-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdQxr85kKecf0dgaXql3BLb6mmKtgZl/4ond+D+cq4dOMepVtWnW2Q3HT/ynK5rQ /5cq5jnb6+CQBMDO7U6q+g== 0000950136-98-000569.txt : 19980327 0000950136-98-000569.hdr.sgml : 19980327 ACCESSION NUMBER: 0000950136-98-000569 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: M & F WORLDWIDE CORP CENTRAL INDEX KEY: 0000945235 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 020423416 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13780 FILM NUMBER: 98574432 BUSINESS ADDRESS: STREET 1: 35 E 62ND ST CITY: NEW YUORK STATE: NY ZIP: 10021 BUSINESS PHONE: 2125728600 MAIL ADDRESS: STREET 1: 35 EAST 62ND STREET CITY: NEW YORK STATE: NY ZIP: 10021 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- --------- Commission File Number 1-13780 M&F WORLDWIDE CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 02-0423416 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 35 EAST 62ND STREET, NEW YORK, N.Y. 10021 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 212-572-8600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ---------------------------------------- Common Stock, par value $.01 per share New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the registrant as of March 9, 1998 was $119,842,160. The number of shares of Common Stock outstanding as of March 9, 1998 were 20,656,502. Documents incorporated by reference Portions of the registrant's Proxy Statement for its Annual Meeting of Stockholders, which is to be filed pursuant to Regulation 14A not later than April 30, 1998, are incorporated herein by reference into Part III. PART I ITEM 1. BUSINESS GENERAL M&F Worldwide Corp. ("M&F Worldwide" or the "Company") formerly Power Control Technologies, Inc. was incorporated in Delaware on June 1, 1988 and is a holding company that conducts its operations through its wholly-owned subsidiary Pneumo Abex Corporation ("Pneumo Abex"). M&F Worldwide has been a public company since June 15, 1995 when shares of its common stock, par value $.01 per share (the "M&F Worldwide Common Stock"), were publicly distributed (the "M&F Worldwide Distribution") to existing stockholders of Abex Inc. ("Abex"), M&F Worldwide's former parent, in connection with the merger (the "Abex Merger") of Abex and a wholly-owned subsidiary of Mafco Holdings Inc. ("Holdings") and the related transfer (the "Transfer") to a subsidiary of Mafco Consolidated Group Inc. ("MCG") of substantially all of Abex's consolidated assets and liabilities, other than those relating to its Abex NWL Aerospace Division ("Aerospace"), which continued to be owned by M&F Worldwide. On July 16, 1992, Abex was spun off (the "Abex Distribution") from the Henley Group Inc. ("Henley Group"). Following the Abex Distribution and prior to the M&F Worldwide Distribution, Abex, through M&F Worldwide, sold three of its five operating divisions and combined the two others to form Aerospace. Prior to July 16, 1992, M&F Worldwide was an indirect wholly-owned subsidiary of Henley Group. On April 15, 1996, the Company sold to Parker Hannifin Corporation ("Parker Hannifin") its entire Aerospace operations including substantially all of its assets (the "Aerospace Sale"), pursuant to the terms of a Master Asset Purchase Agreement for aggregate cash consideration of $201.1 million. In connection with the Aerospace Sale, Parker Hannifin, the buyer, assumed the operating liabilities of the Aerospace Business, including the Company's existing debt. On November 25, 1996, Mafco and M&F Worldwide consummated the transactions contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement"), dated as of October 23, 1996, by and among MCG, M&F Worldwide and PCT International Holdings Inc. ("Purchaser"), a Delaware corporation and wholly-owned subsidiary of M&F Worldwide. Pursuant to the Purchase Agreement, Purchaser acquired from MCG (the "Flavors Acquisition"), all the issued and outstanding shares (the "Shares") of capital stock of Flavors Holdings Inc. ("Flavors"), a Delaware corporation and wholly-owned subsidiary of MCG, and 23,156,502 Value Support Rights (each a "VSR" and, collectively, the "VSRs") issued pursuant to a Value Support Rights Agreement (the "VSR Agreement"), dated November 25, 1996 between MCG and American Stock Transfer & Trust Company, as trustee. In consideration for the Shares and VSRs, Purchaser paid MCG cash in the amount of $180 million. In addition, Purchaser paid MCG deferred cash payments of $3.7 million on June 30, 1997 and $3.5 million on January 2, 1998. MCG owns approximately 30% of the outstanding shares of M&F Worldwide Common Stock and all of the convertible redeemable preferred stock which has an aggregate liquidation preference of $20.0 million. Immediately following the Flavors Acquisition, Mafco Worldwide Corporation ("Mafco Worldwide"), then a wholly-owned subsidiary of Flavors, through a series of transactions merged with and into Pneumo Abex, with Pneumo Abex being the surviving corporation and becoming a wholly-owned subsidiary of Flavors. 2 Through Pneumo Abex (as the successor to Mafco Worldwide), the Company is primarily in the business of producing licorice extract and other flavoring agents. Based upon its knowledge of the licorice industry, the Company believes that it is the world's largest producer of licorice extract and the only manufacturer of licorice extract in the United States. The Company also believes that it manufactures more than 70% of the worldwide licorice extract sold to end-users. Approximately 72% of the Company's licorice sales are to the worldwide tobacco industry for use as flavoring and moistening agents in the manufacture of American blend cigarettes as well as other tobacco products (moist snuff, chewing tobacco and pipe tobacco). While licorice extract represents a small percentage of the total cost of manufacturing American blend cigarettes and other tobacco products, the particular formulation and quantity used by each brand is an important element of the brand's flavor. The Company also sells licorice extract to worldwide confectioners, food processors and pharmaceutical manufacturers for use as flavoring or masking agents. In addition, the Company sells licorice root residue as a garden mulch under the name Right Dress. The Company's other products include non-licorice natural flavors, spices and botanicals that are used as flavoring ingredients in food and tobacco products. The Company has achieved its position as the world's leading manufacturer of licorice extract through its experience in obtaining licorice root, its technical expertise at maintaining the consistency and quality of its product and its ability to develop and manufacture proprietary formulations for individual customers and applications. OPERATING STRATEGIES The Company intends to maintain its position as the world leader in licorice extract: (a) by continuing to expand in foreign markets as the popularity of American blend cigarettes continues to increase; (b) by improving its manufacturing process and raw material procurement in order to achieve lower costs and; (c) by forming joint ventures in strategic areas of the world to increase its overall licorice business. PRODUCTS AND MANUFACTURING Licorice extract products. The Company produces a variety of licorice products from licorice root, licorice extract produced by others and certain other flavor ingredients at its facilities in Camden, New Jersey and Gardanne, France. The Company selects licorice root from various sources to optimize flavoring and chemical characteristics and then shreds the root to matchstick size. Licorice solids are then extracted from the shredded root with hot water. After filtration and evaporation, the concentrated extract is converted into powder, semifluid or blocks, depending on the customer's requirements, and then packaged and shipped. For certain customers, extracts from root may be blended with licorice extracts from other producers and non-licorice ingredients to produce licorice flavors that meet the individual customer's requirements. Licorice extract can be further purified to produce licorice derivatives. The Company maintains finished goods inventories of sufficient quantity to provide immediate delivery to its domestic tobacco and non-tobacco customers. Domestically produced licorice extract for foreign orders is either produced and shipped within 30 days or shipped from inventory held at a European warehouse immediately. French produced extract is primarily shipped from inventory. Other products. The Company also sells non-licorice flavoring agents to the tobacco, spice, pharmaceutical and health food industries. The Company cleans, grinds or cuts unprocessed spices and botanicals, principally chilies, sage, cassia (cinnamon) and cocoa bean shells to customer specifications. 3 RAW MATERIALS Licorice extract is derived from the roots of the licorice plant, a shrub-like leguminous plant that is indigenous to the Middle East and Central Asia. The plant's roots, which can be up to several inches thick and up to 25 feet long are harvested when the plant is about four years old. They are then cleaned, dried and bagged or pressed into bales. Through its foreign suppliers, the Company acquires the root in local markets for shipment to the Company's processing facilities in Camden, New Jersey or Gardanne, France. Most of the licorice root processed by the Company originates in Afghanistan, China, Pakistan, Azerbaijan, Uzbekistan, Turkmenistan, Syria and Turkey. Through many years of experience, the Company has developed extensive knowledge and relationships with their suppliers in these areas. Although the amount of licorice root the Company purchases from any individual source or country varies from year to year depending on cost and quality, the Company endeavors to purchase some licorice root from all available sources. This enables the Company to maintain multiple sources of supply and relationships with many suppliers so that if the licorice root from any one source becomes temporarily unavailable or uneconomic, the Company will be able to replace that source with licorice root from another area or supplier. During 1997, two suppliers of root, one in Germany and one in Pakistan, supplied 14% and 24%, respectively of the Company's total root purchases. The Company tries to maintain a sufficient licorice root inventory and open purchase contracts to meet production needs for up to two years. Licorice root has an indefinite retention period as long as it is kept dry, and therefore the Company has experienced little, if any, material spoilage. The Company has been able to obtain licorice root without interruption since World War II even though there has been periodic instability in the areas of the world where licorice root grows. In addition to licorice root, the Company also purchases significant quantities of licorice extract produced by others for use as a raw material. These licorice extracts are available from producers primarily in China in quantities sufficient to meet the Company's current requirements and anticipated requirements for the foreseeable future. During 1997, the Company had two licorice suppliers of licorice extracts who supplied more than 10% of total licorice extract purchases. Other non-licorice raw materials for the Company's other blended licorice and non-licorice products are commercially available through many domestic and foreign sources. SALES AND MARKETING All licorice sales in the U.S. (including sales of licorice extract to U.S. cigarette manufacturers for use in American blend cigarettes to be exported) are made through the Company's executive offices located in Camden, New Jersey, with technical support from the Company's research and development department. Outside the U.S., the Company sells its products directly from its Camden, New Jersey offices and through its French subsidiary, exclusive agents and independent distributors. The Company has established strong relationships with its customers in the tobacco and other industries because of its expertise in producing and supplying consistent quality licorice products with a high level of service and security of supply. The Company ships products worldwide and provides technical assistance for product development for both tobacco and non-tobacco applications. The Company sells licorice root residue, a by-product of the licorice extract manufacturing process, as a garden mulch under the name Right Dress. Distribution of Right Dress is limited to the area within a 200-mile radius of Camden, New Jersey due to shipping costs and supply limitations. 4 In 1997, Pneumo Abex's ten largest customers, eight of which are manufacturers of tobacco products, accounted for approximately 58% of the Company's net revenues and one customer, Philip Morris Companies Inc. ("Philip Morris") accounted for approximately 30% of the Company's 1997 sales. If Philip Morris were to stop purchasing licorice extract from the Company, it would have a significant adverse effect on the financial results of the Company. COMPETITION The Company believes that its position as the largest manufacturer of licorice extract in the world arises from its long-standing ability to provide its customers with a steady supply of high quality and consistent products, together with superior technical support. Producing licorice extract of consistently high quality at low cost requires an experienced work force, careful manufacturing and rigorous quality control. The Company's long-term relationships and knowledge of the licorice root market are of great value in enabling it to consistently acquire quality raw materials at reasonable cost. Although the Company could face increased competition in the future, the Company currently encounters limited competition in sales of licorice extract to tobacco companies in many of its markets as a result of the factors described above and the large investments in inventories of raw materials and production facilities that are required to adequately fulfill its customers' needs. Other markets in which the Company operates, particularly the confectionery licorice market in Europe, are more competitive. Significant competing producers of licorice extract are government owned and private corporations in China, a government owned corporation in Iran and a government affiliated corporation based in Israel. THE TOBACCO INDUSTRY Developments and trends within the tobacco industry may have a material effect on the operations of the Company. Producers of tobacco products are subject to regulation in the U.S. at the federal, state and local levels. Together with changing public attitudes toward smoking, a constant expansion of smoking regulations since the early 1970s has been a major cause for the decline in consumption. Moreover, the trend is toward increasing regulation of the tobacco industry. For more than 30 years, the sale and use of cigarettes has been subject to opposition from government and health officials in the U.S. and other countries due to claims that cigarette smoking is harmful to an individual's health. These claims have resulted in a number of substantial restrictions on the marketing, advertising, sale and use of cigarettes, in diminished social acceptability of smoking and in activities by anti-smoking groups designed to inhibit cigarette sales. The effects of these claims together with substantial increases in state and federal taxes on cigarettes have resulted in lower cigarette consumption, which is likely to continue in the future. During the period 1993-1997, U.S. cigarette consumption declined at an average of 1.0% per year and exports of cigarettes by U.S. manufacturers increased at an average rate of 0.9% per year. Prior to 1997 exports of cigarettes increased at an average rate of 4.3% per year. In 1997 exports of cigarettes decreased as compared to 1996 by approximately 8.8%. The growth of U.S. cigarette exports prior to 1997 was due to successful marketing of U.S. cigarette brands by U.S. tobacco manufacturers, the increasing popularity of the lighter flavor of American blend cigarettes, particularly in Europe and Asia and reduced trade barriers that had previously limited imports of cigarettes manufactured by U.S. manufacturers. The decrease in exports in 1997 is due to increased foreign manufacturing capacity by U.S. tobacco companies, inventory adjustments and the timing of export 5 shipments. In response to the growing popularity of American blend cigarettes and increased exports by U.S. manufacturers, foreign manufacturers are now producing American blend cigarettes. Consumption of chewing tobacco and moist snuff is concentrated primarily in the U.S. U.S. production of chewing tobacco products has steadily declined for more than a decade and from 1993 through 1997 it has declined by 2.8%. Consumption has declined because chewing tobacco appeals to a limited and declining customer base, primarily males living in rural areas. Moist snuff consumption has risen steadily since the mid-1970s and has increased 2.9% from 1993 through 1997 due to the shift away from cigarettes and other types of smoking tobacco. Health Regulations. Federal law has required health warnings on cigarettes since 1965 and has recently required states, in order to receive full funding for federal substance abuse block grants, to establish a minimum age of 18 years for the sale of tobacco products, together with an appropriate enforcement program. In recent years, a variety of bills relating to tobacco issues have been introduced in the Congress of the United States, including bills that would have (i) prohibited the advertising and promotion of all tobacco products and/or restricted or eliminated the deductibility of such advertising expenses; (ii) increased labeling requirements on tobacco products to include, among other things, addiction warnings and lists of additives and toxins; (iii) modified federal preemption of state laws to allow state courts to hold tobacco manufacturers liable under common law or state statutes; (iv) shifted regulatory control of tobacco products and advertisements from the Federal Trade Commission (the "FTC") to the U.S. Food and Drug Administration (the "FDA"); (v) increased tobacco excise taxes; and (vi) required tobacco companies to pay for health care costs incurred by the federal government in connection with tobacco related diseases. Hearings have been held on certain of these proposals; however, to date only excise tax increases on tobacco products starting in the year 2000, in varying amounts, have been passed by Congress. Future enactment of such proposals or similar bills may have an adverse effect on the sales or operations of the Company. In addition, various federal agencies, including the FDA, have recently proposed to regulate the tobacco industry. As a result primarily of lawsuits brought by a large number of state Attorneys General against certain tobacco companies and others seeking to recover, among other things, health care cost reimbursement, five tobacco manufacturers agreed on June 20, 1997 to support the adoption by Congress of a proposed resolution (the "Proposed Resolution") that calls for significant regulation of tobacco products and the payment of $368.5 billion over the first 25 years. As a result, a number of bills have been introduced in Congress that would result in significant regulation of tobacco. Although it is not possible to predict whether and when any such legislation will be enacted into law, its enactment may fundamentally alter the way in which tobacco companies conduct business in this country. In addition, federal, state and local legislative and regulatory bodies have increasingly moved to curtail smoking by prohibiting smoking in certain public places, restricting the sale of tobacco products to minors, increasing labeling requirements, regulating the marketing, promotion and advertisement of cigarettes and smokeless tobacco and protecting non-smokers from so-called "second-hand" smoke. Smokeless tobacco manufacturers are subject to similar health warning regulations as cigarette producers, and there has been litigation that claims smokeless tobacco causes oral cancer. To the extent that further actions are taken to regulate tobacco products and restrict smoking, such actions could have a material adverse effect on the Company. Some foreign countries have also taken steps to restrict or prohibit cigarette advertising and promotion, to require ingredient disclosure, to impose maximum constituent levels, to increase taxes on cigarettes, to control prices, to restrict imports, to ban or severely restrict smoking in workplace and public places, and otherwise to discourage cigarette smoking. 6 Massachusetts recently enacted legislation requiring manufacturers of cigarettes, chewing tobacco and snuff to provide the state annually with a list of the additives (in descending order of weight) and the nicotine yield ratings of each brand they produce, which information will, subject to certain conditions, be made publicly available. In response to challenges to the law brought by a number of tobacco manufacturers in December 1997, the United States District Court for the District of Massachusetts preliminarily enjoined the additive disclosure requirement. The nicotine yield rating reporting requirement was unaffected by this decision. As a producer of food-grade products, the Company's business is subject to certain FDA and New Jersey Department of Health Regulations. Compliance with these regulations has not had a material effect on the Company's business. Tobacco Industry Litigation. The cigarette and smokeless tobacco industries have experienced and are experiencing significant health-related litigation involving tobacco and health issues. Litigation against the cigarette industry has historically been brought by individual cigarette smokers. In 1992, the United States Supreme Court in Cipollone v. Liggett Group, Inc. ruled that federal legislation relating to cigarette labeling requirements preempts claims based on failure to warn consumers about the health hazards of cigarette smoking, but does not preempt claims based on express warranty, misrepresentation, fraud or conspiracy. To date, individual cigarette smokers' claims against the cigarette industry have been generally unsuccessful; however on August 9, 1996, a Florida jury in Carter v. Brown & Williamson Tobacco Corporation determined that a cigarette manufacturer was negligent in the production and sale of its cigarettes and sold a product that was unreasonably dangerous and defective, awarding the plaintiffs a total of $750,000 in compensatory damages. The verdict is on appeal. Current tobacco litigation generally falls within one of three categories: class actions, individual actions and actions brought by individual states or localities, unions and others, to recover health care costs allegedly attributable to tobacco-related illnesses. The pending actions allege a broad range of injuries resulting from the use of tobacco products or exposure to tobacco smoke and seek various remedies, including compensatory and, in some cases, punitive damages together with certain types of equitable relief such as the establishment of medical monitoring funds and restitution. The major tobacco companies are vigorously defending these actions. During 1997, the health care cost reimbursement actions brought by state Attorneys General in Mississippi, Florida and Texas were settled for significant amounts in the billions of dollars for the first 25 years. On June 20, 1997, five tobacco companies entered into a Proposed Resolution that contains provisions that, if enacted by Congress, would significantly impact tobacco litigation. The Proposed Resolution requires that the payment of $368.5 billion dollars over the first 25 years and would, in effect, limit litigation to individual actions for compensatory damages. As discussed above, several bills purporting to implement some or all of the provisions of the Proposed Resolution have been introduced in Congress. In May 1996, the Fifth Circuit Court of Appeals in Castano v. American Tobacco, et. al. reversed a Louisiana district court's certification of a nationwide class consisting essentially of nicotine dependent cigarette smokers. Notwithstanding the dismissal, new class actions asserting claims similar to those in Castano have been filed in a number of states. To date, a number of pending class actions against major cigarette manufacturers have been certified. One class action that had been pending in Florida was settled in 1997 for several hundred million dollars. The class was composed of flight attendants allegedly injured through exposure to secondhand smoke. There can be no assurance that there will not be an increase in health-related litigation involving tobacco and health issues against the cigarette industry or that the Company, as a supplier to 7 the tobacco industry, will not be party to such litigation. This litigation, if successful, could have a material adverse effect on the Company. Excise Taxes. The tobacco industry, including cigarettes and smokeless tobacco, has been subject to federal, state and local excise taxes for many years. In recent years, federal, state and local governments have increased or proposed increases to such taxes as a means of both raising revenue and discouraging the consumption of tobacco products. The Company is unable to predict the likelihood of enactment of such proposals or the extent to which enactment of such proposals would effect tobacco sales. A significant reduction in consumption of cigarettes and other tobacco products could have a material adverse effect on the Company. SEASONALITY The licorice business is generally non-seasonal. However, sales of Right Dress garden mulch occur primarily in the first seven months of the year. BACKLOG The backlog of the Company at any time is generally not significant. Domestic and foreign tobacco orders are received quarterly, monthly or weekly depending upon customer requirements. Certain confectionery customers negotiate annual contracts which were not significant at December 31, 1997. EMPLOYEES At December 31, 1997, the Company has approximately 321 employees. The Company has 151 employees covered under collective bargaining agreements. The agreement covering employees at the Camden, New Jersey facility expires at the end of May 2001. Management believes that its employee relations are good. CORPORATE INDEMNIFICATION MATTERS The Company is indemnified by third parties with respect to certain of its contingent liabilities, such as certain environmental and asbestos matters, as well as certain tax and other matters. In connection with the Abex Merger, a subsidiary of Abex, M&F Worldwide, Pneumo Abex and certain other subsidiaries of M&F Worldwide entered into a transfer agreement (the "Transfer Agreement"). Under the Transfer Agreement, substantially all of Abex's consolidated assets and liabilities, other than those relating to Aerospace, were transferred to a subsidiary of MCG, with the remainder being retained by Pneumo Abex. The Transfer Agreement provides for appropriate transfer, indemnification and tax sharing arrangements, in a manner consistent with applicable law and existing contractual arrangements. The Transfer Agreement requires such subsidiary of MCG to undertake certain administrative and funding obligations with respect to certain asbestos claims and other liabilities, including environmental claims, retained by Pneumo Abex. The Company will be obligated to make reimbursement for the amounts so funded only when amounts are received by the Company under related indemnification and insurance agreements. Such administrative and funding obligations would be terminated as to asbestos products claims in the case of a bankruptcy of Pneumo Abex or M&F Worldwide or of certain other events affecting the availability of coverage for such claims from third party indemnitors and insurers. 8 Prior to 1988, a former subsidiary of the Company manufactured certain asbestos-containing friction products. Pneumo Abex has been named, typically along with 10 to 30 other companies, as a defendant in various personal injury lawsuits claiming damages relating to exposure to asbestos. Pursuant to indemnification agreements, Whitman Corporation ("Whitman") has retained ultimate responsibility for all asbestos-related claims made through August 1998 and for certain asbestos-related claims asserted thereafter. In connection with the sale by Abex in December 1994 of its Friction Products Division, a subsidiary of Cooper Industries, Inc. assumed responsibility for substantially all of the asbestos-related claims made after August 1998. Pneumo Abex maintained product liability insurance covering substantially all of the period during which asbestos-containing products were manufactured. Pursuant to court rulings and interim agreements reached with certain insurance carriers, insurers are reimbursing approximately 90% of the aggregate defense and settlement costs associated with such claims, and Pneumo Abex continues to seek recovery of the remaining amount of unreimbursed costs from its carriers in an ongoing insurance coverage litigation commenced in 1982. As of December 31, 1997, there was approximately 34,000 pending claims, and MCG has approximately $9.2 million in unreimbursed costs pending receipt from the insurance carrier or Whitman. Pneumo Abex is unable to forecast either the number of future asbestos-related claimants or the amount of future defense and settlement costs associated with present or future asbestos-related claims. The Transfer Agreement further provides that MCG will indemnify Pneumo Abex with respect to all environmental matters associated with Abex's former operations to the extent not paid by third party indemnitors or insurers, other than the operations relating to Pneumo Abex's Aerospace business which were sold to Parker Hannifin in April 1996. Accordingly, environmental liabilities arising after the 1988 Whitman acquisition that relate to Pneumo Abex's former Aerospace facilities will be the responsibility of Pneumo Abex. Whitman is obligated to indemnify Pneumo Abex for costs, expenses and liabilities relating to environmental and natural resource matters to the extent attributable to the pre-1988 operation of the businesses acquired from Whitman, subject to certain conditions and limitations principally relating to compliance with notice, cooperation and other procedural requirements. Whitman is generally discharging its environmental indemnification liabilities in the ordinary course. In addition to the remedial actions as to which Whitman has acknowledged its indemnification responsibilities, Pneumo Abex is party to a number of cases involving tort claims concerning an environmental site alleging exposure to lead for which Whitman has declined to accept responsibility. MCG is managing these cases on behalf of Pneumo Abex, and MCG and Whitman are currently sharing equally the defense costs for such cases, subject to a reservation of their respective rights. It is generally not possible to predict the ultimate total costs relating to any remediation that may be demanded at any of the sites subject to the Whitman indemnity due to, among other factors, uncertainty regarding the extent of prior pollution, the complexity of applicable environmental laws and regulations and their interpretations, uncertainty regarding future changes to such laws and regulations of their enforcement, the varying costs and effectiveness of alternative cleanup technologies and methods, and the questionable and varying degrees of responsibility and/or involvement by Pneumo Abex. However, the aggregate cost to all parties of cleanup and related expenses with respect to matters for which Pneumo Abex, together with numerous other third parties, have been named potentially responsible parties could exceed $150 million, including approximately $20 million in remedial action costs, as estimated by the U.S. Environmental Protection Agency, in respect of one site actively managed and funded by Whitman. On February 5, 1996, the Company, through Pneumo Abex, entered into a reimbursement agreement with Chemical Bank and MCG (the "Reimbursement Agreement"). The Reimbursement Agreement provides for letters of credit totaling $20.8 million covering certain environmental issues 9 relating to such site and not related to the current business of Pneumo Abex. The cost of the letters of credit are being funded by MCG and/or Whitman. Pneumo Abex had $20.0 million and $20.8 million of letters of credit outstanding at December 31, 1997 and 1996, respectively, in connection with the Reimbursement Agreement. The Company has not recognized any liability in its financial statements for matters covered by indemnification agreements. The Company considers these obligations to be those of third-party indemnitors and monitors their financial position to determine the level of uncertainty associated with their ability to satisfy their obligations. Based upon the indemnitors' active management of indemnifiable matters, discharging of the related liabilities when required, and financial positions based upon publicly filed financial statements, as well as the history of insurance recovery set forth above, the Company believes that the likelihood of indemnitors failing to satisfy their obligations is remote. The Transfer Agreement also provides for certain funding indemnification and cooperation arrangements among Pneumo Abex, M&F Worldwide and a subsidiary of MCG in respect of certain liabilities which may arise under the Employee Retirement Security Act of 1974 relating to the sale of Pneumo Abex's friction products division in 1994. In the opinion of management, based upon the information available at this time, the outcome of the matters referred to above will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. PROPERTIES THE COMPANY'S PRINCIPAL PROPERTIES ARE AS FOLLOWS:
OWNED APPROXIMATE OR FLOOR SPACE LOCATION USE LEASED (SQUARE FEET) - -------- --- ------ ------------- Camden, New Jersey Licorice manufacturing, warehousing Owned 390,000 and administration Camden, New Jersey Warehousing Leased(a) 140,000 Pennsauken, New Jersey Warehousing Leased(b) 40,000 Gardanne, France Licorice manufacturing and administration Owned 48,900 Richmond, Virginia Manufacturing and warehousing Owned 45,000 for non-licorice products Richmond, Virginia Manufacturing and administration Leased(c) 65,000 for non-licorice products
- ---------------------- (a) Lease expires on March 31, 1998 (not renewed). (b) Lease expires on June 18, 2003. (c) Lease expires on October 30, 2001. The Company believes that its facilities are well-maintained and are in substantial compliance with environmental laws and regulations. 10 ITEM 3. LEGAL PROCEEDINGS Various legal proceedings, claims and investigations are pending against M&F Worldwide and Pneumo Abex, including those relating to commercial transactions, product liability, safety and health matters and other matters. M&F Worldwide and Pneumo Abex are involved in various stages of legal proceedings, claims, investigations and cleanup relating to environmental or natural resource matters, some of which relate to waste disposal sites. Most of these matters are covered by insurance, subject to deductibles and maximum limits, and by third-party indemnities. In addition, the U.S. Government has asserted claims of defective pricing relating to certain contracts of the former Aerospace operations. The Company believes that the outcome of such pending legal proceedings in the aggregate will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company carries general liability insurance but has no health hazard policy, which, to the best of the Company's knowledge, is consistent with industry practice. See Item 1. Business - The Tobacco Industry. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The M&F Worldwide Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE") under the symbol MFW. The following table sets forth, for the calendar quarters indicated, the high and low closing prices per share of the M&F Worldwide Common Stock on the NYSE based on published financial sources. HIGH LOW CALENDAR 1996 First Quarter $9 1/2 $7 3/4 Second Quarter 9 1/2 8 3/4 Third Quarter 9 7 1/2 Fourth Quarter 8 1/2 7 1/2 CALENDAR 1997 First Quarter 8 7 1/4 Second Quarter 8 15/16 7 1/4 Third Quarter 9 3/4 8 1/2 Fourth Quarter 10 3/8 9 3/8 The number of holders of record of the M&F Worldwide Common Stock as of March 7, 1998 was approximately 6,691. M&F Worldwide has not paid any cash dividends on the M&F Worldwide Common Stock to date. M&F Worldwide does not currently intend to pay regular cash dividends on the M&F Worldwide Common Stock. M&F Worldwide's dividend policy will be reviewed from time to time by the Board of Directors in light of M&F Worldwide's results of operations and financial position and 11 such other business considerations as the Board of Directors considers relevant. The ability of Pneumo Abex to pay dividends is limited by its credit agreement, which in turn may limit the ability of the Company to pay dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and the Notes to Consolidated Financial Statements. In order to protect the availability of the Company's net operating loss carryforwards, the M&F Worldwide charter prohibits, subject to certain exceptions, transfers of M&F Worldwide Common Stock, until such date as fixed by the Board of Directors of M&F Worldwide, to any person who owns, or after giving effect to such transfer would own, at least 5% of the outstanding M&F Worldwide Common Stock. The Company has been advised by counsel that the transfer restriction in the M&F Worldwide charter is enforceable. The Company intends to take all appropriate action to preserve the benefit of the restriction including, if necessary, the institution of legal proceedings seeking enforcement. On December 31, 1996, the Company distributed to its stockholders the VSRs received as part of the Flavors Acquisition. MCG called the VSRs in January 1998 for $0.56 per VSR. ITEM 6. SELECTED FINANCIAL DATA M&F Worldwide is the successor to Abex for financial reporting purposes as a result of the Transfer, the Abex Merger and the M&F Worldwide Distribution, which occurred on June 15, 1995. Accordingly, financial information presented for periods prior to June 15, 1995 represent Abex's results. The following table sets forth selected historical financial data of Abex and M&F Worldwide. Accordingly, the Abex consolidated financial statements may not necessarily reflect the results of operations or financial position had Abex been a separate stand-alone entity. Abex's industrial products and aerospace businesses have been classified as discontinued operations in the statements of operations data. See the Notes to Consolidated Financial Statements for a discussion of the Company's formation and the basis of presentation. The table below reflects financial data for each of the years in the five-year period ended December 31, 1997. The selected historical financial information for each of the years in the two-year period ended December 31, 1994 has been derived from the audited consolidated financial statements of Abex, while information for the years 1995, 1996 and 1997, have been derived from the audited consolidated financial statements of M&F Worldwide. The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of M&F Worldwide included elsewhere in this Annual Report on Form 10-K. 12
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (Dollars in millions, except per share data) STATEMENT OF OPERATIONS DATA: Net sales (a) .............................. $100.4 $ 9.5 $ -- $ -- $ -- Income (loss) from continuing operations (b) 22.5 10.4 (4.0) (30.1) (39.4) Income (loss) per common share from continuing operations (c): Basic .................................. 1.01 .43 (.24) (1.52) (1.99) Diluted ................................ .96 .43 (.24) (1.52) (1.99) BALANCE SHEET DATA (AT PERIOD END): Total assets (d) ........................... $313.1 $ 318.1 $51.3 $336.8 $302.2 Long-term debt (including current portion and short-term borrowings) (e) .......... 77.6 100.1 -- 31.1 112.8 Redeemable preferred stock (f) ............. 20.0 20.0 20.0 -- -- Total stockholders' equity (deficit) (g) ... 185.6 166.0 22.5 102.2 (29.2)
- --------------- (a) Reflects sales of Flavors since its acquisition on November 25, 1996. Sales of the Company's Aerospace and industrial products businesses are included in discontinued operations through their respective dates of sale. (b) Includes the results of Flavors, since its acquisition on November 25, 1996. Prior to the Abex Merger and the Transfer, results from continuing operations reflects costs associated with the former corporate office of Abex. (c) In 1997 the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), the effect of which was to restate 1996 income per common share from continuing operations. For further discussion of earnings per share and the impact of SFAS 128, see the notes to the consolidated financial statements beginning on page F-8. (d) The decrease from 1994 to 1995 was primarily the result of the Transfer. The increase from 1995 to 1996 primarily reflects the Flavors Acquisition funded with proceeds from the Aerospace Sale. (e) Decrease in long-term debt from 1993 to 1995 was primarily related to the paydown of debt as well as the sale of certain business segments. The increase in long-term debt from 1995 to 1996 was primarily the result of the Flavors Acquisition. (f) Reflects the issuance of redeemable convertible preferred stock in connection with the Abex Merger and Transfer. (g) Stockholders' equity (deficit) includes the extraordinary gain of $94.0 in 1993 reflecting an adjustment to the Company's reserves for indemnification under its tax sharing agreements, the gain recorded in 1994 on the sale of the industrial products business of $128.4 and the gain of $153.7 in 1996 on the sale of the Aerospace business partially offset by the VSR distribution of $23.2 in 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere herein. 13 GENERAL As a result of the sale of the Company's Aerospace business in 1996, the Company has classified those operations as discontinued in the consolidated financial statements. Accordingly, the results of operations below do not reflect the sales, cost of sales or selling, general and administration expenses ("SG&A") from the discontinued Aerospace business for the years presented. The discussion of historical results reflects the results of operations of Flavor's licorice extract and other flavoring agents business since November 25, 1996, the date of the Flavors Acquisition. The results of operations data presented below reflects the application of the purchase method of accounting for the Flavors Acquisition based on the purchase price allocation. The pro forma consolidated financial information below gives effect to the Flavors Acquisition, the Abex Merger and Transfer and the Aerospace Sale as if such transactions occurred on January 1, 1995. RESULTS OF OPERATIONS During 1993, Mafco Worldwide's largest customer substantially reduced the price of its premium brand cigarettes in order to regain market share which had been lost to generic or "no frills" type cigarettes. The generic cigarettes sold at a discount to premium brands and had captured a substantial share of the U.S. cigarette market. In addition, cigarette inventories at distributors were reduced by abandoning the practice of loading distributors with cigarettes at the end of each quarter. As a result of these actions, Mafco Worldwide sold less licorice extract to the cigarette industry in 1993 than in previous years. In 1994, Mafco Worldwide's sales volume to the cigarette industry increased as production volumes in the cigarette industry returned to pre-1993 levels. This trend has continued since 1994. Actual year ended December 31, 1997 compared to pro forma year ended December 31, 1996
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 ---- ---- (in millions) (in millions) Net sales ........................................... $ 100.4 $ 103.4 Cost of sales ....................................... 54.0 57.3 ------- ------- Gross profit ........................................ 46.4 46.1 Selling, general and administrative expenses ........ 9.9 8.5 Amortization of intangibles ......................... 4.3 4.3 Other, net........................................... (0.3) (0.3) ------- ------- Operating income .................................... 32.5 33.6 Interest expense .................................... 7.1 9.9 Interest, investment and other income, net .......... (0.5) (0.5) ------- ------- Income from continuing operations before income taxes 25.9 24.2 Provision for income taxes .......................... 3.4 3.3 ------- ------- Income from continuing operations ................... $ 22.5 $ 20.9 ======= =======
Net sales in 1997 were $100.4 million and $103.4 million on a pro forma basis in 1996. U.S. sales decreased $4.1 million in 1997 to $58.0 million. The decrease resulted from lower licorice shipment volume to the Company's smokeless tobacco customers and lower sales volume of non licorice products. Foreign and export sales in 1997 increased by $1.1 million to $42.4 million in 1997. The increase was due primarily to increased shipment volume. 14 Cost of sales were $54.0 million in 1997 as compared to $57.3 million on a pro forma basis in 1996. The decrease of $3.3 million was due to lower material costs and a reduction in the amortization of the purchase accounting adjustments related to inventory. As a percentage of net sales, cost of sales decreased to 53.8% in 1997 from 55.4% on a pro forma basis in 1996. SG&A expenses were $9.9 million in 1997 and $8.5 million on a pro forma basis in 1996. The increase of $1.4 million was primarily due to higher compensation, professional service and corporate costs in 1997 and income recognized in 1996 on a bad debt recovery. Interest expense was $7.1 million in 1997 and was $9.9 million on a pro forma basis in 1996, a decrease of $2.8 million due to lower debt outstanding at lower average interest rates in 1997. The provision for income taxes was $3.4 million in 1997 and was $3.3 million on a pro forma basis in 1996. The increase relates to state and foreign taxes. Year ended December 31, 1997 compared to the year ended December 31, 1996 Net sales were $100.4 million and $9.5 million for the year ended December 31, 1997 and 1996, respectively. Net sales in 1996 reflects the business of Flavors since the Flavors Acquisition on November 25, 1996, whereas 1997 reflects an entire year's results. Cost of sales were $54.0 million and $6.6 million for the year ended December 31, 1997 and 1996, respectively. Cost of sales in 1996 reflects the business of Flavors since the Flavors Acquisition on November 25, 1996, including one month's amortization of the purchase accounting write-up related to inventory of $1.3 million and depreciation expense on property, plant and equipment, whereas 1997 reflects an entire year's results. SG&A expenses (income) were $9.9 million and $(0.1) million for the years ended December 31, 1997 and 1996, respectively. The 1996 income primarily reflects on-going corporate costs and SG&A expenses of Flavors since the Flavors Acquisition on November 25, 1996, offset by income recognized on the Company's overfunded pension plan, whereas 1997 reflects an entire year's results. Amortization of intangibles was $4.3 million and $0.4 million for the years ended December 31, 1997 and 1996, respectively. Amortization of intangibles in 1996 reflects expense since the Flavors Acquisition, whereas 1997 reflects an entire year's results. Interest expense was $7.1 million and $0.9 million for the years ended December 31, 1997 and 1996, respectively. The 1996 expense reflects interest expense on the debt of Pneumo Abex since the Flavors Acquisition on November 25, 1996, whereas 1997 reflects an entire year's results. Interest, investment and other income, net was $0.5 million and $8.9 million for the years ended December 31, 1997 and 1996, respectively. Interest, investment and other income, net in 1997 primarily relates to interest income on cash and cash equivalents. Interest, investment and other income, net in 1996 primarily reflects income on the proceeds from the Aerospace Sale which were invested in cash equivalents and marketable securities pending its use to finance the Flavors Acquisition. The Company recorded a tax provision from continuing operations of $3.4 million (an effective rate of 13.1%) and $0.2 million (an effective rate of 1.9%) for the years ended December 31, 1997 and 1996, respectively. For the year ended December 31, 1997, the effective tax rate differs from the statutory tax rate primarily due to the reduction of the valuation allowance which represents a portion 15 of the Company's net operating losses which are expected to be utilized. For the year ended December 31, 1996, the effective tax rate differs from the statutory tax rate primarily due to the benefit realized on the tax loss associated with discontinued operations as well as a reduction of the valuation allowance which represents a portion of the Company's net operating losses which are expected to be utilized. Based upon the combined results of operations of Mafco Worldwide and the Company over the last several years and taking into consideration the current operating environment of the tobacco industry, the Company believes that is more likely than not that these tax benefits will be realized. However, realization of the net deferred tax assets and future reversals of the valuation allowance will depend on future earnings and accordingly the valuation allowance will be evaluated on a periodic basis. Income from discontinued operations of Aerospace for the year ended December 31, 1996 was $4.4 million representing the results of Aerospace through April 15, 1996, the date of sale. The Company recorded a net gain of $153.7 million related to the Aerospace Sale in the year ended December 31, 1996. There were no income taxes provided in connection with the sale as the tax bases of the assets and liabilities sold exceeded the net proceeds and resulted in a tax loss. Year ended December 31, 1996 compared to the year ended December 31, 1995 Net sales were $9.5 million for the year ended December 31, 1996. Net sales reflects the business of Flavors since the Flavors Acquisition on November 25, 1996. Cost of sales were $6.6 million for the year ended December 31, 1996. Cost of sales reflects the business of Flavors since the Flavors Acquisition on November 25, 1996, including one month's amortization of the purchase accounting write-up related to inventory of $1.3 million and depreciation expense on property, plant and equipment. SG&A expenses (income) were $(0.1) million and $10.5 million for the years ended December 31, 1996 and 1995, respectively. The 1996 income primarily reflects on-going corporate costs and SG&A expenses of Flavors since the Flavors Acquisition on November 25, 1996, including one month's amortization of the purchase accounting adjustments related to intangibles offset by income recognized on the Company's overfunded pension plan. The 1995 expenses primarily related to costs associated with the former office of Abex before the Transfer and Abex Merger and on-going corporate costs of the Company after the Transfer and Abex Merger, partially offset by income recognized on the Company's overfunded pension plan. Interest expense was $0.9 million and $0.4 million for the years ended December 31, 1996 and 1995, respectively. The increase primarily reflects interest expense on the debt of Pneumo Abex since the Flavors Acquisition on November 25, 1996. Interest, investment and other income, net was $8.9 million and $6.9 million for the years ended December 31, 1996 and 1995, respectively. Interest, investment and other income, net in 1996 primarily reflects income on the proceeds from the Aerospace Sale which were invested in cash equivalents and marketable securities pending its use to finance the Flavors Acquisition. Interest, investment and other income, net in 1995 primarily relates to interest income on cash held by Abex before the Abex Merger and Transfer. The Company recorded a tax provision from continuing operations of $0.2 million (an effective rate of 1.9%) and $0.0 for the years ended December 31, 1996 and 1995, respectively. For the year ended December 31, 1996, the effective tax rate differs from the statutory tax rate primarily due to the 16 benefit realized on the tax loss associated with discontinued operations as well as a reduction of the valuation allowance which represents a portion of the Company's net operating losses which are expected to be utilized. Based upon the combined results of operations of Mafco Worldwide and the Company over the last several years and taking into consideration the current operating environment of the tobacco industry, the Company believes that is more likely than not that these tax benefits will be realized. However, realization of the net deferred tax assets and future reversals of the valuation allowance will depend on future earnings and accordingly the valuation allowance will be evaluated on a periodic basis. Income from discontinued operations of Aerospace was $4.4 million and $16.9 million for the years ended December 31, 1996 and 1995, respectively. The 1996 period represents the results of Aerospace through April 15, 1996, the date of sale while the 1995 period represents Aerospace for the full period. The Company recorded a net gain of $153.7 million related to the Aerospace Sale in the year ended December 31, 1996. There were no income taxes provided in connection with the sale as the tax bases of the assets and liabilities sold exceeded the net proceeds and resulted in a tax loss. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash flows provided by (used in) operating activities were $25.3 million, $8.2 million and ($16.8) million for the years ended December 31, 1997, 1996 and 1995, respectively. Cash provided by operating activities during 1997 was primarily from net income. Cash provided by operating activities during 1996 primarily reflects interest and investment income and operating cash flows of Flavors since the Flavors Acquisition. Operating cash used during 1995 reflects payment of corporate expenses related to the former corporate office of Abex as well as payments with respect to non-operating liabilities of Abex prior to the Abex Merger and the Transfer. Cash flows used in investing activities during 1997 consisted of capital expenditures of $2.3 million, and $1.9 million for a 50% equity investment in a Peoples' Republic of China ("PRC") company and the purchase of a U.S. company which owns a PRC company. Cash flows provided by investing activities during 1996 consisted primarily of the proceeds from the sale of Aerospace partially offset by the cash used in the Flavors Acquisition. In 1995, cash flows used in investing activities was $181.2 million, which reflects cash transferred in the Abex Merger. Capital expenditures by the Company during 1996 since the Flavors Acquisition were $0.2 million. On a pro forma basis, assuming the Flavors Acquisition had occurred on January 1, 1995, capital expenditures would have been $1.9 million and $2.3 million in 1996 and 1995, respectively. While the Company has not made any significant commitments for capital expenditures, they are planned to be approximately $3.0 million for 1998. Cash flows used in financing activities in 1997 primarily reflects the refinancing of the Company's 11 7/8% Senior Subordinated Notes due 2002 in November 1997 with borrowings under a new credit agreement and available cash. Cash flows from financing activities in 1996 and 1995 primarily reflect net repayments of borrowings of $25.1 million and $31.1 million, respectively. In November 1997, the Company entered into a five-year $120.0 million revolving credit facility with a group of banks to finance the redemption of all of its outstanding debt and for its working capital and other general corporate purposes. At December 31, 1997, $76.6 million was borrowed under this facility and $23.5 million was reserved for lender guarantees on outstanding letters of credit. Management believes the remaining availability of approximately $19.9 million under the revolving credit facility and cash generated from operations will be sufficient to meet the Company's needs for working capital, capital expenditures and debt service for the foreseeable future. 17 IMPACT OF YEAR 2000 Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company has completed a preliminary assessment and plans to modify or replace portions of the software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The total year 2000 project cost is not expected to be significant and will be expensed as incurred. To date, the Company has not incurred significant expenses relating to the year 2000 issue. The project is estimated to be completed no later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The Company believes that with modifications to existing software and conversions to new software, the year 2000 issue will not pose significant operational problems for its computer systems. Based on the Company's preliminary assessment, if such modifications and conversions are not made, or are not completed timely, the Company does not believe that the year 2000 issue will have a material impact on the operations of the Company. The costs of the project and the date on which the Company believes it will complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could materially differ from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. TAX MATTERS In connection with the Abex Merger and the Transfer, MCG and the Company entered into a tax sharing agreement. Under the indemnification provisions of the tax sharing agreement and with respect to periods ending on or prior to June 15, 1995, MCG will generally be required to pay any tax liabilities of the Company, except for foreign income taxes related to Aerospace. At December 31, 1997, the Company had available Federal net operating loss carryforwards of approximately $184.7 million, which expire in years 2000 through 2011. OTHER The Company is indemnified by third parties with respect to certain environmental and asbestos matters, as well as certain tax and other matters. The Company has not recognized any liability in its financial statements for matters covered by indemnification agreements. The Company considers these obligations to be those of third-party indemnitors and monitors their financial position to determine the level of uncertainty associated with their ability to satisfy their obligations. Based upon the indemnitors' active management of indemnifiable matters, discharging of the related liabilities when required, and financial positions based upon publicly filed financial statements, as well as the history of insurance recovery set forth above, the Company believes that the likelihood of indemnitors failing to satisfy their obligations is remote. 18 For a discussion of certain indemnification obligations to the Company, see Item 1. Business - Corporate Indemnification Matters. FOREIGN EXCHANGE Most of the Company's export sales and purchase of licorice raw materials are made in U.S. dollars. The Company's French subsidiary sells in several European currencies as well as the U.S. dollar and purchases raw materials principally in U.S. dollars. INFLATION Prior to 1993, Mafco Worldwide had historically been able to pass inflationary increases for raw materials and other costs onto customers through price increases. Since 1993, inflationary increases for raw materials and other costs have not been significant. There can be no assurance that the Company will be able to pass on future cost increases to its customers. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the financial statements and supplementary data listed in the accompanying Index to Consolidated Financial Statements and Schedule on page F-1 herein. Information required by other schedules called for under Regulation S-X is either not applicable or is included in the financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None in 1997. On November 25, 1996, the Registrant dismissed Arthur Andersen LLP ("AA") and engaged Ernst & Young LLP ("E&Y") as its independent auditors. This change of auditors was approved by the Registrant's Board of Directors based upon the recommendation of its Audit Committee. In connection with the audits of the Registrant's financial statements for each of the years in the two year period ended December 31, 1995, and the subsequent interim period, there have been no disagreements with AA on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures. The reports of AA on the Registrant's financial statements for each of the years in the two year period ended December 31, 1995 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. The Registrant obtained from AA a letter addressed to the Commission stating that it agrees with the statements in the three preceding paragraphs. A copy of that letter, dated December 5, 1996 was filed as Exhibit 16.1 of Form 8-K/A on December 23, 1996. On November 25, 1996, the Registrant consummated the Flavors Acquisition. E&Y has been the independent auditors for Flavors since 1987. Prior to the Flavors Acquisition, the Registrant had no operating assets. Its primary assets were short term marketable securities. Substantially all of these securities were used to acquire Flavors. Accordingly, the capital stock of Flavors is currently the Registrant's primary asset. E&Y is also the auditor for MCG. 19 PART III The information required by Part III, Items 10 through 13, of Form 10-K is incorporated by reference from the Registrant's definitive proxy statement for its 1998 annual meeting of stockholders, which is to be filed pursuant to Regulation 14A not later than April 30, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1 and 2) Financial statements and financial statement schedule. See Index to Consolidated Financial Statements and Schedule which appears on page F-1 herein. All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Master Asset Purchase Agreement, dated as of January 15, 1996, as amended, by and among the Company, Pneumo Abex and Parker Hannifin, without exhibits and schedules (incorporated by reference to Exhibit 2.1 to M&F Worldwide's Form 10-K dated December 31, 1995). 2.2 Closing Agreement, dated as of April 15, 1996, by and among the Company, Pneumo Abex and Parker Hannifin (incorporated by reference to Exhibit 2.2 to M&F Worldwide's Form 8-K dated April 30, 1996). 2.3 Stock and VSR Purchase Agreement, dated as of October 23, 1996, by and among Mafco, the Company and PCT International Holdings Inc. (incorporated by reference from Exhibit 7 of Mafco's Schedule 13D, dated October 25, 1996, filed with respect to M&F Worldwide). 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to M&F Worldwide's Form 8-K dated April 30, 1996). 3.2 By-Laws of the Company as currently in effect (incorporated by reference to Exhibit 3.2 to M&F Worldwide's Form 10-K dated December 31, 1995). 4.1 Form of Indenture, together with form of Senior Subordinated Note (incorporated by reference to Amendment No. 1 to Mafco Worldwide's Registration Statement on Form S-1 (33-48904) (the "1992 S-1")). 20 4.2 First Supplemental Indenture, dated as of November 25, 1996, between Pneumo Abex Corporation and First Trust of New York, National Association, pursuant to the Indenture dated as of November 12, 1992 between Mafco Worldwide Corporation and First Trust of New York, National Association (successor to Security Pacific National Trust Company (New York), as trustee). 4.3 Form of Purchase Agreement among Mafco Worldwide, Flavors Holdings Inc. and the institutional sellers party thereto (incorporated by reference to Amendment No. 2 to the 1992 S-1). 4.4 Credit Agreement dated as of June 29, 1994 among Mafco Worldwide, the Banks (as defined in the Credit Agreement) and The Chase Manhattan Bank, N.A., as agent (incorporated by reference to Mafco Worldwide's Form 10-Q filed August 16, 1994). 4.5 Consent Number 5 and First Amendment, dated as of November 11, 1996, to the Credit Agreement dated as of June 29, 1994 among Mafco Worldwide, the Banks (as defined in the Credit Agreement) and The Chase Manhattan Bank, N.A., as agent. 4.6 Consent Number 6 and Second Amendment, dated as of December 12, 1996, to the Credit Agreement, dated as of June 29, 1994 among Pneumo Abex Corporation, the Banks (as defined in the Credit Agreement) and The Chase Manhattan Bank, as agent. 4.7 Third Amendment dated as of February 5, 1997, to the Credit Agreement, dated as of June 29, 1994 among Pneumo Abex Corporation, the Banks (as defined in the Credit Agreement and The Chase Manhattan Bank, as agent. 4.8 Assumption Agreement, dated as of November 25, 1996, made by Pneumo Abex Corporation in favor of the Banks (as defined in the Assumption Agreement and The Chase Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) as agent. 10.1 Transfer Agreement among the Company, MCG Intermediate Holdings Inc., Pneumo Abex and PCT International Holdings Inc. (incorporated by reference to Exhibit 10.1 to PCT's Current Report on Form 8-K dated June 28, 1995). 10.2 Tax Sharing Agreement between the Company and Mafco (incorporated by reference to Exhibit 10.2 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.3 Registration Rights Agreement between Mafco and the Company (incorporated by reference to Exhibit 2 to the Schedule 13D dated June 26, 1995 filed by Mafco Holdings Inc., Mafco Consolidated Holdings Inc. and Mafco in connection with the Company's capital stock). 21 10.4 Letter Agreement, dated as of June 26, 1995, between the Company and Mafco (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated June 28, 1995). 10.5 Letter Agreement, dated as of February 5, 1996, between the Company and Mafco (incorporated by reference to Exhibit 6 to Amendment No. 2 to Schedule 13D dated February 8, 1996 filed by Mafco Holdings Inc., Mafco Consolidated Holdings Inc. and Mafco in connection with the Company's capital stock). 10.6 Reimbursement Agreement, dated as of February 5, 1996, among the Company, Mafco and Chemical Bank (incorporated by reference to Exhibit 10.6 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.7 Stock Purchase Agreement, dated April 28, 1988, between Pneumo Abex and Whitman Corporation (incorporated by reference to Exhibit 2.1 to Pneumo Abex's Registration Statement on Form S-1, Commission File No. 33-22725) as amended by an Amendment, dated as of August 29, 1988, and a Second Amendment and related Settlement Agreement, dated September 23, 1991 (incorporated by reference to exhibit 10.4 to Abex Inc.'s Annual Report on Form 10-K for 1992). 10.8 Asset Purchase Agreement, dated as of May 15, 1993, between Pneumo Abex and The BF Goodrich Company (incorporated by reference to Exhibit 2.1 to Abex Inc.'s Current Report on Form 8-K dated June 10, 1993). 10.9 Asset Purchase Agreement, dated as of November 21, 1994, by and between Pneumo Abex and Wagner Electric Corporation (incorporated by reference to Exhibit 1 to Abex Inc.'s Current Report on Form 8-K dated November 21, 1994). 10.10 Lease dated as of December 26, 1989, between MacAndrews & Forbes Group, Inc. and Fulton Bottom Associates, L.P., as amended on May 14, 1990, and as further amended on October 15, 1991 (incorporated by reference to the 1992 S-1). 10.11 Contract dated as of May 31, 1994 between Mafco Worldwide and the Licorice and Paper Employees Association of Camden, N.J. (incorporated by reference to Mafco Worldwide's Form 10-Q filed November 14, 1994). 10.12 Agreement dated January 1, 1994 between M.F. Neal & Co. and Local Union No. 309T (incorporated by reference to Mafco Worldwide's 1993 Form 10-K). 10.13 Form of Reimbursement Agreement between the Company and Holdings (incorporated by reference to Amendment No. 2 to the 1992 S-1). 22 10.14 Consent Number 1 and First Amendment, dated as of November 25, 1996, to the Reimbursement Agreement, dated as of February 5, 1996, among Pneumo Abex Corporation (the "Account Party"), Mafco (the "Guarantor") and The Chase Manhattan Bank as issuing bank. 10.15 Form of License Agreement between Mafco Worldwide and Holdings (incorporated by reference to Amendment No. 2 to the 1992 S-1). 10.16 Form of Lease to be dated March 31, 1993 between the Company and H.W.R. Corporation (incorporated by reference to Mafco Worldwide's 1992 Form 10-K). 10.17 Tax Sharing Agreement between Mafco Worldwide and Mafco (incorporated by reference to Mafco Worldwide's 1995 Form 10-K). MANAGEMENT CONTRACTS AND COMPENSATORY PLANS 10.18 M&F Worldwide 1995 Stock Plan (the "1995 Stock Plan") for employees of the Company and employees of affiliated corporations (incorporated by reference to Annex C to the Proxy Statement/Prospectus included in the Company's Registration Statement on Form S-1 (File No. 33-92186)). 10.19 Amendment to the 1995 Stock Plan 10.20 Amendment dated June 15, 1995 to Trust Agreement dated as of July 1, 1992 between Pneumo Abex and Mellon with respect to the 1992 Stock Trust for Former Participants in the 1989 Stock Plan for Executive Employees of the Henley Group and its Subsidiaries (incorporated by reference to Exhibit 10.16 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.21 Abex Inc. Executive Retirement and Savings Program as amended and restated effective June 15, 1995 (incorporated by reference to Exhibit 10.17 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.22 Trust Agreement dated July 1, 1992 between MCG Intermediate Holdings Inc. and Mellon, as amended and restated effective as of June 15, 1995 (incorporated by reference to Exhibit 10.18 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.23 First Amendment, dated November 13, 1995, to Amended and Restated Trust Agreement between MCG Intermediate Holdings Inc. and Mellon (incorporated by reference to Exhibit 10.19 to M&F Worldwide's Form 10-K dated December 31, 1995). 10.24 Employment agreement, dated January 7,1997, between the Registrant and J. Eric Hanson. 10.25 The Company's 1997 Stock Option Plan. 23 10.26 Tobacco Products Group Performance Bonus Plan (incorporated by reference to Exhibit 10.5 to Mafco's Form 10-Q dated March 31, 1996). 10.27* Credit Agreement dated as of November 17,, 1997 among Pneumo Abex, the lenders (as defined in the Credit Agreement), Chase Manhattan Bank, Chase Securities Inc., Bank Boston, N.A. and Chase Manhattan Bank Delaware. 10.28* Contract dated as of May 31, 1997 between Mafco Worldwide and Licorice and Paper Employees Association of Camden, New Jersey AFL-CIO. 16.1 Letter on change in certifying accountant (incorporated by reference to Exhibit 16.1 of Form 8-K/A of M&F Worldwide filed on December 23, 1996). 21* List of subsidiaries 23.1* Consent of Ernst & Young LLP 23.2* Consent of Arthur Andersen LLP 24* Powers of attorney executed by Messrs. Perelman, Durnan, Folz, Gittis, Hanson, Liebman, Meister, Roche and Slovin. 27* Financial data schedule *Filed herein. (b) Reports on Form 8-K: Form 8-K filed on November 27, 1996 (Items 2, 4 and 7). Form 8-K/A filed on December 23, 1996 (Item 4). 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. M&F WORLDWIDE CORP. Dated: March 25, 1998 By: Theo W. Folz* ---------------------------------------- Theo W. Folz Chairman of the Board, President and Chief Executive Officer Dated: March 25, 1998 By:/s/Irwin Engelman ---------------------------------------- Irwin Engelman Executive Vice President and Chief Financial Officer Dated: March 25, 1998 By:/s/Laurence Winoker ----------------------------------------- Laurence Winoker Vice President and Controller (Chief Accounting Officer) 25 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and of the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- Ronald O. Perelman * Director March 25, 1998 - -------------------------------- Ronald O. Perelman Jaymie A. Durnan * Director March 25, 1998 - -------------------------------- Jaymie A. Durnan Theo W. Folz * Director March 25, 1998 - -------------------------------- Theo W. Folz Howard Gittis * Director March 25, 1998 - -------------------------------- Howard Gittis J. Eric Hanson * Director March 25, 1998 - -------------------------------- J. Eric Hanson Lance A. Liebman * Director March 25, 1998 - -------------------------------- Lance A. Liebman Paul M. Meister * Director March 25, 1998 - -------------------------------- Paul M. Meister James G. Roche* Director March 25, 1998 - -------------------------------- James G. Roche Bruce Slovin * Director March 25, 1998 - -------------------------------- Bruce Slovin * The undersigned by signing his name hereto does hereby execute this Form 10-K pursuant to powers of attorney filed as exhibits to this Form 10-K. Dated: March 25, 1998 By:/s/Joram Salig ---------------------------------------- Joram Salig Attorney-in-Fact 26 M&F WORLDWIDE CORP. AND SUBSIDIARIES ITEM 8, ITEM 14 (A)(1) AND (2) AND (D) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE YEAR ENDED DECEMBER 31, 1997 The following consolidated financial statements of M&F Worldwide are included in Item 8: As of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995. Pages ----- Reports of Independent Auditors........................................ F-2 Consolidated Balance Sheets............................................ F-4 Consolidated Statements of Income...................................... F-5 Consolidated Statements of Stockholders' Equity........................ F-6 Consolidated Statements of Cash Flows.................................. F-7 Notes to Consolidated Financial Statements............................. F-8 The following financial statement schedule of M&F Worldwide is included in Item 14(d): Schedule I - Condensed Financial Information of Registrant............. F-29 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders M&F Worldwide Corp. We have audited the accompanying consolidated balance sheets of M&F Worldwide Corp. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of M&F Worldwide Corp. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP New York, New York February 5, 1998 F-2 REPORT OF INDEPENDENT AUDITORS To the Shareholders of M&F Worldwide Corp. (formerly Power Control Technologies, Inc.) We have audited the consolidated statement of income of M&F Worldwide Corp. (formerly Power Control Technologies, Inc.) and Subsidiaries for the year ended December 31, 1995, and the related consolidated statements of stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations of M&F Worldwide Corp. (formerly Power Control Technologies, Inc.) and Subsidiaries for the year ended December 31, 1995, and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Arthur Andersen LLP Detroit, Michigan March 11, 1996, except for the first paragraph of Note 4, as to which the date is February 3, 1997. F-3 M&F WORLDWIDE CORP. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in millions, except per share data)
December 31, ------------------ 1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 0.4 $ 5.7 Trade accounts receivable, net 10.0 11.3 Inventories 50.0 46.0 Prepaid expenses and other 1.1 3.3 -------- -------- Total current assets 61.5 66.3 Property, plant and equipment, net 25.8 26.3 Deferred tax asset, net 38.4 38.4 Intangibles assets related to business acquired, net 167.6 172.7 Other assets 19.8 14.4 -------- -------- Total assets $ 313.1 $ 318.1 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short term borrowings $ 1.0 $ 0.0 Trade accounts payable 5.7 5.2 Accrued compensation and benefits 3.6 3.1 Taxes payable 2.7 1.4 Deferred cash payments due to MCG 3.5 7.2 Other accrued expenses 6.4 6.8 -------- -------- Total current liabilities 22.9 23.7 Long-term debt 76.6 100.1 Other liabilities 8.0 8.3 Redeemable preferred stock 20.0 20.0 Commitments and contingencies -- -- Stockholders' equity: Common stock, par value $.01; 250,000,000 shares authorized; 20,656,502 shares issued and outstanding in 1997 and 1996 0.2 0.2 Additional paid-in capital 26.7 26.7 Retained earnings 160.2 139.3 Currency translation adjustment (1.5) (0.2) -------- -------- Total stockholders' equity 185.6 166.0 -------- -------- Total liabilities and stockholders' equity $ 313.1 $ 318.1 ======== ========
See Notes to Consolidated Financial Statements. F-4 M&F WORLDWIDE CORP. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in millions, except per share data)
Year Ended December 31, ------------------------ 1997 1996 1995 ---- ---- ---- Net sales $ 100.4 $ 9.5 $ 0.0 Cost of sales (54.0) (6.6) 0.0 ------- ------ ------ Gross profit 46.4 2.9 0.0 Selling, general and administrative (expenses) income (9.9) 0.1 (10.5) Amortization of intangibles (4.3) (0.4) -- Other, net 0.3 -- -- ------- ------ ------ Operating profit (loss) 32.5 2.6 (10.5) Interest expense (7.1) (0.9) (0.4) Interest, investment and other income, net 0.5 8.9 6.9 ------- ------ ------ Income (loss) from continuing operations before income taxes 25.9 10.6 (4.0) Provision for income taxes (3.4) (0.2) 0.0 ------- ------ ------ Income (loss) from continuing operations 22.5 10.4 (4.0) Discontinued operations Income from operations of discontinued aerospace business, net of tax -- 4.4 16.9 Gain on sale of discontinued aerospace business -- 153.7 0.0 ------- ------ ------ Income from discontinued operations, net of taxes -- 158.1 16.9 Income before extraordinary loss 22.5 168.5 12.9 Extraordinary loss -- -- (1.6) ------- ------ ------ Net income 22.5 168.5 11.3 ------- ------ ------ Preferred stock dividends (1.6) (1.6) (0.9) ------- ------ ------ Net income available to common stockholders $ 20.9 $166.9 $ 10.4 ======= ====== ====== Basic income (loss) per common share: Continuing operations $ 1.01 $ 0.43 $ (0.24) Discontinued operations -- 7.64 0.83 ------- ------ ------ 1.01 8.07 0.59 Extraordinary loss -- -- (0.08) ------- ------ ------ Net income $ 1.01 $ 8.07 $ 0.51 ======= ====== ====== Diluted income (loss) per common share: Continuing operations $ 0.96 $ 0.43 $(0.24) Discontinued operations -- 7.64 0.83 ------- ------ ------ 0.96 8.07 0.59 Extraordinary loss -- -- (0.08) ------- ------ ------ Net income $ 0.96 $ 8.07 $ 0.51 ======= ====== ======
See Notes to Consolidated Financial Statements. F-5 M&F WORLDWIDE CORP. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in millions)
Retained Additional Earnings/ Currency Common Paid-in (Accumulated Translation Stock Capital Deficit) Adjustment Total ------- ---------- ------------- ------------- ------ Balance, December 31, 1994 $0.2 $116.8 $(14.8) $ -- $102.2 Transfer of assets, liabilities and issuance of redeemable preferred stock (90.1) (90.1) Net income 11.3 11.3 Preferred stock dividends (0.9) (0.9) ---- ----- ------ ----- ------ Balance, December 31, 1995 0.2 26.7 (4.4) -- 22.5 Net income 168.5 168.5 Preferred stock dividends (1.6) (1.6) Currency translation adjustment (0.2) (0.2) Distribution of VSRs (23.2) (23.2) ---- ----- ------ ----- ------ Balance, December 31, 1996 0.2 26.7 139.3 (0.2) 166.0 Net income 22.5 22.5 Preferred stock dividends (1.6) (1.6) Currency translation adjustment (1.3) (1.3) ---- ----- ------ ----- ------ Balance, December 31, 1997 $0.2 $26.7 $160.2 $(1.5) $185.6 ==== ===== ====== ===== ======
See Notes to Consolidated Financial Statements. F-6 M&F WORLDWIDE CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in millions)
Year Ended December 31, -------------------------------------- 1997 1996 1995 ------- ------ ------ Cash flows from operating activities Net income $ 22.5 $168.5 $ 11.3 Adjustments to reconcile net income to net cash flows provided by operating activities: Income from operations of discontinued businesses -- (4.4) (16.9) Gain on sale of discontinued businesses -- (153.7) -- Extraordinary loss -- -- 1.6 Depreciation and amortization 6.7 0.5 1.1 Changes in assets and liabilities net of assets and liabilities Total current assets transferred, sold or acquired Increase in trade accounts receivable 0.8 0.9 -- Decrease in net assets held for sale -- -- 5.2 Increase in inventories (4.8) (0.1) -- Increase (decrease) in accounts payable and accrued expenses 0.7 0.9 (25.1) Other, net (0.6) (4.4) 6.0 ------- ------ ------ Cash provided by (used in) operating activities 25.3 8.2 (16.8) ------- ------ ------ Cash flows used in investing activities Proceeds from sale of discontinued operations, net -- 196.8 -- Capital expenditures (2.3) (0.2) -- Acquisition of Flavors, net of cash acquired -- (178.4) -- Transfer of cash in Abex Merger -- -- (181.2) Investment in Peoples' Republic of China companies (1.9) -- -- ------- ------ ------ Cash (used in) provided by investing activities (4.2) 18.2 (181.2) ------- ------ ------ Cash flows used in financing activities Repayment of borrowings (105.6) (25.1) (31.1) Net short term borrowings 1.0 -- -- Proceeds from revloving credit facility 82.1 7.3 -- Preferred stock dividends paid (1.2) (1.6) (0.9) Deferred cash payment to MCG (3.7) -- -- Other, net 1.2 (1.3) -- ------- ------ ------ Cash used in financing activities (26.2) (20.7) (32.0) ------- ------ ------ Effect of exchange rate on cash (0.2) -- -- Net (decrease) increase in cash and cash equivalents (5.3) 5.7 (230.0) Cash and cash equivalents at beginning of year 5.7 -- 230.0 ------- ------ ------ Cash and cash equivalents at end of year $ 0.4 $ 5.7 $ 0.0 ======= ====== ====== Supplemental schedule of cash flow information: Interest paid $ 10.4 $ 0.3 $ 4.0 Taxes paid 1.6 2.7 2.3
See Notes to Consolidated Financial Statement. F-7 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1. BACKGROUND AND BASIS OF PRESENTATION M&F Worldwide Corp. (formerly Power Control Technologies, Inc.) ("M&F Worldwide" or the "Company") was incorporated in Delaware on June 1, 1988 and is a holding company which conducts its operations through its wholly-owned subsidiary Pneumo Abex Corporation ("Pneumo Abex"). M&F Worldwide has been a public company since June 15 1995 when shares of its common stock, par value $.01 per share (the "M&F Worldwide Common Stock"), were publicly distributed (the "M&F Worldwide Distribution") to existing stockholders of Abex Inc. ("Abex"), M&F Worldwide's former parent, in connection with the merger (the "Abex Merger") of Abex and a wholly-owned subsidiary of Mafco Holdings Inc. ("Holdings") and the related transfer (the "Transfer") to subsidiary of Mafco Consolidated Group Inc. ("MCG") of substantially all of Abex's consolidated assets and liabilities, other than those relating to its Abex NWL Aerospace Division ("Aerospace"), which continued to be owned by M&F Worldwide. On July 16, 1992, Abex was spun off (the "Abex Distribution") from the Henley Group Inc. ("Henley Group"). Following the Abex Distribution and prior to the M&F Worldwide Distribution, Abex through M&F Worldwide, sold three of its five operating divisions and combined the two others to form Aerospace. Prior to July 16, 1992, M&F Worldwide was an indirect wholly-owned subsidiary of Henley Group. The assets of Aerospace were subsequently sold (the "Aerospace Sale") in April 1996 (see Note 4). On June 15, 1995, the Company transferred cash and other assets and liabilities to MCG The assets and liabilities transferred were as follows: Accounts receivable, net $ 3.3 Working capital items, net 1.6 Property and equipment, net 13.9 Other assets and liabilities, net (79.3) Accounts payable (0.2) Accrued liabilities (52.1) Dividend (68.4) -------- Cash transferred $(181.2) In addition to the transfer of cash and other assets and liabilities, the Company issued $20.0 par value of 8% cumulative, redeemable convertible preferred stock (the "Preferred Stock") to MCG (see Note 9). On November 25, 1996, MCG and M&F Worldwide consummated the transactions contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement"). Pursuant to the Purchase Agreement, among other things, all the issued and outstanding shares (the "Shares") of capital stock of Flavors Holdings Inc. ("Flavors"), a wholly-owned subsidiary of MCG were acquired by the Company (see Note 3). F-8 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Flavors produces a variety of licorice products from licorice root, licorice extract produced by others and certain other flavor ingredients at its facilities in Camden, New Jersey and Gardanne, France. Approximately 72% of Flavors' licorice sales are to the worldwide tobacco industry for use as flavoring and moistening agents in the manufacture of American blend cigarettes as well as other tobacco products (moist snuff, chewing tobacco and pipe tobacco). While licorice extract represents a small percentage of the total cost of manufacturing American blend cigarettes and other tobacco products, the particular formulation and quantity used by each brand is an important element in the brand's flavor. Flavors also sells licorice extract to worldwide confectioners, food processors and pharmaceutical manufacturers for use as flavoring or masking agents. In addition, Flavors sells licorice root residue as a garden mulch under the name Right Dress. Flavors manufactures and sells other non-licorice products which include natural flavors, spices and botanicals that are used as flavoring ingredients in food and tobacco products. For financial reporting purposes, M&F Worldwide is considered the successor to Abex Inc.; therefore, financial information presented for periods prior to June 15, 1995 represent Abex Inc.'s results. The historical financial statements prior to June 15 include in continuing operations expenses related to Abex Inc.'s former corporate office and other income and expenses related to assets and liabilities transferred to MCG. As a result of the Aerospace Sale on April 15, 1996 (see Note 4), the Company has classified the results of the aerospace segment as discontinued operations for all periods presented. From November 25, 1996, the Company's financial statements reflect the operations of Flavors. 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all material intercompany accounts and transactions. The Company accounts for its investments in affiliates on the equity method. USE OF ESTIMATES: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION: Sales are recorded when title passes to customers. CASH EQUIVALENTS: Cash equivalents with maturities of 90 days or less (primarily short term money market funds) are carried at cost which approximates market. F-9 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) INVENTORIES: Inventories are stated at the lower of cost or market value. Cost is determined principally by the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at cost and depreciated on a straight-line basis over the estimated useful lives of such assets ranging from 4 to 20 years. Leasehold improvements are amortized over their estimated useful lives or the terms of the leases, whichever is shorter. Repairs and maintenance are charged to operations as incurred, and expenditures for additions and improvements are capitalized. INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED: Intangible assets, including goodwill and product formulations, relate to the Flavors Acquisition and are being amortized on a straight-line basis over 40 years. Accumulated amortization aggregated $4.7 and $0.4 at December 31, 1997 and 1996, respectively. The Company's accounting policy regarding the assessment of the recoverability of the carrying value of goodwill is to review the carrying value of goodwill if the facts and circumstances suggest that they may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted future cash flows of the Company, the carrying value of goodwill will be reduced to their estimated fair value. INCOME (LOSS) PER COMMON SHARE: In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with the basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effect of stock options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts have been restated to conform to SFAS 128 requirements where appropriate (See Note 19). F-10 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) INCOME TAXES: The Company computes income taxes under the liability method. Under the liability method, deferred income taxes are generally determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Net deferred tax assets are recorded when it is more likely than not that such tax benefits will be realized. PENSION PLANS: The Company has pension plans which cover certain current and former employees who meet eligibility requirements. Benefits are based on years of service and, in some cases, the employee's compensation. The Company's policy is to contribute annually the minimum amount required pursuant to the Employee Retirement Income Security Act. Plan assets are principally invested in common stocks, mutual funds, fixed income securities and cash equivalents. The Company also maintains a 401(k) plan for its non-union employees. Subsidiaries outside the United States have retirement plans that provide certain payments upon retirement. RESEARCH AND DEVELOPMENT: Research and development expenditures are attributable to Flavors and expensed as incurred. The amounts charged against income were not significant in 1997 and 1996. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign operations are translated into U.S. dollars at the rates of exchange in effect at the balance sheet date. Income and expense items are generally translated at the average exchange rates prevailing during the period presented. Gains and losses resulting from foreign currency transactions are included in the results of operations and those resulting from translation of financial statements are recorded as a component of stockholders' equity. STOCK-BASED COMPENSATION: In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123, encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. (See Note 10). F-11 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 3. FLAVORS ACQUISITION On November 25, 1996, MCG and M&F Worldwide consummated the transactions contemplated by the Purchase Agreement, by and among MCG, M&F Worldwide and M&F Worldwide International Holdings Inc. ("Purchaser"), a Delaware corporation and wholly-owned subsidiary of M&F Worldwide. Pursuant to the Purchase Agreement, Purchaser acquired from MCG (the "Flavors Acquisition"), all the shares of Flavors and 23,156,502 Value Support Rights (each a "VSR", and collectively, the "VSRs") issued pursuant to a Value Support Rights Agreement (the "VSR Agreement"), dated November 25, 1996 between MCG and American Stock Transfer & Trust Company, as trustee. On December 31, 1996, the Company distributed to its stockholders the VSRs received as part of the Flavors Acquisition. In consideration for the Shares and VSRs, Purchaser paid MCG cash in the amount of $180.0. In addition, Purchaser paid MCG deferred cash payments of $3.7 on June 30, 1997 and $3.5 on January 2, 1998. Each of the Purchase Agreement and VSR Agreement were unanimously approved by the Boards of Directors of MCG and M&F Worldwide and, in the case of M&F Worldwide, by a Special Committee of independent directors formed for the purpose of considering the transaction. MCG owns approximately 30% of the outstanding shares of M&F Worldwide Common Stock and all of the Preferred Stock with an aggregate liquidation preference of $20.0 (see Note 9). Immediately following the Flavors Acquisition, Mafco Worldwide, a wholly-owned subsidiary of Flavors, through a series of transactions merged with and into Pneumo Abex, with Pneumo Abex being the surviving corporation and Pneumo Abex becoming a wholly-owned subsidiary of Flavors. The Flavors Acquisition was accounted for using the purchase method of accounting. The allocation of the purchase price to assets and liabilities was based on their respective fair values at November 25, 1996. The purchase price and expenses associated with the acquisition exceeded the fair value of Flavors' net assets by $95.1 and has been assigned to goodwill, which is being amortized over forty years on the straight-line basis. The fair values of the assets and liabilities acquired are summarized below: Current assets $ 63.3 Noncurrent assets 260.2 Current liabilities (22.8) Noncurrent liabilities (111.5) ------ $189.2 ====== The following unaudited pro forma consolidated financial information gives effect to the Flavors Acquisition, the Abex Merger and Transfer and the Aerospace Sale as if such transactions occurred on January 1, 1995. These pro forma results include certain adjustments, primarily increased depreciation and amortization and decreased interest and tax expense, and are not necessarily indicative of what the results would have been had the acquisition occurred on January 1, 1995. F-12 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31 ------------------- 1996 1995 ----- ------ Net sales $103.4 $103.2 Income from continuing operations 20.9 13.8 Net income 20.9 13.8 Basic income per share .93 .59 Diluted income per share .90 .59
4. DISCONTINUED OPERATIONS On April 15, 1996, the Company consummated the Aerospace Sale, pursuant to which it sold to Parker Hannifin Corporation ("Parker Hannifin") its Aerospace operations including substantially all of its assets for aggregate cash consideration of $201.1, before transaction costs of approximately $4.3. As a result of the Aerospace Sale, the Company has classified the results of operations of the aerospace segment as discontinued for all periods presented. The Company recorded a gain of $153.7 related to this sale, net of transaction costs. In connection with the Aerospace Sale, Parker Hannifin, the buyer, assumed the operating liabilities of Aerospace, including the existing debt of the Company. 5. INVENTORIES Inventories consisted of the following:
DECEMBER 31, -------------------- 1997 1996 ------ ----- Raw materials $36.6 $32.2 Work-in-progress 0.6 0.4 Finished goods 12.8 13.4 ----- ----- $50.0 $46.0 ===== =====
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
DECEMBER 31, -------------------- 1997 1996 ---- ---- Land $ 1.7 $ 1.7 Buildings 7.7 7.5 Machinery and equipment 18.7 16.9 Construction-in-progress 0.1 0.4 ------ ------ 28.2 26.5 Accumulated depreciation (2.4) (0.2) ------ ------ $25.8 $26.3 ====== ======
F-13 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Depreciation expense was $2.3 and $0.2 in 1997 and 1996, respectively. 7. INCOME TAXES Information pertaining to the Company's income (loss) from continuing operations before income taxes and the applicable provision for income taxes is as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ----- ----- ------ Income (loss) from continuing operations before income taxes: Domestic $24.1 $10.2 $(4.0) Foreign 1.8 0.4 - ----- ----- ------ $25.9 $10.6 $(4.0) ===== ===== ===== 1997 1996 1995 ---- ---- ---- Provision for income taxes: Current: Federal $1.0 $ - $ - State and local 1.0 0.1 - Foreign 0.7 0.1 - ---- ---- --- 2.7 0.2 - Deferred: Federal $ - $ - $ - State and local 0.4 - - Foreign 0.3 - - ---- ---- --- $3.4 $0.2 $- ==== ==== ==
The Company did not record a benefit on the losses from continuing operations in 1995 as it was not assured that it would be able to realize benefit for such losses in the future. There were no income taxes provided in connection with the Aerospace Sale in 1996 as the tax bases of the assets and liabilities sold exceeded the net proceeds and resulted in a tax loss. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows: F-14 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
DECEMBER 31, ------------------- 1997 1996 ------ ------- Deferred tax assets: Inventory $ 0.6 $ - Accrued expenses and other liabilities 2.0 2.1 Debt - 4.6 Net operating loss carryforwards 64.7 67.9 Capital loss carryforwards 7.0 7.0 Minimum tax carryforward 0.2 - ----- ----- Total deferred tax asset 74.5 81.6 Valuation allowance (29.5) (38.2) ----- ----- Total deferred tax asset net of valuation allowance 45.0 43.4 Deferred tax liabilities: Property, plant and equipment 0.8 0.9 Pension asset 5.9 5.1 Intangibles 2.0 0.7 Other 0.2 0.1 ------ ------ Total deferred tax liability 8.9 6.8 ------ ------ Net deferred tax asset $36.1 $36.6 ===== =====
In connection with the Flavors Acquisition purchase price allocation, the Company has reduced the valuation allowance on net deferred tax assets. Based upon the historical results of Flavors projected for a period which takes into consideration the current operating environment in the tobacco industry, the Company believes that it is more likely than not that it will be able to utilize these benefits. The effective tax rate on income from continuing operations before income taxes varies from the current statutory federal income tax rate as follows:
1997 1996 1995 ----- ---- ---- Statutory rate 35.0% 35.0% (35.0)% State and local taxes, net 5.6 0.6 - Alternative minimum tax 0.9 - - Foreign tax in excess of U.S. 1.6 - - (Decrease) increase in valuation allowance (33.1) (4.8) 35.0 Benefit of tax loss - discontinued operations - (28.9) - Other 3.2 - - ------ ------- ------ 13.1% 1.9% - % ====== ====== ======
The Company had available Federal net operating loss carryforwards of approximately $184.7 and $194.0 at December 31, 1997 and 1996, respectively, which expire in the years 2000 through 2011. F-15 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) In order to protect the availability of the Company's net operating loss carryforwards, the M&F Worldwide charter prohibits, subject to certain exceptions, transfers of M&F Worldwide Common Stock until such date as fixed by the Board of Directors of M&F Worldwide to any person who owns, or after giving effect to such transfer would own, at least 5% of the outstanding M&F Worldwide Common Stock. The Company has been advised by counsel that the transfer restriction in the M&F Worldwide charter is enforceable. The Company intends to take all appropriate action to preserve the benefit of the restriction including, if necessary, the institution of legal proceedings seeking enforcement. In connection with the Abex Merger and the Transfer, MCG and the Company entered into a tax sharing agreement. Under the indemnification provisions of the tax sharing agreement and with respect to periods ending on or prior to June 15, 1995, MCG will generally be required to pay any tax liabilities of the Company, except for foreign income taxes related to the Aerospace division. 8. AUTHORIZED CAPITAL STOCK M&F Worldwide's authorized capital stock consists of 250,000,000 shares of common stock, par value $0.01 per share, of which 20,656,502 shares were outstanding at December 31, 1997 and 1996 and 250,020,000 shares of preferred stock, par value $0.01 per share, 20,000 of which were outstanding at December 31, 1997 and 1996. The M&F Worldwide Common Stock is issuable in one or more series or classes, any or all of which may have such voting powers, full or limited, or no voting powers, and such designations, preferences and related participating, optional or other special rights and qualifications, limitations or restrictions thereof, are set forth in the Company's Certificate of Incorporation or any amendment thereto, or in the resolution providing for the issuance of such stock adopted by the Company's Board of Directors, which is expressly authorized to set such terms for any such issue. 9. REDEEMABLE PREFERRED STOCK In connection with the Abex Merger, as of June 15, 1995, the Company issued $20 face amount of Preferred Stock. The Preferred Stock has a liquidation value of $1,000 per share (the "Liquidation Value"), plus an amount equal to all accrued and unpaid dividends to the date of final distribution. Dividends on the Preferred Stock are cumulative and payable quarterly in arrears at an amount per share equal to $20 per $1,000 Liquidation Value from and after June 16, 1995. All dividends are payable in cash. The Preferred Stock is non-voting, except as required by law and as follows: (i) in the event M&F Worldwide defaults on the equivalent of six quarterly dividends, the M&F Worldwide Board of Directors ("M&F Worldwide Board") shall be increased by two, and holders of the Preferred Stock shall have the exclusive right to elect two directors to the M&F Worldwide Board, such right to remain in effect until all accumulated dividends have been paid in full and dividends have been paid regularly for at least a year; (ii) in the event M&F Worldwide defaults on its mandatory redemption obligation, the M&F Worldwide Board shall be increased by two, and holders of the Preferred Stock shall have the exclusive right (in addition to all other rights) to elect two directors to the M&F F-16 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Worldwide Board, such right to remain in effect until such default is cured; and (iii) the affirmative vote of holders of the Preferred Stock representing at least 662/3% of the aggregate voting power as a separate class shall be required for (x) the authorization of any preferred stock having a preference as to dividends or in liquidation over the Preferred Stock, and (y) the adoption of any amendment to the M&F Worldwide charter if such amendment materially affects any of the rights, preferences or privileges of the holders of the Preferred Stock. The Preferred Stock is convertible, at the option of the holder, at any time after 90 days from June 16, 1995, into shares of M&F Worldwide Common Stock at a rate of 125 shares of M&F Worldwide Common Stock for each share of Preferred Stock, subject to adjustment (as so adjusted, the "Common Stock Conversion Rate"). The Common Stock Conversion Rate is subject to appropriate antidilution adjustment in certain situations including payment of dividends or distributions in shares of M&F Worldwide Common Stock, any subdivision, reclassification or combination of shares of M&F Worldwide Common Stock, or certain rights offerings and similar issuances for consideration valued at less than the market value of the M&F Worldwide Common Stock. M&F Worldwide, at its sole option at any time after 90 days from June 15, 1995, may redeem the Preferred Stock for an amount with respect to each share of Preferred Stock equal to (i) the sum of the Liquidation Value thereof and all accrued and unpaid dividends thereon to the redemption date plus (ii) an amount equal to interest on the amount determined in clause (i) at 8% per annum, compounded on a quarterly basis, from the date the redemption amount is otherwise due and payable (without regard to whether M&F Worldwide may legally redeem such shares) to the date the redemption amount is actually paid. The Preferred Stock is redeemable at the option of the holder of the Preferred Stock in the event of a Change of Control, as defined. 10. STOCK AND OTHER PLANS M&F Worldwide established two stock plans, one in 1995 and one in 1997, (the "Stock Plans") which provide for the grant of awards covering up to 2.0 million shares of M&F Worldwide Common Stock, which would, if used in full, represent approximately 10% of the outstanding M&F Worldwide Common Stock of the Company subject to adjustment in the event of stock dividends, split-ups, recapitalization and similar transactions. During 1995, the Compensation Committee granted non-statutory stock options (NSO's) covering 0.59 million shares at a price of $6.25 per share which equaled the market price of the underlying stock on the date of grant and as a result, no compensation cost was recognized. None of the options were exercised and in connection with the Aerospace Sale in 1996, all outstanding options under the Stock Plan were canceled. The pro forma impact of accounting for the stock options under the fair value method prescribed by SFAS 123 was not material to net income and net income per share for the years ended December 31, 1996 and 1995. During 1995, the Company recognized $0.9 of compensation expense related to the previous Abex Inc. stock plan. In connection with the Abex Merger, 1.49 million stock appreciation rights and twenty thousand restricted units held by former Abex employees and directors were converted into 0.9 F-17 million shares of M&F Worldwide Common Stock and the plans under which such shares were issued were terminated. During 1997, the Company issued 1.6 million non-qualified stock options at a price ranging from $7.375 - $7.625 per option, including a grant of 0.5 million options to the Chairman of the Executive Committee of the Board of Directors for services rendered and to be rendered to the Company. All of these options were outstanding at December 31, 1997, but none were exercisable. The options vest one-third each year beginning on the first anniversary of the grant date and become fully vested on the third anniversary of the grant date, except for 0.5 million options which vest on the fifth anniversary of their grant date. The weighted average remaining contractual life of the options outstanding at December 31, 1997 was 9.2 years. The weighted average grant date fair value of options granted during 1997 was $2.89 per option. The exercise price of the stock options issued were equal to the market value of the Company's stock on the dates of grant and accordingly, no compensation cost has been recognized for stock options issued. Had compensation cost for the stock options issued by the Company been determined based on the fair value at grant date for awards in 1997 consistent with the provisions of SFAS 123, the Company's net income and income per share for the year ended December 31, 1997 would have been reduced to the pro forma amounts indicated below: Net income - as reported $22.5 Net income - pro forma 21.4 Basic income per share - as reported 1.01 Diluted income per share - as reported .96 Basic income per share - pro forma .96 Diluted income per share - pro forma .92 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for grants under the stock plans in 1997: dividend yield of 0.0%; expected volatility of 21%; risk-free interest rate of 6.49%; and expected life of 7 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 11. PENSION PLANS Certain current and former employees are covered under various retirement plans. Plans covering salaried employees generally provide pension benefits based on years of service and compensation. Plans covering hourly employees and union members generally provide stated benefits F-18 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) for each year of credited service. Plan assets are invested primarily in common stocks, mutual funds, fixed income securities and cash equivalents. The Company's funding policy is to contribute annually the statutory required minimum amount as actuarially determined. The following table reconciles the funded status of the Company's significant pension plans from continuing operations as of the dates indicated:
DECEMBER 31, -------------------- 1997 1996 ---- ---- Actuarial present value of benefit obligation: Accumulated benefit obligation (includes vested benefits of $123.5 and $119.2) $123.7 $119.4 ====== ====== Plan assets at fair value $154.8 $150.3 Less: Projected benefit obligation for service rendered to date (125.3) (121.1) ------ ------ Plan assets in excess of projected benefit obligation 29.5 29.2 Unrecognized prior service cost 0.2 - Unrecognized net gain (12.1) (15.0) ------- ------- Net pension asset $ 17.6 $ 14.2 ====== ======
The Company has an unfunded supplemental benefit plan to provide salaried employees with retirement benefits which were limited by U.S. income tax regulation. In addition, the Company has an unfunded benefit plan which provides benefits to certain former employees of the Company. The projected benefit obligations, after adjusting for prior service costs and unrecognized actuarial gains and losses for the plans included in other liabilities, were $1.5 at December 31, 1997 and 1996. The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligations was 7.5% as of December 31, 1997 and 1996. The rate of increase in future compensation levels reflected in the determination of the Company's salaried plans the supplemental benefit plan was 4%-5% for 1997 and 4.5%-5% for 1996. Certain employees of the Company are covered under a union pension plan which provides for a benefit accrual based upon a flat dollar amount for each year of credited service. The expected long-term rate of return on assets for the non-union plans was 9% in 1997, 8%-9% in 1996 and 9% in 1995 and 9% for the union pension plans for 1997 and 1996. Unrecognized items are amortized over the estimated remaining service lives of active employees. In connection with the sale of Aerospace, the Company transferred $70.6 in plan assets to Parker Hannifin and recognized curtailment gain in accordance with SFAS 88 of $4.5 in 1996 which is included in the gain on sale of discontinued aerospace business. Net periodic pension income, included in selling, general and administrative expenses, consisted of the following components: F-19 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------- 1997 1996 1995 ----- ----- ----- Service cost-benefits earned during the period $ 0.3 $ 0.3 $ -- Interest cost on projected benefit obligation 8.7 8.8 8.1 Actual gain on plant assets (12.8) (23.1) (20.2) Net amortizations and deferrals 0.8 11.3 10.4 ------- ------- ------- Net pension income $ (3.0) $ (2.7) $ (1.7) ======= ======= =======
12. SHORT-TERM BORROWING AND LONG-TERM DEBT The Company's French subsidiary has credit agreements renewable annually with two banks whereby it may borrow up to fourteen million French francs (approximately $2.3 at December 31, 1997) for working capital purposes. At December 31, 1997, approximately $1.0 was borrowed and at December 31, 1996 no amounts were borrowed which is included in short term borrowings on the consolidated balance sheet. These borrowings bear interest of 5.20% at December 31, 1997. In addition, $0.3 of this facility was reserved for letters of credit at December 31, 1997. The Company's subsidiary in the Peoples' Republic of China has short term borrowings, the balance of which was not significant at December 31, 1997. Long-term debt consisted of the following:
DECEMBER 31, ---------------------- 1997 1996 ---- ---- Revolving Credit Facility $76.6 $ - Senior Credit: Revolving Credit Loans - 7.3 11 7/8 Senior Subordinated Notes Due 2002 - 92.8 ------- -------- $76.6 $100.1 ======= ========
In connection with the Flavors Acquisition, the Company assumed debt under a term and revolving credit facility (the "Senior Credit") totaling $25.1 and 11 7/8% Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes") with a principal value of $85.0 and fair value of approximately $92.8. The Senior Subordinated Notes were to mature on November 15, 2002, and were not subject to redemption through the operation of a sinking fund. The Senior Subordinated Notes were redeemed on November 15, 1997 at 105.95% of principal amount. The Senior Credit was entered into in June 1994 between Pneumo Abex and a group of lenders. It was originally comprised of $30.0 in Tranche A Loans, $20.0 in Tranche B Loans and $25.0 in Revolving Credit Loan commitments (the "Revolving Credit Loans"). The Tranche A and Tranche B loans were repaid in full on December 31, 1996 and in February 1997 the Senior Credit was amended to reduce the Revolving Credit Loans to $12.5. At December 31, 1996, $7.3 was borrowed under the Revolving Credit Loans and $2.3 was reserved for lender guarantees on outstanding letters of credit. F-20 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) In November 1997, Pneumo Abex entered into a five-year $120.0 revolving credit facility (the "Revolving Credit Facility") with a group of banks to finance the redemption of all of its outstanding Senior Subordinated Notes and for working capital and other general corporate purposes. At December 31, 1997, $76.6 was borrowed under the Revolving Credit Facility and $23.5 was reserved for lender guarantees on outstanding letters of credit. The Revolving Credit Facility permits Pneumo Abex to choose between various interest rate options and to specify the interest rate period to which the interest rate options are to apply, subject to certain parameters. Borrowing options available are (i) the Alternate Base Rate Loans (as defined) and (ii) Eurodollar Loans (as defined) plus a borrowing margin (0.875% at December 31, 1997). The borrowing margin is adjusted quarterly based on certain performance ratios. The Revolving Credit Facility provides for a commitment fee of one quarter of one percent per annum on the unused Revolving Credit Facility. The Revolving Credit Facility is guaranteed by Flavors and a domestic subsidiary of Pneumo Abex. The Revolving Credit Facility contains various restrictive covenants which include, among other things, limitations on indebtedness and liens, minimum interest coverage and maximum leverage ratios, operating cash flow maintenance and limitations on the sale of assets. The average interest charged on outstanding Revolving Credit Facility borrowings at December 31, 1997 was 6.80%. The 1995 extraordinary charge of $1.6 relates to premiums on debt retired by the Company prior to the Abex Merger. 13. FINANCIAL INSTRUMENTS Financial instruments that potentially subject the Company to concentrations of credit risk consist of trade accounts receivable. The Company's customers are geographically dispersed, but are concentrated in the tobacco industry. Even though eight of the Company's ten largest customers are in the tobacco industry and accounted for approximately 58% of the Company's net revenues in 1997, Pneumo Abex historically has had no material losses on its trade receivables from customers in the tobacco industry. Probable bad debt losses have been provided for in the allowance for doubtful accounts. From time to time, the Company enters into forward exchange contracts to hedge certain receivables and firm sales commitments denominated in foreign currencies. The effects of movements in currency exchange rates on these instruments are recognized when the related operating revenue is recognized. Realized gains and losses on foreign currency contracts are included in the underlying asset or liability being hedged and recognized in There were no contracts outstanding at December 31, 1997 and 1996. The carrying amounts for cash and cash equivalents, trade accounts receivable, accounts payable, accrued liabilities and long-term debt approximate fair value. 14. COMMITMENTS AND CONTINGENCIES Rental expense, which includes rent for facilities, equipment and automobiles under operating leases expiring through 2002, amounted to $0.6 for the year ended December 31, 1997. Rental expense was not significant for the year ended December 31, 1996 from the date of the Flavors F-21 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Acquisition. Future minimum rental commitments for operating leases with noncancelable terms in excess of one year from December 31, 1997 are as follows: 1998 $0.3 1999 0.3 2000 0.3 2001 0.3 2002 0.1 Thereafter - ------ $1.3 ====== The Company had outstanding letters of credit totaling $23.8 and $23.1 at December 31, 1997 and 1996, respectively. Restricted cash of $0.1 and $1.7 at December 31, 1997 and 1996, respectively, included in other assets reflects segregated cash held for the benefit of certain parties to cover certain insurance obligations. At December 31, 1997, the Company had obligations to purchase approximately $6.9 of raw materials. The Company is indemnified by third parties with respect to certain of its contingent liabilities, such as certain environmental and asbestos matters, as well as certain tax and other matters. In connection with the Abex Merger, a subsidiary of Abex, M&F Worldwide, Pneumo Abex and certain other subsidiaries of M&F Worldwide entered into a transfer agreement (the "Transfer Agreement"). Under the Transfer Agreement, substantially all of Abex's consolidated assets and liabilities, other than those relating to Aerospace, were transferred to a subsidiary of MCG, with the remainder being retained by Pneumo Abex. The Transfer Agreement provides for appropriate transfer, indemnification and tax sharing arrangements, in a manner consistent with applicable law and existing contractual arrangements. The Transfer Agreement requires such subsidiary of MCG to undertake certain administrative and funding obligations with respect to certain asbestos claims and other liabilities, including environmental claims, retained by Pneumo Abex. The Company will be obligated to make reimbursement for the amounts so funded only when amounts are received by the Company under related indemnification and insurance agreements. Such administrative and funding obligations would be terminated as to asbestos products claims in the case of a bankruptcy of Pneumo Abex or M&F Worldwide or of certain other events affecting the availability of coverage for such claims from third party indemnitors and insurers. Prior to 1988, a former subsidiary of the Company manufactured certain asbestos-containing friction products. Pneumo Abex has been named, typically along with 10 to 30 other companies, as a defendant in various personal injury lawsuits claiming damages relating to exposure to asbestos. Pursuant to indemnification agreements, Whitman Corporation ("Whitman") has retained ultimate responsibility for all asbestos-related claims made through August 1998 and for certain asbestos-related claims asserted thereafter. In connection with the sale by Abex in December 1994 of its Friction Products Division, a subsidiary of Cooper Industries, Inc. assumed responsibility for substantially all F-22 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) of the asbestos-related claims made after August 1998. Pneumo Abex maintained product liability insurance covering substantially all of the period during which asbestos-containing products were manufactured. Pursuant to court rulings and interim agreements reached with certain insurance carriers, insurers are reimbursing approximately 90% of the aggregate defense and settlement costs associated with such claims, and Pneumo Abex continues to seek recovery of the remaining amount of unreimbursed costs from its carriers in an ongoing insurance coverage litigation commenced in 1982. As of December 31, 1997, there was approximately 34,000 pending claims, and MCG has approximately $9.2 in unreimbursed costs pending receipt from the insurance carrier or Whitman. Pneumo Abex is unable to forecast either the number of future asbestos-related claimants or the amount of future defense and settlement costs associated with present or future asbestos-related claims. The Transfer Agreement further provides that MCG will indemnify Pneumo Abex with respect to all environmental matters associated with Abex's former operations to the extent not paid by third party indemnitors or insurers, other than the operations relating to Pneumo Abex's Aerospace business which was sold to Parker Hannifin in April 1996. Accordingly, environmental liabilities arising after the 1988 Whitman acquisition that relate to Pneumo Abex's former Aerospace facilities will be the responsibility of Pneumo Abex. Whitman is obligated to indemnify Pneumo Abex for costs, expenses and liabilities relating to environmental and natural resource matters to the extent attributable to the pre-1988 operation of the businesses acquired from Whitman, subject to certain conditions and limitations principally relating to compliance with notice, cooperation and other procedural requirements. Whitman is generally discharging its environmental indemnification liabilities in the ordinary course. In addition to the remedial actions as to which Whitman has acknowledged its indemnification responsibilities, Pneumo Abex is party to a number of cases involving tort claims concerning an environmental site alleging exposure to lead for which Whitman has declined to accept responsibility. MCG is managing these cases on behalf of Pneumo Abex, and MCG and Whitman are currently sharing equally the defense costs for such cases, subject to a reservation of their respective rights. It is generally not possible to predict the ultimate total costs relating to any remediation that may be demanded at any of the sites subject to the Whitman indemnity due to, among other factors, uncertainty regarding the extent of prior pollution, the complexity of applicable environmental laws and regulations and their interpretations, uncertainty regarding future changes to such laws and regulations of their enforcement, the varying costs and effectiveness of alternative cleanup technologies and methods, and the questionable and varying degrees of responsibility and/or involvement by Pneumo Abex. However, the aggregate cost to all parties of cleanup and related expenses with respect to matters for which Pneumo Abex, together with numerous other third parties, have been named potentially responsible parties could exceed $150, including approximately $20 in remedial action costs, as estimated by the U.S. Environmental Protection Agency, in respect of one site actively managed and funded by Whitman. On February 5, 1996, the Company, through Pneumo Abex, entered into a reimbursement agreement with Chemical Bank and MCG (the "Reimbursement Agreement"). The Reimbursement Agreement provides for letters of credit totaling $20.8 covering certain environmental issues relating to such site and not related to the current business of Pneumo Abex. The cost of the letters of credit are being funded by MCG and/or Whitman. Pneumo Abex had $20.0 and $20.8 of letters of credit F-23 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) outstanding at December 31, 1997 and 1996, respectively, in connection with the Reimbursement Agreement. The Company has not recognized any liability in its financial statements for matters covered by indemnification agreements. The Company considers these obligations to be those of third-party indemnitors and monitors their financial position to determine the level of uncertainty associated with their ability to satisfy their obligations. Based upon the indemnitors' active management of indemnifiable matters, discharging of the related liabilities when required, and financial positions based upon publicly filed financial statements, as well as the history of insurance recovery set forth above, the Company believes that the likelihood of indemnitors failing to satisfy their obligations is remote. The Transfer Agreement also provides for certain funding indemnification and cooperation arrangements among Pneumo Abex, M&F Worldwide and a subsidiary of MCG in respect of certain liabilities which may arise under the Employee Retirement Security Act of 1974 relating to the sale of Pneumo Abex's friction products division in 1994. On January 2, 1996, M&F Worldwide entered into a settlement agreement with the U.S. Government pursuant to which M&F Worldwide agreed to pay the U.S. Government $12.5 to settle allegations of labor mischarging and related contract disputes relating to Aerospace. On January 8, 1996, pursuant to the terms of such settlement agreement, M&F Worldwide paid such amount to the U.S. Government. The U.S. Government had also asserted a claim of non-compliance with Cost Accounting Standards. In February 1996, M&F Worldwide entered into a settlement agreement with the U.S. Government pursuant to which M&F Worldwide agreed to pay the U.S. Government $0.2 to settle the Cost Accounting Standards non-compliance assertion. On March 11, 1996, pursuant to the terms of such settlement agreement, M&F Worldwide paid such amount to the U.S. Government. In addition, the U.S. Government has asserted claims of defective pricing. Based upon current U.S. Government procurement regulations, under certain circumstances involving defective pricing a contractor can incur fines and penalties, as well as be suspended or debarred from U.S. Government contracts. In addition, various legal proceedings, claims and investigations are pending against M&F Worldwide and Pneumo Abex, including those relating to commercial transactions, product liability, safety and health matters and other matters. M&F Worldwide and Pneumo Abex are involved in various stages of legal proceedings, claims, investigations and cleanup relating to environmental or natural resource matters, some of which relate to waste disposal sites. Most of these matters are covered by insurance, subject to deductibles and maximum limits, and by third-party indemnities. In addition, the U.S. Government has asserted claims of defective pricing relating to certain contracts of the former Aerospace operations. In the opinion of management, based upon the information available at this time, the outcome of the matters referred to above will not have a material adverse effect on the Company's financial position or results of operations. The Company believes that its facilities are well-maintained and are in substantial compliance with environmental laws and regulations. F-24 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 15. RELATED PARTY TRANSACTIONS Under the Transfer Agreement, M&F Worldwide will be reimbursed by MCG for amounts spent in excess of $1.5 during each of the years 1995 (after June 15), 1996, 1997 and 1998 in connection with certain public company costs. The amount spent for such costs in the 1997, 1996 and 1995 periods did not exceed $1.5; therefore, no reimbursement was made. Included in the consolidated statements of income are sales to Consolidated Cigar Corporation ("Cigar"), an affiliate, of $0.3 for the year ended December 31, 1997. Sales to Cigar in 1996 from the date of the Flavors Acquisition were not significant. The Company also purchased inventory of approximately $0.2 from Cigar during 1997. 16. SIGNIFICANT CUSTOMER The Company has a significant customer in the tobacco industry, Philip Morris Companies Inc., which accounted for approximately 30% of 1997 net revenues and 26% of pro forma net revenues in 1996. 17. GEOGRAPHIC SEGMENTS As a result of the sale of Aerospace in 1996, the Company has classified their operations as discontinued in the consolidated financial statements. The discussion below reflects the results of operations of Flavor's licorice extract and other flavoring agents business since November 25, 1996, the date of the Flavors Acquisition. The results of operations data presented below reflects the application of the purchase method of accounting for the Flavors Acquisition. The Company operates in one business segment. Information related to the Company's geographic segments are presented below with the following definitions: Operating profit and identifiable assets are classified as domestic and corporate, respectively, in 1995. Operating profit, as indicated below, represents net sales less operating expenses, amortization of intangibles, foreign currency transaction income (loss) and other income (expense). F-25 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Identifiable assets are those used by each geographic segment. Intangible assets pertain to both foreign and domestic operations and have been included in domestic and foreign identifiable assets as appropriate. Corporate assets are principally domestic cash and cash equivalents, a pension asset and deferred charges.
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ------ ------ Net Sales: Domestic - U.S. $ 58.0 $ 4.8 Export 29.8 3.2 Foreign 12.6 1.5 ------ ----- $ 100.4 $ 9.5 Operating profit: Domestic $ 29.6 $ 2.3 Foreign 2.9 0.3 ------ ----- 32.5 2.6 Interest expense (7.1) (0.9) Interest, investment and other income, net 0.5 8.9 ------ ----- Income from continuing operations before income taxes $ 25.9 $ 10.6 ====== =====
DECEMBER 31, --------------- 1997 1996 ------ ------ Identifiable assets: Domestic (a) $ 259.0 $ 262.5 Foreign 36.2 36.5 Corporate 17.9 19.1 ------ ------ $ 313.1 $ 318.1 ====== ======
- --------------- (a) Includes assets located in foreign countries of $0.8 and $1.6 at December 31, 1997 and 1996. F-26 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 18. UNAUDITED QUARTERLY FINANCIAL INFORMATION The following is a summary of unaudited quarterly financial information for 1997 and 1996:
1997 -------------------------------------------- FIRST SECOND THIRD FOURTH ----- ------ ----- ------ Net Sales $27.2 $24.3 $23.6 $25.3 Net income 5.5 5.6 5.4 6.0 Income per common share (a): Basic $0.25 $0.25 $0.24 $0.27 Diluted $0.24 $0.24 $0.23 $0.26
1996 ------------------------------------------- FIRST SECOND THIRD FOURTH ----- ------ ----- ------ Net Sales (b) $ - $ - $ - $9.5(c) Gross profit (b) - - - 2.9(c) Income from continuing operations 0.3 2.9 3.5 3.7 Income from discontinued operations 4.4 153.7(d) - - Net income 4.7 156.6(d) 3.5 3.7 Basic and diluted income per common share (a): Income from continuing operations $ - $0.12 $0.15 $0.16 Income from discontinued operations 0.21 7.44(d) - - ------ ------ ------- ------ Net income $0.21 $7.56 $0.15 $0.16 ===== ===== ===== =====
- -------------- (a) All quarterly income per share amounts for 1996 and 1997 have been restated to conform with the provisions of SFAS 128. The sum of diluted income per common share for the quarterly periods during 1997 differs from the diluted income per common share for the year ended December 31, 1997 as reported in the consolidated statements of income due to the use of an average stock options outstanding calculation for the annual period. (b) Quarterly net sales and gross profit reflect the reclassification of Aerospace to discontinued operations. (c) Net sales and gross profit reflect the Flavors Acquisition on November 25, 1996. (d) Reflects the gain of sale of Aerospace in April 1996. F-27 M&F WORLDWIDE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 19. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996(A) 1995(A) ---- ------- ------- Numerator: Income (loss) from continuing operations, net of taxes $ 22.5 $ 10.4 $ (4.0) Preferred stock dividends (1.6) (1.6) (0.9) --------- --------- --------- Numerator for basic earnings per share: Income available to common stockholders: Continuing operations 20.9 8.8 (4.9) Discontinued operations -- 158.1 16.9 Extraordinary item -- -- (1.6) --------- --------- --------- Net income $ 20.9 $ 166.9 $ 10.4 ========= ========= ========= Numerator for diluted earnings per share: Income available to common stockholders Continuing operations $ 22.5 $ 8.8 $ (4.9) Discontinued operations -- 158.1 16.9 Extraordinary item -- -- (1.6) --------- --------- --------- Net income $ 22.5 $ 166.9 $ 10.4 ========= ========= ========= Denominator (in millions): Basic earnings per share-weighted average shares 20.7 20.7 20.3 Effect of dilutive securities: Convertible preferred stock 2.5 -- -- Employee stock options 0.2 -- -- --------- --------- --------- Diluted earnings per share-weighted average shares and assumed conversions 23.4 20.7 20.3 ========= ========= ========= Basic earnings per share: Continuing operations $ 1.01 $ 0.43 $ (0.24) Discontinued operations -- 7.64 0.83 Extraordinary item -- -- (0.08) --------- --------- --------- Available to common stockholders $ 1.01 $ 8.07 $ 0.51 ========= ========= ========= Diluted earnings per share: Continuing operations $ 0.96 $ 0.43 $ (0.24) Discontinued operations -- 7.64 0.83 Extraordinary item -- -- (0.08) --------- --------- --------- Available to common stockholders $ 0.96 $ 8.07 $ 0.51 ========= ========= =========
(a) Basic and diluted earnings per share for the years ended December 31, 1996 and 1995, are equivalent, as the effect of the convertible preferred stock is antidilutive in 1996 and there is a loss from continuing operations in 1995. F-28 Schedule I - Condensed Financial Information of Registrant Balance Sheet (Parent Only) (Dollars in millions, except per share data)
December 31, --------------------- 1997 1996 ASSETS Current assets: Cash and cash equivalents $ 0.1 $ 2.2 Prepaid expenses and other -- 0.2 ------ ------ Total current assets 0.1 2.4 Investment in and advances to subsidiaries 200.1 184.6 Receivable from subsidiaries 9.8 7.2 ------ ------ $210.0 $194.2 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accrued expenses $ 0.9 $ 1.0 Deferred cash payments due to MCG 3.5 7.2 ------ ------ Total current liabilities 4.4 8.2 Redeemable preferred stock 20.0 20.0 Stockholders' equity: Common stock, par value $.01; 250,000,000 shares authorized; 20,656,502 shares issued and outstanding in 1997 and 1996 0.2 0.2 Additional paid-in capital 26.7 26.7 Retained earnings 160.2 139.3 Currency translation adjustment (1.5) (0.2) ------ ------ Total stockholders' equity 185.6 166.0 ------ ------ $210.0 $194.2 ====== ======
F-29 Schedule I - Condensed Financial Information of Registrant Consolidated Statement of Income (Parent Only) (Dollars in millions, except per share data)
Year Ended December 31, ----------------------- 1997 1996 ----- ------ General and administrative expenses $ 0.6 $ 1.0 ----- ------ Operating loss 0.6 1.0 Interest, investment and other income, net (0.1) (0.9) ----- ------ Loss from continuing operations before taxes 0.5 0.1 Provision (benefit) for income taxes 0.2 (0.1) ----- ------ Loss from continuing operations 0.7 0.0 Equity in income of subsidiaries 23.2 168.5 ----- ------ Net income 22.5 168.5 ----- ------ Preferred stock dividends (1.6) (1.6) ----- ------ Net income available to common stockholders $20.9 $166.9 ===== ======
Note: There were no restrictions on the transfer of assets during 1995. F-30 Schedule I - Condensed Financial Information of Registrant Consolidated Statement of Cash Flows (Parent Only) (Dollars in millions)
Year Ended December 31, ----------------------- 1997 1996 ------ ------ Cash flows from operating activities Net income $ 22.5 $168.5 Adjustments to reconcile net income to total cash provided by operating activities: Equity in income of subsidiaries in excess of cash distributions (22.7) 168.1 Changes in assets and liabilities: Receivable from subsidiaries 3.3 2.6 Other, net (0.3) 0.8 ------ ------ Cash provided by operating activities 2.8 3.8 ------ ------ Cash flows from financing activities Deferred cash payment to MCG (3.7) -- Preferred stock dividends (1.2) (1.6) ------ ------ Cash used in financing activities (4.9) (1.6) ------ ------ Net increase in cash and cash equivalents (2.1) 2.2 Cash and cash equivalents at beginning of period 2.2 0.0 ------ ------ Cash and cash equivalents at end of period $ 0.1 $ 2.2 ====== ======
Note: There were no restrictions on the transfer of assets during 1995. F-31 EX-10.27 2 CREDIT AGREEMENT Exhibit 10.27 - ------------------------------------------------------------------------------ EXECUTION COPY PNEUMO ABEX CORPORATION (D/B/A MAFCO WORLDWIDE CORPORATION) ---------------- CREDIT AGREEMENT dated as of November 17, 1997 ---------------- CHASE SECURITIES INC., AS ARRANGER THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT BANKBOSTON, N.A., AS DOCUMENTATION AGENT - ------------------------------------------------------------------------------ TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.................................................... 1 1.1 Defined Terms................................................. 1 1.2 Other Definitional Provisions................................. 20 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS............................... 20 2.1 Commitments................................................... 20 2.2 Obligations of the Company.................................... 21 2.3 Procedure for Borrowing Loans................................. 21 2.4 Use of Proceeds of Loans...................................... 22 SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT.......................... 22 3.1 L/C Facility.................................................. 22 3.2 Procedure for Issuance of Letters of Credit................... 23 3.3 Fees, Commissions and Other Charges........................... 23 3.4 L/C Participations............................................ 24 3.5 Reimbursement Obligation of the Company....................... 25 3.6 Obligations Absolute.......................................... 25 3.7 Letter of Credit Payments..................................... 26 3.8 Application................................................... 26 3.9 Existing Letters of Credit.................................... 26 SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES AND PAYMENTS ........... 26 4.1 Voluntary Termination or Reduction of Commitments. .......... 26 4.2 Optional Prepayments.......................................... 27 4.3 Mandatory Prepayments. ...................................... 27 4.4 Interest Rate and Payment Dates............................... 28 4.5 Conversion Options, Minimum Tranches and Maximum Interest Periods............................................. 28 4.6 Inability to Determine Interest Rate.......................... 29 4.7 Illegality.................................................... 30 4.8 Requirements of Law; Changes of Law........................... 30 4.9 Indemnity..................................................... 31 4.10 Taxes........................................................ 32 4.11 Commitment Fees; Other Fees.................................. 34 4.12 Computation of Interest and Fees............................. 34 4.13 Pro Rata Treatment and Payments.............................. 35 4.14 Payments on Account of Loans and Fees........................ 37 SECTION 5. REPRESENTATIONS AND WARRANTIES................................. 37 5.1 Corporate Existence........................................... 37 5.2 Corporate Power............................................... 37 i Page 5.3 No Legal Bar to Loans........................................ 38 5.4 No Material Litigation....................................... 38 5.5 No Default................................................... 38 5.6 Ownership of Properties; Liens............................... 39 5.7 Taxes........................................................ 39 5.8 ERISA........................................................ 39 5.9 Financial Condition.......................................... 40 5.10 No Change.................................................... 40 5.11 Federal Regulations.......................................... 40 5.12 Not an "Investment Company".................................. 40 5.13 Intellectual Property........................................ 40 5.14 Environmental Matters........................................ 41 5.15 Models and Pro Forma Balance Sheet........................... 41 5.16 Disclosure................................................... 42 5.17 Solvency..................................................... 42 5.18 Guarantees................................................... 42 5.19 Matters Relating to Subsidiaries............................. 42 5.20 Labor Matters................................................ 42 5.21 Whitman Indemnity............................................ 43 SECTION 6. CONDITIONS PRECEDENT........................................... 43 6.1 Conditions to Initial Extensions of Credit.................... 43 6.2 Conditions to Each Extension of Credit........................ 46 SECTION 7. AFFIRMATIVE COVENANTS.......................................... 47 7.1 Financial Statements.......................................... 47 7.2 Certificates; Other Information............................... 48 7.3 Payment of Obligations........................................ 49 7.4 Conduct of Business and Maintenance of Existence.............. 49 7.5 Maintenance of Property; Insurance............................ 49 7.6 Inspection of Property; Books and Records; Discussions........ 50 7.7 Notices....................................................... 50 7.8 Maintenance of Corporate Identity............................. 51 7.9 Environmental Laws............................................ 51 7.10 Intellectual Property........................................ 52 SECTION 8. NEGATIVE COVENANTS............................................. 53 8.1 Financial Covenants........................................... 53 8.2 Limitation on Liens........................................... 54 8.3 Limitation on Contingent Obligations.......................... 56 8.4 Limitation on Fundamental Changes............................. 56 8.5 Limitation on Sale of Assets.................................. 57 8.6 Limitation on Restricted Payments............................. 58 8.7 Limitation on Investments, Loans and Advances................. 58 ii Page 8.8 Sale and Leaseback............................................ 59 8.9 Limitation on Transactions with Affiliates.................... 59 8.10 Accounting Changes........................................... 59 8.11 Indebtedness................................................. 60 8.12 Limitation on Modifications of Tax Allocation Agreement...... 60 8.13 Limitation on Negative Pledge Clauses........................ 60 8.14 Limitation on Lines of Business.............................. 61 8.15 Limitation on Restrictions on Subsidiary Distributions....... 61 8.16 Limitation on Activities of Holdings......................... 61 8.17 Limitation on Subsidiaries................................... 61 SECTION 9. EVENTS OF DEFAULT.............................................. 62 SECTION 10. THE ADMINISTRATIVE AGENT...................................... 64 10.1 Appointment.................................................. 64 10.2 Delegation of Duties......................................... 65 10.3 Exculpatory Provisions....................................... 65 10.4 Reliance by the Administrative Agent......................... 65 10.5 Notice of Default............................................ 66 10.6 Non-Reliance on the Administrative Agent and the Other Lenders..................................................... 66 10.7 Indemnification.............................................. 67 10.8 The Administrative Agent in Its Individual Capacity.......... 67 10.9 Successor Administrative Agent............................... 68 10.10 Issuing Lender as Issuer of Letters of Credit............... 68 SECTION 11. MISCELLANEOUS................................................. 68 11.1 Amendments and Waivers....................................... 68 11.2 Notices...................................................... 70 11.3 No Waiver; Cumulative Remedies............................... 71 11.4 Survival of Representations and Warranties................... 71 11.5 Payment of Expenses and Taxes................................ 71 11.6 Successors and Assigns; Loan Participations.................. 72 11.7 Adjustments; Set-off......................................... 75 11.8 Severability................................................. 76 11.9 Releases of Guarantee Obligations............................ 76 11.10 Effectiveness; Counterparts................................. 76 11.11 SUBMISSION TO JURISDICTION; WAIVERS......................... 76 11.12 GOVERNING LAW............................................... 77 iii SCHEDULES Schedule 1.1(A) Lenders; Addresses for Notices Schedule 1.1(B) Commitments Schedule 3.9 Existing Letters of Credit Schedule 5.19 Subsidiaries Schedule 8.2(j) Existing Liens Schedule 8.9 Transactions with Affiliates Schedule 8.11(b) Existing Indebtedness EXHIBITS Exhibit A Form of Note Exhibit B-1 Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison Exhibit B-2 Form of Opinion of General Counsel Exhibit C Form of Assignment and Acceptance Exhibit D-1 Form of Holdings Guarantee Exhibit D-2 Form of Subsidiaries Guarantee iv Exhibit 10.27 CREDIT AGREEMENT, dated as of November 17, 1997, among: PNEUMO ABEX CORPORATION, a Delaware corporation, d/b/a Mafco Worldwide Corporation (the "Company"); the financial institutions from time to time parties hereto (the "Lenders"); THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders; CHASE SECURITIES INC., as arranger; BANKBOSTON, N.A., a national banking association, as documentation agent (in such capacity, the "Documentation Agent") for the Lenders; and CHASE MANHATTAN BANK DELAWARE, as Designated Issuer (as defined below). W I T N E S S E T H : WHEREAS, the Company has requested the Lenders to make revolving extensions of credit to it on the terms and conditions set forth herein in an aggregate principal amount outstanding at any time not to exceed $120,000,000 to finance the redemption (the "Note Redemption") of all of the Company's outstanding 11-7/8% Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes"), and to finance the working capital needs of the Company and its Subsidiaries and for other general corporate purposes; and WHEREAS, the Lenders are willing to make revolving credit extensions to the Company, but only on and subject to the terms and conditions hereof; NOW, THEREFORE in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Lenders and the Administrative Agent hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following respective meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Adjusted Consolidated Net Income" shall mean Consolidated Net Income (plus any non-cash taxes to the extent deducted in the calculation thereof and without giving effect to any push down of purchase accounting adjustments from Holdings); "Adjustment Date" shall have the meaning assigned to such term in the definition of Pricing Grid; 2 "Administrative Agent" shall have the meaning assigned to such term in the preamble hereto; "Affected Loan" shall have the meaning assigned to such term in subsection 0; "Affiliate" of any Person shall mean any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, the first Person. For purposes of this definition, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such first Person or (b) direct or cause the direction of the management and policies of such first Person whether by contract or otherwise; "Aggregate Commitment" shall mean $120,000,000, as such amount may be reduced from time to time pursuant to the terms of this Agreement; "Aggregate Outstanding Extensions of Credit" shall mean, at any time, the amount equal to the sum of (a) the aggregate principal amount of all Loans then outstanding and (b) the aggregate amount of all L/C Obligations then outstanding; "Agreement" shall mean this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time; "Alternate Base Rate" for any day, shall mean a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist; "Alternate Base Rate Loans" shall mean Loans hereunder at such time as such Loans are made and/or being maintained at a rate of interest based upon the Alternate Base Rate; "Applicable Margin" shall mean 0.875% per annum; provided, that on and after the first Adjustment Date, occurring upon the delivery of the consolidated financial statements of the Company and the Subsidiaries for the fiscal period ended December 31, 1997, the Applicable Margin with respect to Loans, will be determined pursuant to the definition of Pricing Grid; 3 "Application" shall mean an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to open a Letter of Credit; "Asset Sale" shall mean any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c) or (d) of subsection 8.5); "Assignment and Acceptance" shall have the meaning assigned to such term in subsection 0; "Available Commitment" at any date, shall mean the amount equal to the difference between (a) the Aggregate Commitment at such date and (b) the Aggregate Outstanding Extensions of Credit at such date; "Bankruptcy Code" shall mean Title 11, United States Code, as amended from time to time; "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Benefitted Lender" shall have the meaning assigned to such term in subsection 0; "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close; "Capital Expenditures" for any period, shall mean all amounts (whether paid in cash or accrued as liabilities, including all obligations in respect of Capital Leases), that would in accordance with GAAP, be set forth as "capital expenditures" on the consolidated statement of cash flows of the Company and its consolidated Subsidiaries for such period; "Capital Lease" shall mean any lease of property (real, personal or mixed) which in accordance with GAAP is or should be capitalized on the lessee's balance sheet; "Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents" shall mean (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition having a term of not more than 4 30 days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-2 by Standard & Poor's Ratings Group or any successor ("S&P") or P-2 by Moody's Investors Service, Inc. or any successor, ("Moody's"), (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States or by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds sponsored by any registered broker dealer or mutual fund distributor; "C/D Assessment Rate" shall mean, for any day, the net annual assessment rate (rounded upward to the nearest 1/100th of 1%) determined by the Administrative Agent to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time deposits made in Dollars at offices of the Administrative Agent in the United States; "C/D Reserve Percentage" shall mean, for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion Dollars in respect of new non-personal time deposits in Dollars in New York City having a maturity of three months and in an amount of $100,000 or more; "Change of Control" shall have occurred if any "person" (as such term is used in Section 13(d) or 14(d) of the Exchange Act) other than (i) Ronald O. Perelman (or in the event of his incompetence or death, his estate, heirs, executor, administrator, committee or other personal representative (collectively, "heirs")) or (ii) any Person controlled, directly or indirectly, by Ronald O. Perelman or his heirs (any such other Person, an "Unrelated Person") or any Unrelated Persons acting as a "group" (as such term is defined in Section 13(d)(3) of the Exchange Act), together with any Affiliates thereof which are Unrelated Persons, (A) shall acquire "beneficial ownership" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of all classes of Voting Stock of the Company then outstanding or (B) shall have elected, or shall have caused to be elected, a sufficient number of its or their nominees to the board of directors of the Company such that the nominees so elected (whether new or continuing directors) shall constitute a majority of the board of directors of the Company; "Closing Date" shall have the meaning assigned to such term in subsection 0; "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time; 5 "Commercial Letter of Credit" shall have the meaning assigned to such term in subsection 3.1; "Commitment" of any Lender at any date shall mean the obligation of such Lender at such date to (a) make Loans to the Company or (b) issue or participate in Letters of Credit on behalf of the Company, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name under the caption "Commitment" on Schedule 1.1(B), as such amount may be reduced from time to time in accordance with the provisions hereof; collectively, as to all Lenders, the "Commitments"; "Commitment Fee Rate" shall mean 1/4 of 1% per annum; provided that on and after the first Adjustment Date, occurring upon the delivery of the consolidated financial statements of the Company and the Subsidiaries for the fiscal period ended December 31, 1997, the Commitment Fee Rate will be determined pursuant to the definition of Pricing Grid; "Commitment Percentage" for any Lender at any time shall mean the percentage of the Aggregate Commitment then constituted by such Lender's Commitment; "Commitment Period" shall mean the period commencing on the Closing Date and ending on the Termination Date; "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code; "Company" shall have the meaning assigned to such term in the preamble hereto; "Consolidated EBITDA" for any fiscal period of the Company shall mean the Consolidated Net Income or Consolidated Net Loss, as the case may be, for such fiscal period, (a) after restoring thereto amounts deducted for (i) extraordinary losses, (ii) depreciation and amortization (including write-offs or write-downs of amortizable and depreciable items), (iii) Consolidated Interest Expense, (iv) "provision for taxes" (or any like caption) on a consolidated statement of earnings of the Company and its Subsidiaries for such fiscal period and (v) any losses in respect of currency fluctuations and (b) after deducting therefrom (i) extraordinary gains (which extraordinary items of gain shall include, whether or not so includable in accordance with GAAP, any item of gain resulting from the sale, lease or other disposition of any principal property of the Company and its Subsidiaries taken as a whole or the Capital Stock of any material Subsidiary of the Company), (ii) the portion of net income of the Company and its Subsidiaries allocable to interests in unconsolidated Persons to the extent that cash dividends or distributions in respect of such portion of net income have not actually been received by the Company or any of its domestic Subsidiaries, (iii) the portion of any extraordinary loss actually paid in cash, but not including the amount of the premium paid by the Company in connection with the Note Redemption and (iv) any gains in respect of currency fluctuations; provided 6 any such restorations or deductions shall only be restored or deducted to the extent included in the determination of Consolidated Net Income or Consolidated Net Loss; "Consolidated Interest Expense" for any fiscal period of the Company shall mean the amount which, in conformity with GAAP, would be set forth opposite the caption "interest expense" (or any like caption) on a consolidated statement of earnings of the Company and its Subsidiaries for such fiscal period; "Consolidated Net Income" or "Consolidated Net Loss" for any fiscal period of the Company shall mean the amount which, in conformity with GAAP, would be set forth opposite the caption "net income" (or any like caption) or "net loss" (or any like caption), as the case may be, on a consolidated statement of earnings of the Company and its Subsidiaries for such fiscal period; "Contingent Obligation" as to any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, letters of credit or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any "keep-well" or "make-well" agreement, guarantee of return on equity or other obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the obligee under such primary obligation against loss in respect thereof; "Contractual Obligation" of any Person shall mean any provision of any material debt security or of any material preferred capital stock or other equity interest issued by such Person or of any material indenture, mortgage, agreement, instrument or undertaking to which such Person is a party or by which it or any of its material property is bound; "Credit Documents" shall mean this Agreement, the Notes, the Applications and the Guarantees, each, a "Credit Document"; "Cross Default" of any Person shall mean (a) default in the payment of any amount when due (whether at maturity or by acceleration) on any of its Indebtedness (other than any such default in respect of the Loans, the Notes or the Reimbursement Obligations) or in the payment of any matured Contingent Obligation in respect of any Indebtedness of any other Person (except for any such payments on account of any such Indebtedness and Contingent Obligations in an aggregate principal amount at any one time outstanding of up to $2,000,000) or (b) default in the observance or performance of any other agreement or condition relating to any such Indebtedness (except for any such Indebtedness and Contingent Obligations in an aggregate principal amount at any one time outstanding of up to $2,000,000) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such 7 Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, such Indebtedness (except for any such Indebtedness in an aggregate principal amount at any one time outstanding of up to $2,000,000) to become due or to be required to be redeemed or repurchased prior to its stated maturity; "Default" shall mean any of the events specified in Section 0, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied; "Designated Issuer": Chase Manhattan Bank Delaware as designated issuer of Letters of Credit; "Disposition" shall mean with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings; "Documentation Agent" shall have the same meaning assigned to such term in the preamble hereto; "Dollars" and "$" shall mean dollars in lawful currency of the United States; "Domestic Subsidiary" shall mean each Subsidiary of the Company which is organized under the laws of a State within the United States; "Environmental Laws" shall mean any and all federal, foreign, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority, and any and all Requirements of Law regulating, relating to or imposing liability or standards of conduct concerning pollution or protection of human health or the environment, as now or may at any time hereafter be in effect; "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time; "Eurodollar Reserve Requirements" with respect to any Interest Period for any Eurodollar Loan shall mean the aggregate of the rates (expressed as a decimal) of reserve requirements current on the date two Working Days prior to the beginning of such Interest Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto), as now and from time to time hereafter in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board) required to be maintained by a member bank of such System; "Eurodollar Base Rate" with respect to each Eurodollar Loan of each Lender for each Interest Period shall mean the rate per annum equal to the rate at which the Administrative Agent is offered Dollar deposits two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market where the foreign currency and 8 exchange operations or eurodollar funding operations of the Administrative Agent are customarily conducted at or about 11:00 A.M. (London time) for delivery on the first day of such Interest Period for the number of days contained therein and in an amount equal to a representative amount of such deposits; "Eurodollar Loan" shall mean each Loan hereunder at such time as it is made and/or being maintained at a rate of interest based upon the Eurodollar Rate; "Eurodollar Rate" with respect to each Eurodollar Loan for each Interest Period shall mean the rate per annum (rounded upwards to the nearest whole multiple of 1/100th of one percent) equal to the following: Eurodollar Base Rate --------------------------------------- 1.00 - Eurodollar Reserve Requirements; "EVD" shall mean Extraits Vegetaux et Derives, S.A., a company organized under the laws of France; "Event of Default" shall mean any of the events specified in Section 0, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended; "Existing Credit Agreement" shall mean the Credit Agreement, dated as of June 29, 1994, among the Company, the several financial institutions parties thereto and The Chase Manhattan Bank, as Agent as amended, supplemented or otherwise modified through the Closing Date; "Federal Funds Effective Rate" for any day, shall mean the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it; "Foreign Subsidiary" shall mean any Subsidiary of the Company which is not a Domestic Subsidiary; "Fully Satisfied" shall mean, with respect to: (a) the Payment Obligations as of any date, that, on or before such date, (i) the principal of and interest accrued to such date on such Payment Obligations shall have been paid in full in cash (other than the Undrawn L/C Obligations), (ii) all Undrawn L/C Obligations shall have been Fully Secured, (iii) all fees, expenses and other amounts then due and payable which constitute Payment Obligations 9 (other than the Undrawn L/C Obligations) shall have been paid in full in cash and (iv) the Commitments shall have expired or irrevocably been terminated; and (b) the Obligations (as defined in the Guarantees) as of any date, that, on or before such date, (i) the Payment Obligations shall have been Fully Satisfied and (ii) all Rate Hedging Agreements with any of the Lenders or their Affiliates shall have been terminated or all obligations thereunder (other than for fees, expenses and indemnities) shall have been cash collateralized and all fees, expenses and indemnity payments then due and payable thereunder shall have been paid in full in cash; "Fully Secured" shall mean, with respect to any Undrawn L/C Obligations as of any date, that, on or before such date, such Undrawn L/C Obligations shall have been secured by the grant to the Issuing Lender by the Company of a first priority, perfected security interest in, and Lien on, (a) cash or Cash Equivalents in an amount at least equal to the excess, if any, of the amount of such Undrawn L/C Obligations over the amount of the Aggregate Commitment on such date or (b) other collateral security which is acceptable to the Issuing Lender and the Required Lenders; "GAAP" shall mean generally accepted accounting principles in the United States as in effect as of the date of, and used in, the preparation of the audited consolidated financial statements referred to in subsection 5.9, except that, with respect to the presentation of financial statements required to be furnished hereunder, GAAP shall mean generally accepted accounting principles in the United States as in effect from time to time; "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any governmental department, commission, board, bureau, agency or instrumentality, or other court or arbitrator, in each case whether of the United States or foreign) and the National Association of Insurance Commissioners; "Guarantees" shall be the collective reference to the Holdings Guarantee, the Subsidiaries Guarantee and each other guarantee delivered to the Administrative Agent to support the Payment Obligations of the Company hereunder and under the Notes, as each of the same may be amended, supplemented or otherwise modified from time to time; individually, a "Guarantee"; "Guarantors" shall be the collective reference to the guarantors parties to the Guarantees; individually, a "Guarantor"; "Hazardous Materials" shall mean any hazardous materials, hazardous wastes, hazardous or toxic substances, defined or regulated as such in or under any Environmental Law, including without limitation asbestos, Petroleum Products and material exhibiting the characteristics of ignitability, corrosivity, reactivity or extraction procedure toxicity, as such terms are defined in connection with hazardous materials or hazardous wastes or hazardous or toxic substances in any Environmental Law; 10 "Holdings" shall mean Flavors Holdings Inc., a Delaware corporation, the direct parent of the Company; "Holdings Guarantee" shall mean the Guarantee, to be executed and delivered by Holdings, substantially in the form of Exhibit D-1, as the same may be amended, supplemented or otherwise modified from time to time; "Indebtedness" of a Person shall mean (a) indebtedness of such Person for borrowed money whether short-term or long-term and whether secured or unsecured, (b) indebtedness of such Person for the deferred purchase price of services or property, which purchase price (i) is due twelve months or more from the date of incurrence of the obligation in respect thereof or (ii) customarily or actually is evidenced by a note or other written instrument (including, without limitation, any such indebtedness which is non-recourse to the credit of such Person but is secured by assets of such Person), (c) obligations of such Person under Capital Leases, (d) obligations of such Person arising under acceptance facilities, (e) the undrawn face amount of, and unpaid reimbursement obligations in respect of, all letters of credit issued for the account of such Person, (f) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (g) all obligations of such Person upon which interest charges are customarily paid, (h) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (i) obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Capital Stock of such Person (with redeemable preferred capital stock being valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends), (j) all executory obligations of such Person in respect of interest rate agreements and foreign exchange and other financial hedge contracts (including, without limitation, equity hedge contracts), (k) all Indebtedness of the types referred to in clauses (a) through (j) above for which such Person is obligated under a Contingent Obligation and (l) renewals, extensions, refundings, deferrals, restructurings, amendments and modifications of any such indebtedness, obligation or guarantee; "Indemnification Agreement" shall mean Section 12(b) of the Stock Purchase Agreement, dated as of April 28, 1988, among the Company and Whitman, as amended, supplemented or otherwise modified from time to time; "Indemnified Liabilities" shall have the meaning assigned to such term in subsection 0; "Insolvency" shall mean with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA; "Insolvent" shall pertain to a condition of Insolvency; "Intellectual Property" shall have the meaning assigned to such term in subsection 0; 11 "Interest Coverage Ratio" at the last day of any fiscal quarter, shall mean the ratio of (a) (i) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on such date less (ii) Capital Expenditures for the period of four consecutive fiscal quarters ending on such date to (b) Consolidated Interest Expense for the period of four consecutive fiscal quarters ending on such date; "Interest Payment Date" shall mean (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December, commencing on the first of such days to occur after such Alternate Base Rate Loan is made or Eurodollar Loans are converted to Alternate Base Rate Loans, (b) as to any Eurodollar Loan with an Interest Period of three months or less, the last day of the Interest Period with respect thereto, (c) as to any Eurodollar Loan with an Interest Period of six months, the day which is three months after the first day of such Interest Period and the last day of such Interest Period and (d) in any event, the Termination Date; "Interest Period" shall mean, (a) initially, with respect to any Eurodollar Loan, the period commencing on the borrowing date or the initial date of conversion with respect to such Eurodollar Loan and ending one, two, three or six months thereafter as selected by the Company in a notice of borrowing or conversion, as the case may be, as provided herein and (b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such Eurodollar Loan, as the case may be, and ending one, two, three or six months thereafter, in any such case as selected by the Company in accordance with the provisions of subsection 0; provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (x) if any Interest Period relating to a Eurodollar Loan would otherwise end on a day which is not a Working Day, such Interest Period shall be extended to the next succeeding Working Day, unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Working Day; (y) the Company shall not select an Interest Period relating to any Eurodollar Loan which extends beyond the Termination Date and any Interest Period relating to any Eurodollar Loan that would otherwise extend beyond the Termination Date shall end on such date; and (z) if any Interest Period relating to a Eurodollar Loan begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), such Interest Period shall end on the last Working Day of a calendar month; "Issuing Lender" with respect to any Letter of Credit issued or requested to be issued, shall mean The Chase Manhattan Bank, the Designated Issuer or, subject to the consent of the Company (which consent shall not be unreasonably withheld or delayed), any other Lender designated by the Administrative Agent that agrees to serve in such capacity; 12 "L/C Commitment" shall equal $35,000,000; "L/C Fee Payment Date" shall mean the last day of each March, June, September and December and, in any event, the Termination Date; "L/C Obligations" shall mean, at any time, an amount equal to the sum of (a) the aggregate amount of Undrawn L/C Obligations then outstanding and (b) the aggregate amount of then unreimbursed Reimbursement Obligations; "L/C Participants" shall be the collective reference to all the Lenders, other than the Issuing Lender (or, to the extent that the Issuing Lender is an affiliate of a Lender such Lender); "Lenders" shall have the meaning assigned to such term in the preamble hereto; "Letters of Credit" shall have the meaning assigned to such term in subsection 3.1; "Leverage Ratio" at the last day of any fiscal quarter, shall mean the ratio of (a) Total Debt (after giving effect to all prepayments made on such day) on such day to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on such day; "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other) or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, (a) any conditional sale or other title retention agreement, (b) any financing lease having substantially the same economic effect as any of the foregoing, (c) the filing of any financing statement under the Uniform Commercial Code (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing and (d) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities (other than, in the case of securities other than the Capital Stock of any Subsidiary of the Company, pursuant to normal settlement terms)); "Loan" and "Loans" shall have the meanings assigned to such terms in subsection 2.1; "Loan Parties" shall mean the Company and the Guarantors; "Material Adverse Effect" shall mean a material adverse effect upon (a) the business, assets, operations, condition (financial or otherwise), performance, properties or prospects of Holdings and its Subsidiaries taken as a whole, (b) the ability of the Holdings and each of its Subsidiaries to perform its obligations under the Credit Documents or (c) the rights and remedies available to the Administrative Agent and/or the Lenders under any Credit Document; 13 "Multiemployer Plan" shall mean a Plan (other than a welfare plan as defined in Section 3(1) of ERISA) which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA; "Net Cash Proceeds" shall mean, in connection with any Asset Sale or any Recovery Event, the gross proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of (i) attorneys' fees, accountants' fees, investment banking fees and other customary fees and expenses actually incurred in connection therewith, (ii) the amount of liabilities (other than intercompany liabilities or liabilities owing to any Affiliate of such Person), if any, which are required to be repaid at the time or as a result of any Asset Disposition or Recovery Event out of the proceeds thereof and (iii) taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements); provided that the proceeds of a Recovery Event shall not be counted as gross proceeds for purposes of this definition of Net Cash Proceeds if, within 180 days of the receipt by Holdings, the Company or any of its Subsidiaries of such proceeds, such recipient commences and thereafter diligently pursues the repair or replacement of the Property affected by such Recovery Event, except that any portion of such proceeds not applied or committed to be applied to such repair or replacement within 180 days of receipt of such proceeds shall be counted as gross proceeds for purposes of this definition at that time; "Note" shall have the meaning assigned to such term in subsection 2.2(c); "Note Redemption" shall have the meaning assigned to such term in the recitals hereto; "Parent" shall have the meaning assigned to such term in subsection 0; "Participants" shall have the meaning assigned to such term in subsection 0; "Payment Obligations" shall mean (a) all principal, interest, fees, charges, expenses, attorneys' fees and disbursements, indemnities, reimbursement obligations and any other amounts payable by any Person under any Credit Document (including, without limitation, the L/C Obligations) and (b) any amount in respect of any of the foregoing that the Administrative Agent or any Lender, in its sole discretion, may elect to pay or advance under this Agreement on behalf of such Person after the occurrence and during the continuance of a Default or an Event of Default; "Payment Sharing Notice" shall mean a written notice from the Company or any Lender informing the Administrative Agent that an Event of Default has occurred and is continuing and directing the Administrative Agent to allocate payments thereafter received from the Company in accordance with the provisions of subsection 0; "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA; 14 "Permitted Exceptions" shall have the meaning assigned to such term in subsection 8.2; "Person" shall mean an individual, a partnership, a corporation, a business trust, a joint stock company, a trust, an unincorporated association, a joint venture, a Governmental Authority or any other entity of whatever nature; "Petroleum Products" shall mean gasoline, diesel fuel, motor oil, waste or used oil, heating oil, kerosene and any other petroleum products, including crude oil or any fraction thereof; "Plan" shall mean at any particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan was terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA; "Potential Withdrawal Liability" shall have the meaning assigned to such term in subsection 0; "Pricing Grid" shall mean the pricing grid set forth below: ----------------------------------------------------------------------- Leverage Ratio Applicable Commitment Margin Fee Rate ----------------------------------------------------------------------- Greater than or equal to 3.00 to 1.0 1.000% 0.300% ----------------------------------------------------------------------- Greater than or equal to 2.25 to 1.0 and 0.875% 0.250% less than 3.00 to 1.0 ----------------------------------------------------------------------- Greater than or equal to 2.00 to 1.0 and 0.750% 0.250% less than 2.25 to 1.0 ----------------------------------------------------------------------- Greater than or equal to 1.50 to 1.0 and 0.625% 0.200% less than 2.00 to 1.0 ----------------------------------------------------------------------- Less than 1.50 to 1.0 0.500% 0.200% ======================================================================= Changes in the Applicable Margin with respect to Eurodollar Loans or in the Commitment Fee Rate resulting from changes in the Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial statements are delivered to the Lenders pursuant to subsections 7.1(a) and (c) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any such financial statements are not delivered within the time periods specified in subsections 7.1(a) and (c), then from the time such financial statements were due, until such financial statements are delivered, the Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 3.00 to 1.00. In addition, at all times while an Event of Default shall have occurred and be continuing, the Leverage Ratio shall for the purposes of this definition be deemed to be greater than 3.00 to 1.00. Each 15 determination of the Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Company ending at the end of the period covered by the relevant financial statements. "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced); "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock; "Purchasing Lenders" shall have the meaning assigned to such term in subsection 0; "Rate Hedging Agreement" shall mean any (a) interest rate swap, option, cap, collar or insurance, (b) foreign exchange contract or (c) any other agreement or arrangement designed to provide protection against fluctuations in interest rates or currency exchange rates; "Real Property" shall have the meaning assigned to such term in subsection 0; "Recovery Event" shall mean any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset (other than inventory) of Holdings, the Company or any of its Subsidiaries; "Register" shall have the meaning assigned to such term in subsection 0); "Reimbursement Agreement" shall mean the reimbursement agreement, dated as of February 5, 1996 among the Company, Mafco Consolidated Group Inc. and The Chase Manhattan Bank (as successor to Chemical Bank), as amended, supplemented or otherwise modified prior to the Closing Date; "Reimbursement Obligation" shall mean the obligation of the Company to reimburse the Issuing Lender pursuant to subsection 3.5 for amounts drawn under Letters of Credit; "Reorganization" shall mean with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA; "Reportable Event" shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the 30-day notice period is waived by regulation (except for any waiver under PBGC Reg. ss. 4043.25); "Required Lenders" at any date, shall mean the holders of at least a majority of the Aggregate Commitment on such date; 16 "Requirement of Law" for any Person shall mean the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property or to which such Person or any of its material property is subject; "Responsible Officer" shall mean any officer at the level of Vice President or higher of the Company or, with respect to financial matters, the Chief Financial Officer, Chief Accounting Officer or Treasurer of the Company; "Restricted Payment" shall mean (a) any payment by the Company or any of its Subsidiaries of a dividend (other than a dividend payable solely in Capital Stock of the Company) on, or any payment on account of the purchase, redemption or retirement of, or any other distribution on, any shares of any class of Capital Stock of the Company (including any such payment or distribution in cash or in property or obligations of the Company or any of its Subsidiaries), (b) any loan or advance by the Company or any of its Subsidiaries to any Affiliate of the Company or (c) the payment by the Company or any of its Subsidiaries of any management or administrative fee to any Affiliate of the Company or of any salary, bonus or other form of compensation other than in the ordinary course of business to any Person who is a significant stockholder or executive officer of any Affiliate of the Company; "Senior Subordinated Notes" shall have the meaning assigned to such term in the recitals hereto; "Significant Trademark" shall mean any Trademark which is of such a nature that the Company or its Subsidiaries in accordance with its ordinary business practice then obtaining would file an application for trademark registration in the United States Patent and Trademark Office; "Single Employer Plan" shall mean any Plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA; "Standby Letter of Credit" shall have the meaning assigned to such term in subsection 3.1; "Subsidiaries Guarantee" shall mean the Guarantee, to be executed and delivered by EVD Holdings Inc., a Delaware corporation and a direct Subsidiary of the Company, substantially in the form of Exhibit D-2 as the same shall be modified and supplemented and in effect from time to time; "Subsidiary" of any Person shall mean a corporation or other entity of which shares of Capital Stock or other ownership interests having ordinary voting power (other than Capital Stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person; unless otherwise qualified, all references to a "Subsidiary" or to 17 "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company and all references to a "wholly owned Subsidiary" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company of which the Company directly or indirectly owns all of the Capital Stock (other than directors' qualifying shares); "Taxable Lender" shall have the meaning assigned to such term in subsection 0; "Tax Allocation Agreement" shall mean the Tax Allocation Agreement entered into as of November 14, 1996 by and among Power Control Technologies Inc., a Delaware corporation, the Company, its Subsidiaries and any entities which become parties thereto pursuant to the terms thereof, as amended, supplemented or otherwise modified from time to time. "Taxes" shall have the meaning assigned to such term in subsection 0; "Termination Date" shall mean the earlier of (a) November 18, 2002, and (b) such earlier date upon which the Commitments shall terminate in accordance with the terms hereof; "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; "Total Debt" at any time, shall mean the sum (without duplication) of (a) the aggregate principal amount of all outstanding Indebtedness of the Company and its Subsidiaries and (b) all outstanding Contingent Obligations of the Company and its Subsidiaries in respect of Indebtedness of Persons other than the Company or any of its Subsidiaries; provided, that Indebtedness of the type described in clauses (e) and (j) of the definition of the term Indebtedness shall not be included for the purpose of calculating Total Debt; "Trademark" means (a) all trademarks, trade names, corporate names, company names, business names, fictitious source of business identifiers of the Company and its Subsidiaries, and the goodwill associated therewith, existing as of the Closing Date or thereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, or any political subdivision thereof, or otherwise, and (b) all renewals thereof; 18 "Tranche" shall be the collective reference to Eurodollar Loans the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); "Transaction Agreements" shall have the meaning assigned to such term in subsection 8.9. "Transferee" shall have the meaning assigned to such term in subsection 0; "Undrawn L/C Obligations" shall mean the portion, if any, of the Payment Obligations constituting the contingent obligation of the Company to reimburse the Issuing Lender in respect of the then undrawn and unexpired portions of the Letters of Credit issued by the Issuing Lender pursuant to subsection 3.1; "Unfunded Pension Amount" shall have the meaning assigned to such term in subsection 0; "Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; "Uniform Customs" shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time; "United States" the United States of America; "Voting Stock" shall mean, as to any Person, Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency); "Whitman" shall mean Whitman Corporation (f/k/a ICI Industries). "Working Day" shall mean any Business Day other than a Business Day on which commercial banks in London, England are authorized or required by law to close; Other Definitional Provisions. (a) All terms defined in this Agreement shall have the defined meanings when used in any other Credit Document or any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. As used herein, in the other Credit Documents and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in subsection 0, and accounting terms partly defined in subsection 0 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of 19 accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement or any other Credit Document shall refer to this Agreement or such other Credit Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Credit Document, as the case may be; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement, unless otherwise specified. SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS 2.1 Commitments. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make loans in Dollars (individually, a "Loan"; collectively, the "Loans") to the Company from time to time during the period from the Closing Date to the Termination Date in an aggregate principal amount at any one time outstanding not to exceed the amount equal to the Commitment Percentage of such Lender times the Aggregate Commitment as of such date, but in no event more than the amount which when added to such Lender's Commitment Percentage of the L/C Obligations then outstanding does not exceed the amount of such Lender's Commitment. During the period commencing on the Closing Date and ending on the Termination Date, the Company may use the Commitments by borrowing, repaying the Loans in whole or in part and reborrowing, all in accordance with the terms and conditions hereof. 2.2 Obligations of the Company. (a) The Company agrees that each Loan made by each Lender pursuant hereto shall constitute the promise and obligation of the Company to pay to the Administrative Agent, for the benefit of such Lender, at the office of the Administrative Agent, 270 Park Avenue, New York, New York 10017, in lawful money of the United States and in immediately available funds the aggregate unpaid principal amount of all Loans made to the Company by such Lender pursuant to subsection 0, which amounts shall be due and payable (whether at maturity or by acceleration) as set forth in this Agreement and, in any event, on the Termination Date. (b) The Company agrees that each Lender is authorized to record (i) the date and amount of each Loan made to the Company by such Lender pursuant to subsection 0, (ii) the date of each interest rate conversion pursuant to subsection 0 and the principal amount subject thereto, (iii) the date and amount of each payment or prepayment of principal of each Loan made by the Company and (iv) in the case of each Eurodollar Loan, the interest rate and Interest Period, in the books and records of such Lender and in such manner as is reasonable and customary for such Lender and a certificate of an officer of such Lender, setting forth in reasonable detail the information so recorded, shall constitute prima facie evidence of the accuracy of the information so recorded; provided that the failure to make any such recording shall not in any way affect the Payment Obligations of the Company hereunder. (c) The Company agrees that, upon the request to the Administrative Agent by any Lender at any time, such Lender's Loans shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit A with appropriate insertions as to payor, date and principal amount (a "Note"), payable to the order of such Lender and representing the obligation 20 of the Company to pay a principal amount equal to the amount of the Commitment of such Lender or, if less, the aggregate unpaid principal amount of all Loans made by such Lender to the Company, with interest on the unpaid principal amount thereof from time to time outstanding under such Note as prescribed in subsection 0. Upon the request to the Administrative Agent by any Lender at any time, the Company shall execute and deliver to such Lender two Notes, one of which shall evidence the portion of such Lender's Loans to the Company represented by Eurodollar Loans, and the other which shall evidence the portion of such Lender's Loans to the Company represented by Alternate Base Rate Loans. 2.3 Procedure for Borrowing Loans. (a) The Company may request a borrowing from time to time under the Aggregate Commitment prior to the Termination Date on any Business Day (if the Loans to be borrowed are Alternate Base Rate Loans) or on any Working Day (if the Loans to be borrowed are Eurodollar Loans) by giving irrevocable notice to the Administrative Agent, specifying (i) the aggregate principal amount to be borrowed, (ii) the requested borrowing date, (iii) whether the Loans to be borrowed are to be Eurodollar Loans or Alternate Base Rate Loans or a combination thereof and, if a combination, the respective aggregate amount of each type of borrowing and (iv) if the Loans to be borrowed are Eurodollar Loans, the length of the Interest Period or Interest Periods applicable thereto. Any such notice of borrowing must be signed by a Responsible Officer of the Company and be received by the Administrative Agent prior to 11:00 A.M., New York City time, three Working Days prior to the requested borrowing date, in the case of Eurodollar Loans, and one Business Day prior to the requested borrowing date, in the case of Alternate Base Rate Loans. Each borrowing under the Commitments shall be in an aggregate principal amount equal to the lesser of (x) $1,000,000 or a whole multiple of $100,000 in excess thereof or (y) the Available Commitment. Upon receipt of any such notice, the Administrative Agent will promptly notify each Lender thereof. Each Lender will make available to the Administrative Agent at the office of the Administrative Agent specified in subsection 11.2 (or at such other location as the Administrative Agent may direct), by 1:00 P.M., New York City time, on the requested borrowing date, an amount equal to the Commitment Percentage of such Lender times the aggregate amount of Loans requested to be borrowed on such date, in funds immediately available to the Administrative Agent. The proceeds of Loans received by the Administrative Agent hereunder shall promptly be made available to the Company by the Administrative Agent's crediting the account of the Company, at the office of the Administrative Agent specified in subsection 11.2, with the aggregate amount actually received by the Administrative Agent from the Lenders and in like funds as received by the Administrative Agent. (b) The failure of any Lender to make the Loan to be made by it on any requested borrowing date shall not relieve any other Lender of its obligation hereunder to make its Loan on such borrowing date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such borrowing date. 2.4 Use of Proceeds of Loans. The proceeds of the Loans hereunder shall be used by the Company to finance the Note Redemption of all of the outstanding Senior Subordinated Notes and to finance the working capital and general corporate purposes of the Company and its Subsidiaries. SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT 21 3.1 L/C Facility. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in subsections 3.4(a) and (b), agrees to issue any letter of credit ("Letters of Credit") requested to be issued by it for the account of the Company on any Business Day during the Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars, (ii) be either (x) a standby letter of credit issued to support obligations of the Company or any of its Subsidiaries, contingent or otherwise, which are of a type for which Loans would be available if the obligations were then due and payable (including, without limitation, to support insurance and workmen's compensation obligations) (a "Standby Letter of Credit"), or (y) a documentary letter of credit in respect of the purchase of goods or services by the Company or any of its Subsidiaries in the ordinary course of business (a "Commercial Letter of Credit") and (iii) expire no later than the earlier of (x) one year from the date of issue and (y) five Business Days prior to the Termination Date; provided that any Letter of Credit with a one-year tenor may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y)); and provided, further, that the Undrawn L/C Obligations in respect of each Letter of Credit which expires after the last day of the Commitment Period shall be Fully Secured from and after such day. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letters of Credit. The Company shall request the Issuing Lender to issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may reasonably request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Company. The Issuing Lender shall (i) in the case of each Standby Letter of Credit, notify each L/C Participant and the Administrative Agent promptly following the request for and following the issuance of the Standby Letter of Credit and furnish a copy of such Standby Letter of Credit to the Company and to the Administrative Agent promptly following the issuance thereof and (ii) in the case of Commercial Letters of Credit, provide to each L/C Participant and the Administrative Agent, promptly following the end of each calendar month during which it has issued Commercial Letters of Credit, a monthly activity report of the Commercial Letters of Credit issued by it during such month. 22 3.3 Fees, Commissions and Other Charges. (a) The Company shall pay to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants with respect to each Letter of Credit, a letter of credit commission with respect to such Letter of Credit in an amount per annum equal to (i) the Applicable Margin applicable to Eurodollar Loans on the date of payment of such letter of credit commission (which fee shall be for the accounts of the L/C Participants and the Issuing Lender to be shared ratably among them in accordance with their respective Commitment Percentages) times (ii) the undrawn face amount of such Letter of Credit. In addition, the Company shall pay to the Administrative Agent for the account of the Issuing Lender for its own account a fronting fee of 1/8 of 1% per annum, payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. (b) Letter of credit commissions which are payable pursuant to clause (a) above shall be non-refundable and shall be payable to the Administrative Agent in arrears on account of the period from the issuance date with respect thereto through the day immediately preceding the next L/C Fee Payment Date and on each succeeding L/C Fee Payment Date on account of the period from such L/C Fee Payment Date through the day immediately preceding the next L/C Fee Payment Date. (c) In addition to the foregoing fees and commissions, the Company shall pay or reimburse the Issuing Lender directly (and not through the Administrative Agent) in respect of each Letter of Credit for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit issued by it. (d) The Administrative Agent shall pay to each L/C Participant and the Issuing Lender all fees and commissions (including, without limitation, any fees and commissions paid to the Administrative Agent for the account of each L/C Participant and the Issuing Lender on the issuance date of any Letter of Credit) received from time to time by the Administrative Agent for their respective accounts pursuant to this subsection 3.3 within one day following each L/C Fee Payment Date. 3.4 L/C Participations. (a) The Issuing Lender with respect to each Letter of Credit irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase, and hereby accepts and purchases, from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Commitment Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit issued by it for which the Issuing Lender is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. 23 (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to subsection 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit issued by it is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate, as quoted by the Issuing Lender, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to subsection 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Alternate Base Rate Loans hereunder. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this subsection 3.4(b) shall be conclusive in the absence of manifest error. (c) Whenever, at any time after any Issuing Lender has made payment under any Letter of Credit issued by it and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 3.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender promptly will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 3.5 Reimbursement Obligation of the Company. The Company agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Company of the date and amount of a draft presented under any Letter of Credit issued and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Company under this subsection 3.5 from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Alternate Base Rate Loans which were then overdue. 3.6 Obligations Absolute. The Company's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Issuing Lender or any beneficiary of a Letter of Credit. The Company also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Company's Reimbursement Obligations under subsection 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be 24 transferred or any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit issued by it, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Company agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit issued by the Issuing Lender or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Company and shall not result in any liability of the Issuing Lender to the Company. 3.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Company of the date and amount thereof. The responsibility of the Issuing Lender to the Company in connection with any draft presented for payment under any Letter of Credit issued by it shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 3.8 Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. 3.9 Existing Letters of Credit. Notwithstanding anything to the contrary contained in this Agreement or any Guarantee, each of the letters of credit described on Schedule 3.9 shall, from and after the Closing Date, be deemed to have been issued on the Closing Date pursuant to subsection 3.1(a) of this Agreement, with the Issuing Lender being deemed to be the Issuing Lender in respect of such Letter of Credit hereunder and with each other Lender being deemed to be an L/C Participant with respect to such Letter of Credit for purposes of this Agreement and the Guarantees. The Company shall pay to the Administrative Agent, for the accounts of the Issuing Lender and L/C Participants, the fees and commissions described in subsection 3.3 with respect to each such Letter of Credit. SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES AND PAYMENTS 4.1 Voluntary Termination or Reduction of Commitments. (a) The Company shall have the right at any time, upon not less than five Business Days' notice to the Administrative Agent, to terminate or, from time to time, reduce the Aggregate Commitment, with any such voluntary reduction being in an amount equal to the lesser of (i) $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (ii) the Aggregate Commitment then in effect. Any such termination or reduction shall permanently terminate or reduce, as the case may be, the Aggregate Commitment then in effect. (b) Any termination of the Aggregate Commitment pursuant to subsection 0 shall be accompanied by prepayment in full (together with accrued interest thereon to such date) by the 25 Company of any Loans then outstanding and payment of any other amounts necessary to cause the Payment Obligations with respect to the Loans and the L/C Obligations to be Fully Satisfied. (c) Any reduction of the Aggregate Commitment pursuant to subsection 0 or otherwise shall be accompanied by prepayment by the Company of an amount equal to the excess, if any, of the Aggregate Outstanding Extensions of Credit over the amount of the Aggregate Commitment after giving effect to such reduction and each such reduction shall permanently reduce the Aggregate Commitment then in effect. (d) Any prepayment required pursuant to this subsection 4.1 or otherwise shall be applied, first, to the Loans then outstanding; second, to the reimbursement of all outstanding Reimbursement Obligations; and, third, to causing the then outstanding Undrawn L/C Obligations to be Fully Secured. 4.2 Optional Prepayments. The Company may, at any time and from time to time, prepay the Loans made to it then outstanding, in whole or in part, without premium or penalty (other than amounts payable pursuant to subsection 0), upon at least three Working Days' irrevocable notice to the Administrative Agent, in the case of Eurodollar Loans and one Business Day's irrevocable notice to the Administrative Agent, in the case of Alternate Base Rate Loans, specifying (a) the Loans to be prepaid, (b) the date and amount of such prepayment and (c) whether the prepayment is of Eurodollar Loans or Alternate Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount of prepayment allocable to each (and, with respect to such Eurodollar Loans, each Tranche thereof). Upon receipt of any such notice, the Administrative Agent will promptly notify each Lender thereof. If any such notice is given, the Company will make the prepayment specified therein, and such prepayment shall be due and payable on the date specified therein. Each partial prepayment of the Loans pursuant to this subsection 0 shall be in an amount equal to the lesser of (x) $1,000,000 or a whole multiple of $100,000 in excess thereof and (y) the aggregate principal amount of the Loans then outstanding to the Company. 4.3 Mandatory Prepayments. (a) If, at any time and from time to time, the Aggregate Outstanding Extensions of Credit exceed the Aggregate Commitment, the Company shall immediately, first, repay the Loans and, second, make payments necessary to cause Payment Obligations in respect of L/C Obligations to be Fully Satisfied in an aggregate amount equal to such excess. (b) If on any date Holdings, the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then such Net Cash Proceeds shall be applied on such date toward the reduction of the Commitments; provided, that, notwithstanding the foregoing, such Commitments need not be permanently reduced pursuant to this subsection 4.3(b) until Holdings, the Company or any of its Subsidiaries shall have received at least $5,000,000 in Net Cash Proceeds in the aggregate, at which time, such $5,000,000 in Net Cash Proceeds and all further Net Cash Proceeds from any Asset Sales or Recovery Event shall be promptly applied to the permanent reduction of the Commitments upon receipt. (c) If, as a result of the making of any payment required to be made pursuant to this subsection 0, the Company would incur costs pursuant to subsection 0, the Company may 26 deposit the amount of such payment with the Administrative Agent, for the benefit of the Lenders, in a cash collateral account, until the end of the applicable Interest Period at which time such payment shall be made. The Company hereby grants to the Administrative Agent, for the benefit of the Lenders, a security interest in all amounts from time to time on deposit in such cash collateral account and expressly waives all rights (which rights the Company hereby acknowledges and agrees are vested exclusively in the Administrative Agent) to exercise dominion or control over any such amounts. 4.4 Interest Rate and Payment Dates. (a) The Eurodollar Loans shall bear interest on the unpaid principal amount thereof for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate for such day plus the Applicable Margin. (b) The Alternate Base Rate Loans shall bear interest on the unpaid principal amount thereof at a rate per annum equal to the Alternate Base Rate. (c) If all or a portion of any amount owing hereunder shall not be paid when due, then, for so long as such amount remains unpaid, (i) if the overdue amount represents principal, all Loans shall bear interest at a rate per annum which is 2% above the rate which would otherwise be applicable pursuant to subsection 0 or (b), as the case may be, and (ii) if the overdue amount represents overdue interest, fees or other amounts (other than the amounts described in clause (i) of this paragraph (c)) due under the Credit Documents, such overdue amount shall bear interest at a rate per annum equal to the Alternate Base Rate plus 2%. During such time as any principal of or interest on any Eurodollar Loans remains unpaid, such Eurodollar Loans shall be converted to Alternate Base Rate Loans at the end of the respective Interest Periods applicable thereto. (d) Interest on each Loan accrued to but not including each Interest Payment Date applicable thereto shall be payable in arrears on such Interest Payment Date; provided, however, that interest accruing on the principal of or (to the extent permitted by applicable law) interest or any other amount payable in connection with any Loan not paid when due (whether at stated maturity, by acceleration or otherwise), shall be payable from time to time upon demand of the Administrative Agent. 4.5 Conversion Options, Minimum Tranches and Maximum Interest Periods. (a) The Company may elect from time to time to convert outstanding Loans from Eurodollar Loans to Alternate Base Rate Loans by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election. The Company may elect from time to time and at any time to convert outstanding Loans from Alternate Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Working Days' irrevocable notice of such election; provided that no Loans may be converted to Eurodollar Loans when any Default or Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a conversion is not appropriate. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender. On the date on which such conversion is being made, each Lender shall take such action as is necessary to effect such conversion. All or any part of the outstanding Eurodollar Loans or Alternate Base Rate Loans may be converted as provided herein. 27 (b) Any Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by the Company giving the Administrative Agent at least three Working Days' irrevocable notice for continuation thereof; provided that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing and the Agent has or the Required Lenders have determined that such a conversion is not appropriate, and, instead, such Eurodollar Loans shall be automatically converted to an Alternate Base Rate Loan on the last day of the Interest Period for which a Eurodollar Rate was determined by the Administrative Agent prior to the Administrative Agent's obtaining knowledge of such Default or Event of Default. The Administrative Agent shall notify the relevant Lenders promptly that such automatic conversion shall occur. (c) In the event that a timely notice of conversion or continuation with regard to Eurodollar Loans is not given in accordance with this subsection 0, then, unless the Administrative Agent shall have received timely notice in accordance with subsection 0 that the Company elects to prepay such Eurodollar Loans on the last day of such Interest Period, the Company shall be deemed irrevocably to have requested that such Eurodollar Loans be converted into Alternate Base Rate Loans on the last day of such Interest Period. (d) Any borrowing or continuation of Eurodollar Loans, or conversion to or from Eurodollar Loans, or payments or prepayments of Eurodollar Loans, shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, (i) the aggregate principal amount of each Tranche of Eurodollar Loans shall be $1,000,000 or a whole multiple (to the extent possible) of $100,000 in excess thereof, (ii) the aggregate principal amount of all Alternate Base Rate Loans shall be $1,000,000 or a whole multiple (to the extent possible) of $100,000 in excess thereof and (iii) there shall not be more than six Tranches of Eurodollar Loans in the aggregate at any one time outstanding. 4.6 Inability to Determine Interest Rate. (a) In the event that the Administrative Agent shall have determined (which determination, in the absence of manifest error, shall be conclusive and binding upon the Company) that by reason of circumstances affecting the relevant interbank eurocurrency market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period with respect to (i) proposed Loans that the Company has requested be made as Eurodollar Loans, (ii) a Eurodollar Loan that will result from the requested conversion of all or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii) the continuation of a Eurodollar Loan as such for an additional Interest Period (any such Loan described in clauses (i), (ii) or (iii) of this subsection 0 being herein called an "Affected Loan"), the Administrative Agent shall forthwith give telecopy or telephonic notice of such determination, confirmed in writing, to the Company and the Lenders at least two Business Days prior to the borrowing date for such Loan, the conversion date for such Alternate Base Rate Loan or the last day of the Interest Period applicable to such Loan, as the case may be. Unless the Company shall have notified the Administrative Agent promptly upon receipt of such telecopy or telephonic notice that it wishes to rescind or modify its request regarding such Affected Loans, then any requested Eurodollar Loan shall be made as, continued as, or converted into an Alternate Base Rate Loan, as the case may be. Until any such notice has been withdrawn by the Administrative Agent, no further Affected Loans shall be made. (b) In the event that the Required Lenders determine that the rate quoted by the Administrative Agent does not accurately reflect the cost of making or maintaining any Loans that 28 the Company has requested be made or continued as or converted to Eurodollar Loans the Administrative Agent shall forthwith give telecopy or telephonic notice of such determination to the Company on or before the requested borrowing, conversion or continuation date for such Loans or the next succeeding Interest Period for such Loans. Unless the Company shall have notified the Administrative Agent promptly after receipt of such telecopy or telephonic notice that it wishes to rescind or modify its request regarding such Loans, then any such Eurodollar Loans shall be made as or converted to Alternate Base Rate Loans. 4.7 Illegality. Notwithstanding any other provision herein, if any change in law, rule, regulation, treaty or directive or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement or to accept deposits in order to make or maintain such Eurodollar Loans, (a) such Lender shall promptly notify the Administrative Agent and the Company thereof, (b) the agreements of such Lender hereunder to make or convert to Eurodollar Loans shall be suspended forthwith and (c) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall automatically become Alternate Base Rate Loans for the duration of the respective Interest Periods applicable thereto (or, if permitted by applicable law, at the end of such Interest Periods). The Company agrees promptly to pay to any Lender any additional amounts necessary to compensate such Lender for any costs incurred by such Lender as a consequence of the Company making any conversion in accordance with this subsection 0, including, without limitation, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans. A certificate as to any such costs payable pursuant to this subsection 0 submitted by an officer of any Lender, through the Administrative Agent, to the Company shall be conclusive, in the absence of manifest error. 4.8 Requirements of Law; Changes of Law. (a) In the event that the adoption of or any change in law, rule, regulation, treaty or directive or in the interpretation or application thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) issued after the date hereof from any central bank or other Governmental Authority: (i) imposes upon any Lender any tax of any kind whatsoever with respect to this Agreement, its Notes, any Letter of Credit, any Application or any Loan, or changes the basis of taxation of payments to such Lender of principal, commitment fee, interest or any other amount payable hereunder (except for (x) income and franchise taxes imposed on such Lender by the jurisdiction under the laws of which such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender is located or any political subdivision or taxing authority thereof or therein, and (y) taxes imposed by way of deduction or withholding, which shall be exclusively governed by subsection 0); (ii) imposes, modifies or holds applicable any reserve, special deposit, compulsory loan or similar requirement against any Loan made, or assets held by, or credit extended by, or deposits or other liabilities in or for the account of, or acquisition of funds by or for the account of, any office of such Lender, which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) imposes on such Lender any other condition; 29 and the result of any of the foregoing is to increase the cost to such Lender of making, renewing, maintaining or participating in advances or extensions of credit or issuing or participating in Letters of Credit or to reduce any amount receivable by it in respect of its Eurodollar Loans, then, in any such case, the Company shall promptly pay such Lender any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable as reasonably determined by such Lender with respect to this Agreement (including, without limitation, its participating interests in Letters of Credit), its Notes or its Loans after taking into account any amounts paid or payable pursuant to subsection 0. If a Lender becomes entitled to claim any additional amounts pursuant to this subsection 0, it shall promptly notify the Company, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by an officer of a Lender, through the Administrative Agent, to the Company shall be conclusive, in the absence of manifest error. (b) In the event that any Lender shall have determined that the adoption of any law, rule, regulation or guideline adopted pursuant to or arising out of the International Convergence of Capital Measurement and Capital Standards or of any Requirement of Law otherwise regarding capital adequacy, or any change therein or in the interpretation or application thereof or compliance by any Lender with any request or directive regarding capital adequacy (whether or not having the force of law) issued after the date hereof from any central bank or Governmental Authority, does or shall have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount which is reasonably deemed by such Lender to be material, then from time to time, promptly after submission by such Lender, through the Administrative Agent, to the Company of a written request therefor, the Company shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) The agreements in this subsection 0 shall survive the termination of this Agreement and payment of the Loans and the Notes and all other amounts payable hereunder. 4.9 Indemnity. The Company agrees to promptly pay and indemnify each Lender for, and to hold such Lender harmless from, any loss or expense which such Lender may sustain or incur in its reemployment of funds obtained in connection with the making or maintaining of, or converting to, Eurodollar Loans, as a consequence of (a) any default by the Company in borrowing such Eurodollar Loans or in converting Alternate Base Rate Loans to Eurodollar Loans after the Company has given a notice in respect thereof or (b) any failure by the Company to prepay Eurodollar Loans after the Company has given notice in respect thereof or (c) any payment, prepayment (whether optional or mandatory) or conversion (whether optional or mandatory) of any Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto. Without limiting the effect of the foregoing, the Company agrees to pay to each Lender an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount paid, prepaid or not borrowed for (A) the period from the date of such payment or prepayment to the last day of the Interest Period applicable to such Eurodollar Loan or (B) in the case of a failure to borrow or to convert, the Interest Period applicable to such Eurodollar Loan, which would have commenced on the date specified for such borrowing or conversion, at the applicable rate of interest for such Eurodollar Loan provided for 30 herein exclusive of any margin applicable thereto minus (ii) the interest component of the amount such Lender would have bid in the London interbank market in respect of such Loan if such Loan were to be made on the date of such payment, prepayment, failure to borrow or failure to convert, as the case may be. A certificate as to any additional amounts payable pursuant to this subsection 0 submitted by an officer of a Lender, through the Administrative Agent, to the Company shall be conclusive, absent manifest error. The agreements in this subsection 0 shall survive termination of this Agreement and payment of the Loans and the Notes and all other amounts payable hereunder. 4.10 Taxes. (a) All payments made by the Company under this Agreement shall be made free and clear of, and without reduction for or on account of, any present or future income, stamp, documentary, property, excise or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the Administrative Agent and each Lender, income and franchise taxes imposed on the Administrative Agent or such Lender by the jurisdiction under the laws of which the Administrative Agent or such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender is located or any political subdivision or taxing authority thereof or therein (such non-excluded taxes being called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under the Notes, the amounts so payable to the Administrative Agent or such Lender shall (without any obligation on the part of the Company to pay such amounts ratably in accordance with the provisions of subsection 0) be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to the Administrative Agent, for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt or other evidence reasonably satisfactory to the Administrative Agent showing payment thereof. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. If any Taxes are paid by the Administrative Agent or any Lender to any Governmental Authority, the Company shall indemnify the Administrative Agent or such Lender, as the case may be (within 30 days after demand therefor upon the Company), for any amounts so paid. (b) Except as the Company shall otherwise consent, each Lender hereby severally (but not jointly) represents that, under applicable law and treaties in effect on the date of this Agreement, no United States federal taxes will be required to be withheld by the Administrative Agent or the Company with respect to any payments to be made to such Lender in respect of this Agreement. Each Lender which itself is not incorporated under the laws of the United States or a state thereof or which is lending from an office that is not incorporated under the laws of the United States or a state thereof agrees severally (but not jointly) that, prior to the Closing Date, it will deliver to the Company and the Administrative Agent two duly completed copies of either United States Internal Revenue Service Form 1001 or 4224, or, in the case of a Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Lender delivers a Form W-8, a statement under the penalties of 31 perjury that such Lender (i) is not a "bank" under Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements, (ii) is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Company and (iii) is not a controlled foreign corporation related to the Company (within the meaning of Section 864(d)(4) of the Code)), certifying in each case that such Lender is entitled to receive all payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes. Each Lender which delivers to the Company and the Administrative Agent any form pursuant to the immediately preceding sentence further undertakes to deliver to the Company and the Administrative Agent two further completed copies of said form, or successor applicable form, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company and the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Company and the Administrative Agent, certifying that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such case any change in law, rule, regulation, treaty or directive, or in the interpretation or application thereof, has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. Notwithstanding any provision of subsection 0 to the contrary, the Company shall not have any obligation to pay any amount to or for the account of any Lender on account of any Taxes pursuant to subsection 0 (including, without limitation, the second sentence thereof) to the extent that such amount results from (i) the failure of any Lender to comply with its obligations pursuant to this subsection 0 (or, in the case of any Transferee, pursuant to subsection 0) or (ii) any representation or warranty made or deemed to be made by any Lender pursuant to this subsection 0 (or, in the case of any Transferee pursuant to subsection 0) proving to have been incorrect, false or misleading when so made or deemed to be made. (c) Each Lender agrees to use reasonable efforts (including reasonable efforts to change the office in which it is booking its Loans) to avoid or to minimize any amounts which might otherwise be payable pursuant to this subsection 0; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material or otherwise be deemed by such Lender to be disadvantageous to it or contrary to its policies. (d) In the event that such reasonable efforts pursuant to subsection 0 are insufficient to avoid all withholding taxes which would be payable pursuant to this subsection 0, then such Lender (the "Taxable Lender") shall use its best efforts to transfer to any other Lender (which is not subject to such withholding taxes) its Loans and Commitment hereunder; provided, however, that such transfer shall not be deemed by such Taxable Lender, in its sole discretion, to be disadvantageous to it or contrary to its policies. In the event that the Taxable Lender is unable, or otherwise is unwilling, so to transfer its Loans and Commitment, the Company may designate an alternate bank to purchase the Taxable Lender's Loans and Commitment and, subject to the 32 approval of the Administrative Agent (which approval shall not be unreasonably withheld), the Taxable Lender shall transfer its Loans and Commitments to such alternate bank and such alternate bank shall become a Lender hereunder. (e) The agreements in this subsection 0 shall survive the termination of this Agreement and the payment of the Loans and Notes, and all other amounts payable hereunder. 4.11 Commitment Fees; Other Fees. (a) The Company agrees to pay to the Administrative Agent, for the account of the Lenders, a commitment fee from and including the Closing Date in the amount equal to the Commitment Fee Rate times the average daily Available Commitment, in each case during the period for which such fee is payable. Such commitment fee shall be payable in arrears on the last day of each March, June, September and December and (iii) the Termination Date. (b) The Company agrees to pay to Chase Securities Inc. and The Chase Manhattan Bank, in each case for its own account the fees set forth in the Fee Letter dated September 30, 1997 between the Company, Chase Securities Inc. and The Chase Manhattan Bank on the dates and in the amounts set forth in such Fee Letter. 4.12 Computation of Interest and Fees. (a) Interest in respect of Alternate Base Rate Loans bearing interest at a rate based upon the Prime Rate shall be calculated on the basis of a 365 or 366-day year, as the case may be, for the actual days elapsed. Interest in respect of Alternate Base Rate Loans bearing interest at a rate based upon the Federal Funds Effective Rate, the Base CD Rate and the Eurodollar Rate and commitment fees shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent will, as soon as practicable, notify the Company and the Lenders of each determination of a Eurodollar Rate and of any change in the Alternate Base Rate and the effective date thereof. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. (b) Except as set forth in subsection 0, each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Lenders, in the absence of manifest error. 4.13 Pro Rata Treatment and Payments. (a) Each borrowing by the Company of Loans shall be made ratably by the Lenders in accordance with the respective Commitment Percentages of the Lenders. (b) Whenever any payment received by the Administrative Agent under this Agreement or any Note is insufficient to pay in full all amounts then due and payable to the Administrative Agent and the Lenders under this Agreement and the Notes: (i) If the Administrative Agent has not received a Payment Sharing Notice (or if the Administrative Agent has received a Payment Sharing Notice but the Event of Default specified in such Payment Sharing Notice has been cured or waived pursuant to subsection 0), such payment shall be distributed by the Administrative Agent and applied 33 by the Administrative Agent and the Lenders in the following order: first, to the payment of fees and expenses due and payable to the Administrative Agent under and in connection with this Agreement; second, to the payment of all expenses due and payable under subsection 0, ratably among the Lenders in accordance with the aggregate amount of such payments owed to each such Lender; third, to the payment of fees due and payable under subsections 0 and 0, and ratably among the Lenders in accordance with the Commitment Percentage of each Lender of the Commitment for which such payment is owed; fourth, to the payment of interest then due and payable on the Loans and under the Notes and in respect of the Reimbursement Obligations, ratably in accordance with the aggregate amount of interest owed to each such Lender; fifth, to the payment of the principal amount of the Loans and the Notes and the Reimbursement Obligations which is then due and payable and, in the case of payments under any guarantee, to the payment of any other obligations to any Lender (or Affiliate) not covered in first through fourth above ratably guaranteed under any such guarantee, ratably among the Lenders in accordance with the aggregate principal amount and, in the case of payments under any guarantee, the obligations secured or guaranteed thereby owed to each such Lender (or Affiliate); and sixth, to the payment of any other outstanding Payment Obligations, ratably among the Lenders in accordance with the aggregate amount owed to each Lender; and any balance remaining after payment in full of all Payment Obligations shall be returned to the Company; or (ii) If the Administrative Agent has received a Payment Sharing Notice which remains in effect (or, if the Event of Default specified therein has been waived pursuant to subsection 0), all payments received by the Administrative Agent under this Agreement or any Note shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of all amounts described in clauses "first" through "third" of the foregoing clause (i), in the order set forth therein; second, to the payment of the interest accrued on all Loans and Notes regardless of whether any such amount is then due and payable, and the Reimbursement Obligations then due and owing ratably among the Lenders in accordance with the aggregate accrued interest owed to each such Lender; and third, to the payment of the principal amount of all Loans and Notes and in respect of the Reimbursement Obligations and, in the case of payments under any guarantee, to the payment of any other obligations to any Lender (or Affiliate) not covered in first and second above ratably guaranteed under any such guarantee, regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate principal amount and, in the case of payments under any guarantee, the obligations guaranteed thereby owed to each such Lender (or Affiliate); and fourth, to the payment of any other Payment Obligations, ratably among the Lenders in accordance with the aggregate amount owed to each Lender; and any balance remaining after payment in full of all Payment Obligations shall be returned to the Company. (c) All payments (including prepayments) to be made by the Company on account of principal, interest and fees shall be made without set-off or counterclaim and shall be made to the Administrative Agent for the account of the Lenders at the office of the Administrative Agent specified in subsection 11.2, or at such other location as the Administrative Agent may direct on or prior to 1:00 P.M., New York City time, in lawful money of the United States and in 34 immediately available funds. The Administrative Agent shall distribute such payments in accordance with the provisions of subsection 0 promptly upon receipt in like funds as received. (d) If any payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment hereunder on a Eurodollar Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the effect of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Working Day. (e) Unless the Administrative Agent shall have been notified by telephone, confirmed in writing, by any Lender prior to a borrowing date that such Lender will not make the amount which would constitute its Commitment Percentage of the borrowing to be made on such date available to the Administrative Agent, on such borrowing date the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Company a corresponding amount. If such amount is made available to the Administrative Agent on a date after such borrowing date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period as determined by the Administrative Agent times (ii) such amount times (iii) a fraction of which the numerator is the number of days from and including such borrowing date to the date on which such amount becomes immediately available to the Administrative Agent and of which the denominator is 360. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph (e) shall be conclusive, in the absence of manifest error. If such amount is not in fact made available to the Administrative Agent by such Lender within three Business Days after such borrowing date, the Administrative Agent shall be entitled to recover such amount, with interest thereon at the rate per annum then applicable to Alternate Base Rate Loans hereunder, within eight Business Days after demand, from the Company. 4.14 Payments on Account of Loans and Fees. All payments and prepayments hereunder shall be made in accordance with subsection 0(c). SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Administrative Agent to enter into this Agreement and to make the Loans hereunder, the Company hereby represents and warrants to each of them that: 5.1 Corporate Existence. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power to own its assets and to transact the business in which it is presently engaged, is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where all such failures to so qualify and be in good standing would not, in the aggregate, be reasonably likely to have a Material Adverse Effect and is in 35 compliance with all Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate be reasonably likely to have a Material Adverse Effect. 5.2 Corporate Power. (a) The Company has the corporate power, authority and legal right to execute, deliver and perform this Agreement and the other Credit Documents to which it is a party and to borrow hereunder. The Company has taken as of the Closing Date all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the other Credit Documents. The Company has taken as of the Closing Date all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party. (b) No consent of any other Person (including, without limitation, stockholders or creditors of the Company or any of its Subsidiaries), and no consent, license, permit, approval or authorization of, exemption by, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, the Applications and the Notes and the Guarantees other than (i) those which have been obtained or made and remain in full force and effect and (ii) those which, in the aggregate, would not be reasonably likely to have a Material Adverse Effect if not obtained or made. (c) This Agreement and the other Credit Documents to which it is a party have been executed and delivered by a duly authorized officer of the Company and constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their terms except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity. 5.3 No Legal Bar to Loans. The execution, delivery and performance by the Company of this Agreement, the Applications and the Notes will not violate any Contractual Obligation or material Requirement of Law to which the Company or any of its Subsidiaries is a party, or by which the Company or any of its Subsidiaries or any of their respective material properties or assets may be bound, and will not result in the creation or imposition of any Lien on any of their respective material properties or assets pursuant to the provisions of any Contractual Obligation except pursuant to the Credit Documents. 5.4 No Material Litigation. No litigation, suit, action, investigation, inquiry or other proceeding is presently pending or, to the knowledge of the Company, threatened against Holdings or any of its Subsidiaries or any of its or their properties or assets, by or before any arbitrator or any Governmental Authority and no preliminary or permanent injunction or order by a state or federal court has been entered in connection with any Credit Document or any of the transactions contemplated hereby or thereby, which in any of such cases would be reasonably likely to have a Material Adverse Effect, and all applicable waiting periods have expired without any action being taken or threatened by any Governmental Authority which would restrain, prevent or otherwise impose material adverse conditions on the transactions contemplated hereby or which would be reasonably likely to have a Material Adverse Effect. 5.5 No Default. Neither Holdings nor any of its Subsidiaries is in default in the payment or performance of any obligations or in the performance of any Contractual Obligation to 36 which it is a party or by which it or any of its properties or assets may be bound, except to the extent that such defaults, in the aggregate, would not be reasonably likely to have a Material Adverse Effect. No Default hereunder has occurred and is continuing. Neither Holdings nor any of its Subsidiaries is in default under any order, award or decree of any court, arbitrator or Governmental Authority binding upon or affecting it or by which any of its material properties or assets is bound or affected, and no such order, award or decree or any default thereunder would be reasonably likely to have a Material Adverse Effect. 5.6 Ownership of Properties; Liens. Except as is or would be permitted pursuant to subsection 8.2, each of the Company and its Subsidiaries has good and marketable title to all its owned real properties, subject to no Lien (other than Permitted Exceptions), and has good title to all its personal properties and assets, subject to no Lien (other than Permitted Exceptions). 5.7 Taxes. Each of the Company and its Subsidiaries has timely filed or caused to be timely filed all material tax returns (including, without limitation, information returns) which to the knowledge of the Company or any of its Subsidiaries are required to be filed, and has paid all taxes shown to be due and payable on said returns or on any assessments made against them (other than those being contested in good faith by appropriate proceedings for which adequate reserves (in accordance with GAAP) have been provided on the books of the Company or such Subsidiary, as the case may be), and no tax liens have been filed (other than those relating to taxes which are not yet due and payable or which are being contested as aforesaid). The Tax Allocation Agreement is in full force and effect. 5.8 ERISA. No Reportable Event has occurred during the immediately preceding six-year period with respect to any Plan that resulted or would be reasonably likely to result in any unpaid liability that would be reasonably likely to have a Material Adverse Effect, and each Plan (other than any Multiemployer Plan or any multiemployer health or welfare plan) has complied and has been administered in all material respects with the applicable provisions of ERISA and the Code. The amount by which the present value of all accrued benefits under each Single Employer Plan maintained by the Company or any of its Subsidiaries or any Commonly Controlled Entity (based on those assumptions used to fund the Plans), as of the last annual valuation date applicable thereto, exceeds the value of the assets of each such Plan allocable to such benefits, in the aggregate for all such Plans as to which such present value of benefits exceeds the value of its assets (the "Unfunded Pension Amount"), is less than $5,000,000, when aggregated with the Potential Withdrawal Liability. Neither the Company nor any of its Subsidiaries nor any Commonly Controlled Entity has during the immediately preceding six-year period had a complete or partial withdrawal from any Multiemployer Plan that resulted or would be reasonably likely to result in any unpaid withdrawal liability under Section 4201 of ERISA that would be reasonably likely to have a Material Adverse Effect, and the withdrawal liability under Section 4201 of ERISA to which the Company or any of its Subsidiaries or any Commonly Controlled Entity would become subject under ERISA if the Company or any of its Subsidiaries or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the most recent valuation date applicable thereto (the "Potential Withdrawal Liability") is not in excess of $5,000,000, when aggregated with the Unfunded Pension Amount. Neither the Company nor any of its Subsidiaries nor any Commonly Controlled Entity has received notice that any Multiemployer Plan is in Reorganization or Insolvent where such Reorganization or Insolvency has resulted, or would be reasonably likely to result in an unpaid liability that would be reasonably likely to have a Material Adverse Effect nor, to the best knowledge of the Company or 37 any of its Subsidiaries, is any such Reorganization or Insolvency reasonably likely to occur. The obligations of the Company and each of its Subsidiaries and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefits plans (as defined in Section 3(l) of ERISA) are not reasonably likely to have a Material Adverse Effect, when aggregated with their obligations with respect to the Unfunded Pension Amount and the Potential Withdrawal Liability. 5.9 Financial Condition. The consolidated balance sheet of the Company as of December 31, 1996 and the related consolidated statements of earnings and stockholders' equity and cash flows for the fiscal year ended on such date, certified by Ernst & Young LLP, present fairly the consolidated financial position of the Company and its Subsidiaries as at such date, and the consolidated results of their operations and cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Company as at June 30, 1997, and the related unaudited consolidated statements of earnings and stockholders' equity and cash flows for the fiscal period ended on such date present fairly the consolidated financial position of the Company and its Subsidiaries as of such date, and the consolidated results of their operations and cash flows for the fiscal period then ended (subject to normal year-end audit adjustments and subject to the absence of footnotes). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved except as disclosed in the notes thereto. Neither the Company nor any of its Subsidiaries has any material Contingent Obligation or any material obligation, liability or commitment, direct or contingent (including, without limitation, any liability for taxes or any material forward or long-term commitment), which is not (a) reflected in the foregoing statements or in the notes thereto or (b) permitted to be incurred under this Agreement. 5.10 No Change. Since December 31, 1996, there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of either of (i) the Company or (ii) the Company and its Subsidiaries taken as a whole. 5.11 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" in violation of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. If requested by any Lender or the Administrative Agent at any time or from time to time, the Company will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or G-3 referred to in said Regulations U and G, respectively. 5.12 Not an "Investment Company". Neither the Company nor any of its Subsidiaries is an "investment company," or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any of its Subsidiaries is subject to regulation under any federal or state statute or regulation which limits its ability to incur indebtedness. 5.13 Intellectual Property. Each of the Company and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents, technology, know-how and processes necessary for the conduct of its business as currently conducted that are material to the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its Subsidiaries taken as a whole (the "Intellectual Property"). No claim has 38 been asserted and is pending by any Person with respect to the use of any such Intellectual Property, or challenging or questioning the validity or effectiveness of any such Intellectual Property and the Company and its Subsidiaries do not know of any valid basis for any such claim, nor does the use of such Intellectual Property by the Company and its Subsidiaries infringe on the rights of any Person, except to the extent of such claims and infringements which would not (including, without limitation, any liability arising therefrom), in the aggregate, be reasonably likely to have a Material Adverse Effect. 5.14 Environmental Matters. Except to the extent that the failure of the representations and warranties set forth in this subsection 0 to be true and correct would not be reasonably likely to have a Material Adverse Effect, to the best knowledge of the Company and its Subsidiaries: (i) each parcel of real property owned or leased by the Company or any of its Subsidiaries (the "Real Property") does not contain any Hazardous Materials in concentrations which violate any applicable Environmental Laws governing the use, storage, treatment, transportation, manufacture, refinement, handling, production or disposal of Hazardous Materials; (ii) the Real Property is in compliance with all Environmental Laws, including, without limitation, all applicable federal, state and local standards and requirements regarding the generation, treatment, storage, handling, use or disposal of Hazardous Materials at the Real Property, and there is no Hazardous Materials contamination which could materially interfere with the continued operation of the Real Property or materially impair the fair saleable value thereof; (iii) neither the Company nor any of its Subsidiaries has received any notice of violation or advisory action by any Governmental Authority regarding environmental control matters or permit compliance with regard to the Real Property, nor is the Company nor any Subsidiary aware that any Governmental Authority is contemplating delivering to the Company or any of its Subsidiaries any such notice; (iv) Hazardous Materials have not been transferred from the Real Property to any other location in violation of any applicable Environmental Laws; and (v) there are no governmental administrative actions or judicial proceedings pending or, threatened under any Environmental Laws to which the Company or any of its Subsidiaries is or will be named as a party with respect to the Real Property. 5.15 Models and Pro Forma Balance Sheet. The financial models (including projections for the period from the Closing Date through the Termination Date) and the pro forma financial statements adjusted to give effect to the Note Redemption and the financings contemplated hereby contained in the confidential information memorandum delivered to the Lenders in October 1997 were prepared in good faith on the basis of the assumptions stated therein, which assumptions (a) were reasonable in light of conditions existing at the time of delivery of such models and pro forma financial statements and, in all material respects, on the Closing Date, and (b) represented, at the time of delivery and on the Closing Date, the Company's best estimate of future financial performance. 39 5.16 Disclosure. No information, schedule, exhibit or report or other document furnished by the Company or any of its Subsidiaries to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or pursuant to the terms of this Agreement, as such information, schedule, exhibit or report or other document has been amended, supplemented or superseded by any other information, schedule, exhibit or report or other document later delivered to the same parties receiving such information, schedule, exhibit or report or other document, contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein, in light of the circumstances when made, not materially misleading; provided that in the case of information, schedules, exhibits or reports or other documents made, delivered or prepared by Persons other than the Company, its Subsidiaries and their agents, such representation and warranty is subject to the qualification that it is true and correct only to the knowledge of the Company and its Subsidiaries. 5.17 Solvency. The aggregate value of all of the assets of the Company and its Subsidiaries on a consolidated basis, at a fair valuation, exceeds the total liabilities of the Company and its Subsidiaries on a consolidated basis (including contingent, subordinated, unmatured and unliquidated liabilities). Each of the Company and its Subsidiaries has the ability to pay its debts as they mature and each of the Company and its Subsidiaries does not have unreasonably small capital with which to conduct its business. For purposes of this subsection 0, the "fair valuation" of such assets shall be determined on the basis of that amount which may be realized within a reasonable time, in any manner through realization of the value of or dispositions of such assets at the regular market value, conceiving the latter as the amount which could be obtained for the properties in questions within such period by a capable and diligent business person from an interested buyer who is willing to purchase under ordinary selling conditions. 5.18 Guarantees. The provisions of each Guarantee are effective to create a legal, valid, binding and enforceable guarantee of the obligations described therein, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 5.19 Matters Relating to Subsidiaries. The Company has no Subsidiaries on the Closing Date, other than those set forth on Schedule 5.19. The Company has notified the Administrative Agent in writing of each Subsidiary created or acquired after the Closing Date and has complied with the provisions of subsection 8.17 with respect to each such Subsidiary. 5.20 Labor Matters. There are no strikes or other labor disputes against the company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened that (individually or in the aggregate) would be reasonably likely to have a Material Adverse Effect. Hours worked by and payment made to employees of the Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Company or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) would be reasonably likely to have a Material Adverse Effect if not paid, have been paid or accrued as a liability on the books of the Company or the relevant Subsidiary. 40 5.21 Whitman Indemnity. The Indemnification Agreement is in full force and effect and constitutes a legal, valid and binding obligation of Whitman in favor of the Company, enforceable in accordance with its terms. SECTION 6. CONDITIONS PRECEDENT 6.1 Conditions to Initial Extensions of Credit. The agreement of each Lender to make the initial extensions of credit (regardless of whether such extensions of credit are to be made in the form of Loans or Letters of Credit) requested to be made by it shall be subject to the satisfaction or waiver by such Lender of the following conditions precedent (the date on which said conditions are satisfied or waived, being herein called the "Closing Date") on or before November 17, 1997: (a) Credit Agreement. The Administrative Agent shall have received this Agreement duly executed and delivered by a duly authorized officer of the Company, each Lender and the Administrative Agent; (b) Notes. The Administrative Agent shall have received, for the account of each Lender which has so requested, a Note conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Company; (c) Guarantees. The Administrative Agent shall have received each Guarantee (other than the Guarantees delivered pursuant to subsection 8.17), duly executed and delivered by a duly authorized officer of the Guarantor or Guarantors parties thereto; (d) Lien Searches. The Administrative Agent shall have received the results of Lien searches, conducted by a search service reasonably satisfactory to the Administrative Agent, and the Administrative Agent shall be satisfied that no Liens are outstanding on the property or assets of the Company and its Domestic Subsidiaries, other than any such Liens (i) which are permitted pursuant to the terms of the Credit Documents or (ii) as to which the Administrative Agent has received documentation reasonably satisfactory to it evidencing the termination of such Liens; (e) Corporate Proceedings of Loan Parties. The Administrative Agent shall have received (a) certified copies of the Charter and by-laws of each Loan Party and (b) the resolutions, in form and substance reasonably satisfactory to the Administrative Agent, of the Board of Directors of each Loan Party, authorizing in each case the execution, delivery and performance of this Agreement, the Notes and the other Credit Documents to which such Loan Party is a party, in each case certified by the Secretary or an Assistant Secretary of such Loan Party as of the Closing Date and each such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate; (f) Incumbency Certificates for Loan Parties. The Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary (or analogous officer) of each Loan Party dated the Closing Date, as to the incumbency and signature of the officers of such Loan Party executing each of this Agreement, the Notes and each other Credit Document to which such Loan Party is a party, and any certificate or other 41 documents to be delivered by it pursuant thereto, together with evidence of the incumbency of such Secretary or Assistant Secretary as the case may be; (g) Certain Legal Opinions. The Administrative Agent shall have received executed legal opinions of: (i) Paul, Weiss, Rifkind, Wharton & Garrison, as counsel to the Company, substantially in the form of Exhibit B-1; and (ii) the General Counsel (or other person reasonably acceptable to the Administrative Agent) of the Company, substantially in the form of Exhibit B-2. Each of the foregoing legal opinions shall be accompanied by copies of the legal opinions, if any, upon which such counsel rely, and in each case shall contain such changes thereto as may be approved by, and as shall otherwise be in form and substance reasonably satisfactory to, the Administrative Agent and shall cover such other matters incident to the transactions contemplated by the Credit Documents as the Administrative Agent may reasonably require. Each of the counsel delivering the foregoing legal opinions is expressly instructed to deliver its opinion for the benefit of each of the Administrative Agent and each other holder of the Payment Obligations; (h) Existing Credit Agreement. The Company shall have given irrevocable notice pursuant to the terms of the Existing Credit Agreement, terminating in whole the loan commitments of the lenders thereunder. All principal and interest, if any, outstanding under, and all fees or other amounts then due under, the Existing Credit Agreement shall have been paid in full, or the payment thereof shall have been arranged in a manner reasonably acceptable to the Administrative Agent (and such payment in full shall be made within one Business Day following the Closing Date); and the Administrative Agent shall have received a certificate of the Company to the foregoing effect; (i) Termination of Existing Security Documents. The Administrative Agent shall have received evidence satisfactory to it that (i) all "Security Documents" (as defined in the Existing Credit Agreement) have been terminated and (ii) all collateral security delivered under such Security Documents has been released and returned; (j) Reimbursement Agreement. The Reimbursement Agreement and any agreements, instruments or other documents executed or outstanding in connection therewith shall have been terminated in all respects and any amounts thereunder shall have been paid in full; (k) Fees. The Administrative Agent shall have received, for the accounts of the Lenders and the Administrative Agent, all accrued fees and expenses owing hereunder or in connection herewith to the Administrative Agent and the Lenders (including, without limitation, accrued fees and disbursements of counsel to the Administrative Agent), to the extent that such fees and expenses have been presented for payment a reasonable time prior to the Closing Date; 42 (l) Financial Statements. The Lenders shall have received (i) satisfactory audited consolidated financial statements of the Company for the two most recent fiscal years ended prior to the Closing Date as to which such financial statements are available and (ii) satisfactory unaudited interim consolidated financial statements of the Company certified by a senior officer of the Company for each fiscal month and quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available; (m) Legal Investment. The making of the Loans and other extensions of credit hereunder shall be permitted on the Closing Date as a legal investment by the laws, rules and regulations of the State of New York and by each jurisdiction to which the Lenders may be subject (without resort to any or any so-called "basket" provision of such laws, including without limitation Section 1405(8) of the New York Insurance Laws); and the Lenders shall have received such certificates or other evidence as they may reasonably request demonstrating the legality of such purchase under such laws, rules and regulations; (n) Financial Models and Pro Forma Balance Sheet. The Administrative Agent shall have received financial models and pro forma balance sheet referenced in subsection 5.15; (o) Consents and Approvals. The Administrative Agent shall have received true and correct copies (in each case, certified as to authenticity on such date by a duly authorized officer of the Company) of all documents and instruments necessary or reasonably advisable under any Requirement of Law or by Contractual Obligation of the Company or any of its Subsidiaries, in connection with the execution, delivery, performance, validity and enforceability of any Credit Document and the continuing operations of the Company and its Subsidiaries, other than any consents, authorizations and filings for which the failure to make or obtain would not be reasonably likely to have a Material Adverse Effect; such consents, authorizations and filings shall be reasonably satisfactory in form and substance to the Administrative Agent and shall be in full force and effect. The Administrative Agent shall have received a certificate of a Responsible Officer of the Company stating that such consents, licenses and approvals are in full force and effect; (p) Redemption of Senior Subordinated Notes. The Note Redemption of the Senior Subordinated Notes shall have been consummated concurrently with the initial funding of the Loans at a redemption price of 105.9375%; (q) No Litigation. No litigation, suit, action, investigation, inquiry or other proceeding by or before any arbitrator or any Governmental Authority shall be pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered in connection with any Credit Document or any of the transactions contemplated hereby or thereby or otherwise which in any of such cases would be reasonably likely to have a material adverse effect on (a) the business, assets, operations, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole, (b) their ability to perform their obligations under the Credit Documents or (c) the rights and remedies of the Lenders, and all applicable waiting periods shall have expired without any action being taken or threatened by any Governmental Authority which would 43 restrain, prevent or otherwise impose material adverse conditions on the transactions contemplated hereby; (r) No New Information. The Lenders shall not have become aware of any previously undisclosed information which would be reasonably likely to have a Material Adverse Effect; (s) No Defaults. There shall exist no event of default (or condition which would constitute an event of default with the giving of notice or the passage of time) under any Capital Stock, financing agreements, lease agreements or other contracts of Holdings or any of its Subsidiaries which event of default or condition, in the aggregate with all other then-existing events of default and conditions, would be reasonably likely to (i) have a Material Adverse Effect or (ii) materially adversely affect the ability of the Company to consummate the Note Redemption; (t) Related Agreements. The Administrative Agent shall have received true and correct copies of the Tax Allocation Agreement and the Transaction Agreements; and (u) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by the Credit Documents shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. 6.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any Loan requested to be made by it on any date and the agreement of the Issuing Lender to issue any Letter of Credit to be issued by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by each party to each Credit Document in or pursuant to this Agreement or any other Credit Document, or contained in any certificate or financial statement furnished at any time under or in connection with this Agreement or any other Credit Document shall be true and correct in all material respects on and as of such date as if made on and as of such date, both before and after giving effect to such Loan, and to all other extensions of credit to be made on such date and the use of the proceeds thereof; and (b) No Default. No Event of Default and no Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. Each borrowing by the Company or issuance of a Letter of Credit hereunder shall constitute a representation and warranty by the Company, as of the date of such borrowing or issuance, that the conditions contained in paragraphs (a) and (b) of this subsection 0 have been satisfied. SECTION 7 AFFIRMATIVE COVENANTS 44 The Company hereby agrees that, until the Payment Obligations have been Fully Satisfied: 7.1 Financial Statements. The Company will furnish to each Lender, through the Administrative Agent: (a) as soon as available, but in any event within 105 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of earnings and stockholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, certified without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing not unacceptable to the Required Lenders; (b) as soon as available, but in any event within 105 days after the end of each fiscal year of the Company, a copy of the consolidating balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidating statements of earnings for such year, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer; (c) as soon as available, but in any event within 50 days after the end of each of the first three fiscal quarters in each fiscal year of the Company, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated statements of earnings and stockholders' equity and cash flows for such quarterly period and the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer (subject to normal year-end audit adjustments); and (d) as soon as available, but in any event within 50 days after the end of the first three fiscal quarters in each fiscal year of the Company, a copy of the unaudited consolidating balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidating statements of earnings for such quarterly period and the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer (subject to normal year-end audit adjustments). All financial statements referred to in this subsection 0 shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or Responsible Officer, as the case may be, and disclosed therein). 45 7.2 Certificates; Other Information. The Company will furnish to each Lender, through the Administrative Agent: (a) concurrently with the delivery of the financial statements referred to in subsection 0, a certificate of the independent certified public accountants certifying such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 0 through (d), a certificate of a Responsible Officer (i) stating that, to the best of such Responsible Officer's knowledge, the Company during such period has observed or performed in all material respects all of its covenants and other agreements, and satisfied in all material respects every condition, contained in the Credit Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default, except as specified in such certificate, and (ii) showing in detail the calculations supporting such statement in respect of subsection 0; (c) within 60 days following the commencement of each fiscal year, the budget for the Company and its Subsidiaries for such fiscal year, showing each quarter separately; (d) promptly upon receipt thereof, copies of all audit reports submitted to the Company by independent public accountants in connection with each interim or special audit of the books of the Company or any of its Subsidiaries made by such accountants; (e) within five days after the same are sent, copies of all financial statements and reports which Holdings sends to its stockholders or holders of its publicly traded equity securities or Indebtedness pursuant to Section 13 or 15(d) of the Exchange Act, and within five days after the same are filed, copies of all financial statements and reports which the Company or Holdings may make to, or file with, the Securities and Exchange Commission; and (f) promptly, such additional documents and financial and other information with respect to Holdings and its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request. 7.3 Payment of Obligations. The Company will, and will cause each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its Indebtedness and other material obligations of whatever nature, except when the amount or validity thereof is then being contested in good faith by appropriate proceedings and reserves with respect thereto to the extent, if any, required by GAAP have been provided on the books of the Company or such Subsidiary, as the case may be. Notwithstanding anything to the contrary in the foregoing sentence, the Company shall not be in default under this subsection 0 unless the aggregate amount of non-contested Indebtedness or obligations which it and its Subsidiaries have so failed to pay, discharge or satisfy before they become delinquent and which remain delinquent at the time of determination is more than $2,000,000 in the aggregate. 46 7.4 Conduct of Business and Maintenance of Existence. Except as permitted by this Agreement, the Company and its Subsidiaries will continue to engage in business of the same general type as now conducted by the Company and its Subsidiaries; and, except as permitted by this Agreement, the Company will, and will cause each of its Subsidiaries to, preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except as otherwise permitted pursuant to subsections 0 and 0 and except that the Company and its Subsidiaries may fail to maintain any such rights, privileges and franchises which in the Company's business judgment are not necessary in the best interests of the Company to be maintained, and comply with all Contractual Obligations and Requirements of Law except to the extent that all failures to comply therewith would not in the aggregate, be reasonably likely to have a Material Adverse Effect. The Company and its Subsidiaries will not make any material change in its present method of conducting business. 7.5 Maintenance of Property; Insurance. The Company will, and will cause each of its Subsidiaries to, (a) keep all property useful and necessary in its business in good working order and condition, except where the failure to do so would not, in the aggregate, be reasonably likely to have a Material Adverse Effect and (b) maintain with financially sound and reputable insurance companies insurance on such of its property and against such liabilities in at least such amounts and against at least such risks as are customarily insured against in the same general area by companies engaged in the same or a similar business and furnish to the Administrative Agent, upon written request, and to each Lender which makes a written request through the Administrative Agent, reasonable information as to the insurance carried. 7.6 Inspection of Property; Books and Records; Discussions. The Company will, and will cause each of its Subsidiaries to, (a) keep proper books of accounts and records in which entries in conformity in all material respects with all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities and which shall permit the preparation of financial statements in conformity with GAAP and (b) permit representatives of any Lender to visit and inspect such of its properties as such Lender may request through the Administrative Agent and (during such visit or inspection, or otherwise upon request through the Administrative Agent) examine and make abstracts from such of its books and records as it may reasonably request at any reasonable time and as often as may reasonably be desired, and to discuss the business, condition (financial or otherwise), performance, properties and prospects of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its then independent certified public accountants. 7.7 Notices. The Company will promptly give notice to each Lender, through the Administrative Agent, and the Administrative Agent: (a) of the occurrence of any Default or Event of Default; (b) of any default or event of default by Holdings or any of its Subsidiaries under any Contractual Obligation of Holdings or any of its Subsidiaries or the institution of, or the occurrence of any material adverse change in the status or likely result of, any litigation, investigation or proceeding which may exist at any time between Holdings or any of its Subsidiaries and any Governmental Authority or any other Person which, in any of the foregoing cases, would be reasonably likely to have a Material Adverse Effect; 47 (c) of (i) any violation or noncompliance by Holdings or any of its Subsidiaries or, to the best of its knowledge, any other Person of any Environmental Laws which would be reasonably likely to have a Material Adverse Effect or (ii) any liability or potential liability to Holdings or any of its Subsidiaries or, to the best of its knowledge, to any other Person under, any Environmental Laws which would be reasonably likely to have a Material Adverse Effect; (d) of any of the following events, as soon as possible, and in any event, within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan; or (ii) the institution of proceedings or the taking or expected taking of any other action by PBGC or the Company or any Commonly Controlled Entity to terminate, withdraw or partially withdraw from any Plan and with respect to a Multiemployer Plan, the Reorganization or Insolvency of such Plan; if such Reportable Event, termination, withdrawal or partial withdrawal (and, in the case of any Multiemployer Plan, its Reorganization or Insolvency) would be reasonably likely to result in liability to the Company and its Subsidiaries, in the aggregate, in excess of $5,000,000; and (e) of a material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company and its Subsidiaries taken as a whole, or of any event which would be reasonably likely to have a Material Adverse Effect. Each notice pursuant to this subsection 7.7 shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 7.8 Maintenance of Corporate Identity. The Company will operate its businesses and those of its Subsidiaries, and maintain their records, independently from any Person (a "Parent") which, directly or indirectly, is in control (as defined in Rule 12b-2 under the Exchange Act) of the Company and independently from any Subsidiary of such Parent other than the Company and its Subsidiaries; and the Company will maintain bank accounts separate from the bank accounts of each Parent of the Company and act solely in its own corporate name and through its own authorized officers and agents. 7.9 Environmental Laws. The Company will, and will cause each of its Subsidiaries to: (a) comply with and require compliance by all tenants and subtenants, if any, with all Environmental Laws and obtain and comply in all respects with and maintain, and require that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except to 48 the extent that the failure to do so would not be reasonably likely to have a Material Adverse Effect; (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all respects with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except (i) to the extent that the failure to perform any of the obligations contained in this clause (b) would not be reasonably likely to have a Material Adverse Effect or (ii) to the extent that such obligations are being contested in good faith by appropriate proceedings and the pendency of such proceedings would not be reasonably likely to have a Material Adverse Effect; and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws by the Company or any of its Subsidiaries, or any orders, requirements or demands of Governmental Authorities related thereto, including without limitation reasonable attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this subsection 0 shall survive the payment of the Loans, the Notes, and all other amounts payable hereunder. 7.10 Intellectual Property. (a) The Company will, to the extent permitted by Title 15 of the United States Code, submit, and will cause each of its Domestic Subsidiaries to submit, to the United States Patent and Trademark Office for registration or recordation, as applicable: (i) a completed application for trademark registration, in such class or classes as is in conformity with its ordinary business practice then obtaining, of each Trademark acquired or adopted and used or intended to be used by it, with respect to any mark which, in the Company's reasonable judgment, is a Significant Trademark; and (ii) with respect to any interest acquired after the date hereof by the Company or any of its Subsidiaries in a Significant Trademark, any appropriate assignment to the Company or such Domestic Subsidiary of the interest acquired by it in the United States in such Significant Trademark, including, without limitation, all previously unrecorded assignments to the Company's or such Domestic Subsidiary's predecessors-in-interest of which the Company or any Domestic Subsidiary is or becomes aware. The Company will, and will cause each of its Domestic Subsidiaries to, use its respective best efforts to comply with all requirements of the Lanham Act and the rules and regulations thereunder, as from time to time in effect, or other applicable law necessary in order to validly register and maintain the registration of any such Significant Trademark with the United States Patent and Trademark Office, except as permitted pursuant to subsections 7.4, 8.4 and 8.5. 49 (b) The Company will, to the extent permitted by Title 35 of the United States Code, submit, and will cause each of its Domestic Subsidiaries to submit, to the United States Patent and Trademark Office for issuance or recordation, as applicable: (i) an application for letters patent for each patentable invention acquired by or invented by or for it which invention is of such a nature that the Company or its Subsidiaries in accordance with its ordinary business practice then obtaining would file an patent application in the United States Patent and Trademark Office with respect to it; and (ii) with respect to any interest acquired after the date hereof by the Company or any of its Subsidiaries in a material Patent, any appropriate assignment to the Company or such Domestic Subsidiary of the interest acquired by it in the United States in such Patent, including, without limitation, all previously unrecorded assignments to the Company's or such Domestic Subsidiary's predecessors-in-interest of which the Company or any Domestic Subsidiary is or becomes aware. The Company will, and will cause each of its Domestic Subsidiaries to, use its respective best efforts to comply with all requirements of the United States Patent Act and the rules and regulations thereunder, as from time to time in effect, or other applicable law necessary in order to validly obtain and maintain any material Patent with the United States Patent and Trademark Office, except as permitted pursuant to subsections 7.4, 8.4 and 8.5. (c) Notwithstanding anything to the contrary contained in this subsection 7.10, the Company and its Subsidiaries shall have the right to license their respective Patents and Trademarks to third parties on an arms' length basis. SECTION 8. NEGATIVE COVENANTS The Company hereby agrees that, until the Payment Obligations are Fully Satisfied: 8.1 Financial Covenants. The Company will not: (a) Leverage. Permit the Leverage Ratio as of the last day of any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: 50 Fiscal Quarter Leverage Ratio -------------- -------------- December 31, 1997 3.50 to 1.00 March 31, 1998 3.50 to 1.00 June 30, 1998 3.50 to 1.00 September 30, 1998 3.50 to 1.00 December 31, 1998 3.00 to 1.00 March 31, 1999 3.00 to 1.00 June 30, 1999 3.00 to 1.00 September 30, 1999 3.00 to 1.00 Thereafter 2.75 to 1.00 (b) Interest Coverage. Permit the Interest Coverage Ratio as of the last day of any fiscal quarter to be less than 3.00 to 1.00; provided that for the purposes of determining the Interest Coverage Ratio for the fiscal quarters of the Company ending December 31, 1997, March 31, 1998, June 30, 1998 and September 30, 1998, Consolidated Interest Expense for the relevant period shall equal the product of (I) Consolidated Interest Expense for the period (the "Interim Period") between the Closing Date and such fiscal quarter end date, and (II) a fraction the numerator of which is 365 and the denominator of which is the number of days in such Interim Period. 8.2 Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of their properties, assets (including shares of Capital Stock) or revenues, whether now owned or hereafter acquired, except for the following (collectively, "Permitted Exceptions"): (a) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or any of its Subsidiaries, as the case may be, in accordance with GAAP; (b) carriers', warehousemen', mechanics', materialmen', repairmen' or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (c) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), government contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred and statutory or contractual bankers' Liens on monies held in bank accounts in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which do not in any case materially detract from the 51 value of the property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (f) Liens in favor of the United States for amounts paid by the Company or any of its Subsidiaries as progress payments under government contracts entered into by them; (g) attachment, judgment or other similar Liens arising in connection with court or arbitration proceedings, provided that the same are discharged, or that execution or enforcement thereof is stayed pending appeal, within 30 days or (in the case of any execution or enforcement pending appeal) such lesser time during which such appeal may be taken; (h) Liens granted in the ordinary course of business of the Company or any of its Subsidiaries in favor of issuers of documentary or trade letters of credit for the account of the Company or such Subsidiary which support the purchase and/or importation of inventory of the Company and its Subsidiaries, which Liens secure the reimbursement obligations of the Company or such Subsidiary on account of such letters of credit; provided that each such Lien is limited to (i) the assets acquired or shipped with the support of such letter of credit and (ii) any assets of the Company or such Subsidiary which are in the care, custody or control of such issuer in the ordinary course of business; (i) possessory Liens in favor of brokers and dealers arising in connection with the acquisition or disposition of investments of the type permitted by subsection 8.7(a)(ii); provided that such Liens (i) attach only to such investments and (ii) secure only obligations incurred in the ordinary course and arising in connection with the acquisition or disposition of such investments and not any obligation in connection with margin financing; (j) Liens set forth in Schedule 8.2(j); (k) Liens on the assets of any Foreign Subsidiary securing obligations of such Foreign Subsidiary permitted hereunder; (l) Liens securing Indebtedness in an aggregate amount at any one time outstanding not in excess of $1,000,000 incurred to purchase or finance the purchase of real or personal property; provided that (i) such Liens shall be created substantially simultaneously with the purchase of such property, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the purchase price of such property; (m) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Indebtedness of such Subsidiary or Contingent Obligations permitted by subsection 8.3(d), provided that (i) such Liens and Indebtedness or Contingent Obligations existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any other property or assets of such corporation after the time such corporation becomes a 52 Subsidiary, (iii) the amount of Indebtedness or Contingent Obligation secured thereby is not increased and (iv) immediately after giving effect to the incurrence of such Lien, no Default or Event of Default shall have occurred and be continuing; and (n) any extension, renewal or replacement of the foregoing; provided that the Liens permitted by this paragraph shall not extend to or cover any additional Indebtedness or Property (other than a substitution of like Property). 8.3 Limitation on Contingent Obligations. The Company will not, and will not permit any of its Subsidiaries to, agree to, or assume or incur, or otherwise in any way be or become responsible or liable, directly or indirectly, with respect to, any Contingent Obligation other than: (a) the guarantees made by the Domestic Subsidiaries pursuant to the Subsidiaries Guarantee; (b) Contingent Obligations of any Subsidiary of the Company in the nature of a guarantee of Indebtedness or other obligations of the Company or any other wholly-owned Subsidiary of the Company (including, without limitation, any wholly-owned Subsidiary incurring such Contingent Obligations); (c) Contingent Obligations of the Company in the nature of guarantees of Indebtedness or other obligations of any of its wholly-owned Subsidiaries to the extent such Indebtedness or other obligations, as the case may be, is not prohibited by this Agreement; and (d) Contingent Obligations of a corporation which becomes a Subsidiary after the date hereof, provided that (i) such Contingent Obligations existed at the time such corporation became a Subsidiary and were not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation no Default or Event of Default shall have occurred and be continuing. 8.4 Limitation on Fundamental Changes. The Company will not, and will not permit any of its Subsidiaries to, enter into any transaction in the nature of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of related transactions, all or a substantial part of the business or assets of the Company, or enter into any such transaction or series of related transactions with regard to a group of Subsidiaries which, if merged into a single Subsidiary, would constitute a substantial part of the business or assets of the Company, or acquire by purchase or otherwise all or substantially all the business or assets of, or Capital Stock or other evidences of beneficial ownership of, any Person, except that: (a) any Subsidiary of the Company (i) may be merged or consolidated with or into, or its assets liquidated and distributed to, the Company, provided that the Company shall be the continuing or surviving corporation or (ii) may be merged or consolidated with or into, or its assets liquidated and distributed to, any one or more wholly-owned Subsidiaries of the Company; provided that no Domestic Subsidiary may be merged or 53 consolidated with or into a Foreign Subsidiary unless a Domestic Subsidiary is the continuing or surviving entity and no Domestic Subsidiary may have its assets liquidated and distributed to any Foreign Subsidiary; (b) any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or a wholly-owned Subsidiary of the Company; provided that no Domestic Subsidiary may sell, lease transfer or otherwise dispose of any of its assets to any Foreign Subsidiary other than in the ordinary course of business; and (c) the Company and its Subsidiaries may make acquisitions and purchases permitted by subsection 8.7. 8.5 Limitation on Sale of Assets. The Company will not, and will not permit any of its Subsidiaries to, sell, lease, assign, transfer or otherwise dispose of any of its assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any of the Subsidiaries of the Company, issue any shares of Capital Stock (other than any director's qualifying shares), to any Person other than the Company or any of its Subsidiaries, except: (a) as permitted by subsections 8.2 or 8.4; (b) the sale or other disposition (including abandonment) of any property (including intellectual property rights) which has become uneconomic, obsolete or worn out and which is disposed of in the ordinary course of business; (c) the sale of inventory in the ordinary course of business; (d) licensing agreements entered into with respect to Trademarks, Patents, trade secrets or know-how in the ordinary course of business; and (e) from the Closing Date sales and other dispositions of property not having a value together with all other sales and dispositions pursuant to this clause (e) in excess of the lesser of (i) 5% of the consolidated assets of the Company as of the last day of the most recent fiscal period for which financial statements have been delivered pursuant to subsection 7.1 and (ii) $5,000,000. 8.6 Limitation on Restricted Payments. The Company will not, and will not permit any of its Subsidiaries to, make any Restricted Payment, except that the following Restricted Payments may be made: (i) Restricted Payments to Holdings in amounts equal to the amounts required for Holdings to pay franchise and similar taxes and other fees required to maintain its corporate existence; (ii) Restricted Payments necessary for Holdings, the Company and any of its Subsidiaries to pay federal, state and local taxes to the extent such taxes are attributable to the operations of the Company and its Subsidiaries; 54 (iii) So long as no Default or Event of Default has occurred and is continuing at the time such Restricted Payment is made or would result therefrom, commencing with the 1998 fiscal year, Restricted Payments in an aggregate amount not to exceed an amount equal to 25% of Adjusted Consolidated Net Income for the prior fiscal year; and (iv) Dividend by the Company to Holdings of all of the issued and outstanding capital stock of Jensen-Kelly Corporation. 8.7 Limitation on Investments, Loans and Advances. The Company will not, and will not permit any of its Subsidiaries to, make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person (other than the Company or any of its Subsidiaries), except that: (a) investments by the Company and its Subsidiaries in (i) accounts, contract rights and chattel paper (as defined in the Uniform Commercial Code), put and call foreign exchange options and foreign exchange forwards and futures to the extent necessary to hedge foreign exchange exposures and notes receivable, arising or acquired in the ordinary course of business and in Rate Hedging Agreements and (ii) Cash Equivalents; (b) investments by Foreign Subsidiaries in investments of a type similar to Cash Equivalents made outside of the United States; (c) extensions of trade credit in the ordinary course of business; (d) the Company and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising out of the ordinary course of business; provided that the Company and its Subsidiaries have paid no new consideration (other than forgiveness of Indebtedness or other obligations) therefor; (e) advances to suppliers in the ordinary course of business in an amount not exceeding in the aggregate $1,000,000 at any time outstanding to any one supplier or an aggregate for the Company and its Subsidiaries of $2,000,000 at any time outstanding; provided that each such advance, is required to be repaid within 180 days of the making of such advance; (f) so long as no Default or Event of Default shall have occurred and be continuing, or would result therefrom (including, without limitation, compliance with subsection 8.14), other investments in Persons not to exceed $5,000,000 in the aggregate at any time (and such investments to be measured by their fair market value at the time of the investment); and (g) loans and advances to officers, directors and employees in the ordinary course of business not to exceed $1,000,000 in the aggregate at any time outstanding. 55 8.8 Sale and Leaseback. The Company will not, and will not permit any of its Subsidiaries to, enter into any arrangement with any Person whereby the Company shall sell or transfer any property, real or personal, whether now owned or hereafter acquired, and thereafter rent or lease such property. 8.9 Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into any transaction (including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service) with any Affiliate of the Company unless such transactions are not otherwise prohibited under this Agreement, are in the ordinary course of business and are upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate; provided that nothing contained in this subsection shall be deemed to prohibit any transaction described in or contemplated by the agreements (the "Transaction Agreements") listed on Schedule 8.9 (as such agreements may be amended, supplemented or otherwise modified from time to time with, to the extent that such amendment, supplement or modification would be reasonably likely to have a material adverse effect on the rights or interests of the Administrative Agent or the Lenders, the consent of the Required Lenders). 8.10 Accounting Changes. (a) The Company will not, and will not permit any of its Subsidiaries to, make or permit to be made any change in accounting policies affecting the presentation of financial statements or reporting practices from those employed by it on the date hereof, unless (i) such changes are required or permitted by GAAP, (ii) such changes are disclosed to the Lenders through the Administrative Agent or otherwise and (iii) if requested by the Administrative Agent, relevant prior financial statements are reconciled (in form and detail satisfactory to the Administrative Agent) to show comparative results and reconciliations. (b) Notwithstanding anything to the contrary contained herein, compliance with the financial covenants contained in subsection 0 shall be determined based upon GAAP as in effect on the date of this Agreement. (c) The Company will not permit its fiscal year to end on a date other than December 31. 8.11 Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder and under the other Credit Documents; (b) Indebtedness outstanding on the date hereof and listed in Schedule 8.11(b), and other Indebtedness outstanding on the date hereof in an aggregate principal amount not to exceed $250,000; (c) Indebtedness of (i) Subsidiaries to the Company or to other Subsidiaries and (ii) the Company to any of its Subsidiaries; (d) Indebtedness of the Company and its Subsidiaries secured by Liens permitted by subsection 8.2(l) hereof; 56 (e) Indebtedness of EVD in an aggregate principal amount not to exceed $3,500,000 at any time; provided that no such Indebtedness has a term in excess of one year; (f) Indebtedness of Foreign Subsidiaries, other than EVD, in an aggregate principal amount not to exceed $250,000 at any time; and (g) obligations arising under Capital Leases in an aggregate principal amount not to exceed $500,000. 8.12 Limitation on Modifications of Tax Allocation Agreement. The Company will not and will not permit any of its Subsidiaries to modify or waive any provision of the Tax Allocation Agreement to the extent such amendment, modification or waiver would be reasonably likely to have a material adverse effect on the interests of the Lenders hereunder and under the other Loan Documents. 8.13 Limitation on Negative Pledge Clauses. The Company will not, and will not permit any of its Subsidiaries to, enter into with any Person any agreement, other than this Agreement, which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired; provided that any of the Company and its Subsidiaries may enter into any such agreement to the extent that such agreement is in connection with a Lien permitted by subsection 8.2 or a sale of assets permitted by section 8.5 and any such prohibitions or limitations apply only to the Property encumbered by such Lien or subject to such sale. 8.14 Limitation on Lines of Business. The Company will not, and will not permit any of its Subsidiaries to, principally engage in any business or activity other than the business conducted by the Company and its Subsidiaries on the Closing Date and businesses and activities reasonably related thereto. 8.15 Limitation on Restrictions on Subsidiary Distributions. The Company will not, and will not permit any of its Subsidiaries to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (b) make loans or advances to the Company or any other Subsidiary of the Company or (c) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Credit Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the disposition of all or substantially all of the Capital Stock or assets of such Subsidiary or (iii) any restrictions with respect to the Company or any of its Subsidiaries imposed pursuant to an agreement which has been entered into in connection with a Lien permitted by subsection 8.2 or a sale of assets permitted by subsection 8.5 and any such prohibitions or limitations apply only to the Property encumbered by such Lien or subject to such sale. 57 8.16 Limitation on Activities of Holdings. In the case of Holdings, notwithstanding anything to the contrary in this Agreement or any other Credit Document, (a) conduct, transact or otherwise engage in, or commit to conduct, transact or otherwise engage in, any business or operations other than those incidental to its ownership of the Capital Stock of the Company, (b) incur, create, assume or suffer to exist any Indebtedness or other liabilities or financial obligations, except (i) nonconsensual obligations imposed by operation of law, (ii) pursuant to the Credit Documents to which it is a party and (iii) obligations with respect to its Capital Stock, or (c) own, lease, manage or otherwise operate any properties or assets (other than cash and Cash Equivalents) other than the ownership of shares of Capital Stock of the Company. 8.17 Limitation on Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, create, acquire or otherwise suffer to exist any Domestic Subsidiary unless such Domestic Subsidiary is party to a guarantee substantially in the form of the Subsidiaries Guarantee and the Administrative Agent has received such legal opinions and other such documents, instruments and agreements (including, without limitation, any board resolutions and incumbency certificates) as the Administrative Agent reasonably may request to evidence the enforceability of such guarantee. SECTION 9. EVENTS OF DEFAULT Upon the occurrence and during the continuance of any of the following events: (a) Payments. Failure by the Company to pay any principal of or interest on any Loan or Note or any Reimbursement Obligation when due in accordance with the terms thereof and hereof, or failure by the Company to pay any fee or other amount payable in connection with any Credit Document within five days after the date when due; or (b) Representations and Warranties. Any representation or warranty made or deemed made by the Company or any Guarantor in any Credit Document or which is contained in any certificate or financial statement furnished at any time under or in connection herewith or therewith shall prove to have been incorrect, false or misleading in any material respect on or as of the date when made or deemed to have been made; or (c) Negative Covenants. Default by the Company or any of its Subsidiaries in the observance or performance of any negative covenant or agreement contained in Section 0; or (d) Other Covenants. Default by the Company or any Subsidiary in the observance or performance of any other covenant or agreement contained or incorporated by reference in this Agreement other than as provided in clauses (a) through (c) above, and such default shall continue unremedied for a period of 30 days; or (e) Cross Default. Holdings or any of its Subsidiaries shall Cross Default; or (f) Commencement of Bankruptcy or Reorganization Proceeding. (i) Holdings or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered 58 with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets; or, (ii) there shall be commenced against Holdings or any of its Subsidiaries any such case, proceeding or other action referred to in subsection (i) which results in the entry of an order for relief or any such adjudication or appointment remains undismissed, undischarged or unbonded for a period of 60 days, provided that the Company, for itself and on behalf of each of its Subsidiaries, hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case, proceeding or other action during said 60-day period to preserve, protect and defend their rights under the Credit Documents; or (iii) there shall be commenced against Holdings or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) Holdings or any of its Subsidiaries shall take any action authorizing, or in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth above in this paragraph (h); or (v) Holdings or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity of the Company shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; provided that, in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, would be reasonably likely to have a Material Adverse Effect; or (h) Change of Control. At any time on or after the Closing Date, Holdings shall fail to own, beneficially and of record, and control all of the issued and outstanding capital stock of the Company; or any Change of Control shall occur; or (i) Material Judgments. (i) One or more judgments or decrees shall be entered against Holdings or any of its Subsidiaries involving in the aggregate a liability (not covered by insurance) of $2,000,000 or more or (ii) any non-monetary judgment or order shall be rendered against Holdings or any of its Subsidiaries that is reasonably likely to have a Material Adverse Effect, and in the case of either clause (i) or (ii), there shall be 59 any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless such judgment or order shall have been vacated, satisfied, discharged or bonded pending appeal; or (j) Effectiveness of the Guarantees. On or after the Closing Date, (i) for any reason (other than any act on the part of the Administrative Agent or any Lender or by its terms) any Guarantee ceases to be or is not in full force or (ii) the Company or any Guarantor shall assert in writing that any Guarantee has ceased to be or is not in full force and effect; then, and in any such event, (x) if such event is an Event of Default specified in clause (i), (ii) or (iii) of paragraph (f) of this Section with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the other Credit Documents shall immediately become due and payable, and (y) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and/or (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare all or any part of the Loans (with accrued interest thereon) and any other amounts owing under this Agreement and the other Credit Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes then due and payable shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company. The Company hereby grants to the Administrative Agent, for the ratable benefit of the Lenders, as collateral security for the payment in full of the Payment Obligations, a security interest in all amounts from time to time held in the cash collateral account maintained pursuant to this paragraph. Except as expressly provided above in this Section 0, presentment, demand, protest and all other notices of any kind are hereby expressly waived to the maximum extent permitted by applicable law. 60 SECTION 10. THE ADMINISTRATIVE AGENT 10.1 Appointment. Each Lender hereby irrevocably designates and appoints The Chase Manhattan Bank (and each successor thereto which is appointed in accordance with the provisions of subsection 0) as the Administrative Agent under the Credit Documents and hereby irrevocably authorizes The Chase Manhattan Bank (and any such successors thereto), as the Administrative Agent for such Lender, to take such action, in the Administrative Agent's discretion, on such Lender's behalf under the provisions of the Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Credit Documents, together with such other powers as are reasonably incidental thereto. The Chase Manhattan Bank hereby accepts its appointment as the Administrative Agent and the authorization set forth above. Notwithstanding any provision to the contrary in the Credit Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth in the Credit Documents, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Credit Documents or otherwise exist against the Administrative Agent in such capacity. 10.2 Delegation of Duties. The Administrative Agent may execute any of its duties under the Credit Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable to any of the Lenders for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Credit Documents (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in the Credit Documents or in any certificate, report, statement or other document referred to or provided for in, or received by it under or in connection with, the Credit Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Credit Documents (other than with respect to its own due execution and delivery thereof) or the perfection of any security interest contemplated thereby or for any failure of any party thereto (other than the Administrative Agent in such capacity) to perform its obligations thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Credit Documents, or to inspect the properties, books or records of any party to any thereof. 10.4 Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note or on account of any Loan as the owner thereof for all 61 purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent (in its capacity as such). The Administrative Agent shall be fully justified in failing or refusing to take any action under any Credit Document unless it shall have received such advice or concurrence of the Required Lenders as it deems appropriate or it shall have been expressly indemnified to its satisfaction by the Lenders or, at its option, the Required Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action (except that no such indemnification need include any indemnification for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Administrative Agent). Each of the Administrative Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates shall in all cases be fully protected in acting, or in refraining from acting, under the Credit Documents upon advice of counsel or in accordance with a request of the Required Lenders (except in cases in which a greater number of Lenders is required, in which case the Administrative Agent and its officers, directors, employees, agents, attorneys-in-fact or affiliates shall in all cases be fully protected in acting, or in refraining from acting, under the Credit Documents in accordance with a request of such Lenders), and such request, and any action taken or failure to act pursuant thereto, shall be binding upon all the Lenders and all future holders of the Loans and the Notes. 10.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless, the Administrative Agent has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives any such notice, it shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to any Default or Event of Default as shall be reasonably directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received any such directions, it may (but shall not be obligated to) take such action (other than any such action under clause (y) of Section 0), or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.6 Non-Reliance on the Administrative Agent and the Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by it hereinafter taken, including any review of the affairs of the Company or any Subsidiary or any Affiliate of any of the foregoing, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has or will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed or will deem appropriate, made and will make its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries and Affiliates and made and will make its own decision to make its Loans and enter into the Credit Documents to which it is or will be a party. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and 62 creditworthiness of the Company and its Subsidiaries and Affiliates. Each Lender acknowledges that no action on the part of the Administrative Agent shall relieve such Lender from performing its own credit analysis and making its own determination prior to, and from time to time after, its entering into this Agreement with respect to the nature of the transaction contemplated hereby and assuming any risks or disadvantages to it that may arise out of any such determination. Except for notices, reports and other documents expressly required to be furnished to the Lenders, or obtained, by the Administrative Agent, under the Credit Documents, the Administrative Agent in such capacity shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Company and its Subsidiaries and Affiliates which may come into its possession or the possession of any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7 Indemnification. The Lenders agree to indemnify the Administrative Agent (in its capacity as such) and its officers, directors, employees, agents, attorneys-in-fact or affiliates, to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so, ratably according to the respective amounts of their pro rata shares of the Aggregate Commitment in effect on the date upon which indemnity is sought, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever (including, without limitation, legal fees and disbursements) which may at any time (including, without limitation, at any time following the payment of the Loans or the Notes) be imposed on, incurred by or asserted against the Administrative Agent, in such capacity, in any way relating to or arising out of the Credit Documents, or any documents contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted by the Administrative Agent, in such respective capacities, thereunder or in connection therewith, provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent, in such capacity, or, in the case of a claim against the Administrative Agent, in such capacity, arising from a lawsuit against the Administrative Agent if such Lender was not given notice of said lawsuit and an opportunity to participate in the defense thereof at its own expense. The agreements in this subsection 0 shall survive the payment of the Loans, the Notes, and all other amounts payable hereunder. 10.8 The Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company and any of their Subsidiaries or Affiliates as though it were not the Administrative Agent. With respect to its Loans and any Notes or other promissory note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 Successor Administrative Agent. The Administrative Agent may resign as the Administrative Agent upon 30 days' notice to the Lenders and the Company. If it shall resign as Administrative Agent, then the Required Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor Administrative Agent shall be approved by the Company, such approval not to be unreasonably withheld (or, if the Required Lenders and the Company are unable to select such successor Administrative Agent within such 63 30-day period, a successor Administrative Agent shall be selected by the Administrative Agent), whereupon such successor agent shall succeed to the rights, powers and duties of the resigning Administrative Agent under all of the Credit Documents, and the term "Administrative Agent" shall mean such successor Administrative Agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as the Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans or the Notes. After any retiring Administrative Agent's resignation hereunder or as Administrative Agent, as the case may be, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Credit Documents. Issuing Lender as Issuer of Letters of Credit. Each Lender hereby acknowledges and agrees that the provisions of this Section 11 shall apply to the Issuing Lender, in its capacity as issuer of the Letters of Credit, in the same manner as such provisions are expressly stated to apply to the Administrative Agent. 10.11 Documentation Agent. The Documentation Agent, in its capacity as such, shall not have any duties or any responsibilities hereunder nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise against the Documentation Agent in its capacity as such. SECTION 11. MISCELLANEOUS 11.1 Amendments and Waivers. (a) Except as set forth in the next succeeding sentence, the Administrative Agent, on the one hand and the Company or the Guarantors, as the case may be, as party thereto, on the other hand, may from time to time with the written consent of the Required Lenders enter into written amendments, supplements or modifications for the purpose of adding, deleting or modifying any provision of any Credit Document or changing in any manner the rights, remedies, obligations and duties of the parties thereto, and the Administrative Agent, on behalf of the Lenders, may, with the written consent of the Required Lenders, execute and deliver a written instrument waiving, on such terms and conditions as may be specified in such instrument, any of the requirements applicable to the Company or Guarantors party to any Credit Document, or any Default or Event of Default and its consequences. No such waiver, amendment, supplement or modification shall: (i) without the written consent of each Lender directly affected thereby, extend the final scheduled maturity of any of the Loans or the Notes or any scheduled installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, or change the amount or terms (including, without limitation, fees and commissions) of any Commitment, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, or reduce the percentages specified in the definitions of "Required Lenders" in Section 0, or amend, modify or waive any provision of this subsection 11.1; (ii) without the written consent of Lenders holding 100% of the Aggregate Commitment, take any action having the effect of releasing any of the material guarantee obligations provided for in a Guarantee, except as set forth therein or in Section 11.9; 64 (iii) without the prior written consent of the Issuing Lender amend, supplement or otherwise modify Section 3 or any provisions of or directly applicable to any Letter of Credit; or (iv) without the written consent of the then Administrative Agent and Issuing Lender, amend, modify or waive any provision of Section 0. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Lenders and all future holders of any of the Loans and the Notes. In the case of such waiver, the parties to the Credit Documents, the Lenders and the Administrative Agent shall be restored to their former positions and rights hereunder and under the Notes, and any Default or any Event of Default waived shall, to the extent provided in such waiver, be deemed to be cured and not continuing; but, no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. The Administrative Agent shall, as soon as practicable, furnish a copy of each such amendment, supplement, modification or waiver to each Lender. (b) To the extent that the execution, delivery or performance of any Credit Document constitutes a Default or an Event of Default under (and as defined in) the Existing Credit Agreement, each Lender hereunder which is a party to the Existing Credit Agreement hereby waives such Default or Event of Default. (c) To the extent that the existence or performance of any Basic Document (as defined in the Existing Credit Agreement) constitutes a Default or an Event of Default hereunder, each Lender hereunder hereby waives such Default or Event of Default; provided that the Existing Credit Agreement is terminated in the manner and at the time contemplated by subsection 6.1(h) hereof. (d) Each Lender hereby agrees that any Security Document under (and as defined in) the Existing Credit Agreement, and any financing statement or similar filing on account thereof, which remains in effect after the date hereof shall be deemed not to constitute a "Lien" for purposes of this Agreement; provided that such Security Documents are terminated in the manner and at the time contemplated by subsection 6.1(i) hereof and the Company shall use best efforts to terminate or cause to be terminated such filings upon the termination of the Existing Credit Agreement. 65 11.2 Notices. All notices, consents, requests and demands to or upon the respective parties hereto to be effective shall be in writing and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, certified mail, return receipt requested, postage prepaid, or, in the case of telecopy notice, when sent, addressed as follows in the case of the Company and the Administrative Agent, and as set forth in Schedule 1.1(A) hereto in the case of each of the other parties hereto, or to such address or other address as may be hereafter notified by any of the respective parties hereto or any future holders of the Loans or the Notes: The Company: Pneumo Abex Corporation (d/b/a Mafco Worldwide Corporation) Third Street and Jefferson Avenue Camden, New Jersey 08104 Attention: Senior Vice President - Finance Telecopy: (609) 964-6029 The Administrative Agent and Issuing Lender: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Neil Boylan Telecopy: (212) 270-1129 with a copy to: The Chase Manhattan Bank Agency Services Corporation Chase Manhattan Plaza New York, New York 10081 Attention: Sandra Miklave Telecopy: (212) 552-5658 provided that any notice, request or demand to or upon the Administrative Agent or the Issuing Lender pursuant to Sections 2, 3 and 4 shall not be effective until received. 11.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant 66 hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 11.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, execution and delivery of, and any amendment, supplement or modification to, any Credit Document and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the fees and disbursements of counsel to the Administrative Agent, but not including any fees and expenses of counsel to the Lenders), (b) to pay or reimburse each Lender, the Issuing Lender and the Administrative Agent for all its reasonable costs and expenses incurred in connection with the enforcement or preservation of any rights under the Credit Documents and any such other documents, including, without limitation, fees and disbursements of counsel to the Administrative Agent, the Issuing Lender and to the Lenders, (c) to pay, indemnify, and to hold each Lender, the Issuing Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Credit Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender, the Issuing Lender, the Administrative Agent, the Documentation Agent and the officers, directors, employees and agents thereof, harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, consummation, enforcement, performance and administration of the Credit Documents and the use by the Company of the proceeds of the Loans and other extensions of credit hereunder (all of the foregoing, collectively, the "indemnified liabilities"), provided that the Company shall have no obligation hereunder with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of any such Lender, the Issuing Lender or of the Administrative Agent, (ii) legal proceedings commenced against any such Lender, the Issuing Lender or against the Administrative Agent by any security holder or creditor (other than the Company, its Subsidiaries and its Affiliates) thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, (iii) legal proceedings commenced against any such Lender or the Issuing Lender by any other Lender or by the Administrative Agent or (iv) amounts of the types referred to in clauses (a) through (c) above except as provided therein. The agreements in this subsection 0 shall survive repayment of the Loans and the Notes and all other amounts payable hereunder. 11.6 Successors and Assigns; Loan Participations. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Administrative Agent, the Lenders, all future holders of the Loans and the Notes, and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder or under any other Credit Document. In the event of any such sale by a 67 Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan or Note for all purposes under this Agreement and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement and the Notes are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided, that such right of set-off shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in subsection 0. The Company also agrees that each Participant shall be entitled to the benefits of subsections 0, 0 and 0 with respect to its participation in the Loans and Commitments outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. Notwithstanding anything to the contrary contained herein, no Participant shall have any right to consent to any amendment, supplement or other modification to this Agreement or the other Credit Documents, other than any such amendment, supplement or other modification which would (i) extend the final scheduled maturity of any of the Loans or the Notes, (ii) reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, (iii) increase the amount of such Participant's participating interest in the Loans or the Notes or (iv) except in accordance with their terms, release any of the material guarantee obligations provided for in any Guarantee. (c) Any Lender may, in accordance with applicable law: (i) at any time sell all or any part of its rights and obligations under this Agreement and any of the Loans or the Notes and any other Credit Document to any Lender or any Affiliate thereof; and (ii) with the consent of the Company and the Administrative Agent (which consent shall not be unreasonably withheld) sell to one or more additional banks or financial institutions ("Purchasing Lenders") which are not Lenders or Affiliates thereof, all or any part of its rights and obligations under this Agreement and the Loans and the Notes and any other Credit Document, provided that, unless the Company and the Administrative Agent otherwise consent (which consent shall not be unreasonably withheld), each such sale pursuant to this clause (ii) shall be in an amount of $5,000,000 or more; provided that, after giving effect to such sale, if the transferor Lender retains any Commitment hereunder, such Commitment shall, unless the Company otherwise consents (which consent shall not be unreasonably withheld), be not less than $5,000,000. Any such sale pursuant to clause (ii) or (iii) shall be made pursuant to an Assignment and Acceptance, substantially in the form of Exhibit C (an "Assignment and Acceptance"), executed by the Administrative Agent, such Purchasing Lender and such transferor Lender (and, in the case of any such transfer which 68 requires the Company's consent, by the Company), and delivered to the Administrative Agent for its acceptance and recording in the Register (as defined below). Upon such execution, delivery, acceptance and recording, from and after the effective date set forth in such Assignment and Acceptance, (x) the Assignee thereunder (and as defined therein) shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments as set forth therein, and (y) the Assignor thereunder (and as defined therein) shall, to the extent of the interest transferred, as reflected in such Assignment and Acceptance, be released from its obligations under this Agreement and the other Credit Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an Assignor's rights and obligations under this Agreement and the other Credit Documents, such Assignor shall cease to be a party hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Assignee and the resulting adjustment of the relevant Commitment Percentages arising from the purchase by such Assignee of all or a portion of the rights and obligations of such Assignor under this Agreement and the Loans and the Notes. On or prior to the effective date of such Assignment and Acceptance, the Company (at its own expense and upon the request of such Assignee or the Assignor) shall execute and deliver to the Administrative Agent in exchange for any surrendered Note a new Note to the order of such Assignee in an amount equal to the relevant Commitment assumed by it pursuant to such Assignment and Acceptance and, if the Assignor has retained such a Commitment hereunder (and has previously requested a Note evidencing its Loans thereunder), a new Note to the order of the Assignor in an amount equal to the relevant Commitment retained by it hereunder. Any such new Note shall be dated the date of the original Note and shall otherwise be in the form of the Note replaced thereby. Any Note surrendered by the Assignor shall be returned by the Administrative Agent to the Company marked "canceled." (d) The Administrative Agent shall maintain at its address referred to in subsection 11.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitments and Commitment Percentages of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in the case of any transfer which requires the Company's consent, by the Company and the Administrative Agent), together with payment to the Administrative Agent of a registration and processing fee of $3,500 ($1,000 if the Purchasing Lender is then a Lender or an Affiliate thereof), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date thereof record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. (f) The Company authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning Holdings, the Company and its Subsidiaries which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or any 69 other Credit Document, or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company, its Subsidiaries and its Affiliates prior to becoming a party to this Agreement; provided that such Transferee or potential Transferee agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it concerning the Company or any of its Subsidiaries. (g) Unless the Company shall otherwise consent, if, pursuant to this subsection 0, any interest in this Agreement or any Loan or Note is transferred to any Transferee (which, for purposes of this subsection 0, shall include an Affiliate of a Lender to which a sale is made pursuant to subsection 0) which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent, and the Company) that under applicable law and treaties at the time in effect no taxes will be required to be withheld by the Administrative Agent, the Company or the transferor Lender with respect to any payments to be made to such Transferee in respect of the Loans under this Agreement, (ii) to furnish to the transferor Lender (and, in the case of any Purchasing Lender registered in the Register, the Administrative Agent and the Company) either United States Internal Revenue Service Form 4224 or United States Internal Revenue Service Form 1001 or any successor applicable form, as the case may be (wherein such Transferee claims entitlement to complete exemption from United States federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Lender, the Administrative Agent and the Company) to be bound by the provisions of subsections 0, (c) and (d) as if such Transferee were a Lender hereunder. (h) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection 11.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 11.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of any of the Loans or Reimbursement Obligations owing to it, or interest thereon, pursuant to a guarantee or otherwise, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise), in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Loans or Reimbursement Obligations, as the case may be, owing to it or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loans or Reimbursement Obligations, as the case may be, owing to such other Lender, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Loans or Reimbursement Obligations may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such purchasing Lender were the direct holder of such portion. 70 (b) In addition to any rights and remedies of the Lenders provided by law, upon both the occurrence of an Event of Default and acceleration of the obligations owing in connection with this Agreement, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived to the extent permitted by applicable law, to set off and apply against any indebtedness, whether matured or unmatured, of the Company to such or any other Lender, any amount owing from such Lender to the Company at, or at any time after, the happening of both of the above mentioned events, and such right of set-off may be exercised by such Lender against the Company or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, custodian or execution, judgment or attachment creditor of the Company, or against anyone else claiming through or against the Company or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the making, filing or issuance, or service upon such Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 11.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.9 Releases of Guarantee Obligations. Notwithstanding anything to the contrary contained herein or in any Guarantee, upon request of the Company, the Administrative Agent shall (without any notice to or vote or consent of any Lender) take action having the effect of releasing any guarantee obligations provided for in any Guarantee to the extent necessary to permit the consummation of any transactions not prohibited hereunder, by the relevant Person in accordance with the provisions of this Agreement and the other Credit Documents. 11.10 Effectiveness; Counterparts. This Agreement shall become binding upon the parties hereto when the Administrative Agent shall have received one or more counterparts of this Agreement, executed by a duly authorized officer of each party hereto or, in the case of any Lender, telex or telecopier confirmation to the Administrative Agent that a duly authorized officer of such Lender has executed a counterpart of this Agreement and that such counterpart has been sent to the Administrative Agent. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 11.11 SUBMISSION TO JURISDICTION; WAIVERS. (A) THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY: 71 (I) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (II) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (III) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION 0 OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND (IV) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (B) EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT, THE ISSUING LENDER AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE. 11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. PNEUMO ABEX CORPORATION By:/s/ Peter W. Grace ----------------------------- Title: Senior Vice President THE CHASE MANHATTAN BANK, as Administrative Agent, as Issuing Lender By:/s/ Neil R. Boylan ----------------------------- Title: Vice President CHASE MANHATTAN BANK DELAWARE, as Designated Issuer By:/s/ Michael P. Handago ----------------------------- Title: Vice President BANKBOSTON, N.A. By: /s/ John K. Hood ----------------------------- Title: Managing Director U.S. BANK NATIONAL ASSOCIATION By: /s/ Elliot J. Jaffee ----------------------------- Title: Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH By: /s/ Teiji Teramoto ----------------------------- Title: Vice President & Manager 73 ROYAL BANK OF CANADA By: /s/ Steven Yoon ----------------------------- Title: Senior Manager CREDIT AGRICOLE INDOSUEZ By: /s/ Craig Welch ----------------------------- Title: First Vice President By: /s/ Cheryl A. Solometo ----------------------------- Title: Vice President NATIONAL WESTMINSTER BANK Plc By: /s/ Andrew S. Weinberg ----------------------------- Title: Senior Vice President BANQUE PARIBAS By: /s/ John J. McCormick, III ----------------------------- Title: Vice President By: /s/ Mary T. Finnegan ----------------------------- Title: Director THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By: /s/ Teiji Sakata ----------------------------- Title: Joint General Manager 74 NATEXIS BANQUE BFCE By: /s/ William Maier ----------------------------- Title: Vice President Exhibit 10.27 Annex A EX-10.28 3 CONTRACT BETWEEN MAFCO WORLDWIDE CORPORATION AND LICORICE & PAPER Exhibit 10.28 CONTRACT BETWEEN MAFCO WORLDWIDE CORPORATION AND LICORICE & PAPER EMPLOYEES ASSOCIATION OF CAMDEN, NEW JERSEY Effective May 31, 1997 to May 31, 2001 TABLE OF CONTENTS Section Page Purpose............................................I 3 Recognition and Unit Covered.......................II 4 Good Faith and Bargaining..........................III 4 Coercion of Employees..............................IV 5 Impartial Representation...........................V 5 Grievances.........................................VI 5-7 Holidays...........................................VII 8-9 Hours..............................................VIII 9-10 Vacations..........................................IX 11-14 Wages..............................................X 14-16 Deduction of Union Dues............................XI 16 Government Regulations.............................XII 16 Management.........................................XIII 16-17 Seniority..........................................XIV 18-20 New Employees......................................XV 20-21 Employee Benefits..................................XVI 21-26 Operations of Company..............................XVII 27 Union Shop Provision...............................XVIII 27-28 Bulletin Boards & Rent of Room.....................XIX 28 Safety and Health..................................XX 28-29 Amendments.........................................XXI 29 Duration...........................................XXII 30 Successors and Assigns.............................XXIII 30 Addenda to Collective Bargaining Agreement................... 31-32 A. Overtime Procedure..................... 31-32 B. Paychecks/Adjustments.................. 32 CONTRACT -------- THIS CONTRACT entered into the 31st day of MAY, 1997 for and MAFCO WORLDWIDE CORPORATION, a Delaware Corporation, hereinafter referred to as the "Company" and LICORICE AND PAPER EMPLOYEES ASSOCIATION OF CAMDEN, NEW JERSEY, AFL-CIO, hereinafter referred to as the "Union." SECTION I PURPOSE WITNESSETH, whereas the parties hereto have reached agreement as a result of collective bargaining for the purpose of facilitating the peaceful adjustment of differences which may arise from time to time between this Company and the Union, and to promote harmony and efficiency and to the end that the employees and the Company and the general public may mutually benefit, the parties hereto contract and agree with each other as follows: SECTION II RECOGNITION AND UNIT COVERED The Company agrees to recognize the Union, which has been certified by the National Labor Relations Board by its orders dated April 28, 1942, May 20, 1943, and May 9, 1944 and October 30, 1946 (Nos. 4-R-797, 4-R-1112, 4-R-1387, and 4-R-2364 respectively) to be the exclusive representative for collective bargaining under the National Labor Relations Act for all production and maintenance employees, of the employer, including factory laboratory employees, storing and shipping employees and employees in the boiler, turbine and pump shops, except executives, office employees, first aid attendant, general foremen, executive foremen and all other supervisory employees with the authority to hire, discharge, promote, discipline or otherwise effect changes in the status of employees or effectively recommend such action (which group is hereinafter called the "Unit") as the exclusive bargaining agency for the employees of the Company in said Unit by virtue of the majority of said employees having chosen said Union as their representative for collective bargaining under said Act. (3) SECTION III GOOD FAITH AND BARGAINING The Union and the Company both acknowledge and declare that they have negotiated this Agreement with each other in good faith under the terms of the National Labor Relations Act. SECTION IV COERCION OF EMPLOYEES The Company agrees not to discriminate against any employee, first, coming under this Contract; second, for representing any other employee; third, for presenting any grievance. The Company further agrees that it shall not interfere with, restrain or coerce said employees in the exercise of their right to bargain collectively in accordance with the terms of this Contract. SECTION V IMPARTIAL REPRESENTATION The Union agrees that its representation of employees of the Company hereunder will be faithful and impartial and without discrimination for or against any employee. The Union further agrees that only joint labor management activities will be upon Company time. The Company agrees to keep on file with the Company an accurate list of its officers and shop stewards. SECTION VI GRIEVANCES Should any employee believe himself unjustly dealt with or any provision of this Contract violated, earnest efforts will be made to settle the matter as follows: First. Between the employee affected and his Foreman, who may not be a part of the Unit, or the Superintendent. In every case, the grievance must be entered within five (5) working days of the event which is the subject of the complaint or within five (5) days from the date the employee knew, or reasonably should have known, of such event. The Union will be (4) notified in advance of such first step meeting and an accredited representative of the Union may be present. Second. Between the Union Grievance Committee and representatives of the Management of the plant, within five (5) weekdays, excluding holidays, of receipt of notice by the Management. Such meeting may or may not be during working hours except that no overtime is to be paid for Grievance Procedure after working hours. A written and comprehensive statement of the Grievance and those affected is to be made by the Union. The Company's answer shall be reduced to writing by Management. A signed copy of such answer shall be furnished the Union within ten (10) calendar days following the aforementioned meeting. Third. If no satisfactory adjustment is made under the second step, then it shall be submitted to a Board of Review of two (2) members, one (1) designated by the Union and one (1) designated by the Company, within five (5) weekdays, excluding holidays, of receipt of notice by the Management, and an answer submitted to the Union within five (5) weekdays, excluding holidays, following the meeting. In the event that no satisfactory solution shall have been reached at the Board of Review, the question may be presented for arbitration provided a demand for arbitration is received by the Company from the Union within two (2) calendar weeks from receipt of the Company's answer. On questions proceeding to arbitration, an Arbitrator shall be selected under the rules for voluntary labor arbitration of the American Arbitration Association then obtaining. All costs of the arbitrator, administration charges and other charges made by the American Arbitration Association shall be equally divided between the Company and the Union. The parties agree to abide by the award subject to such rulings as any federal agency having jurisdiction may impose. Either party shall have the option to waive any particular step in the grievance procedure and proceed to the next step or waive any further steps in the grievance procedure and proceed directly to arbitration under the rules and regulations of the American Arbitration Association. (5) Sufficient procedures having been established for dealing with all disputes concerning wages, hours and working conditions, there shall be no strike or lockout during the term of this agreement. SECTION VII HOLIDAYS All of the employees in the Unit who have completed their 60 day probationary period shall receive a bonus of eight (8) straight time pay for each of the following holidays: New Year's Day, Easter Monday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the Day after Thanksgiving, December 24, Christmas Day and three (3) personal holidays per calendar year, the date for which shall be mutually agreed upon by the employee and his Foreman or Superintendent. However, when New Year's Day, Memorial Day, Independence Day or Christmas Day fall on a Sunday, but are observed generally on a Monday, then the Monday shall be considered to be the holiday for purposes of this section. Any hourly paid employees who work on such holidays shall be paid one and one-half times straight time pay. For non-probationary employees, the foregoing time and one-half rate shall be in addition to the holiday bonus.. All process employees will be guaranteed time off without work for five (5) of the listed holidays as they occur in the course of any year of this contract. If an employee is absent on his last scheduled work day before a holiday or his first scheduled work day after a holiday and such absence is for a period of less than three (3) continuous days, then such employee shall not be entitled to the Holiday Pay; provided, however, that the employer shall have the right to waive this requirement in any particular situation. The wellness program shall continue under which an employee who completes three (3) out of four (4) Quarters in a calendar year, without missing a regularly scheduled workday, shall be entitled to an additional personal holiday in the following calendar year; and effective January 1, 1998, any employee who completes four (4) out of four (4) quarters in a calendar year without missing a regularly scheduled workday shall be entitled to a second additional personal holiday in the following calendar year. Effective 1/1/98 any two (2) lateness incurred (6) in any calendar quarter shall be considered as constituting the missing of a "regularly scheduled work day" in that quarter for purposes of the Wellness Program. SECTION VIII HOURS For the purpose of this Contract, the work week shall be from 6:00 A.M., Monday until the following Monday at 6:00 A.M. The work day shall be from 6:00 A.M. until 6:00 A.M. the following morning. Eight (8) hours of each work day shall constitute straight time hours. All work performed in excess of eight (8) straight time hours in one (1) day shall be at one and one-half times the straight time rate. In consideration for working 10:00 P.M. to 6:00 A.M. shift and continuing to work the 6:00 A.M. to 2:00 P.M. shift, one and one-half times the straight time rate shall be paid for the 6:00 A.M. to 2:00 P.M. shift, provided the employee does not work the regular 10:00 P.M. to 6:00 A.M. shift in the same work day. All work performed on Saturday of a regularly scheduled work week shall be paid at one and one-half times the straight time rate. All work performed on Sunday of a regular scheduled work week shall be paid for at twice the straight time rate. In the event a normal day operation is rescheduled to night operation, the related rates of pay will be adjusted upward by fifteen cents (15(cent)) per hour starting at 2:00 P.M. and continuing until 10:00 P.M.; an additional upward adjustment of ten cents (10(cent)) per hour for a total of twenty-five cents (25(cent)) per hour will be made starting at 10:00 P.M. and continuing until 6:00 A.M. the following morning. In the event a maintenance employee is called back to work his basic rate of pay shall be adjusted by the applicable shift differential premium pay. For all repair work, whether straight time or overtime, or both, shop men shall have the first call to the extent of their availability. In the event that enough shop men are not available to do the necessary work, process men may be called to the extent of their capability and availability, with the advance knowledge of the Union. In the further event that there are not enough shop men and process men available to do the necessary work, outside men may be called in with the advance knowledge of the Union. The Company will, to the best of its ability, award overtime repair work on an equitable basis. (7) SECTION IX VACATIONS Hourly paid employees who have been continuously on the payroll for one (1) full year and less than three (3) full years shall receive the greater of forty (40) hours pay or two percent (2%) of their annual income for vacation purposes, and will be entitled to one (1) week's leave for that purpose. All hourly paid employees who have been continuously on the payroll for three (3) full years and less than ten (10) full years shall receive the greater of eighty (80) hours pay or four percent (4%) of their annual income for vacation purposes and will be entitled to two (2) weeks' leave for that purpose. All hourly paid employees who have been continuously on the payroll for ten (10) full years and less than (20) full years shall receive the greater of one-hundred twenty (120) hours or six percent (6%) of their annual income for vacation purposes, and will be entitled to three (3) weeks' leave for that purpose. All hourly paid employees who have been continuously on the payroll for twenty (20) or more full years shall receive the greater of one-hundred sixty (160) hours or eight percent (8%) of their annual income for vacation purposes, and will be entitled to four (4) weeks' leave for that purpose. Any employee who on December 31 has completed one (1) full year of continuous service will be entitled to vacation pay in the following calendar year. Current accrued vacation shall be pro-rated on the basis of full weeks of completed service and shall be paid to retiring employees and the estate of deceased employees on the occasion of the retirement or death. Current accrued vacation shall be pro-rated on the basis of full weeks of completed service and shall be paid to a laid-off employee on March 1 following his layoff. Income for vacation percentage payments will be based on the year ending December 31st immediately prior to vacations, during any year of this Contract, and shall be deemed to include only amounts payable as wages. Regular vacation checks will not be available before March 1 of the following year. (8) In the event of an employee's termination of service prior to March 1, vacation pay will be paid to such former employee within ten (10) days following termination. An employee who has filed application for retirement may complete his regular vacation entitlement before retiring, or if the employee desires, he may receive equivalent pay in lieu of vacation time off at his retirement date. There shall be no vacation payment in any amount under any circumstances other than specifically provided for herein above. All application forms for vacation must be submitted to the Superintendent of the employee's department no later than June 1 of any year of this contract. When the company publishes on or before March 1 a notice of shutdown during July or August, an employee must reserve one (1) week of vacation eligibility in July and one (1) week of eligibility in August to be taken during the periods of shutdown occurring during these months. Employees will not be required to take their vacation prior to July 1. Any employee who would suffer extreme hardship from this requirement shall be permitted to make alternate mutually agreeable vacation arrangements; however, such employees shall not exceed in number five percent (5%) of the bargaining unit as of March 1. Exceptions to this requirement may also occur where essential employee services are needed during the shutdown period. Such essential employees will be notified on or before March 1. In advance of each announced shutdown period, the Company shall post bulletin board notices requesting that process employees who desire to work during the shutdown period indicate their desire to their Superintendent. Employees who indicate their desire for such work will be assigned an eligibility priority for such work by the Company. The Union will be given advance knowledge of this eligibility priority determination. An employee may be permitted by agreement with his Superintendent, to work during the period that would otherwise have been scheduled as vacation, provided such permission is not inconsistent with the other provisions of this Section. The other provisions of this Section having been satisfied, every effort will be made to grant the employee vacation leave at the time and to the extent of the employee's choice, having proper regard, however, for the operating requirements of the department. Seniority shall be controlling in resolving employee vacation schedule conflicts. (9) SECTION X WAGES The basic rates of pay shall be increased by the amount shown at 6:00 A.M. on each of the following indicated dates: Effective Date Amount June 1, 1997 $ .45 June 1, 1998 $ .42 June 1, 1999 $ .43 June 1, 2000 $ .45 A premium pay of fifteen cents (15(cent)) per hour, in addition to the basic rates, shall be paid for all shift work performed during the second shift which is from 2:00 P.M. to 10:00 P.M., and a premium pay of twenty-five cents (25(cent)) per hour, in addition to the basic rates, shall be paid for all shift work performed during the third shift which is from 10:00 P.M. to 6:00 A.M. SENIORITY PAY Employees shall be entitled to seniority pay as follows: Three cents (3(cents)) per hour shall be added to each employee's basic rate of pay on and after his fifth (5th) anniversary of continuous employment. An additional three cents (3(cents)) or a total six cents (6(cents)) per hour shall be added to the basic rate of each employee on and after the anniversary of his fifteenth (15th) year of continuous employment. CALL-BACK PAY In the event an employee has left the plant and is called back to work, after the expiration of his regular assignment, he shall be compensated for all time so worked at the proper rate, and in no case shall he receive less than five (5) hours straight time pay or the equivalent. In the event a regular day work shift maintenance employee is called back to work or work or held over and his work is not completed until after 1:00 A.M., he shall not work his (10) regular shift on the following day and shall be compensated eight (8) straight time hours for that day, provided the following date was a scheduled workday for such employee. LONGSHORE RATE A longshore rate is established and shall be paid for the first time unloading of licorice root importation only as follows: Effective June 1, 1997 $18.42/HR. Effective June 1, 1998 $18.84/HR. Effective June 1, 1999 $19.27/HR. Effective June 1, 2000 $19.72/HR. An employee who is assigned to "longshore work" and who commences such "longshore work" on any given day shall be guaranteed a minimum of four (4) hours pay at the longshore rate that day for work associated with the unloading of cargo ships only. This provision shall in no way affect the Company's right to return such employee to his regular work. SECTION XI DEDUCTION OF UNION DUES The Company, upon receipt of written assignments (which shall be irrevocable for a period of one (1) year or the termination date of this Contract, whichever is sooner) from employees, shall deduct from the weekly wages of each assigning employee (except where instructed by letter by an officer of the Union) the membership dues in the Union, and shall pay said dues to the Treasurer of the Union within five (5) days from the end of each month, and at the same time deliver to the said Treasurer a list of names of persons from whom collection were made stating amounts collected from each. SECTION XII GOVERNMENT REGULATIONS All provisions of this Contract shall be subject to the rules, regulations and statutes of the United States Government, the State of New Jersey or appropriate agencies thereof. (11) SECTION XIII MANAGEMENT Except as expressly set forth in this contract, it is agreed that the Management of the plant and the direction and control of its operations and working forces are vested exclusively in the Company, and that this includes the hire, promotion, increase, decrease, layoff, transfer, leave of absence and discharge of such working forces in all departments or divisions of departments. When an employee is transferred temporarily from one job to another, he shall continue to receive his regular job rate of pay or the job rate of the new job, whichever is higher, unless such transfer becomes permanent and the Union notified in writing. Before imposing any discipline involving a suspension or discharge, management shall be required to notify and consult with an appropriate Union officer. Said Union officers shall be notified in writing by a Management representative of all changes of personnel of his members of their discipline or discharge, at least eight (8) hours in advance of the general knowledge of this change or discharge and the reasons therefor. Foremen and other salaried employees will not do the work of hourly rate employees, except under the following conditions: 1. Instructing workers and 2. Doing necessary work when production difficulties are encountered. 3. In the event a violation of this provision is established in accordance with Section VI, herein, such violation shall be remedied by the payment of a minimum of four (4) hours of pay at time and one-half. SECTION XIV SENIORITY Departmental seniority shall govern in the promotion, increase, decrease and transfer of employees provided, due regard is taken of qualifications to do the work, and ability to advance as the occasion requires. Employees transferred to other departments will retain all seniority as outlined above. However, an employee once transferred to another department after completion of six (6) months service in the new position will have his plant seniority (12) become his departmental seniority. In the event of layoff, the last employee hired in the plant will be the first to be laid off. Departments for the purposes of this Section XIV are: Licorice Boiler & Power Plant Repair & Maintenance Job vacancies shall be posted in the Department where the vacancy exists for three (3) regular weekdays. For purposes of the foregoing posting of jobs, temporary vacancies of more than ninety (90) calendar days shall be considered as subject to posting. Opportunities to accept positions in the Repair and Maintenance Department and the Boiler and Power Plant shall be given to the Licorice Department. Notice of Repair and Maintenance and Power House position openings shall be posted on the Licorice Department bulletin board. Applicants who have equal ability, skill, mechanical aptitude, mechanical experience with this Company or elsewhere will be selected on the basis of seniority with the Company. In all Departments, job vacancies which are filled through the posting procedure shall be probationary for three (3) months. During such period, the employee's former job shall remain available for his return. In the event of layoff, all Union officers, shop stewards, and shop committee men shall have seniority during their terms of office only, over other employees of the Company provided they have at least two (2) years service with the Company. Layoffs shall not affect seniority. Absence by reason of accidents or ill health shall not affect seniority. Seniority shall govern rights to job assignments except in situations in which the most senior man is not qualified, in which event the most senior qualified man shall have the right to the assignment. If there are any claims on the part of the Union that any employee has been discharged without just cause, these claims shall be made within five (5) working days in the manner provided for presenting grievances, and thereupon investigation shall be made and if reinstatement results, the employee in question shall be recompensated for the time off at his then rate of pay and seniority shall not be affected. (13) It is further agreed that no disciplinary offense older than one (1) year may be utilized in the administration of discipline. Any employee shall be removed from the payroll and shall also cease to have seniority rights if (1) he quits, (2) he is discharged, and (3) he is absent for seven (7) consecutive working days without legitimate explanation. Voluntary Demotion - Employees wishing to bid on an equal or lower rated job may do so on the basis of departmental seniority, if an opening exists and provided Management approves such move. Such approval shall not be unreasonably withheld. Military Service - All employees coming under this Contract are guaranteed reemployment rights to full extent provided for by all applicable laws of the United States and the State of New Jersey relating to the reemployment of discharged veterans of military service. SECTION V NEW EMPLOYEES New employees shall be considered probationary employees and shall not rank for seniority until they shall have been in the employ of the Company for sixty (60) calendar days, unless otherwise extended by mutual agreement. After the expiration of the sixty (60) day period, they shall cease to be probationary employees and rates of pay and all other provisions of this contract shall be applicable to them. They shall then rank for seniority from the date of original hiring in the plant. During the probationary period, the Company may pay the employee the regular job wage rate. An employee previously discharged and later rehired will be considered a new employee. All new employees at the time of the expiration of their probationary period, shall be assigned to three-shift work except under unusual conditions. Recognizing that uninterrupted production is a prime objective of both Company and Union, it is specifically agreed the temporary employees as may be needed for replacement during vacation period may be hired at the Company's discretion and with knowledge of the Union for purpose of avoiding interruptions of production. (14) SECTION XVI EMPLOYEE BENEFITS The benefits as shown in this section shall continue in effect during the life of this Contract. MEDICAL INSURANCE The Company agrees to continue the group hospitalization, surgical, major medical, vision and dental insurance for employees and their qualified dependents during the life of this Agreement. All such coverage shall be provided at the expense of the Company except that for dental insurance, the Company's contribution shall be limited to fifteen dollars ($15.00) per covered employee and any excess costs shall be made up by employee contributions. Employees who retire from the employ of the Company shall be provided the option to purchase at their full expense the group medical insurance that was in effect for them and their qualified dependents immediately prior to retirement. LIFE INSURANCE A group life insurance policy will be purchased by the Company so that each employee with one (1) or more years of continuous service with the Company shall have life insurance protection in the amount of twenty thousand dollars ($20,000), in the event such employee shall die while employed by the Company and before such employee's retirement. Effective January 1, 1998, this amount will increase to twenty-five thousand dollars ($25,000). Beneficiary designations shall be made by each employee in accordance with the provisions of the group policy. CHANGE OF INSURANCE CARRIER The foregoing medical and life insurance benefits shall be provided by any responsible insurance company or companies selected by the Employer to furnish the coverage. In the event the Employer shall elect to change the company or companies providing such coverage, there shall be no diminution of benefits as a result of such change. SICK BENEFITS (15) Provision is made for the payment of Sick Benefits to hourly paid employees who have been on the payroll for not less than one (1) year immediately prior to the event of sickness. The plan, known as a Private Plan, has been approved by the State of New Jersey under legislation enacted in 1948 known as the New Jersey Temporary Disability Law. On presentation of a licensed physician's, dentist's, chiropodist's, optometrist's, or chiropractor's certificate, an employee who has been ill five (5) or more consecutive regularly scheduled work days is entitled to an amount equal to sixty percent (60%) of his regular eight (8) hour daily base rate of pay (maximum of 40 hours weekly) or the amount to which the employee would be entitled under the New Jersey Temporary Disability Law, whichever is greater, from the day he became ill, for a period not in excess of twenty-six (26) weeks in any twelve (12) month period. This period may be extended by the Beneficiary Committee, when unusual circumstances warrant it. Sick benefits have no connection with illness due to injury in the plant. Disabilities due to injuries in the plant are compensated for under Employer's Liability Insurance in accordance with State Regulations. FEDERAL AND STATE LAWS In the event that any Federal or State law is enacted during the existence of this Contract which provides for the payment of death or sick benefits, then the Company will pay the difference between such Federal or State plan and the amount so paid at present. DEATH IN FAMILY Should death occur to the Spouse or Children of any employee, he shall be entitled to a four (4) day leave of absence. Should death occur to the Mother, Father, Stepmother, Stepfather, Stepchildren, Sister or Brother of any employee, he shall be entitled to a three (3) day leave of absence. Should death occur to the Grandparent, Mother-In-Law, Father-In-Law, Brother-In-Law or Sister-In-Law of any employee, he shall be entitled to a one (1) day leave of absence. For all such leaves of absence he will be paid at his straight time rate provided the leave is taken during the normal work week (i.e. Monday through Friday). JURY DUTY The Company agrees to pay to any employee who shall serve on a bona fide jury panel an amount equal to the difference between his earnings from such service and his regular (16) eight (8) hours straight time pay for the days, not in excess of fifteen (15) days for any single period of jury service, during which he shall be absent and on jury duty service. CHRISTMAS GIFT All employees coming under the terms of this Contract shall be given a Christmas gift preceding the Christmas holiday of two hundred dollars ($200.00). SUPPER MONEY Any production employee who shall be required to work a second shift of either four (4) or eight (8) hours duration immediately following his regular shift shall be provided with a meal allowance of five dollars ($5.00). The employee shall suffer no loss of time, not exceeding thirty (30) minutes, for procuring and eating such meal. If the employee cannot leave his job unattended while procuring this meal, the Foreman will arrange for its delivery at the job and ample time to eat. Day work employees who shall be required to work a minimum of four (4) hours overtime will be provided with a meal allowance consisting of five dollars ($5.00). RETIREMENT All employees covered by this Contract are also covered by the Pension Plan which went into operation July 1, 1960, as amended. This is a funded pension plan. A copy of the Summary Plan Description will be regularly furnished to each new employee. Additional copies may be obtained upon request at the Personnel Office. Modified benefits are available for those who elect early retirement after age 55 with fifteen (15) or more full years of credited service. For those who elect early retirement after age 62 there shall be no actuarial reduction in benefits. The plan also affords liberal benefits for employees with ten (10) or more full years of credited service where retirement is due to disability and occurs at or after age 45. Joint and Survivor Benefits may be elected in lieu of other pension benefits. Employees shall become entitled to an optional actuarially reduced lump sum payment of pension entitlement which amount may, at the employee's option be transferred directly to another tax deferred or exempt fund or taken as a cash payout subject to applicable tax legislation. The surviving spouse of an employee who dies after having attained age 55 and fifteen (15) or more full years of credited service, but before retirement, shall receive for life one-half (17) of the early retirement pension to which the employee was entitled immediately prior to his death. Effective June 1, 1997, normal pension benefits for all MacAndrews & Forbes Company employees who retire after such date shall be computed on the basis of $23.25 per month multiplied by the number of years of credited service of the employee. Effective June 1, 1998, normal pension benefits for all MacAndrews & Forbes Company employees who retire after such date shall be computed on the basis of $24.25 per month multiplied by the number of years of credited service of the employee. Effective June 1, 1999, normal pension benefits for all MacAndrews & Forbes Company employees who retire after such date shall be computed on the basis of $25.25 per month multiplied by the number of years of credited service of the employee. Effective June 1, 2000, normal pension benefits for all MacAndrews & Forbes Company employees who retire after such date shall be computed on the basis of $26.25 per month multiplied by the number of years of credited service of the employee. NOTE: The foregoing description of pension benefits is for general information only and shall not be deemed to modify or enlarge in any way the provisions of the plan. All rights regarding pensions are governed by the plan, to which reference is hereby made. PENSIONER'S FUNERAL EXPENSE BENEFIT Upon receipt by the Company of proof satisfactory to it within sixty (60) days after death of any person then on the pension rolls of the Company, who was formerly an employee of the Company within the territorial limits of the United States, the Company will make available on account of the payment of the funeral expense of said deceased pensioner up to the sum of $750. SECTION XVII OPERATIONS OF COMPANY The right of the Company in its sole discretion to diminish operations, or to take such other action with respect to the business as conditions may require is expressly recognized. The severance plan shall be continued under which, in the eventis adopted under which, in the event of a permanent discontinuance of plant operations, the employer will give the Union and the employees six (6) months prior written notice of its intent to discontinue (18) operations. A Human Resources consultant will be retained and made available by the employer, in order to assist employees during the six (6) month period in relocating or obtaining employment. These obligations shall not prejudice the parties' right to negotiate such severance payments as may be appropriate. SECTION XVIII UNION SHOP PROVISION A condition of employment at the plant shall be membership in the Union for those in the Unit (Union Shop Certification No. 4-UA-2) which membership must be established by payment of the initiation fee within thirty (30) calendar days from the date of employment. Full membership in the Union shall be established at the end of sixty (60) calendar days following the date of employment and shall be continued throughout the life of this contract by the full payment of membership dues in the Union, which dues shall be paid to within one (1) month's delinquency. Any member of the Union who ceases to maintain his membership dues in the Union, upon certification by the proper officers of the Union, will be discharged. SECTION XIX BULLETIN BOARDS AND RENT OF ROOM The Company agrees to rent bulletin boards to the Union in three (3) conspicuous places in the plant where the Union shall have the privilege of posting notices pertaining to Union business. The Company also agrees to rent a room in the Club House to the Union for its use at a rent to be agreed upon. The Company shall have the right, upon the giving of thirty (30) days notice, to cancel the lease on the room in the Club House, provided the Company provides suitable on the premises substitute leased facilities upon such cancellation. The Company agrees to print and distribute one (1) copy of this Contract to each member of the Unit, and in addition to deliver one hundred (100) copies to the proper officers of the Union for their use. SECTION XX SAFETY AND HEALTH (19) The Company agrees that it will, at its own costs, and expense, maintain and promote the safety, health, welfare and sanitary working conditions of the employees in the course and scope of their employment to conform with the laws of the State of New Jersey. The Union will cooperate with the Company in the interest and welfare of the employees, and the Union shall have the right to appoint a representative to sit with the Safety Committee of the Company. First Aid for injuries incurred by employees in the course of employment shall be provided on a 24-hour basis by persons suitably trained in providing such treatment. Such persons may be, but need not necessarily be, employees of the Company, but shall be available in the Gate House or the First Aid Room and shall have direct access to First Aid supplies and equipment located in the First Aid Room and/or elsewhere in the Plant. Where an employee is injured in the course of employment and the Company determines that the employee cannot complete the regular shift, such employee shall be paid either eight (8) straight time hours pay or for the hours actually worked, whichever is greater. If the Company further determines that the employee cannot work, as a result of the injury, the next regularly scheduled shift, the employee shall be paid eight (8) straight time hours for the shift. If the Company further determines that the employee cannot work, as a result of the injury, the second regularly scheduled shift following the injury, the employee shall be paid eight (8) straight time hours for the shift. SECTION XXI AMENDMENTS This Contract is subject to amendment only in the event of the mutual agreement of the Union and the Company. SECTION XXII DURATION This Contract shall remain in full force and effect until 6:00 A.M., May 31, 2001. SECTION XXII (20) SUCCESSORS AND ASSIGNS This Contract shall be binding upon the successors and assigns of the parties hereto. IN WITNESS WHEREOF, the Company and the Union have caused these presents to be executed by their duly authorized representatives the day and the date above written. (21) MAFCO WORLDWIDE CORPORATION LICORICE AND PAPER EMPLOYEES ASSOCIATION of Camden, New Jersey AFL-CIO LICORICE AND PAPER MAFCO WORLDWIDE EMPLOYEES ASSOCIATION CORPORATION HOWARD AYRES GUY A. DIETRICH, SR. GEORGE BEADLING ROGER W. GRAHAM TERRY KIRSHNER FRANK ADAO JIM MC FADDEN STEPHEN G. TAUB TED STANLEY ROY QUINN (22) ADDENDA TO COLLECTIVE BARGAINING AGREEMENT A. OVERTIME PROCEDURE FOR UNSCHEDULED OVERTIME/ROTATING SHIFTS The first opportunity to work unscheduled overtime will be given to Permanent Classified Employees and then to Temporary Classified Employees on the preceding shift in order of their Seniority. In the event there are no Voluntary Employees, whether Permanent or Temporary, Qualified Employees on the preceding shift will then be offered the opportunity in order of their Seniority. If there are no Voluntary Employees, Permanent, Temporary or Qualified, then the unscheduled overtime will be assigned on the basis of Reverse Seniority to Qualified Employees from the preceding shift. Once an employee is forced to work on an unscheduled shift, he may not be involuntarily assigned again during the same week. So long as this procedure is followed, the employee in whose classification the job opening has occurred is not to abandon the job until a relief employee has been assigned according to the above procedure. In the event an employee becomes ill during his work shift such that he may be unable to work overtime, he will be responsible to notify his supervisor as soon as possible but no later than one (1) hour before the end of this shift. In the event the employees becomes ill one (1) hour before the end of the shift or his illness becomes worse during the last hour of the shift and the employee declines overtime, the Company, at its expense, shall have the right to have the employee examined by a doctor or a (23) hospital. In such an event, the employee will be compensated for any time lost during his scheduled shift as a result of the examination. B. PAYCHECKS / ADJUSTMENTS 1. Paychecks for the 2:00 P.M. to 10:00 P.M. shift will be distributed to these employees at the end of the shift on Wednesday evening. 2. Payroll Adjustments - Any errors in an employee's check amounting to four (4) or more hours of pay will be paid by the Company by no later than 2:00 P.M. on the Friday following the issuing of paychecks provided the error is promptly brought to the attention of management. (24) EX-21 4 SUBSIDIARIES Exhibit 21 SUBSIDIARIES ------------ Domestic Subsidiaries of the Company: - ------------------------------------- Name of Subsidiary State of Incorporation ------------------ ---------------------- PCT International, Inc. Delaware Flavors Holdings, Inc. Delaware Pneumo Abex Corporation Delaware Concord Pacific Corporation Maine EVD Holdings Inc. Delaware Foreign Subsidiaries of the Company: - ------------------------------------ Name of Subsidiary Jurisdiction ------------------ ------------ Mafco Establishment Liechtenstein EVD Holdings S.A. France Extraits Vegetaux Et Derives, S.A. France Xianyang Concord National Products Co. Ltd. Peoples Rep. of China Mafco Weihai Green Industry of Science and Technology Co. Ltd. (50% owned) Peoples Rep. of China Rishmac Produce & Export Co. (45% owned) Iran Boam Produce (Europe) Est. (45% owned) Liechtenstein EX-23.1 5 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF ERNST & YOUNG We consent to the reference to the incorporation by reference in the Registration Statements (Form S-8, No. 33-99740 and Form S-8, No. 333-40365) pertaining to the Power Control Technologies Inc. 1995 Stock Option Plan and the M&F Worldwide 1997 Stock Option Plan of M&F Worldwide Corp. of our report dated February 5, 1998, with respect to the consolidated financial statements and schedule of M&F Worldwide Corp. included in its Annual Report on Form 10-K for the year ended December 31, 1997. Ernst & Young LLP March 20, 1998 New York, New York EX-23.2 6 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K of M&F Worldwide Corp. (formerly Power Control Technologies Inc.) for the year ended December 31, 1997, into the Company's previously filed Registration Statement File Nos. 33-99740 and 333-40365. ARTHUR ANDERSEN LLP Detroit, Michigan March 23, 1998 EX-24 7 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY ----------------- KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Barry F. Schwartz or any of them ' each acting alone, his true and lawful attorney-infact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, in connection with the M & F WORLDWIDE CORP. (the "Corporation") Annual Report on Form 10-K for the year ended December 31, 1997 under the Securities Exchange Act of 1934, as amended, including, without limiting the generality of the foregoing, to sign the Form 10-K in the name and on behalf of the Corporation or on behalf of the undersigned as a director or officer of the Corporation, and any amendments to the Form 10-K and any instrument, contract, document or other writing, of or in connection with the Form 10-K or amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, including this power of attorney, with the Securities and Exchange Commission and any applicable securities exchange or securities self-regulatory body, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the unde as signed these presents this 21st day of January 1998. /s/ Paul M. Meister ------------------- /s/ Ronald O. Perelman ---------------------- /s/ Jaymie A. Durnan -------------------- /s/ Irwin Engelman ------------------ /s/ Theo W. Folz ---------------- /s/ Howard Gittis ----------------- /s/ J. Eric Hanson ------------------ /s/ E. Gregory Hookstratten --------------------------- /s/ Lance Liebman ----------------- /s/ James G. Roche ------------------ /s/ Bruce Slovin ---------------- /s/ Laurence Winoker -------------------- EX-27 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the M&F Worldwide Corp. (formerly Power Control Technologies Inc.) Consolidated Balance Sheet and Statement of Income and is qualified in its entirety by reference to such financial statements. 0000945235 M&F WORLDWIDE CORP. (FORMERLY POWER CONTROL TECHNOLOGIES INC.) 1,000,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 0 0 10 0 50 61 28 (2) 313 23 0 20 0 0 186 313 100 100 54 54 14 0 7 26 3 23 0 0 0 23 1.01 0.96
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