon) and all other amounts owing to it under the Note and this Agreement, including without limitation, the undrawn amount of any Letter of Credit, to be due and payable forthwith, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower. 10.3 If any Event of Default shall occur, the Bank may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, any and all rights and remedies to which it may be entitled under applicable law. Without limiting the generality of the foregoing, the Bank may, without any requirement of notice, setoff any and all amounts owing by the Borrower to it against any deposit or other account, whether general or special, maintained in the Bank by the Borrower or any other property of the Borrower which may now or hereafter be in the Bank's possession or control (other than property contained in any safe deposit box maintained in the Bank), and such right of setoff shall be deemed to have been exercised immediately upon such stated or accelerated maturity as aforesaid even though such setoff is not noted on the Bank's records until a later time. The Borrower further grants to the Bank a lien and security interest in and to the foregoing as collateral security for the Obligations and agrees that, with respect thereto, the Bank shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction. 10.4 The Borrower agrees that it shall remain liable for any deficiency if the proceeds of any sale or disposition of any security for the Obligations is insufficient to pay all amounts to which the Bank is entitled, the Borrower also being liable for the reasonable fees of any attorneys employed by the Bank to collect such deficiency. The Borrower expressly agrees that it shall not be necessary or required for the Bank to file suit or proceed to assert or obtain a claim against any party or foreclose against or seek to realize upon any security now or hereafter existing for the Obligations or exercise or assert any other right or remedy to which the Bank may be entitled in connection with the Obligations or any security or guarantee relating thereto, before or as a condition of enforcing the liability of the Borrower hereunder. 10.5 The Borrower also agrees to pay all reasonable Bank Costs incurred with respect to the collection of any of the Obligations and the enforcement of any of the Bank's rights hereunder. 10.6 The Borrower hereby waives presentment, demand, protest or any notice of any kind in connection with this Agreement and the Note except as otherwise expressly provided herein. XI. INDEMNIFICATION 11.1 Indemnification. The Borrower agrees to pay, reimburse, indemnify and hold harmless, the Bank, its directors, officers, employees, agents and representatives from and against any and all actions, costs, damages, disbursements, expenses (including attorneys' fees), judgments, liabilities, losses, obligations, penalties and suits of any kind or nature whatsoever with respect to: (i) the development, preparation, execution, performance, enforcement, interpretation, amendment (other than any amendment requested by the Bank), modification, waiver or consent of any of the Loan Documents; (ii) the Bank's exercise of any right or remedy granted to it in any of the Loan Documents, the collection or enforcement of any of the Obligations and the proof or allowability of any claim arising under any of the Loan Documents, whether in any bankruptcy or receivership proceeding or otherwise; (iii) any claim of third parties, and the prosecution or defense thereof, arising out of or in any way connected with any of the Loan Documents; and (iv) any and all recording and filing fees and taxes, and any and all liabilities with respect thereto, or resulting from any delay in paying stamp and other taxes, if any, which may be payable or determined to be payable in connection with the Loan Documents. Notwithstanding the foregoing, the Bank shall not be entitled to any indemnification (1) with respect to its own gross negligence or willful misconduct, (2) in the event that it shall be finally determined by a court of competent jurisdiction that the Bank has breached this Agreement or acted improperly under this Agreement or (3) in any suit brought directly (and not by derivative action) by the Borrower against the Bank in which it shall be finally determined that the Bank is liable to the Borrower. The Bank agrees that the obligation of the Borrower to pay the Bank's attorneys' fees in connection with the initial preparation of the Loan Documents shall not exceed $7,500. 11.2 Claims for Indemnification. Whenever any claim for indemnification arises hereunder, the Bank shall give prompt notice thereof (the "Notice of Claim") to the Borrower. The Notice of Claim shall specify the material facts known to the Bank giving rise to such indemnification claim and the amount thereof (or the estimated amount), but the failure by the Bank to give such Notice of Claim in accordance herewith shall not preclude the exercise by the Bank of any legal or equitable rights which it may otherwise have against the Borrower. The Borrower shall be entitled to defend or prosecute such claim at its expense and through counsel of its own choosing (provided that such counsel is reasonably satisfactory to the Bank) if it gives notice of its intention to do so to the Bank within 60 days after receipt of the Notice of Claim; provided, however, that if the named parties in any such action (including any impleaded parties) include both the Bank and the Borrower and either (i) the Bank and the Borrower mutually agree or (ii) representation of both the Bank and the Borrower by the same counsel is inappropriate due to actual or potential conflicts of interests between them, the Bank shall have the right to select separate counsel (reasonably acceptable to the Borrower) to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Bank. Upon receipt of notice from the Borrower to the Bank of its election to assume the defense of any such action and approval by the Bank of such counsel, the Borrower will not be liable to the Bank under this Article IX for any legal or other expenses incurred by the Bank in connection with the defense thereof unless (i) the Bank shall have employed counsel in connection with the assumption of legal defenses in accordance with the proviso in the next preceding sentence (it being understood, however, that the Borrower shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the expenses of more than one separate counsel representing the Bank), (ii) the Borrower shall not have employed counsel reasonably satisfactory to the Bank to represent the Bank within a reasonable time after notice of commencement of the action, or (iii) the Borrower has authorized the employment of counsel for the Bank at the expense of the Borrower. If the Borrower so elects to defend or prosecute such claim at its expense, the Bank shall render reasonable assistance to the Borrower in connection therewith, including affording the Borrower and its representatives the right of access during normal business hours to pertinent books, records and other information that may be reasonably requested. If the Borrower elects not to defend or prosecute such claim at its expense or the Bank is entitled to its own legal counsel at the Borrower's expense as aforesaid, the Borrower shall (a) render reasonable assistance to the Bank in connection therewith, including affording the Bank and its representatives the right of access during normal business hours to pertinent books and records and other information that may be reasonably requested, and (b) pay the reasonable fees and expenses of counsel for the Bank promptly upon receipt of the billing statements from such counsel. The Bank shall not make any settlement of any claim which would give rise to liability on the part of the Borrower hereunder without the written consent of the Borrower. XII. MISCELLANEOUS 12.1 Notice. All notices and other communications given to or made upon any party hereto in connection with this Agreement shall, except as otherwise expressly herein provided, be in writing (including telex, telecopy or telegraphic communication) and mailed (by first class, United States mail, postage prepaid), telexed, telecopied, telegraphed or hand delivered to the respective parties, as follows: Bank: United Jersey Bank 25 E. Salem Street Hackensack, New Jersey 07062 Att: Lawrence F. Zema - with a copy to - Wolff & Samson 5 Becker Farm Road Roseland, New Jersey 07068 Att: Morris Bienenfeld, Esq. Borrower: Sealed Air Corporation Park 80 East Saddle Brook, New Jersey 07662 Att: Robert M. Grace, Jr., Esq. or to such changed address as may be fixed by notice. All such notices and other communications shall, except as otherwise expressly herein provided, be effective when received by the party to whom properly addressed, the written receipt by any employee of any such party constituting sufficient evidence of such receipt, in the case of telex or telecopy, when received, and in the case of telegraph, when delivered to the telegraph company, charge prepaid. 12.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 12.3 Survival of Agreements. All agreements, repre- sentations and warranties made herein, and in any certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the Note and the making of any Advances. 12.4 Amendment. No modification, amendment or waiver of any provision of this Agreement or the Note, nor consent to any departure by the Borrower shall in any event be effective unless the same shall be in writing and signed by the party granting such modification, amendment or waiver, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 12.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Bank, all future holders of the Note and their respective successors and assigns, except that (i) the Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of the Bank and (ii) the Bank may not assign or transfer any of its rights under this Agreement without the prior written consent of the Borrower which shall not be unreasonably withheld or delayed, provided, however, that the Bank shall be free to grant, sell or transfer one or more participating interests or participation rights in, to and under the Note and its rights hereunder without notice to, or the consent of, the Borrower. 12.6 Severability. In case any one or more of the provisions contained in this Agreement or the Note should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. 12.7 Counterparts. This Agreement may be executed by the parties hereto on any number of separate counterparts and all such counterparts taken together shall constitute one and the same instrument. 12.8 Governing Law; No Third Party Rights. This Agreement and the Note and the rights and obligations of the parties hereunder and thereunder shall be governed by and construed and interpreted in accordance with the law of the State of New Jersey. This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and no other person shall have any right, benefit, priority or interest in, under or because of the existence of, this Agreement. 12.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ATTEST: SEALED AIR CORPORATION By: ROBERT M. GRACE, JR. By: WILLIAM V. HICKEY Name: Robert M. Grace, Jr. Name: William V. Hickey Title: Secretary Title: Senior Vice President- Finance UNITED JERSEY BANK By: LAWRENCE F. ZEMA Name: Lawrence F. Zema Title: Vice President EXHIBIT A: Form of Revolving Credit Note EXHIBIT B: Form of Counsel Opinion SCHEDULE I: List of States EX-13 5 EXHIBIT 13 TO 93 FORM 10-K EXHIBIT 13 PORTIONS OF SEALED AIR CORPORATION 1993 ANNUAL REPORT TO STOCKHOLDERS THAT ARE INCORPORATED BY REFERENCE Selected Financial Data (In thousands of dollars except per share data)
1993 1992 1991(1) 1990 1989 Consolidated Earnings Statement Data Net sales by class of product: Engineered products $180,508 $176,541 $165,926 $160,548 $145,253 Surface protection and other cushioning products 209,909 206,447 199,800 188,108 172,925 Food packaging products 51,023 52,727 49,207 44,247 42,168 Other products 10,254 10,343 20,195 20,365 24,694 Total 451,694 446,058 435,128 413,268 385,040 Cost of sales 282,147 278,427 271,006 262,694 250,483 Marketing, administrative and development expenses 95,434 95,441 94,642 83,130 76,897 Operating profit 74,113 72,190 69,480 67,444 57,660 Other income (expense), net (28,652) (33,372) (38,014) (42,970) (33,514) Earnings before income taxes 45,461 38,818 31,466 24,474 24,146 Income taxes 19,547 18,050 15,291 13,094 16,856 Earnings before cumulative effect of accounting change 25,914 20,768 16,175 11,380 7,290 Cumulative effect of accounting change(3) 1,459 - - - - Net earnings $ 27,373 $ 20,768 $ 16,175 $ 11,380 $ 7,290 Earnings per share before cumulative effect of accounting change $ 1.32 $ 1.08 $ .88 $ .65 $ .44 Earnings per share from cumulative effect of accounting change(3) .08 - - - - Earnings per common share(2) $ 1.40 $ 1.08 $ .88 $ .65 $ .44 Cash dividends per common share(2) - - - - $ 20.08 ____________________________________________________________________________________________ Consolidated Balance Sheet Data Working capital $ 33,828 $ 29,417 $ 18,495 $ 22,320 $ 34,119 Total assets 279,818 268,264 274,877 225,473 229,071 Long-term debt, less current installments 190,058 225,278 253,746 259,082 301,558 Shareholders' equity (deficit) (29,419) (66,311) (94,626) (131,558) (160,466) (1)Includes the operations of Sentinel Holdings, Inc. from the date of its acquisition in August 1991. (2)Per common share data has been restated for periods prior to 1992 to reflect the two-for-one stock split in the nature of a 100% stock dividend distributed on September 18, 1992 to shareholders of record at the close of business on September 4, 1992. (3)Reflects cumulative effect of the implementation as of January 1, 1993 of Financial Accounting Standard No. 109, "Accounting for Income Taxes" (see notes 1 and 7 to the Consolidated Financial Statements).
Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Net Sales Net sales increased 1% in 1993 compared with 1992 and 3% in 1992 compared with 1991. The modest increase in net sales in both years primarily reflects the worldwide recessionary business environment during these periods as well as the other factors discussed below. The increase in net sales in 1993 resulted primarily from increased unit volume in certain of the Company's products and the additional sales of Shurtuff(R) durable mailers, a product line acquired in August 1993 (the "Shurtuff(R) acquisition"). These higher net sales were partially offset by the unfavorable effect of foreign currency translation and, to a lesser extent, lower average selling prices in certain product lines. The increase in net sales would have been higher by approximately 3% in 1993 had foreign exchange rates for 1993 been at their 1992 levels. The increase in net sales in 1992 resulted primarily from the additional sales of products added as a result of the Company's August 1991 acquisition of Sentinel Holdings, Inc. ("Sentinel") as well as increased unit volume in the Company's major classes of products and changes in product mix in certain product lines. These higher net sales were partially offset by the absence in 1992 of sales of Canadian pool products, which had been included in the Company's class of other products, the absence in 1992 of sales of PolyMask(R) products, which were transferred to a joint venture in September 1991, and, to a lesser extent, lower average selling prices for certain products. The Company sold its Canadian pool products business in December 1991. Net sales from domestic operations increased 4% in 1993 compared with 1992 and 6% in 1992 compared with 1991 while net sales from foreign operations decreased 7% in 1993 compared with 1992 and 6% in 1992 compared with 1991. The domestic net sales increase in 1993 resulted primarily from increases in unit volume of the Company's principal engineered products, air cellular products and the additional sales of Shurtuff(R) durable mailer products, which increases were partially offset by lower net sales of food packaging products, and, to a lesser extent, other products. The increase in 1992 domestic net sales was primarily due to increased unit volume of products added as a result of the Sentinel acquisition. Although the Company's foreign operations had higher unit volumes in both 1993 and 1992 despite weak economies in Europe and Japan, the unfavorable effect of foreign currency translation in 1993 and the absence of the Company's Canadian pool products business in 1992 combined in each of these years with lower average selling prices in certain product lines to more than offset such increased unit volume. Excluding the unfavorable effect of foreign currency translation, net sales from foreign operations would have increased modestly in 1993. Net sales of engineered products, which consist primarily of Instapak(R) products and thick polyethylene foams, increased 2% in 1993 compared with 1992 and 6% in 1992 compared with 1991 primarily due to increased unit sales of thick polyethylene foams added as a result of the Sentinel acquisition. Net sales of surface protection and other cushioning products, primarily air cellular products, thin polyethylene foam products and protective and durable mailers, increased 2% in 1993 compared with 1992 and 3% in 1992 compared with 1991 primarily due to increased unit volume of certain products, including in 1993 additional sales of Shurtuff(R) products and in 1992 additional sales of products acquired in the Sentinel acquisition. Net sales of food packaging products, which consist primarily of Dri-Loc(R) pads, decreased 3% in 1993 compared with 1992 but increased 7% in 1992 compared with 1991. In each of 1993 and 1992, this class of products experienced higher unit volume. While such net sales benefited from favorable changes in product mix in 1992 for certain product applications, in 1993 further changes in product mix to products with lower average selling prices more than offset the higher 1993 unit volume. Net sales of other products decreased marginally in 1993 compared with 1992. Net sales of other products decreased 49% in 1992 compared with 1991 primarily due to the sale in December 1991 of the Company's Canadian pool products business. This disposition was not material to the Company's consolidated financial statements. Costs and Expenses Cost of sales increased 1% in 1993 compared with 1992 and 3% in 1992 compared with 1991 primarily due to the higher level of net sales in each period and, in 1993, to certain manufacturing consolidation expenses which were partially offset by certain lower raw material costs. Cost of sales as a percentage of net sales remained substantially unchanged in 1993, 1992 and 1991. Marketing, administrative and development expenses remained substantially unchanged in 1993 compared with 1992 and increased 1% in 1992 compared with 1991. The increase in 1992 resulted from the inclusion of certain expenses related to Sentinel, including expenses related to the integration of Sentinel's operations into the Company. Marketing, administrative and development expenses declined as a percentage of net sales each year from 1991 to 1993 primarily reflecting certain efficiencies arising from the integration of Sentinel's operations into the Company and cost control measures. Operating Profit Operating profit increased 3% in 1993 compared with 1992 and 4% in 1992 compared with 1991 primarily due in each year to the Company's higher net sales and the relative changes in the Company's costs and expenses as a percentage of net sales discussed above. Domestic operating profits increased 10% in 1993 compared with 1992 and 15% in 1992 compared with 1991. Foreign operating profit decreased 18% in 1993 compared with 1992 primarily reflecting the unfavorable effect of foreign currency translation and the level of costs and expenses related to sales. Foreign operating profit decreased 19% in 1992 compared with 1991 primarily reflecting the effects of higher costs and expenses, lower net sales and the absence of the Company's Canadian pool products business. Other Income (Expense), Net Other income (expense), net decreased to $28,652,000 in 1993 compared with $33,372,000 in 1992 and $38,014,000 in 1991. Interest expense, which is the principal component of this item, decreased to $28,828,000 in 1993 from $31,080,000 in 1992 and $35,259,000 in 1991 due primarily to lower average outstanding borrowings and, to a lesser extent, lower average interest rates in each year. Other income (expense), net in 1991 included costs associated with the disposition of certain minor product lines, including certain of the Company's recreation and energy conservation products, and certain expenses related to Sentinel. Taxes The Company's effective income tax rate was 43.0%, 46.5% and 48.6% in 1993, 1992 and 1991, respectively. The Company's effective tax rate was higher than the statutory tax rates in each year primarily due to foreign withholding taxes on the repatriation of accumulated earnings from the Company's foreign subsidiaries and additional United States income taxes on such accumulated foreign earnings resulting from the Company's 1989 special cash dividend and its related financing. The Company's effective tax rate declined to 43.0% in 1993 from 46.5% in 1992 as the effect of the 1% increase in the U.S. Statutory Federal Tax Rate in 1993 was more than offset by other lower tax provisions required, including primarily a lower foreign tax component of total income tax expense. The Company anticipates that its effective income tax rate will continue to decline in 1994 but that it will remain above U.S. statutory tax rates. As of January 1, 1993, the Company implemented Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, deferred tax assets and liabilities are established or modified based on enacted tax laws or tax rates. For periods prior to January 1, 1993, the Company accounted for income taxes as prescribed by Accounting Principles Board Opinion No. 11 ("APB 11") under which previously established deferred tax assets and liabilities were not adjusted when tax laws or tax rates were changed. As a result of implementing FAS 109, the Company adjusted its deferred tax assets and liabilities to conform with current enacted tax rates and made certain other adjustments required by FAS 109. The cumulative effect of this accounting change resulted in a credit to earnings of $1,459,000, or $0.08 per share, in the first quarter of 1993. Earnings Excluding the cumulative effect of the accounting change related to the implementation of FAS 109, earnings increased 25% in 1993 compared with 1992 and 28% in 1992 compared with 1991. Liquidity and Capital Resources Long-term debt, less current installments declined to $190,058,000 at December 31, 1993 from $225,278,000 at December 31, 1992 due primarily to the repayment of outstanding indebtedness in 1993. Current installments of long-term debt decreased to $10,061,000 at December 31, 1993 from $15,213,000 at December 31, 1992 reflecting the timing of scheduled maturities. At December 31, 1993, the Company's long-term debt consisted primarily of $170,000,000 of 12-5/8% Senior Subordinated Notes due July 1, 1999 (the "Senior Subordinated Notes") and the remaining outstanding balance of the indebtedness contemplated by one of two senior secured credit agreements with Bankers Trust Company, as agent for a syndicate of banks (as amended, the "1989 Credit Agreement"). The principal amount outstanding under the second such credit agreement was prepaid in full in 1993. In March 1994, the Company refinanced the remaining balance under the 1989 Credit Agreement out of working capital and a $7,000,000 drawing under a $35,000,000 unsecured revolving credit agreement entered into with United Jersey Bank (the "Revolving Credit Agreement"), which Revolving Credit Agreement provides for the payment of interest at rates lower than those provided for in the 1989 Credit Agreement. The Company's obligations under the Revolving Credit Agreement and certain other loans bear interest at floating rates. The Revolving Credit Agreement provides for reductions in interest rate margins if certain financial criteria are met. During 1991, the Company was a party to certain interest rate swap transactions that had the effect of reducing the net interest expense in 1993 and 1992 on a portion of the Senior Subordinated Notes and that will reduce the net interest expense on such Senior Subordinated Notes through 1994. Interest on the Senior Subordinated Notes is payable each January 1 and July 1, and such Notes mature on July 1, 1999. The Company has the right to redeem the Senior Subordinated Notes in whole or in part at any time at a redemption price of 106.313% of their principal amount, which redemption price declines on July 1, 1994 to 104.734% and each July 1 thereafter until it reaches 100% of such principal amount beginning on July 1, 1997. The Company may not redeem the Senior Subordinated Notes prior to July 1, 1994 from or in anticipation of monies borrowed having an effective interest cost less than the Senior Subordinated Notes. The Company is considering refinancing the Senior Subordinated Notes when it is no longer subject to this restriction. No prepayments of the Senior Subordinated Notes are required prior to their maturity on July 1, 1999; provided, however, that the holders of the Senior Subordinated Notes have the right to require the Company to redeem such Notes at a premium in the event of a change of control (as defined) of the Company. The Company expects that the payment of principal and interest on its indebtedness will remain a significant use of the Company's funds for the foreseeable future. The Company expects to continue to make the principal and interest payments on its outstanding indebtedness as well as to meet its working capital and capital expenditure requirements primarily with funds provided by operations and borrowings under its available lines of credit. As of December 31, 1993, such lines of credit amounted to approximately $56,600,000 of which approximately $51,000,000 were unused. The ability of the Company to make payments of principal and interest on its indebtedness, and to comply with the financial covenants (discussed below) to which it is subject in connection with such indebtedness, is dependent on the Company's future performance and business growth, which are subject to financial, economic, competitive and other factors affecting the Company, many of which may be beyond the Company's control. The Senior Subordinated Notes impose certain limitations on the operations of the Company and its subsidiaries that include restrictions on the incurrence of additional indebtedness, the creation of liens, the making of investments, dispositions of property or assets, certain transactions with affiliates, and the payment by the Company of cash dividends to its stockholders. The Revolving Credit Agreement also imposes certain limitations on the operations of the Company as well as certain financial covenants including requirements as to interest coverage, current ratio, and adjusted net worth. The Company's deficit in shareholders' equity, which resulted from the payment of a special cash dividend of $40 per share to the Company's stockholders in 1989 ($20 per share after giving effect to a two-for-one stock split distributed in September 1992), declined to $29,419,000 at December 31, 1993 from $66,311,000 at December 31, 1992 primarily as a result of the Company's net earnings for 1993 and the value of shares of common stock issued for non-cash compensation and for acquisitions. Cash flows from operating activities were $53,100,000 in 1993, $46,526,000 in 1992, and $44,909,000 in 1991. The increase in 1993 and 1992 was due primarily to increased earnings in each period, which were partially offset in each period by changes in operating assets and liabilities. In 1993, increases in accounts receivable and inventory more than offset increases in accrued liabilities and accounts payable. Cash flows used in investing activities were $23,438,000 in 1993, $10,147,000 in 1992, and $15,710,000 in 1991. Such cash was used primarily to fund capital expenditures. The fluctuation between years was primarily due to the timing of capital expenditures. Cash flows used in financing activities were $36,206,000 in 1992, $30,288,000 in 1992, and $25,778,000 in 1991. Such cash, derived primarily from the continuing operations of the Company, was used primarily to prepay the long term debt under the Bankers Trust Credit Agreements. At December 31, 1993 the Company had working capital of $33,828,000, or 12% of total assets, compared to working capital of $29,417,000, or 11% of total assets, at December 31, 1992. The increase in working capital was due primarily to an increase in current deferred income taxes resulting from the implementation of FAS 109 and increases in accounts receivable and inventories. The Company's ratio of current assets to current liabilities (current ratio) was 1.4 at December 31, 1993 and 1.3 at December 31, 1992. The Company's ratio of current assets less inventory to current liabilities (quick ratio) was 1.0 at both December 31, 1993 and December 31, 1992. The increase in the current ratio in 1993 resulted primarily from the increase in working capital discussed above. Impact of Inflation Inflation did not have a material impact on the Company's consolidated financial statements in the 1991 to 1993 period. Other Matters In December 1991, the FASB issued Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106") which became effective for fiscal years beginning after December 15, 1992. The Company generally does not provide such postretirement benefits. Therefore, the implementation of FAS 106 did not have a material effect on the Company's consolidated financial statements. In 1992 and 1993, the FASB issued Statement No. 112, "Employers' Accounting for Post-employment Benefits", and Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which are effective for fiscal years beginning after December 15, 1993. Such statements are not expected to have a material effect on the Company's consolidated financial statements. SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Years Ended December 31, 1993, 1992 and 1991 (In thousands of dollars except per share data)
1993 1992 1991 ________________________________________________________________________________ Net sales $451,694 $446,058 $435,128 Cost of sales 282,147 278,427 271,006 Gross profit 169,547 167,631 164,122 Marketing, administrative and development expenses 95,434 95,441 94,642 Operating profit 74,113 72,190 69,480 Other income (expense): Interest income 1,145 1,010 1,311 Interest expense (28,828) (31,080) (35,259) Other, net (969) (3,302) (4,066) Other income (expense), net (28,652) (33,372) (38,014) Earnings before income taxes 45,461 38,818 31,466 Income taxes 19,547 18,050 15,291 Earnings before cumulative effect of accounting change 25,914 20,768 16,175 Cumulative effect of accounting change 1,459 - - Net earnings $ 27,373 $ 20,768 $ 16,175 Earnings per share before cumulative effect of accounting change $ 1.32 $ 1.08 $ .88 Earnings per share from cumulative effect of accounting change .08 - - Earnings per common share $ 1.40 $ 1.08 $ .88 See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1993 and 1992 (In thousands of dollars except share data)
1993 1992 Assets Current assets: Cash and cash equivalents $ 19,392 $ 26,042 Accounts receivable, less allowance for doubtful accounts of $2,675 in 1993 and $2,665 in 1992 66,966 64,557 Other receivables 2,598 3,291 Inventories 32,035 28,323 Prepaid expenses 1,278 614 Deferred income taxes 5,892 - Total current assets 128,161 122,827 Property and equipment: Land and buildings 58,658 50,086 Machinery and equipment 121,782 113,749 Leasehold improvements 4,202 5,523 Furniture and fixtures 10,180 10,680 Construction in progress 7,386 5,094 202,208 185,132 Less accumulated depreciation and amortization 81,458 72,970 Property and equipment, net 120,750 112,162 Patents, patent applications and rights, less accumulated amortization of $10,357 in 1993 and $8,977 in 1992 8,348 7,635 Excess of cost over fair value of net assets acquired, less accumulated amortization of $3,988 in 1993 and $4,049 in 1992 8,190 9,624 Deferred financing and other costs, less accumulated amortization of $16,262 in 1993 and $13,654 in 1992 1,611 4,223 Other assets 12,758 11,793 $279,818 $268,264 See accompanying notes to consolidated financial statements.
1993 1992 Liabilities and Shareholders' Equity (Deficit) Current liabilities: Notes payable $ 5,557 $ 3,511 Current installments of long-term debt 10,061 15,213 Accounts payable 22,908 21,353 Accrued wages, salaries and related costs 17,368 13,650 Accrued interest 11,127 11,646 Other accrued liabilities 16,272 17,600 Income taxes payable 11,040 10,437 Total current liabilities 94,333 93,410 Long-term debt, less current installments 190,058 225,278 Deferred income taxes 14,960 5,444 Deferred credits and other liabilities 9,886 10,443 Total liabilities 309,237 334,575 Commitments and contingent liabilities (note 8) Shareholders' equity (deficit): Common stock, $.01 par value. Authorized: 35,000,000 shares in 1993 and 1992; Issued: 19,924,661 shares in 1993 and 19,343,238 shares in 1992 199 194 Additional paid-in capital 108,361 95,551 Retained earnings (deficit) (137,676) (165,049) Accumulated translation adjustment 5,063 6,723 (24,053) (62,581) Less deferred compensation and cost of treasury stock 5,366 3,730 Shareholders' equity (deficit) (29,419) (66,311) $279,818 $268,264 See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity (Deficit) Years Ended December 31, 1993, 1992 and 1991 (In thousands of dollars)
Additional Retained Accumulated Common Paid-in Earnings Translation Deferred Treasury Stock Capital (Deficit) Adjustment Compensation Stock _____________________________________________________________________________________________________________________________ Balance, December 31, 1990 $ 88 $ 66,160 $(201,992) $ 8,626 $ (4,178) $ (262) Net earnings - - 16,175 - - - Proceeds from awards of contingent stock, net 1 112 - - - - Excess of fair value over proceeds from awards of contingent stock, net - 3,763 - - (3,763) - Amortization - - - - 2,899 - Non-cash compensation 3 5,287 - - - - Shares issued in acquisitions 4 13,285 - - - - Foreign currency translation - - - (824) - - Balance, December 31, 1991 96 88,607 (185,817) 7,802 (5,052) (262) Net earnings - - 20,768 - - - Two-for-one stock split 96 (96) - - - - Proceeds from awards of contingent stock, net 1 101 - - - - Excess of fair value over proceeds from awards of contingent stock, net - 1,218 - - (1,218) - Amortization - - - - 2,802 - Tax benefit in excess of amortization on stock awards - 405 - - - - Non-cash compensation 1 3,786 - - - - Shares issued in acquisitions - 1,530 - - - - Foreign currency translation - - - (1,079) - - Balance, December 31, 1992 194 95,551 (165,049) 6,723 (3,468) (262) Net earnings - - 27,373 - - - Proceeds from awards of contingent stock, net 2 199 - - - - Excess of fair value over proceeds from awards of contingent stock, net - 4,591 - - (4,591) - Amortization - - - - 2,929 - Tax benefit in excess of amortization on stock awards - 542 - - - - Contingent stock forfeited - (10) - - 10 (1) Non-cash compensation 1 1,807 - - - - Shares issued in acquisitions 2 5,681 - - - 17 Foreign currency translation - - - (1,660) - - Balance, December 31, 1993 $ 199 $ 108,361 $(137,676) $ 5,063 $ (5,120) $ (246) See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 1993, 1992 and 1991 (In thousands of dollars)
1993 1992 1991 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 27,373 $ 20,768 $ 16,175 Adjustments to net earnings to reconcile to net cash provided by operating activities: Cumulative adjustment for effect of accounting change (1,459) - - Depreciation and amortization of property and equipment 14,334 13,770 11,468 Other depreciation and amortization 10,210 9,837 11,412 Deferred tax provision (benefit) 2,886 810 (3,054) Net losses (gains) on disposals of property and equipment 408 247 335 Non-cash compensation 2,293 1,836 2,494 Other, net (2,172) (760) (4,572) Change in operating assets and liabilities: Receivables (1,716) 201 (72) Inventories (2,466) 99 (757) Prepaid expenses (664) 1,620 470 Accounts payable 1,555 (515) 169 Accrued interest (519) (152) (129) Other accrued liabilities 1,892 (3,166) 10,043 Income taxes payable 1,145 1,931 927 Net cash provided by operating activities 53,100 46,526 44,909 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (22,474) (11,226) (15,945) Advance to subsidiary prior to acquisition - - (5,000) Proceeds from joint venture - 1,000 3,500 Proceeds from sales of property and equipment 203 79 817 Net cash attributable to (purchases) sales of businesses (1,167) - 918 Net cash used in investing activities (23,438) (10,147) (15,710) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 5,501 - 7,263 Principal payments on long-term debt (43,753) (24,326) (33,875) Net proceeds (payments) on notes payable 2,046 (5,962) (2,266) Proceeds from financial instruments - - 3,100 Net cash used in financing activities (36,206) (30,288) (25,778) Effect of exchange rate changes on cash and cash equivalents (106) (207) (419) CASH AND CASH EQUIVALENTS: (Decrease) increase during the period (6,650) 5,884 3,002 Balance, beginning of period 26,042 20,158 17,156 Balance, end of period $ 19,392 $ 26,042 $ 20,158 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 26,735 $ 28,577 $ 31,047 Income taxes $ 16,058 $ 15,714 $ 17,868 See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of Sealed Air Corporation and its subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Certain of the Company's non-U.S. subsidiaries are included in the consolidated financial statements on a calendar year basis while the remaining non-U.S. subsidiaries are included on the basis of a fiscal year ended November 30. During 1993, the Company's U.K. subsidiary, Sealed Air Limited, changed its fiscal year to the calendar year. This change did not have a material effect on the Company's consolidated financial statements. Where appropriate, prior years' financial statement amounts have been reclassified to conform with their 1993 presentation. Foreign Currency The financial statements of foreign subsidiaries have been translated into United States dollars in accordance with the Financial Accounting Standards Board ("FASB") Statement No. 52, "Foreign Currency Translation." Under Statement No. 52, all balance sheet accounts are translated at year-end exchange rates, and statement of operations items are translated at applicable month-end exchange rates. Resulting translation adjustments are made directly to a separate component of shareholders' equity (deficit). Earnings before income taxes include aggregate exchange losses of $86,000 and $819,000 for the years ended December 31, 1993 and 1992, respectively, and exchange gains of $634,000 for the year ended December 31, 1991. Accounting and Reporting Changes In December 1990, the FASB issued Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which became effective for fiscal years beginning after December 15, 1992. The Company has implemented Statement No. 106 but, since the Company generally does not provide such postretirement benefits, the effect on the consolidated financial statements was not material. Effective January 1, 1993, the Company adopted FASB Statement No. 109 ("FAS 109"), "Accounting for Income Taxes." For periods prior to January 1, 1993, the Company accounted for income taxes as prescribed by Accounting Principles Board Opinion No. 11 ("APB 11"). The Company has adopted the liability method in accordance with FAS 109 without restating prior periods, resulting in a $1,459,000 credit to earnings in 1993 arising from the cumulative effect of this change in accounting principle. Cash and Cash Equivalents The Company's policy is to invest cash in excess of short-term operating and debt service requirements in income-producing investments held at banks and other financial institutions. Included in cash and cash equivalents are temporary cash investments with original maturities of three months or less of $4,347,000 and $24,823,000 at December 31, 1993 and 1992, respectively, which consisted of money market, repurchase agreement and commercial paper amounts stated at cost, which approximates market because of the short maturity of these instruments. Financial Instruments The Company is a party to various financial instruments with off-balance-sheet risk. These financial instruments include interest rate and foreign currency swap agreements, foreign exchange contracts and foreign currency option contracts. Such financial instruments serve to limit, fix or offset certain interest rate or foreign currency exposures on the Company's borrowings or trade activities. The Company would be exposed to credit risk in the event of non-performance by the counterparties to such financial instruments. However, the Company anticipates that the counterparties, who are major financial institutions, will meet their obligations under the various financial instruments. Foreign exchange contracts and foreign currency option contracts outstanding at December 31, 1993 and 1992 have been reflected at their fair market values in the consolidated financial statements. The effects of such contracts are not material to the consolidated financial statements. Accounts Receivable and Accounts Payable The carrying amount of accounts receivable, net of the allowance for doubtful accounts, and accounts payable approximates fair value due to their short-term maturity. Inventories Inventories are stated at the lower of cost or market. The majority of U.S. inventories are valued using the last-in, first-out ("LIFO") method; other U.S. inventories, principally parts used in packaging systems, are valued using the first-in, first-out ("FIFO") method. Inventories of foreign operations are valued using primarily the FIFO method. Had the FIFO method (which approximates current cost) been used for all inventory at December 31, 1993, inventories would have been higher by $1,158,000 ($2,280,000 and $1,414,000 in 1992 and 1991, respectively). The cost elements of work in process and finished goods inventories are raw materials, direct labor and manufacturing overhead. Because the cost of certain inventories is determined on the LIFO method, it is not practical to present separately the components of inventories (raw material, work in process and finished goods). Property and Equipment Property and equipment are stated at acquisition cost. Property and equipment no longer in use or surplus to the Company's needs are carried at the lower of cost or fair value. Depreciation of buildings and equipment is provided over the estimated useful lives (generally periods ranging up to 40 years and 10 years, respectively) of the related assets. Amortization of leasehold improvements is provided over the lesser of the term of the lease or the asset's useful life. The Company uses primarily the straight-line method of depreciation for financial reporting purposes and accelerated methods of depreciation for income tax purposes. Intangibles and Other Assets Patents, patent applications and rights are stated at acquisition cost. Amortization of patents is recorded using the straight-line method over the legal lives of the patents, generally for periods ranging up to 17 years. The excess of cost over fair value of net assets acquired is amortized over periods ranging up to 40 years. Other intangible assets, including non-competition agreements, included in other assets are amortized over the life of such agreements. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value. Deferred financing costs, which were incurred by the Company in connection with the Special Dividend (note 2) and by Sentinel Holdings, Inc. prior to its acquisition by the Company, are charged to operations as additional interest expense over the life of the underlying indebtedness using the interest method adjusted to give effect to any early repayments. Employee Benefit Plans The Company has a noncontributory profit-sharing plan covering most U.S. employees except those employees covered by collective bargaining agreements, none of which provide for participation in the plan. Contributions to this plan, which are made at the discretion of the Board of Directors, may be made in cash, shares of the Company's common stock, or in a combination of cash and shares of the Company's common stock. The Company also has a thrift and section 401(k) plan in which most U.S. employees of the Company are eligible to participate except those employees who are covered by certain collective bargaining agreements that do not provide for participation in the plan. Under this plan, the Company matches 50% of each employee's contributions to a maximum Company contribution of 3% of the employee's compensation. Forfeitures of nonvested interests in each of these plans remain in the respective plans for the benefit of the remaining participants. The Company also has pension or profit-sharing plans for employees of certain foreign subsidiaries and certain U.S. employees who are covered by collective bargaining agreements. Company contributions to its profit-sharing, thrift and pension plans, net of forfeitures, are charged to operations and amounted to $6,734,000 in 1993 ($5,870,000 and $6,348,000 in 1992 and 1991, respectively). The Company provides various other benefit programs to active employees including group medical, insurance and other welfare benefits. The costs of these benefit programs are charged to operations as incurred. Eligibility to participate in these programs generally ceases upon retirement or other separation from service except to the extent otherwise required by applicable law. In November 1992, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"), which is effective for fiscal years beginning after December 15, 1993. Adoption of FAS 112 is not expected to have a material effect on the Company's consolidated financial statements. Research and Development Costs Research and development costs are charged to operations as incurred and amounted to $9,168,000 in 1993 ($9,414,000 and $9,876,000 in 1992 and 1991, respectively). Income Taxes The Company and its domestic subsidiaries file a consolidated U.S. federal income tax return. The Company's non-U.S. subsidiaries file income tax returns in their respective local jurisdictions. As of January 1, 1993, the Company adopted FAS 109 which prescribed the liability method of accounting for income taxes. Prior to January 1, 1993 the Company accounted for income taxes as prescribed by APB 11 under which deferred taxes were recorded based on the current period's tax rates and laws and were not adjusted for subsequent changes in tax rates or laws. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are recorded when it is more likely than not that such tax benefits will be realized (note 7). Earnings Per Common Share Earnings per common share are computed on the basis of the weighted average number of shares of common stock outstanding during the year. The weighted average number of common shares outstanding in 1993 was 19,584,000 (19,208,000 and 18,474,000 in 1992 and 1991, respectively, after giving retroactive effect to the 1992 stock split (note 6)). Note 2 Special Dividend Transaction In 1989, the Company paid a special cash dividend (the "Special Dividend") of $40 per share to holders of record of the Company's common stock at the close of business on May 8, 1989 ($20 per share after giving retroactive effect to the 1992 stock split (note 6)). In order to finance a portion of the Special Dividend and pay related fees and expenses, the Company incurred senior indebtedness as contemplated by the term-loan portion of a senior secured credit facility and issued $170,000,000 aggregate principal amount of senior subordinated notes (note 5). The Company's deficit in shareholders' equity, which resulted from the payment of the Special Dividend, decreased to $29,419,000 at December 31, 1993 from $66,311,000 at December 31, 1992. Note 3 Acquisitions, Joint Ventures and Divestitures On August 15, 1991, the Company acquired Sentinel Holdings, Inc. ("Sentinel"), a manufacturer of protective packaging and other products, for 277,019 newly issued shares of the Company's common stock valued at $35-7/8 per share, and the assumption of Sentinel's indebtedness, including primarily a $30,000,000 term loan. In addition, the Company advanced $5,000,000 to Sentinel prior to the acquisition. The net assets of Sentinel acquired included property and equipment of approximately $26,500,000, intangible assets of approximately $12,000,000, including non-compete agreements, patents, deferred financing costs and the excess of cost over the fair value of net assets acquired, working capital of approximately $4,200,000 and other net assets of approximately $2,200,000. Such acquisition was accounted for as a purchase, and accordingly the consolidated financial statements include the results of Sentinel from the date of acquisition. In August 1993, the Company acquired the assets of the Shurtuff Division of Shuford Mills, Inc., a manufacturer of durable protective mailers, in exchange for cash and newly issued shares of the Company's common stock. In July 1993, the Company acquired the assets of Polypride, Inc., a manufacturer of multi-web air cellular materials, in exchange for cash and treasury shares of the Company's common stock. In April 1992, the Company acquired Aire Sellado S.A. de C.V., the Mexican licensee of the Company's air cellular technology, for newly issued shares of the Company's common stock. In December 1991, the Company's Canadian subsidiary sold its pool products business. In September 1991, the Company entered into a joint venture with Minnesota Mining and Manufacturing Company ("3M") under which 3M acquired a 50% interest in the Company's coated films business and an option to acquire the remaining 50% of such business. In May 1991, the Company acquired L. H. Ridgeway, Inc., a manufacturer of protective packaging materials, primarily Korrvu(R) suspension packaging, in exchange for newly issued shares of the Company's common stock. These acquisitions were accounted for as purchases, and these transactions were not material to the Company's consolidated financial statements. Note 4 Geographic Areas Sealed Air Corporation is a multinational company primarily engaged in the manufacture and sale of protective packaging materials and systems to a diverse group of customers. The Company's operations are conducted primarily in North America, Europe and the Far East, and its products are distributed in these areas as well as other parts of the world. Net sales for each major geographic area include transfers to other geographic areas. Such transfers are made at prices intended to provide reasonable and appropriate returns to the selling unit, and applicable eliminations have been applied to the intergeographic transactions. Operating profit consists of net sales less operating expenses. Other income (expense), net and income taxes have not been added or deducted in the computation of operating profit for each geographic area. Corporate expenses have been allocated to the geographic areas for whose benefit the expenses were incurred. Identifiable assets are those assets that are used in the Company's operations in each geographic area. Information by Major Geographic Area: (In thousands of dollars) Net Operating Identifiable Sales Profit Assets 1993 United States $341,321 $ 59,059 $192,868 Europe 87,939 12,433 77,904 Other 34,893 2,621 22,891 Eliminations (12,459) - (13,845) Consolidated $451,694 $ 74,113 $279,818 1992 United States $327,966 $ 53,886 $186,479 Europe 100,765 15,731 75,037 Other 30,919 2,573 20,135 Eliminations (13,592) - (13,387) Consolidated $446,058 $ 72,190 $268,264 1991 United States $309,344 $ 47,007 $187,046 Europe 98,552 17,169 82,910 Other 41,637 5,304 19,778 Eliminations (14,405) - (14,857) Consolidated $435,128 $ 69,480 $274,877 NOTE: Net sales shown for the United States, Europe and Other include transfers to other geographic areas as follows: United States, 1993 - --$11,130,000; 1992 --$12,471,000; 1991 -- $12,792,000; Europe, 1993 - --$754,000; 1992 --$886,000; 1991 --$1,052,000; Other, 1993 -- $575,000; 1992 --$235,000; 1991 --$561,000. Note 5 Long-Term Debt A summary of long-term debt at December 31, 1993 and 1992 follows: (In thousands of dollars) 1993 1992 Senior secured credit agreements $ 16,851 $ 54,463 Industrial development revenue bonds 2,797 3,516 Other foreign loans 9,948 11,949 12-5/8% Senior Subordinated Notes 170,000 170,000 Other 523 563 Total 200,119 240,491 Less current installments 10,061 15,213 Long-term debt, less current installments $190,058 $225,278 In 1989, the Company borrowed approximately $142,309,000 as contemplated by the term-loan portion of a senior secured credit agreement with Bankers Trust Company, as agent for a syndicate of banks (as amended, the "1989 Credit Agreement"), to finance a portion of the Special Dividend (note 2). In 1991, in connection with the Sentinel acquisition (note 3), the Company assumed the indebtedness, including $30,000,000 in term-loan indebtedness, of Sentinel outstanding under a senior secured Credit Agreement with Bankers Trust Company, as agent for a syndicate of banks (as amended, the "1991 Credit Agreement"). The principal amount outstanding under the 1991 Credit Agreement was prepaid in full in 1993. The outstanding principal amount under the 1989 Credit Agreement is due in quarterly installments through December 1995. The 1989 Credit Agreement is collateralized by a security interest in substantially all of the U.S., British and Dutch assets of the Company, including the capital stock of most of the Company's subsidiaries. The rate of interest on borrowings under the 1989 Credit Agreement is, at the Company's option, the Bankers Trust prime rate plus 3/4% or the reserve-adjusted Eurodollar rate plus 1-3/4%. The balance of $16,851,000 at December 31, 1993 consists of foreign borrowings that have been swapped for non-U.S. dollar obligations of the same final maturity. Such non-U.S. dollar obligations are denominated in Dutch guilders and British pounds sterling and bear interest at floating rates with a weighted average interest rate of 9.2% at December 31, 1993. Approximately $22,000,000 of the amount outstanding under the senior secured credit agreements at December 31, 1992 was attributable to foreign borrowings. The Senior Subordinated Notes, which were issued in connection with the financing of the Special Dividend, bear interest at a fixed rate of 12-5/8% per annum and mature on July 1, 1999. The Company has a right to redeem the Senior Subordinated Notes in whole or in part at any time at a redemption price of 106.313% of their principal amount, which redemption price declines on July 1, 1994 and each July 1 thereafter until it reaches 100% of such amount beginning on July 1, 1997. The Company may not redeem the Senior Subordinated Notes prior to July 1, 1994 from or in anticipation of monies borrowed having an effective interest cost less than the Senior Subordinated Notes. The holders of the Senior Subordinated Notes have the right to require the Company to redeem such Notes at a premium in the event of a change in control (as defined) of the Company. The Senior Subordinated Notes are not subject to any sinking fund requirements and are subordinated to all other notes payable and long-term debt at December 31, 1993. During 1991, the Company was a party to certain interest rate swap transactions that had the effect of reducing the net interest expense in 1993, 1992 and 1991 on a portion of the Senior Subordinated Notes and that will reduce the net interest expense on such portion of the Senior Subordinated Notes through 1994. The 1989 Credit Agreement and the Senior Subordinated Notes impose certain limitations on the operations of the Company and its subsidiaries that include restrictions on the incurrence of additional indebtedness, the creation of liens, the making of investments, dispositions of property or assets, certain transactions with affiliates and the payment by the Company of cash dividends or certain other distributions on its capital stock to its shareholders. In addition, the 1989 Credit Agreement imposes certain financial covenants including limitations on capital expenditures and requirements as to minimum interest coverage, current ratio, earnings before interest, taxes and certain non-cash charges, and adjusted net worth. The Company was in compliance with these financial covenants as of December 31, 1993. Industrial development revenue bonds are due in installments through 2006. Such bonds bear interest at fixed and floating rates. The weighted average interest rate on these bonds was 5.2% at December 31, 1993. These bonds are collateralized by property and equipment with a net book value of approximately $7,614,000 at December 31, 1993. Other foreign loans, certain of which are secured by foreign assets, are due in varying annual installments through 2006 with fixed and variable interest rates with a weighted average interest rate of 7.9% at December 31, 1993. Under the 1989 Credit Agreement and other credit facilities, the Company had available lines of credit at December 31, 1993 of approximately $56,600,000 of which approximately $51,000,000 was unused. The Company is obligated to pay a commitment fee of 1/2% per annum of the daily average unused revolving credit commitment under the 1989 Credit Agreement. The Company is not subject to any material compensating balance requirements in connection with its lines of credit. At the Company's option, the revolving credit facility under the 1989 Credit Agreement may also be used for the issuance of letters of credit. The Company is required to pay a fee of 2-3/4% per annum on the daily average stated amount of outstanding letters of credit. There were letters of credit totalling $1,060,000 outstanding at December 31, 1993. In accordance with FASB Statement No. 107, the Company is required to disclose the fair value of material financial instruments, including those recorded as liabilities in its consolidated financial statements. At December 31, 1993 the estimated fair values of the Company's indebtedness under its senior secured credit agreement, industrial development bonds, Senior Subordinated Notes and other foreign loans, none of which, except for the Senior Subordinated Notes, are marketable securities and all of which represent obligations of the Company that are repayable by the Company in accordance with their terms, were approximately $17,433,000, $2,801,000, $183,600,000 and $9,728,000, respectively ($54,815,000, $3,408,000, $183,175,000 and $10,957,000, respectively, at December 31, 1992). Such fair value estimates, except for the Senior Subordinated Notes, were derived by evaluating the nature and terms of each financial instrument, considering current economic and market conditions, and examining the cost of similar debt currently offered. The fair value estimate of the borrowings under the senior secured credit agreement also includes the effect of interest rate and foreign currency swap agreements related to such debt. The fair value of the Senior Subordinated Notes was 108.0% at December 31, 1993 (107.75% at December 31, 1992) based on over-the-counter bid prices published by Donaldson, Lufkin & Jenrette Securities Corporation. These estimates are subjective and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the above estimates. Scheduled annual maturities of long-term debt for the five years subsequent to December 31, 1993 are as follows: 1994 -- $10,061,000; 1995 -- $5,024,000; 1996 --$9,479,000; 1997 -- $2,776,000 and 1998 -- $990,000. Note 6 Shareholders' Equity (Deficit) On May 15, 1992, the Company's shareholders approved an increase in the authorized number of shares of common stock that the Company may issue from 20,000,000 shares to 35,000,000 shares. On July 23, 1992, the Company's Board of Directors declared a two-for-one stock split in the nature of a 100% stock dividend ("1992 stock split") that was distributed on September 18, 1992 to the holders of record of the Company's common stock at the close of business on September 4, 1992. As a result, a transfer was made from additional paid-in capital to common stock in an amount equal to the aggregate par value of the shares of common stock issued pursuant to this stock split. Share and per share data and share information in the consolidated financial statements and notes thereto have been adjusted to give retroactive effect to the 1992 stock split where appropriate. A summary of changes in issued and outstanding shares of common stock and shares of treasury stock of the Company follows:
1993 1992 1991 ______________________________________________________________________________________________ Changes in common stock: Number of shares issued, beginning of year 19,343,238 9,554,681 8,841,417 Two-for-one stock split - 9,671,619 - Non-cash compensation 70,900 52,741 224,100 Awards of contingent stock 294,200 34,200 112,150 Shares issued in acquisitions 216,323 29,997 377,014 Number of shares issued, end of year 19,924,661 19,343,238 9,554,681 Changes in treasury stock: Number of shares held, beginning of year 126,986 63,493 63,493 Two-for-one stock split - 63,493 - Shares issued in acquisition (8,180) - - Contingent stock forfeited 500 - - Number of shares held, end of year 119,306 126,986 63,493
Non-cash compensation in each year includes shares issued for a portion of the Company's contribution to its profit-sharing plan for the respective preceding year and shares issued to non-employee directors in the form of awards under the restricted stock plan for non-employee directors discussed below. In addition, in 1991, such compensation included shares issued as non-cash bonuses for the preceding year paid to certain employees, including executive officers, in the form of awards under the Company's contingent stock plan. The aggregate amount of non-cash compensation charged to operations amounted to $2,293,000, $1,836,000 and $2,494,000 in 1993, 1992 and 1991, respectively. The Company's contingent stock plan provides for the granting to employees of awards to purchase common stock (during the succeeding 60-day period) for less than 100% of fair market value at the date of award. Shares issued under the contingent stock plan ("contingent stock") are restricted as to disposition by the holders for a period of three years after issue. In the event of termination of employment prior to lapse of the restriction, the shares are subject to an option to repurchase by the Company at the price at which the stock was issued. Such restriction will lapse prior to the expiration of the three-year period if certain events occur which affect the existence or control of the Company. The excess of fair value over the award price of contingent stock is charged to operations as compensation over the vesting periods of such awards. In 1993, such charges amounted to $2,929,000 ($2,802,000 and $2,889,000 in 1992 and 1991, respectively). The aggregate fair value of contingent stock issued is credited to common stock and additional paid-in capital accounts, and the unamortized portion of the compensation is deducted from shareholders' equity (deficit). An additional 400,000 shares were authorized for future issuance under the contingent stock plan in 1991. At December 31, 1993, 554,100 shares of common stock were reserved for issuance under such plan after giving effect to adjustments provided for by the plan to reflect the 1992 stock split. In 1991, the Company adopted a restricted stock plan for non-employee directors, and 50,000 shares were authorized for future issuance under this plan. This plan provides for initial grants of shares to newly elected non-employee directors and annual grants of shares to non-employee directors for less than 100% of fair value at date of grant in lieu of cash payments for certain directors' fees. Shares issued under this plan are restricted as to disposition by the holders as long as such holders remain directors of the Company. The excess of fair value over the granting price of shares issued under this plan is charged to operations at the date of such grant. At December 31, 1993, 87,800 shares of common stock were reserved for issuance under such plan after giving effect to adjustments provided for by the plan to reflect the effect of the 1992 stock split. The Company currently has the authority to issue 1,000,000 shares of preferred stock, without par value, none of which were issued at December 31, 1993. Note 7 Income Taxes The Company adopted FAS 109 effective January 1, 1993. FAS 109 provides a liability method under which deferred taxes are provided based upon enacted tax rates and laws applicable to the periods in which the taxes become payable. For periods prior to January 1, 1993, the Company accounted for income taxes as prescribed by APB 11 under which deferred taxes were recorded based on the current period's tax rates and laws without adjustment for subsequent changes. The cumulative effect of this change at January 1, 1993 was a reduction of deferred tax liability and a corresponding credit to earnings of $1,459,000, or $0.08 per share, in 1993. The components of earnings before income taxes and the cumulative effect of this accounting change follow: (In thousands of dollars)
1993 1992 1991 ______________________________________________________________________________________________ Domestic $ 32,721 $ 24,246 $ 12,679 Foreign 12,740 14,572 18,787 Earnings before income taxes $ 45,461 $ 38,818 $ 31,466 The components of the provision for income taxes follow: (In thousands of dollars) 1993 1992 1991 ______________________________________________________________________________________________ Current tax provision: U.S. federal $ 9,816 $ 9,364 $ 8,700 U.S. state and local 2,210 2,525 1,541 Foreign 4,635 5,351 8,104 16,661 17,240 18,345 Deferred tax provision (benefit): Domestic 3,090 400 (2,900) Foreign (204) 410 (154) 2,886 810 (3,054) Provision for income taxes $ 19,547 $ 18,050 $ 15,291
The significant components of the Company's deferred tax liabilities and assets at December 31, 1993 as established in accordance with FAS 109 are as follows: (In thousands of dollars) 1993 Deferred tax assets: Facilities consolidation and integration $ 2,766 Accrued expenses 2,237 Deferred financing and other costs 1,000 Property and equipment 1,092 Deferred revenue 924 Other 3,045 Gross deferred tax assets 11,064 Deferred tax liabilities: Property and equipment 14,071 Patents and other intangibles 2,611 Other 2,872 Gross deferred tax liabilities 19,554 Net deferred tax liability $ 8,490 Prior to the implementation of FAS 109, deferred income taxes arose from differences in the timing of the recognition of revenue and expenses for income tax purposes and for financial reporting purposes without subsequent adjustment for changes in tax laws and regulations. The major components of the deferred income tax provision (benefit) relate to deferred revenue, amortization, depreciation and other items, including the effects of the Special Dividend (note 2) and the Sentinel acquisition (note 3), as follows: (In thousands of dollars)
1992 1991 Domestic: Facilities consolidation and integration expense $ (412) $ (1,294) Deferred revenue 349 (1,250) Amortization 438 (832) Non-cash compensation (382) 674 Depreciation 496 322 Other (89) (520) Domestic deferred tax provisions (benefit) 400 (2,900) Foreign: Depreciation 202 29 Other 208 (183) Foreign deferred tax provision (benefit) 410 (154) Deferred tax provision (benefit) $ 810 $ (3,054)
The Company has determined that a valuation allowance for the deferred tax assets is not required since the Company expects that it is more likely than not that the deferred tax assets of $11,064,000 will be realized based on the future reversals of existing deferred tax liabilities and the continuation of earnings, which may be affected by factors outside the Company's control. Implementation of FAS 109 required certain adjustments to intangible assets arising from acquisitions by the Company. As a result, the Company has increased patents and other intangible assets as recorded on its balance sheet at January 1, 1993 by approximately $2,000,000. As a result of the Omnibus Budget Reconciliation Act of 1993 ("1993 Tax Act"), the statutory U.S. federal tax rate to which the Company was subject in 1993 increased from 34% to 35%. The Company has determined that the effect of the 35% rate as applied to deferred tax assets and liabilities established under FAS 109 is not material. An explanation of the difference between the effective income tax rate and the statutory U.S. federal income tax rate expressed as a percentage of earnings before income taxes for the years ended December 31, 1993, 1992 and 1991 follows:
1993 1992 1991 ______________________________________________________________________________________________ Statutory U.S. federal income tax rate 35.0% 34.0% 34.0% Provision for foreign withholding taxes and additional U.S. taxes on repatriated and accumulated earnings of foreign subsidiaries 1.8 2.2 3.3 Tax effect of U.S. expenses not subject to tax benefit 1.7 3.0 3.8 State income taxes, net of U.S. federal income tax benefit 4.2 4.3 3.2 Taxes on foreign earnings at other than the statutory U.S. federal income tax rate (1.1) 0.7 2.9 Other miscellaneous items 1.4 2.3 1.4 Effective income tax rate 43.0% 46.5% 48.6%
As a consequence of the Special Dividend discussed in note 2, the Company's tax provision for 1993, 1992 and 1991 gives effect to foreign withholding taxes on the repatriation of accumulated earnings from the Company's foreign subsidiaries and additional U.S. taxes on such accumulated earnings. The Company has provided U.S. and foreign income taxes on the accumulated earnings of the Company's foreign subsidiaries through December 31, 1993. The Company's Dutch subsidiary is entitled to certain tax incentives to manufacture certain product lines under agreements with local tax authorities. The total amount of such incentives is dependent on the profitability of such product lines over a period extending through 1999. Note 8 Commitments and Contingent Liabilities The Company is obligated under the terms of various leases covering many of the facilities occupied by the Company. The Company accounts for substantially all of its leases as operating leases. Net rental expense for 1993 was $7,803,000 ($7,888,000 and $6,648,000 in 1992 and 1991, respectively). Estimated future minimum annual rental commitments under noncancelable real property leases expiring through 2006 are as follows: 1994 -- $5,955,000; 1995 -- $5,022,000; 1996 -- $3,504,000; 1997 -- $3,383,000; 1998 -- $2,645,000; and subsequent years - $5,582,000. The Company is involved in various legal actions incidental to its business as well as various environmental matters or proceedings, which primarily include clean-up obligations (including superfund sites) as well as other matters or claims that could result in additional environmental proceedings. Company management believes, after consulting with counsel, that the disposition of such litigation, matters and proceedings will not have a material effect on the Company's consolidated financial statements. Note 9 Subsequent Event (Unaudited) In March 1994, the Company refinanced the remaining balance under the 1989 Credit Agreement out of working capital and a $7,000,000 drawing under a $35,000,000 unsecured Revolving Credit Agreement entered into with United Jersey Bank, which Revolving Credit Agreement provides for interest rates lower than those provided for in the 1989 Credit Agreement. Independent Auditors' Report The Board of Directors and Shareholders Sealed Air Corporation: We have audited the accompanying consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of earnings, shareholders' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1993. 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 generally accepted auditing standards. These 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 Sealed Air Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in notes 1 and 7 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993. S/KPMG Peat Marwick KPMG Peat Marwick Short Hills, New Jersey January 19, 1994 Interim Financial Information (Unaudited) (In thousands of dollars except per share data)
Quarter Net sales Gross Profit Net Earnings Earnings Per Share(1) 1993 1992 1993 1992 1993 1992 1993 1992 First(2)$109,146 $109,993 $ 41,107 $ 41,463 $ 7,517 $ 4,992 $ .39 $ .26 Second 113,652 112,144 43,131 42,750 7,029 5,728 .36 .30 Third 110,215 110,185 41,419 41,107 5,827 4,677 .30 .24 Fourth 118,681 113,736 43,890 42,311 7,000 5,371 .35 .28 Year $451,694 $446,058 $169,547 $167,631 $ 27,373 $ 20,768 $ 1.40 $ 1.08 (1) Adjusted for the effect of a two-for-one stock split in the nature of a 100% stock dividend distributed in September, 1992. (2) Included in 1993 First Quarter net earnings and earnings per share is a cumulative credit adjustment of $1,459,000, or $0.08 per share, resulting from the implementation of Financial Accounting Standard No. 109.
Common Stock Information 1992* High Low The Company's Common Stock is listed on the New York Stock Exchange (trading symbol: SEE). First Quarter $28-7/16 $22-7/16 The adjacent table sets forth the Second Quarter $26-1/2 $21-7/8 high and low sales prices for the Company's Common Stock for each quarter Third Quarter $26-1/8 $22-1/8 during the two-year period ended December 31, 1993. Fourth Quarter $26 $20-1/2 The Company is currently subject to 1993 certain covenants in loan documents that restrict the payment of cash First Quarter $26 $21 dividends. No dividends were paid in 1993 or 1992. Second Quarter $25-7/8 $21-3/4 As of March 11, 1994 there were approximately Third Quarter $29-1/4 $23-1/8 1,230 holders of record of the Company's Common Stock. Fourth Quarter $32 $27 *Stock prices for the periods prior to the fourth quarter of 1992 have been adjusted to reflect the effect of a two-for-one stock split in the nature of a 100% stock dividend distributed on September 18, 1992 to stockholders of record at September 4, 1992.
EX-22 6 EXHIBIT 22 TO 93 FORM 10-K EXHIBIT 22 SUBSIDIARIES OF THE COMPANY The following table sets forth the name and state or other jurisdiction of incorporation of the Company's subsidiaries. Except as otherwise indicated, each subsidiary is wholly-owned, directly or indirectly, by the Company. Such subsidiaries do business under their corporate names. Aire Sellado, S.A. de C.V. Mexico Cascades Sealed Air Inc.* Canada Instapak France S.A. France Instapak, Limited Nevada Plastec Iberica, S.A. Spain PolyMask Corporation* Delaware Polypride, Inc. Delaware Sealed Air N.V. Belgium Sealed Air of Canada Limited Ontario, Canada Sealed Air Limited England Sealed Air S.A.** France Sealed Air GmbH Germany Sealed Air (Far East) Limited Hong Kong Sealed Air S.p.A. Italy Sealed Air (Korea) Limited Korea Sealed Air (Malaysia) Sdn. Bhd. Malaysia Sealed Air B.V. Netherlands Sealed Air (Puerto Rico) Incorporated Delaware Sealed Air (Singapore) Pte. Limited Singapore Sealed Air Svenska AB Sweden Sealed Air Taiwan Limited Taiwan Sealed Air Trucking, Inc. Delaware Static, Inc. Delaware *The Company owns 50% of the outstanding shares. **The Company indirectly owns a majority of the outstanding shares. Certain subsidiaries are omitted from the above table. Such subsidiaries, if considered in the aggergate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 1993. EX-24 7 EXHIBIT 24 TO 93 FORM 10-K EXHIBIT 24 Independent Auditors' Consent The Board of Directors Sealed Air Corporation: We consent to incorporation by reference in the Registration Statement No. 33-41734 on Form S-8, Registration Statement No. 33-47017 on Form S-3, Registration Statement No. 33-44529 on Form S-3, Registration Statement No. 33-66716 on Form S-3 and Registration Statement No. 33-68614 on Form S-3 of Sealed Air Corporation of our reports dated January 19, 1994, relating to the consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, shareholders' equity (deficit), and cash flows and related schedules for each of the years in the three-year period ended December 31, 1993 which reports appear or are incorporated by reference in the December 31, 1993 annual report on Form 10-K of Sealed Air Corporation. Our report on the aforementioned consolidated financial statements refers to a change in the Company's method of accounting for income taxes. s/KPMG PEAT MARWICK KPMG Peat Marwick Short Hills, New Jersey March 22, 1994 -----END PRIVACY-ENHANCED MESSAGE-----