-----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, RKhlyYpJJhX7sQWTPzyqQibFT9Hi8EZFC3QpnzgNMbqxTWeUWk1PNGp0RbVQitCv yAQkd4EZdZ1nAlcTehwWqQ== 0000950124-03-001692.txt : 20030513 0000950124-03-001692.hdr.sgml : 20030513 20030513151025 ACCESSION NUMBER: 0000950124-03-001692 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030330 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARVINMERITOR INC CENTRAL INDEX KEY: 0001113256 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 383354643 STATE OF INCORPORATION: IN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15983 FILM NUMBER: 03695364 BUSINESS ADDRESS: STREET 1: 2135 W MAPLE ROAD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 2484351000 FORMER COMPANY: FORMER CONFORMED NAME: MU SUB INC DATE OF NAME CHANGE: 20000501 10-Q 1 k77025e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 03/30/2003 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 30, 2003 Commission file number 1-15983 ArvinMeritor, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Indiana 38-3354643 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2135 West Maple Road, Troy, Michigan 48084-7186 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (248) 435-1000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] 68,477,716 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were outstanding on April 30, 2003. ARVINMERITOR, INC. INDEX
Page No. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Statement of Consolidated Income - - Three Months and Six Months Ended March 31, 2003 and 2002......................... 2 Consolidated Balance Sheet - - March 31, 2003 and September 30, 2002................................ 3 Condensed Statement of Consolidated Cash Flows - - Six Months Ended March 31, 2003 and 2002............................. 4 Notes to Consolidated Financial Statements........................... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.......................... 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................................... 30 Item 4. Controls and Procedures................................................... 30 PART II. OTHER INFORMATION: Item 1. Legal Proceedings......................................................... 31 Item 2. Changes in Securities and Use of Proceeds................................. 31 Item 4. Submission of Matters to a Vote of Security Holders....................... 32 Item 5. Other Information......................................................... 33 Item 6. Exhibits and Reports on Form 8-K.......................................... 34 Signatures...................................................................................... 35 Certifications.................................................................................. 36
Part I. FINANCIAL INFORMATION ITEM 1. Financial Statements ARVINMERITOR, INC. STATEMENT OF CONSOLIDATED INCOME (in millions, except per share amounts)
Three Months Ended Six Months Ended March 31, March 31, ------------------------ ------------------------ 2003 2002 2003 2002 -------- -------- -------- -------- (Unaudited) Sales.......................................................... $ 1,993 $ 1,687 $ 3,702 $ 3,253 Cost of sales.................................................. (1,805) (1,511) (3,340) (2,923) -------- -------- -------- -------- GROSS MARGIN................................................... 188 176 362 330 Selling, general and administrative......................... (114) (94) (215) (185) Restructuring costs......................................... (11) - (11) (15) -------- -------- -------- -------- OPERATING INCOME............................................... 63 82 136 130 Equity in earnings (losses) of affiliates................... 1 (1) 2 (1) Interest expense, net and other............................. (27) (25) (52) (53) -------- -------- -------- -------- INCOME BEFORE INCOME TAXES..................................... 37 56 86 76 Provision for income taxes.................................. (12) (18) (28) (24) Minority interests.......................................... (1) (3) (2) (6) -------- -------- -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................. 24 35 56 46 Cumulative effect of accounting change...................... - - - (42) -------- -------- -------- -------- NET INCOME..................................................... $ 24 $ 35 $ 56 $ 4 ======== ======== ======== ======== BASIC EARNINGS PER SHARE Before cumulative effect of accounting change............... $ 0.36 $ 0.53 $ 0.84 $ 0.70 Cumulative effect of accounting change...................... - - - (0.64) -------- -------- -------- -------- Basic earnings per share.................................... $ 0.36 $ 0.53 $ 0.84 $ 0.06 ======== ======== ======== ======== DILUTED EARNINGS PER SHARE Before cumulative effect of accounting change............... $ 0.36 $ 0.52 $ 0.83 $ 0.69 Cumulative effect of accounting change...................... - - - (0.63) -------- -------- -------- -------- Diluted earnings per share.................................. $ 0.36 $ 0.52 $ 0.83 $ 0.06 ======== ======== ======== ======== Basic average common shares outstanding........................ 66.9 66.1 66.9 65.9 ======== ======== ======== ======== Diluted average common shares outstanding...................... 67.5 67.0 67.5 66.4 ======== ======== ======== ======== Cash dividends per common share................................ $ 0.10 $ 0.10 $ 0.20 $ 0.20 ======== ======== ======== ========
See notes to consolidated financial statements. 2 ARVINMERITOR, INC. CONSOLIDATED BALANCE SHEET (in millions)
March 31, September 30, 2003 2002 ----------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents................................................... $ 121 $ 56 Receivables (less allowance for doubtful accounts: March 31, 2003, $20 and September 30, 2002, $18) .................... 1,069 1,251 Inventories................................................................. 507 458 Other current assets........................................................ 266 211 ------- ------- TOTAL CURRENT ASSETS.................................................... 1,963 1,976 ------- ------- NET PROPERTY..................................................................... 1,300 1,179 GOODWILL......................................................................... 900 808 OTHER ASSETS..................................................................... 638 688 ------- ------- TOTAL ASSETS............................................................ $ 4,801 $ 4,651 ======= ======= LIABILITIES AND SHAREOWNERS' EQUITY CURRENT LIABILITIES: Short-term debt............................................................. $ 9 $ 15 Accounts payable............................................................ 1,214 1,123 Accrued compensation and benefits........................................... 245 283 Accrued income taxes........................................................ 48 65 Other current liabilities................................................... 251 257 ------- ------- TOTAL CURRENT LIABILITIES............................................... 1,767 1,743 ------- ------- LONG-TERM DEBT................................................................... 1,435 1,435 ACCRUED RETIREMENT BENEFITS...................................................... 476 512 OTHER LIABILITIES................................................................ 133 123 MINORITY INTERESTS............................................................... 66 58 PREFERRED CAPITAL SECURITIES..................................................... 39 39 SHAREOWNERS' EQUITY: Common stock (March 31, 2003, 71.0 shares issued and 68.5 outstanding; September 30, 2002, 71.0 shares issued and 67.9 outstanding).................................................. 71 71 Additional paid-in capital.................................................. 557 554 Retained earnings........................................................... 573 530 Treasury stock (March 31, 2003, 2.5 shares; September 30, 2002, 3.1 shares) ....................................... (37) (46) Unearned compensation....................................................... (17) (12) Accumulated other comprehensive loss........................................ (262) (356) ------- ------- TOTAL SHAREOWNERS' EQUITY............................................... 885 741 ------- ------- TOTAL LIABILITIES AND SHAREOWNERS' EQUITY............................... $ 4,801 $ 4,651 ======= =======
See notes to consolidated financial statements. 3 ARVINMERITOR, INC. CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (in millions)
Six Months Ended March 31, ------------------------ 2003 2002 ------- ------- (Unaudited) OPERATING ACTIVITIES Income before cumulative effect of accounting change............................... $ 56 $ 46 Adjustments to arrive at cash provided by operating activities: Depreciation and amortization..................................................... 103 94 Restructuring costs, net of expenditures.......................................... 9 10 Pension and retiree medical expense............................................... 48 39 Pension and retiree medical contributions......................................... (102) (69) Changes in receivable securitization.............................................. 145 - Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency adjustments...................... (23) 18 ------- ------- CASH PROVIDED BY OPERATING ACTIVITIES............................................... 236 138 ------- ------- INVESTING ACTIVITIES Capital expenditures.............................................................. (69) (64) Proceeds from disposition of assets............................................... 42 - Acquisition of business .......................................................... (69) - Other investing activities........................................................ (22) (21) ------- ------- CASH USED FOR INVESTING ACTIVITIES.................................................. (118) (85) ------- ------- FINANCING ACTIVITIES Net decrease in revolving debt.................................................... (50) (442) Proceeds from issuance of notes................................................... - 394 Purchase of preferred capital securities.......................................... - (18) Proceeds from exercise of stock options........................................... - 17 Cash dividends.................................................................... (13) (13) ------- ------- CASH USED FOR FINANCING ACTIVITIES.................................................. (63) (62) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................. 10 - ------- ------- CHANGE IN CASH AND CASH EQUIVALENTS................................................. 65 (9) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 56 101 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 121 $ 92 ======= =======
See notes to consolidated financial statements. 4 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global supplier of a broad range of integrated systems, modules and components serving light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. The company also provides coil coating applications to the transportation, appliance, construction and furniture industries. The consolidated financial statements are those of the company and its consolidated subsidiaries. In the opinion of the company, the unaudited financial statements contain all adjustments, consisting solely of adjustments of a normal, recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the company's financial statements included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2002. The results of operations for the three and six months ended March 31, 2003, are not necessarily indicative of the results for the full year. The company's fiscal year ends on the Sunday nearest September 30. The company's fiscal quarters end on the Sundays nearest December 31, March 31, and June 30. The second quarter of fiscal 2003 and 2002 ended on March 30, 2003, and March 31, 2002, respectively. All year and quarter references relate to the company's fiscal year and fiscal quarters unless otherwise stated. For each interim reporting period the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined is used in providing for income taxes on a year-to-date basis. Certain prior period amounts have been reclassified to conform with current period presentation. 2. Earnings per Share Basic earnings per share are based upon the weighted average number of shares outstanding during each period. Diluted earnings per share assumes the exercise of common stock options and the impact of restricted stock when dilutive. A reconciliation of basic average common shares outstanding to diluted average common shares outstanding is as follows (in millions):
Three Months Ended Six Months Ended March 31, March 31, -------------------- --------------------- 2003 2002 2003 2002 ------ ------ ------ ------ Basic average common shares outstanding................ 66.9 66.1 66.9 65.9 Impact of restricted stock............................. 0.6 0.4 0.6 0.3 Impact of stock options................................ - 0.5 - 0.2 ---- ---- ---- ---- Diluted average common shares outstanding.............. 67.5 67.0 67.5 66.4 ==== ==== ==== ====
5 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. New Accounting Standards In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." The new standard requires one model of accounting for long-lived assets to be disposed of, and broadens the definition of discontinued operations to include a component of a segment. The company adopted this standard effective October 1, 2002. The adoption of SFAS 144 did not have a significant impact on the company's financial position or results of operations. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in Restructuring)." The new standard requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred, rather than at the time of commitment to an exit plan. The company adopted this standard for exit or disposal activities initiated after December 31, 2002. In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it assumes under the guarantee. This requirement applies to guarantees issued after December 31, 2002. Guarantees issued prior to January 1, 2003, are not subject to liability recognition but are subject to expanded disclosure requirements. Disclosure of residual value guarantees under certain leases is included in Note 14 and information related to indemnification agreements is included in Note 17. Disclosure related to the company's product warranty obligations is included in Note 12. 6 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements." This interpretation provides guidance on the identification of variable interest entities and may require consolidation based on these new rules. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The company is currently in the process of determining if certain entities, related to the company's accounts receivable securitization program and certain leases, are variable interest entities. Information related to the company's accounts receivable securitization program is included in Note 8, and information related to the company's leases is included in Note 14. 4. Accounting for Stock Options Effective October 1, 2002, the company voluntarily changed to the fair value method of accounting for its stock-based compensation plans and began expensing the fair value of stock options. In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123." SFAS 148 provides alternative methods of transition for a voluntary change to the fair value method. The company has elected the modified prospective method, which allows for the recognition of compensation expense for the non-vested portion of previously issued stock options, as well as for new grants of stock options. The company recorded compensation expense for the six months ended March 31, 2003, of $3 million ($2 million after-tax, or $0.03 per diluted share). If the fair value method had been applied, for the six months ended March 31, 2002, the company would have recorded compensation expense of $2 million ($1 million after-tax, or $0.01 per diluted share). 7 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Goodwill Impairment Effective October 1, 2001, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets," which requires goodwill to be subject to an annual impairment test, or more frequently, if certain indicators arise, and also eliminated goodwill amortization. Upon adoption of SFAS 142 the company recorded an impairment loss on goodwill as a cumulative effect of accounting change for its coil coating operations (classified as "Other" for segment reporting) of $42 million ($42 million after-tax, or $0.63 per diluted share) in the six months ended March 31, 2002. Changes in the carrying value of goodwill since September 30, 2002 are disclosed in Note 19. 6. Acquisitions and Divestitures In 1998, the company acquired a 49-percent interest in a German joint venture, Zeuna Staerker GmbH & Co. KG (Zeuna Staerker), an air and emissions systems company. In the second quarter of fiscal 2003, the company purchased the remaining 51-percent interest in Zeuna Staerker for a purchase price of $69 million, net of cash acquired of $8 million. At March 31, 2003, the company has recorded $84 million of goodwill associated with the initial purchase price allocation and expects to finalize the purchase price allocation by September 30, 2003. The company expects incremental sales from the Zeuna Staerker acquisition of approximately $550 million in fiscal 2003. The company completed the sale of net assets related to the manufacturing and distribution of its off-highway planetary axle products in the second quarter of fiscal 2003, and recognized a gain of $2 million ($1 million after-tax, or $0.01 per diluted share). Sales of the off-highway planetary axle products were approximately $90 million in fiscal 2002. 7. Restructuring Costs The company has approved plans for workforce reductions and facility consolidations in its Light Vehicle Systems (LVS) business segment. These measures follow the management realignment of the company's LVS business and are also intended to address the competitive challenges in the automotive supplier industry. During the second quarter of fiscal 2003, the company recorded restructuring costs totaling $11 million ($7 million after-tax, or $0.10 per diluted share). These costs included severance and other employee termination costs of $6 million related to a reduction of approximately 165 salaried employees and 275 hourly employees and $5 million related to asset impairments. At March 31, 2003, $4 million of restructuring reserves relating to severance payments remained in the consolidated balance sheet. In the second quarter of fiscal 2003, the company also recorded restructuring costs of $3 million that were incurred as a result of the acquisition of the remaining 51-percent interest in Zeuna Staerker. These costs relate to severance and other termination benefits associated with 57 employees. The acquisition was accounted for utilizing the purchase method of accounting and these restructuring costs were reflected in the purchase price allocation. At March 31, 2003, $3 million of restructuring reserves remained in the consolidated balance sheet. 8 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In the first quarter of fiscal 2002, the company recorded a restructuring charge of $15 million ($10 million after-tax, or $0.15 per basic and diluted share) for severance and other employee costs related to a net reduction of approximately 450 employees. All employees have been terminated under this restructuring action, and $3 million of restructuring reserves relating to severance payments remained in the consolidated balance sheet at March 31, 2003. The changes in the restructuring reserves are as follows (in millions):
Employee Termination Asset Benefits Impairments Total ----------- ----------- ----- Balance at September 30, 2002....................... $ 9 $ - $ 9 Activity during the period: Charges to expense............................... 6 5 11 Purchase accounting adjustment................... 3 - 3 Asset write-offs................................. - (5) (5) Cash payments.................................... (8) - (8) ----- ----- ---- Balance at March 31, 2003........................... $ 10 $ - $ 10 ===== ===== ====
8. Asset Securitization The company sells substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned, bankruptcy-remote, special purpose subsidiary. ARC has entered into an agreement to sell an undivided interest in up to $250 million of eligible receivables, as defined, to certain bank conduits that fund their purchases through the issuance of commercial paper. As of March 31, 2003 and September 30, 2002 the company had utilized $250 million and $105 million, respectively, of the U.S. accounts receivable securitization facility. As of March 31, 2003 and September 30, 2002 the banks had a preferential interest in $146 million and $201 million, respectively, of the remainder of the receivables held at ARC to secure the obligation under the U.S. accounts receivable securitization facility. Zeuna Staerker has entered into an agreement to sell an undivided interest in up to euro 50 million of eligible trade receivables, as defined, to a bank that funds its purchases through the issuance of commercial paper. As a result of the company's acquisition of the remaining 51-percent interest in Zeuna Staerker, the company consolidated this accounts receivable securitization program. As of March 31, 2003, the company had utilized $40 million of the euro accounts receivable securitization facility. As of March 31, 2003, the banks had a preferential interest in $6 million, of the remainder of the receivables held at Zeuna Staerker to secure the obligation under the asset securitization facility. 9 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The company has no retained interest in the receivables sold, but does perform collection and administrative functions. The receivables under these programs were sold at fair market value and a discount on the sale was recorded in interest expense, net and other. A discount of $2 million and $4 million was recorded for the six months ended March 31, 2003 and 2002, respectively. The gross amount of proceeds received from the sale of receivables under these programs was approximately $1,106 million and $1,141 million for the six months ended March 31, 2003 and 2002, respectively. The U.S. accounts receivable securitization program matures in September 2003 and the company expects to renew the facility at that time. The euro accounts receivable securitization program matures in March 2005. If the company's credit ratings are reduced to certain levels, or if certain receivables performance-based covenants are not met, it would constitute a termination event, which, at the option of the banks, could result in termination of the facilities. At March 31, 2003, the company was in compliance with all covenants. 9. Inventories Inventories are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Finished goods.............................................. $ 226 $ 207 Work in process............................................. 131 131 Raw materials, parts and supplies........................... 194 171 -------- -------- Total................................................. 551 509 Less: allowance to adjust the carrying value of certain inventories to a LIFO basis....................... (44) (51) -------- -------- Inventories........................................... $ 507 $ 458 ======== ========
10. Other Current Assets Other Current Assets are summarized as follows (in millions):
March 31, September 30, 2003 2002 -------- ------------ Current deferred income taxes............................... $ 121 $ 116 Customer reimbursable tooling and engineering............... 68 33 Asbestos-related recoveries................................. 20 20 Prepaid and other........................................... 57 42 -------- ------- Other Current Assets................................... $ 266 $ 211 ======== =======
10 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 11. Other Assets Other Assets are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Long-term deferred income taxes............................. $ 192 $ 187 Prepaid pension costs....................................... 106 98 Investments in affiliates................................... 82 167 Asbestos-related recoveries................................. 50 39 Fair value of interest rate swaps........................... 49 48 Net capitalized software costs.............................. 44 44 Trademarks.................................................. 23 23 Patents and licenses (less accumulated amortization: March 31, 2003, $6 and September 30, 2002, $5)................................... 11 11 Other....................................................... 81 71 --------- ------- Other Assets........................................... $ 638 $ 688 ========= =======
The company's trademarks, which were determined to have an indefinite life, are not amortized, and patents and licenses are amortized over their contractual lives. The company anticipates amortization expense for patents and licenses of approximately $2 million per year for fiscal years 2003 through 2004 and approximately $1 million per year for fiscal years 2005 through 2007. 12. Other Current Liabilities Other Current Liabilities are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Accrued product warranties.................................. $ 83 $ 89 Accrued taxes other than income taxes....................... 37 37 Asbestos-related reserves................................... 20 20 Accrued interest expense.................................... 12 12 Accrued restructuring ...................................... 10 9 Environmental reserves...................................... 5 8 Other....................................................... 84 82 -------- ------- Other Current Liabilities.............................. $ 251 $ 257 ======== =======
11 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The company's Commercial Vehicle Systems (CVS) and Light Vehicle Aftermarket (LVA) segments record product warranty costs at the time of shipment of products to customers. Warranty reserves are based on several factors including past claims experience, sales history, product manufacturing and engineering changes, industry developments and various other considerations. In addition, liabilities for product recall campaigns are recorded at the time the company's obligation is known and can be reasonably estimated. As of March 31, 2003 and September 30, 2002, accrued product warranties included a liability related to a recall campaign associated with TRW model 20-EDL tie rod ends (see Note 17). The company's LVS segment records product warranty liabilities based on its individual customer agreements. Product warranties are recorded for known warranty issues when amounts related to such issues are probable and reasonably estimable. In addition, the company records product warranty liabilities for amounts expected to be paid under warranty-sharing agreements with its customers. A summary of the changes in accrued product warranties is as follows (in millions):
Six Months Ended March 31, ----------------- 2003 2002 ------ ------ Balance at September 30.................................................. $ 89 $ 92 Accruals for product warranties.......................................... 16 11 Increase in product warranties due to acquisition........................ 8 - Payments made............................................................ (32) (31) Change in estimates...................................................... 2 1 ----- ----- Balance at March 31...................................................... $ 83 $ 73 ===== =====
13. Other Liabilities Other Liabilities are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Asbestos-related reserves................................................ $ 56 $ 46 Environmental reserves................................................... 26 26 Other.................................................................... 51 51 ----- ----- Other Liabilities................................................... $ 133 $ 123 ===== =====
12 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 14. Long-Term Debt Long-Term Debt, net of discount where applicable, is summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- 6 5/8 percent notes due 2007........................................ $ 199 $ 199 6 3/4 percent notes due 2008........................................ 100 100 7 1/8 percent notes due 2009........................................ 150 150 6.8 percent notes due 2009.......................................... 499 499 8 3/4 percent notes due 2012........................................ 400 400 Bank revolving credit facilities.................................... - 27 Lines of credit and other........................................... 47 27 Fair value adjustment of notes...................................... 49 48 ------ ------ Subtotal......................................................... 1,444 1,450 Less: current maturities............................................ (9) (15) ------ ------ Long-Term Debt................................................ $1,435 $1,435 ====== ======
Credit Facilities and Lines of Credit The company has two unsecured credit facilities, which mature on June 27, 2005: a three-year, $400-million revolving credit facility and a five-year, $750-million revolving credit facility. Borrowings are subject to interest based on quoted LIBOR rates plus a margin, and a facility fee, both of which are based upon the company's credit rating. At March 31, 2003, the margin over the LIBOR rate was 105 basis points, and the facility fee was 20 basis points. The company also has a $50-million uncommitted line of credit. Interest Rate Swap Agreements The company entered into two interest rate swap agreements in March 2002. These swap agreements, in effect, converted $300 million notional amount of the company's 8 3/4 percent notes and $100 million notional amount of the 6.8 percent notes to variable interest rates. The fair value of the swaps was $49 million and $48 million as of March 31, 2003 and September 30, 2002, respectively, and is recorded in Other Assets, with an offsetting amount recorded in Long-Term Debt. The swaps have been designated as fair value hedges and the impact of the changes in their fair values is offset by an equal and opposite change in the carrying value of the related notes. Under the terms of the swap agreements, the company receives a fixed rate of interest of 8.75 percent and 6.8 percent on notional amounts of $300 million and $100 million, respectively, and pays variable rates based on three-month LIBOR plus a weighted-average spread of 2.51 percent. The payments under the agreements coincide with the interest payment dates on the hedged debt instruments, and the difference between the amounts paid and received is included in interest expense, net and other. 13 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Leases The company has entered into agreements to lease certain manufacturing and administrative facilities as well as aircraft. These assets are held by special purpose entities, which were established and are owned by independent third parties who provide financing through debt and equity participation. These leases are accounted for as operating leases, and the lease payments are charged to operating income. The assets and the related obligations are excluded from the consolidated balance sheet, and the special purpose entities are not consolidated. At March 31, 2003 and September 30, 2002, the original cost of the assets under such arrangements was $123 million and $120 million, respectively. Certain of these leases contain residual value guarantees that obligate the company, not the third party owners, to absorb a portion of the losses of the special purpose entities. At March 31, 2003, the company's residual value guarantees associated with these leases, which represents the maximum exposure to loss, were $53 million. Covenants The credit facilities require the company to maintain a total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital expenditures to interest expense) of 1.50x. In addition, certain operating leases require the company to maintain financial ratios that are similar to those required under the company's credit facilities. At March 31, 2003, the company was in compliance with all covenants. 15. Financial Instruments The company's financial instruments include cash and cash equivalents, short-term debt, long-term debt, preferred capital securities, interest rate swaps, and foreign exchange contracts. The company uses derivatives for hedging and non-trading purposes in order to manage its interest rate and foreign exchange rate exposures. The company's interest rate swap agreements are discussed in Note 14. 14 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Foreign Exchange Contracts The company uses foreign exchange contracts to offset the effect of exchange rate fluctuations on foreign currency denominated payables and receivables. These contracts help minimize the risk of loss from changes in exchange rates and are generally of short duration (less than three months). The company has elected not to designate the foreign exchange contracts as hedges, therefore, changes in the fair value of the foreign exchange contracts are recognized in operating income. The net income impact of recording these contracts at fair value in the three and six months ended March 31, 2003 and 2002 did not have a significant effect on the company's results of operations. As of March 31, 2003 and September 30, 2002, the fair value of foreign exchange contracts was not material. It is the policy of the company not to enter into derivative instruments for speculative purposes. Fair Value Fair values of financial instruments are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------------------- -------------------- Carrying Fair Carrying Fair Value Value Value Value -------- ------- -------- ------- Cash and cash equivalents.......................... $ 121 $ 121 $ 56 $ 56 Short-term debt.................................... 9 9 15 15 Long-term debt..................................... 1,435 1,417 1,435 1,433 Preferred capital securities....................... 39 38 39 40 Interest rate swaps - asset........................ 49 49 48 48
Cash and cash equivalents - All highly liquid investments purchased with maturity of three months or less are considered to be cash equivalents. The carrying value approximates fair value because of the short maturity of these instruments. Short-term debt - The carrying value of short-term debt approximates fair value because of the short maturity of these borrowings. Long-term debt and preferred capital securities - Fair values are based on the company's current incremental borrowing rate for similar types of borrowing arrangements. Interest rate swaps - Fair values are estimated by obtaining quotes from external sources. 15 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 16. Accrued Retirement Benefits Accrued Retirement Benefits consisted of the following (in millions):
March 31, September 30, 2003 2002 --------- ------------- Accrued retirement medical liability........................ $ 301 $ 309 Accrued pension liability................................... 201 231 Other....................................................... 34 32 -------- ---------- Subtotal................................................ 536 572 Less: current liability..................................... (60) (60) -------- ---------- Accrued Retirement Benefits $ 476 $ 512 ======== ==========
17. Contingencies Environmental Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have, and will continue to have, an impact on the manufacturing operations of the company. The process of estimating environmental liabilities is complex and dependent on physical and scientific data at the site, uncertainties as to remedies and technologies to be used and the outcome of discussions with regulatory agencies. The company records liabilities for environmental issues in the accounting period in which its responsibility is established and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement with the site, as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which ArvinMeritor is the only potentially responsible party, the company records a liability for the total estimated costs of remediation before consideration of recovery from insurers or other third parties. 16 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The company has been designated as a potentially responsible party at 8 Superfund sites, excluding sites as to which the company's records disclose no involvement or as to which the company's potential liability has been finally determined. Management estimates the total reasonably possible costs the company could incur for the remediation of Superfund sites at March 31, 2003, to be approximately $34 million, of which $13 million is recorded as a liability. In addition to the Superfund sites, various other lawsuits, claims and proceedings have been asserted against the company, alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental impairments, principally at previously disposed-of properties. For these matters, management has estimated the total reasonably possible costs the company could incur at March 31, 2003, to be approximately $49 million, of which $18 million is recorded as a liability. Following are the components of the Superfund and Non-Superfund environmental reserves (in millions):
March 31, September 30, 2003 2002 --------- ------------- Superfund sites................................................ $ 13 $ 13 Non-Superfund sites............................................ 18 21 -------- --------- Environmental reserves.................................... $ 31 $ 34 ======== =========
A portion of the environmental reserves is included in current liabilities with the majority of the amount recorded in noncurrent liabilities (see Notes 12 and 13). The actual amount of costs or damages for which the company may be held responsible could materially exceed the foregoing estimates because of uncertainties, including the financial condition of other potentially responsible parties, the success of the remediation and other factors that make it difficult to accurately predict actual costs. However, based on management's assessment, the company believes that its expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the company's business, financial condition or results of operations. In addition, in future periods, new laws and regulations, advances in technology and additional information about the ultimate clean up remedy could significantly change the company's estimates. Management cannot assess the possible effect of compliance with future requirements. Asbestos Maremont Corporation (Maremont, a subsidiary of the company) and many other companies are defendants in suits brought by individuals claiming personal injuries as a result of exposure to asbestos-containing products. Maremont manufactured friction products containing asbestos from 1953 through 1977, when it sold its friction product business. Arvin acquired Maremont in 1986. 17 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Maremont's asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Unbilled committed settlements.............................. $ 9 $ 9 Pending claims.............................................. 61 50 Shortfall and other ........................................ 6 7 -------- -------- Asbestos-related reserves.............................. $ 76 $ 66 ======== ======== Asbestos-related recoveries................................. $ 70 $ 59 ======== ========
A portion of the asbestos-related recoveries and reserves are included in current assets and liabilities, with the majority of the amounts recorded in noncurrent assets and liabilities (see Notes 10 through 13). The unbilled committed settlements reserve relates to committed settlements that Maremont agreed to pay when Maremont participated in the Center for Claims Resolution (CCR). Maremont shared in the payments of defense and indemnity costs of asbestos-related claims with other CCR members. The CCR handled the resolution and processing of asbestos claims on behalf of its members until February 1, 2001, when it was reorganized and discontinued negotiating shared settlements. There were no significant billings to insurance companies related to committed settlements in the six months ended March 31, 2003. Upon dissolution of the CCR in February 2001, Maremont began handling asbestos-related claims through its own defense counsel and is committed to examining the merits of each asbestos-related claim. Maremont had approximately 47,900 and 37,500 pending asbestos-related claims at March 31, 2003 and September 30, 2002, respectively. Although Maremont has been named in these cases, in the cases where actual injury has been alleged, very few claimants have established that a Maremont product caused their injuries. For purposes of establishing reserves for pending asbestos-related claims, Maremont estimates its defense and indemnity costs based on the history and nature of filed claims to date and Maremont's experience. At September 30, 2001, Maremont did not have sufficient history apart from the CCR to estimate its asbestos-related reserves and used the experience factors developed by the CCR. As of March 31, 2003 and September 30, 2002, Maremont developed experience factors for indemnity and litigation costs using data on actual experience in resolving claims since February 2001 and its assessment of the nature of the claims. Billings to insurance companies for indemnity and defense costs of resolved cases were $7 million in the six months ended March 31, 2003. 18 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Several former members of the CCR have filed for bankruptcy protection, and these members have failed, or may fail, to pay certain financial obligations with respect to settlements that were reached while they were CCR members. Maremont is subject to claims for payment of a portion of these defaulted member shares (shortfall). In an effort to resolve the affected settlements, Maremont has entered into negotiations with plaintiffs' attorneys, and an estimate of Maremont's obligation for the shortfall is included in the total asbestos-related reserves. In addition, Maremont and its insurers are engaged in legal proceedings to determine whether existing insurance coverage should reimburse any potential liability related to this issue. Payments by the company related to shortfall and other were $1 million in the six months ended March 31, 2003. Maremont has insurance that reimburses a substantial portion of the costs incurred defending against asbestos-related claims. The coverage also reimburses Maremont for any indemnity paid on those claims. The coverage is provided by several insurance carriers based on the insurance agreements in place. Based on its assessment of the history and nature of filed claims to date, and of Maremont's insurance carriers, management believes that existing insurance coverage is adequate to cover substantially all costs relating to pending and future asbestos-related claims. The amounts recorded for the asbestos-related reserves and recoveries from insurance companies are based upon assumptions and estimates derived from currently known facts. All such estimates of liabilities for asbestos-related claims are subject to considerable uncertainty because such liabilities are influenced by variables that are difficult to predict. If the assumptions with respect to the nature of pending claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of Maremont's liability for asbestos-related claims, and the effect on the company, could differ materially from current estimates. Maremont has not accrued reserves for unknown claims that may be asserted against it in the future. Maremont does not have sufficient information to make a reasonable estimate of its potential liability for asbestos-related claims that may be asserted against it in the future. Product Recall Campaign The company has recalled certain of its commercial vehicle axles equipped with TRW model 20-EDL tie rod ends because of potential safety-related defects in those ends. TRW, Inc. (TRW) manufactured the affected tie rod ends from June 1999 through June 2000 and supplied them to the company for incorporation into its axle products. TRW commenced recall campaigns in August 2000 and June 2001, covering 24 weeks of production, due to a purported manufacturing anomaly identified by TRW. However, after an analysis of field returns and customer reports of excessive wear, ArvinMeritor concluded that the defect was based on the design of a bearing used in the ball socket, which is part of the tie rod end, and not on the purported anomaly in the manufacturing process. The company reported its finding to the National Highway Transportation Safety Administration in April 2002 and expanded the recall campaign to cover all of its axle products that had incorporated TRW model 20-EDL tie rod ends. 19 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL tie rod ends to be approximately $17 million. The company believes that it is entitled to reimbursement by TRW for its costs associated with the campaign. On May 6, 2002, the company filed suit against TRW in the U.S. District Court for the Eastern District of Michigan, claiming breach of contract and breach of warranty, and seeking compensatory and consequential damages in connection with the recall campaign. The company recorded a liability and offsetting receivable for the estimated cost of its expanded recall campaign. As of March 31, 2003 and September 30, 2002, the company had recorded a receivable from TRW for $17 million. The company has also recorded accrued product warranty reserves of $11 million and $15 million, net of claims paid to date, as of March 31, 2003 and September 30, 2002, respectively. See Note 12 for additional information related to the company's accrued product warranties. In addition, the company has recorded a receivable of $6 million and $4 million as of March 31, 2003 and September 30, 2002, respectively, from TRW for reimbursement of customer claims paid to date that are covered by TRW's recall campaign. Indemnifications The company has provided indemnifications in conjunction with certain transactions, primarily divestitures. These indemnities address a variety of matters, which may include: environmental, tax, asbestos, and employment-related matters. The periods of indemnification vary in duration and often are not explicitly defined. The overall maximum amount of the obligation under such indemnifications cannot be reasonably estimated. The company is not aware of any claims or other information that would give rise to material payments under such indemnities. Other Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the company, relating to the conduct of the company's business, including those pertaining to product liability, intellectual property, safety and health, and employment matters. Although the outcome of litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to the company, management believes the disposition of matters that are pending will not have a material adverse effect on the company's business, financial condition or results of operations. 18. Comprehensive Income Comprehensive income is summarized as follows (in millions):
Three Months Ended Six Months Ended March 31, March 31, ------------------- ------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income................................................ $ 24 $ 35 $ 56 $ 4 Foreign currency translation.............................. 32 (15) 94 (4) ---- ---- ---- ---- Comprehensive income...................................... $ 56 $ 20 $150 $ - ==== ==== ==== ====
20 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 19. Business Segment Information The company has three reportable operating segments: Light Vehicle Systems (LVS), Commercial Vehicle Systems (CVS), and Light Vehicle Aftermarket (LVA). LVS is a major supplier of air and emission systems, aperture systems (roof and door systems and motion control products), and undercarriage systems (suspension and ride control systems and wheel products) for passenger cars, light trucks and sport utility vehicles to original equipment manufacturers. CVS supplies drivetrain systems and components, including axles and drivelines, braking systems, suspension systems and exhaust, ride control and filtration products, for medium- and heavy-duty trucks, trailers and off-highway equipment and specialty vehicles. LVA supplies exhaust, ride control and filter products to the light vehicle aftermarket. Business units that are not focused on automotive products are classified as "Other." The company's coil coating operation is included in this classification. Segment information is summarized as follows (in millions):
Three Months Ended Six Months Ended March 31, March 31, --------------------- ---------------------- 2003 2002 2003 2002 ------- ------ ------- ------- Sales: Light Vehicle Systems.......................... $ 1,164 $ 904 $ 2,067 $ 1,750 Commercial Vehicle Systems..................... 589 532 1,161 1,015 Light Vehicle Aftermarket...................... 204 214 401 414 Other.......................................... 36 37 73 74 ------- ------ ------- ------- Sales......................................... $ 1,993 $1,687 $ 3,702 $ 3,253 ======= ====== ======= ======= Operating Income: Light Vehicle Systems.......................... $ 29 $ 52 $ 71 $ 89 Commercial Vehicle Systems..................... 29 16 53 21 Light Vehicle Aftermarket...................... 6 13 12 21 Other.......................................... (1) 1 - (1) ------- ------ ------- ------- Operating income.............................. 63 82 136 130 Equity in earnings (losses) of affiliates......... 1 (1) 2 (1) Interest expense, net and other................... (27) (25) (52) (53) ------- ------ ------- ------- Income before income taxes........................ 37 56 86 76 Provision for income taxes........................ (12) (18) (28) (24) Minority interests................................ (1) (3) (2) (6) ------- ------ ------- ------- Income before cumulative effect of accounting change............................... $ 24 $ 35 $ 56 $ 46 ======= ====== ======= =======
21 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The carrying value of goodwill for the company's segments is summarized as follows (in millions):
March 31, September 30, 2003 2002 --------- ------------- Light Vehicle Systems......................................... $ 311 $ 225 Commercial Vehicle Systems.................................... 413 408 Light Vehicle Aftermarket..................................... 176 175 Other......................................................... - - -------- ------- Goodwill ............................................... $ 900 $ 808 ======== =======
A summary of the changes in the carrying value of goodwill is as follows (in millions):
Six Months Ended March 31, -------------------- 2003 2002 ------ ------- Balance at September 30....................................... $ 808 $ 835 Goodwill resulting from Zeuna Staerker........................ 84 - Impairment loss............................................... - (42) Foreign currency translation.................................. 8 (5) ------ ------ Balance at March 31........................................... $ 900 $ 788 ====== ======
22 ARVINMERITOR, INC. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS
Three Months Ended Six Months Ended March 31, March 31, ---------------------- ---------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Sales: Light Vehicle Systems.................................... $ 1,164 $ 904 $ 2,067 $ 1,750 Commercial Vehicle Systems............................... 589 532 1,161 1,015 Light Vehicle Aftermarket................................ 204 214 401 414 Other.................................................... 36 37 73 74 ------- ------- ------- ------- SALES.................................................... $ 1,993 $ 1,687 $ 3,702 $ 3,253 ======= ======= ======= ======= Operating Income: Light Vehicle Systems.................................... $ 29 $ 52 $ 71 $ 89 Commercial Vehicle Systems............................... 29 16 53 21 Light Vehicle Aftermarket................................ 6 13 12 21 Other.................................................... (1) 1 - (1) ------- ------- ------- ------- OPERATING INCOME............................................ 63 82 136 130 Equity in earnings of affiliates............................ 1 (1) 2 (2) Interest expense, net and other............................. (27) (25) (52) (53) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES.................................. 37 56 86 76 Provision for income taxes.................................. (12) (18) (28) (24) Minority interests.......................................... (1) (3) (2) (6) ------- ------- ------- ------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE..................................... 24 35 56 46 Cumulative effect of accounting change .................. - - - (42) ------- ------- ------- ------- NET INCOME.................................................. $ 24 $ 35 $ 56 $ 4 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE: Before cumulative effect of accounting change............ $ 0.36 $ 0.52 $ 0.83 $ 0.69 Cumulative effect of accounting change................... - - - (0.63) ------- ------- ------- ------- Diluted earnings per share............................... $ 0.36 $ 0.52 $ 0.83 $ 0.06 ======= ======= ======= ======= DILUTED AVERAGE COMMON SHARES OUTSTANDING................... 67.5 67.0 67.5 66.4 ======= ======= ======= =======
23 ARVINMERITOR, INC. Fiscal 2003 Second Quarter Compared to Fiscal 2002 Second Quarter Total Company Sales for the second quarter of fiscal 2003 were $1,993 million, an increase of $306 million, or 18 percent, as compared to last year's second quarter. The company's acquisition of the remaining 51-percent interest in Zeuna Staerker added sales of $198 million in the second quarter and favorable foreign currency translation, primarily from the stronger euro, also increased sales by approximately $100 million. Without these items, sales would have been essentially flat, as compared to the second quarter of fiscal 2002. Operating income for the second quarter of fiscal 2003 was $63 million, compared to $82 million in the same period last year. Restructuring costs of $11 million associated with the LVS segment were recorded in the second quarter of fiscal 2003. For additional information concerning the company's restructuring programs, see Note 7 of the Notes to Consolidated Financial Statements and the discussion under the heading OUTLOOK below. Operating margin declined to 3.2 percent, from 4.9 percent in the second quarter of fiscal 2003. Equity in earnings of affiliates for the second quarter of fiscal 2003 was up $2 million compared to the same period last year. Interest expense, net and other of $27 million was up slightly from $25 million in last year's second quarter. The effective tax rate was 32 percent in the second quarter of fiscal years 2003 and 2002. Net income for the second quarter of fiscal 2003 was $24 million, or $0.36 per diluted share, a decline of $11 million, as compared to last year's second quarter net income of $35 million, or $0.52 per diluted share. Net income for the second quarter of fiscal 2003 included restructuring costs of $7 million after-tax, or $0.10 per diluted share. Business Segments Light Vehicle Systems (LVS) sales were $1,164 million, up $260 million, or 29 percent, from the second quarter of fiscal 2002. The acquisition of Zeuna Staerker added sales of $198 million and foreign currency translation favorably impacted sales by approximately $70 million, as compared to the prior year. Operating income was $29 million, a decrease of $23 million from last year's second quarter. LVS continues to implement cost reduction initiatives to address the competitive challenges in the automotive supplier industry. During the second quarter of fiscal 2003, LVS recorded restructuring costs of $11 million associated with workforce reductions and facility closures, partially offset by savings of $2 million. Higher steel and other costs associated with steel shortages also negatively impacted operating income by $5 million in the second quarter of fiscal 2003. Operating margin was 2.5 percent, down from 5.8 percent in last year's second quarter. 24 ARVINMERITOR, INC. Commercial Vehicle Systems (CVS) sales were $589 million, up $57 million, or 11 percent, from last year's second quarter. Favorable currency translation increased sales by approximately $20 million, as compared to last year's second quarter. Operating income increased to $29 million, up from $16 million in the second quarter of fiscal 2002, and operating margin improved to 4.9 percent, up from 3.0 percent in last year's second quarter. Higher North American Class 8 truck and trailer production was the major factor behind the sales and operating income improvement. During the second quarter of fiscal 2003, CVS sold net assets related to its off-highway planetary axle products and recognized a pre-tax gain on the sale of $2 million. Sales of off-highway planetary axle products were approximately $25 million in second quarter of fiscal 2002. The decline in sales due to the disposition of the off-highway planetary axle products was substantially offset by the favorable sales impact of foreign currency translation. Light Vehicle Aftermarket (LVA) sales were $204 million, down $10 million, from last year's second quarter. These results include sales of $4 million from the consolidation of a joint venture in Venezuela as of October 1, 2002. Foreign currency translation also favorably impacted sales by approximately $10 million in the second quarter of fiscal 2003. Excluding these items, sales were down 11 percent from last year's second quarter as a result of weak demand across all LVA product lines. Operating income was $6 million, a decline of $7 million from last year's second quarter, and operating margin fell to 2.9 percent, from 6.1 percent in the prior year's second quarter. Lower sales volume and customer pricing pressures drove the operating income decline. Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002 Total Company For the first six months of fiscal 2003, sales were $3,702 million, up $449 million, or 14 percent, compared to the same period last year. The company's acquisition of the remaining 51-percent interest in Zeuna Staerker added sales of $198 million and foreign currency translation also favorably impacted sales by approximately $150 million. Excluding these favorable items, sales would have been up by approximately $100 million. The company's CVS segment drove the sales increase. Operating income for the first six months of fiscal 2003 was $136 million, an increase of $6 million, compared to the same period last year, reflecting an operating margin of 3.7 percent, down from 4.0 percent. Operating income in the first six months of fiscal 2003 and 2002 includes restructuring costs of $11 million and $15 million, respectively. Restructuring costs in the first six months of fiscal 2003 related to workforce reductions and facility closures in the company's LVS segment. The restructuring charge of $15 million recorded in the first six months of fiscal 2002 related to employee and other severance costs for approximately 450 salaried employees. For additional information concerning the company's restructuring programs, see Note 7 of the Notes to Consolidated Financial Statements. Equity in earnings of affiliates for the first six months of fiscal 2003 was up $3 million compared to the same period last year, primarily due to higher earnings from commercial vehicle affiliates. Interest expense, net and other of $52 million was down slightly from $53 million in the same period last year. The effective tax rate was 32 percent in the first six months of fiscal 2003 and 2002. 25 ARVINMERITOR, INC. Income before cumulative effect of accounting change for the first six months of fiscal 2003 was $56 million, or $0.83 per diluted share, up from $46 million, or $0.69 per diluted share, in the same period last year. Effective October 1, 2001, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." Upon adoption of SFAS 142, the company recorded an impairment loss on goodwill as a cumulative effect of accounting change of $42 million ($42 million after-tax, or $0.63 per diluted share) in fiscal 2002. Net income in the first six months of fiscal 2002 was $4 million, or $0.06 per diluted share. Business Segments LVS sales were $2,067 million, up $317 million, or 18 percent, from the first six months of fiscal 2002. Foreign currency translation favorably impacted sales by approximately $100 million, as compared to the prior year, and the acquisition of Zeuna Staerker added sales of $198 million. Operating income was $71 million, a decrease of $18 million from the first six months of fiscal 2002. Higher steel and other costs associated with steel shortages negatively impacted operating income by $10 million in the first six months of fiscal 2003. Restructuring costs were $11 million and $7 million, respectively, in the first six months of fiscal 2003 and 2002. LVS operating margin declined to 3.4 percent, down from 5.1 percent for the same period last year. CVS sales were $1,161 million, up $146 million, or 14 percent, from the last year's first six months. Foreign currency translation increased sales by approximately $35 million, as compared to the first six months of fiscal 2002. This increase was partially offset by a decline in sales of approximately $25 million resulting from the disposition of the assets related to the off-highway planetary axle products. Higher North American Class 8 truck and trailer production drove the sales improvement. CVS operating income increased to $53 million, compared to $21 million in the first six months of fiscal 2003, and operating margin was 4.6 percent, up from 2.1 percent in the same period last year. The operating income improvement is largely attributable to the higher sales volume. CVS recorded restructuring costs of $6 million in the first six months of fiscal 2002. LVA sales were $401 million for the first six months of fiscal 2003, down $13 million, from $414 million in the same period last year. Favorable foreign currency translation increased sales by approximately $15 million and the consolidation of a joint venture in Venezuela as of October 1, 2002 added sales of $10 million. Without these items, sales were down about nine percent in the first six months of fiscal 2003 reflecting weak demand in the exhaust and ride control product lines. LVA operating income was $12 million, as compared to $21 million in last year's first six months. Lower sales volume and customer pricing pressures were the major factors behind the operating income decline. Operating margin fell to 3.0 percent, from 5.1 percent in the first six months of fiscal 2002. OUTLOOK The company's fiscal 2003 outlook for light vehicle production is 15.8 million vehicles in North America and 16.5 million vehicles in Western Europe. The company expects North American Class 8 truck production of 166,000 units in fiscal 2003. Western European heavy- and medium-duty truck production is estimated at 348,000 units for fiscal 2003. 26 ARVINMERITOR, INC. Effective October 1, 2002, the company voluntarily changed to the fair value method of accounting for its stock-based compensation plans and began expensing the fair value of stock options. See Note 4 of the Notes to Consolidated Financial Statements for additional information. For fiscal 2003, the company expects to record compensation expense for stock options of $7 million ($5 million after-tax, or $0.07 per diluted share). The company has approved plans for a workforce reduction of approximately 300 salaried employees, as well as, facility consolidations affecting an additional 275 hourly employees in its LVS business. These measures follow the management realignment of the company's LVS businesses and are also intended to address the competitive challenges in the automotive supplier industry. Additionally, the company has approved plans for a workforce reduction of approximately 100 salaried employees and a facility closure in its LVA business. These actions are a result of weak demand in the exhaust aftermarket business. During the second quarter, the company recorded restructuring costs of $11 million, partially offset by savings of $2 million, related to these actions. For the full year of fiscal 2003, the company expects to record restructuring costs of approximately $18 million and to generate savings of approximately $12 million related to these actions. The annual pretax savings from these initiatives are estimated at approximately $30 million. Other factors that could affect the company's results for the full fiscal year include the impact of currency fluctuations on sales and operating income, which is difficult to predict. In addition, the company is experiencing rising steel prices and currently expects higher steel prices and steel-related costs of approximately $23 million in fiscal 2003, as compared to fiscal 2002. FINANCIAL CONDITION See Condensed Statement of Consolidated Cash Flows for additional detail on the company's cash flows. Operating Activities - Cash provided by operating activities was $236 million for the first six months of fiscal 2003, an increase of $98 million, as compared to the same period in fiscal 2002. The increase in operating cash flow is largely attributable to the sales of receivables of $145 million in the first six months of fiscal 2003. The company increased the balance outstanding under its U.S. accounts receivable securitization facility and used the cash to fund the acquisition of the remaining 51-percent interest in Zeuna Staerker and to reduce debt under its revolving credit facility (see discussion below). Investing Activities - Cash used for investing activities was $118 million for the first six months of fiscal 2003 compared to $85 million in the same period last year. Capital expenditures were $69 million in the first six months of fiscal 2003, as compared to $64 million in the same period last year. Investing activities in the first six months of fiscal 2003 includes proceeds of $42 million from the disposition of assets. In the first six months of fiscal 2003, the company used cash of $69 million (net of cash acquired) for the acquisition of Zeuna Staerker. Cash used for other investing activities was $22 million in the first six months of fiscal 2003, compared to $21 million in the same period in the prior year. 27 ARVINMERITOR, INC. Financing Activities - Cash used for financing activities in the first six months of fiscal 2003 was $63 million, compared to $62 million in the same period last year. During the first six months of fiscal 2003 the company reduced revolving debt by $50 million and paid dividends of $13 million. During the first six months of fiscal 2002, the company completed a public offering of debt securities and proceeds from the notes of $394 million were used to pay outstanding indebtedness under the company's revolving credit facilities. The company reduced revolving debt and preferred capital securities by $460 million and paid dividends of $13 million in the first six months of fiscal 2002. LIQUIDITY The company is contractually obligated to make certain payments as disclosed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002, which is incorporated in this Form 10-Q by reference. Revolving and Other Debt - As discussed in Note 14 of the Notes to Consolidated Financial Statements, the company has two unsecured credit facilities, which mature on June 27, 2005: a three-year, $400-million revolving credit facility and a five-year, $750-million revolving credit facility. The company also has a $50-million uncommitted line of credit. The credit facilities require the company to maintain a total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital expenditures to interest expense) of 1.50x. Non-compliance with these covenants would constitute an event of default, and could allow lenders to suspend additional borrowings and accelerate repayment of outstanding borrowings. At March 31, 2003, the company was in compliance with all covenants. Under a shelf registration filed with the SEC in April 2001, the company has $150 million of debt securities remaining unissued. Leases - As discussed in Note 14 of the Notes to Consolidated Financial Statements, certain operating leases require the company to maintain financial ratios that are similar to those required by the company's revolving credit agreements. Non-compliance with these covenants could result in termination of the agreements and acceleration of the company's obligations. At March 31, 2003, the company was in compliance with all covenants. 28 ARVINMERITOR, INC. Accounts Receivable Securitization Facilities - As discussed in Note 8 of the Notes to Consolidated Financial Statements, the company participates in accounts receivable securitization facilities to enhance financial flexibility and lower interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned subsidiary of the company, has entered into an agreement to sell an undivided interest in up to $250 million of U.S. trade receivables to certain bank conduits. Zeuna Staerker has entered into an agreement to sell an undivided interest in up to euro 50 million of trade receivables to a bank. As of March 31, 2003, the company had utilized $250 million of the U.S. accounts receivable securitization facility and $40 million of the euro accounts receivable securitization facility. The U.S. accounts receivable securitization program matures in September 2003 and the company expects to renew the facility at that time. The euro accounts receivable securitization program matures in March 2005. If the company's credit ratings are reduced to certain levels, or if certain receivables performance-based covenants are not met, it would constitute a termination event, which, at the option of the banks, could result in termination of the facilities. While no assurances can be given, management believes that the company would be able to renegotiate the programs; however, the company might incur higher costs or be required to make other financial concessions. At March 31, 2003, the company was in compliance with all covenants. During the second quarter of fiscal 2003, Standard & Poors (S&P) placed the company on negative credit watch, indicating that the company's current credit rating of BBB- is under review. The action by S&P has no immediate impact on the company's revolving credit facilities, accounts receivable securitization facilities or other debt. In the event of a downgrade by S&P, the company would continue to have adequate available liquidity through its bank revolving credit facilities, which mature on June 2005. CRITICAL ACCOUNTING POLICIES See the information concerning the company's critical accounting policies included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002, which is incorporated in this Form 10-Q by reference. NEW ACCOUNTING PRONOUNCEMENTS New accounting pronouncements are discussed in Notes 3 through 5 of the Notes to Consolidated Financial Statements. 29 ARVINMERITOR, INC. Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency exchange rate risk related to its transactions denominated in currencies other than the U.S. dollar and interest rate risk associated with the company's debt. The impact the euro and other currencies will have on the company's sales and operating income is difficult to predict in the upcoming year. The company uses foreign exchange contracts to offset the effect of exchange rate fluctuations on foreign currency denominated payables and receivables to help minimize the risk of loss from changes in exchange rates (see Note 15 of the Notes to Consolidated Financial Statements). The company also uses interest rate swaps to offset the effects on interest rate fluctuations on the fair value of its debt portfolio (see Note 14 of the Notes to Consolidated Financial Statements). It is the policy of the company not to enter into derivative instruments for speculative purposes, and therefore the company holds no derivative instruments for trading purposes. The company has performed a sensitivity analysis assuming a hypothetical 10-percent adverse movement in foreign currency exchange rates and interest rates applied to the underlying exposures described above. As of March 31, 2003, the analysis indicated that such market movements would not have a material effect on the company's business, financial condition or results of operations. Actual gains or losses in the future may differ significantly from that analysis, however, based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the company's actual exposures. Item 4. Controls and Procedures As required by Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, the company carried out an evaluation under the supervision and with the participation of ArvinMeritor's management, including Larry D. Yost, Chairman of the Board and Chief Executive Officer, and S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports the company files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in ArvinMeritor's internal controls or in other factors that could significantly affect these controls subsequent to the date of that evaluation. In connection with the rule, the company is in the process of further reviewing and documenting its disclosure controls and procedures, including the company's internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the company's systems evolve with the business. 30 ARVINMERITOR, INC. PART II. OTHER INFORMATION Item 1. Legal Proceedings As previously reported under the heading "Item 3. Legal Proceedings" in the company's Annual Report on Form 10-K for the fiscal year ended September 29, 2002 ("Form 10-K"), on July 17, 1997 Eaton Corporation filed suit against the company in the U.S. District Court in Wilmington, Delaware, asserting infringement of Eaton's U.S. Patent No. 4850236 covering certain aspects of heavy-duty truck transmissions, by the company's Engine Synchro Shift(TM) transmission for heavy-duty trucks, and seeking damages and injunctive relief. As discussed in the Form 10-K: (a) on July 1, 1998, a jury rendered a verdict in favor of Eaton and awarded compensatory damages in an amount equal to 13% of total product sales; (b) in a separate phase of the trial held without a jury, on February 9, 2001, the judge ruled against the company with respect to its allegations that Eaton had engaged in inequitable conduct in obtaining its patent and that the patent was therefore unenforceable; (c) on September 19, 2001, the judge granted Eaton's request for a permanent injunction against the company's manufacturing or selling the Engine SynchroShift(TM) transmission and any "colorable variations"; (d) on October 11, 2001, the judge entered an order granting damages to Eaton in the amount of $2.9 million, plus post-judgment interest; and (e) on October 11, 2001, the judge denied the company's motions for a new trial and for judgment as a matter of law. The company appealed these judgments and orders to the United States Court of Appeals for the Federal Circuit ("Federal Circuit"). On March 27, 2003, after de novo review of the District Court's interpretation of Eaton's claims and the facts of the case, the Federal Circuit reversed the District Court's judgment that the company had infringed Eaton's patent and vacated the award of damages and the entry of a permanent injunction against the company. The Court of Appeals affirmed the District Court's judgment of patent validity and no inequitable conduct by Eaton. Eaton filed a request for rehearing with the Federal Circuit on April 11, 2003, asserting that the case should be remanded to the District Court for consideration of whether the company had infringed Eaton's patent under the Federal Circuit's new claim interpretation. The Federal Circuit denied Eaton's request for rehearing on May 12, 2003. Based on advice of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of the company, management believes the company's truck transmissions do not infringe Eaton's patent. The company intends to continue to defend this suit vigorously. Item 2. Changes in Securities and Use of Proceeds On January 2, 2003, the company issued 1,368 shares of Common Stock to two non-employee directors of the company, pursuant to the terms of the company's Directors Stock Plan, in lieu of cash payment of the quarterly retainer fee for board service. In addition, on February 19, 2002, the company issued 1,000 shares of Common Stock to each of the ten non-employee directors of the company pursuant to the terms of the Directors Stock Plan. In each case, the issuance of these securities was exempt from registration under the Securities Act of 1933, as a transaction not involving a public offering under Section 4(2). 31 ARVINMERITOR, INC. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareowners of the company was held February 19, 2003. The following matters were voted on and received the specified number of votes in favor, votes withheld or against, abstentions and broker non-votes: (i) Election of directors: The following individuals were elected to the Board of Directors, with terms expiring at the annual meeting of shareowners in the years noted. The number of shares noted below voted in favor of their election or were withheld. Abstentions and broker non-votes were not applicable.
NAME OF NOMINEE VOTES IN FAVOR VOTES WITHHELD TERM ENDING Joseph B. Anderson, Jr. 53,618,605 2,044,984 2006 Victoria B. Jackson 50,979,120 4,684,469 2006 William D. George, Jr. 51,670,276 3,993,313 2005 James E. Marley 51,645,456 4,018,133 2006 James E. Perrella 42,000,931 13,662,658 2006
(ii) Appointment of auditors: The shareowners approved the selection of Deloitte & Touche LLP as the company's auditors. A total of 49,541,745 votes were cast in favor, 5,831,756 votes were cast against, and 290,088 votes abstained from voting. Broker non-votes were not applicable. 32 ARVINMERITOR, INC. Item 5. Other Information. Cautionary Statement This Quarterly Report on Form 10-Q contains statements relating to future results of the company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are likely to be" and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad, including foreign currency exchange rates; the availability and cost of raw materials; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its customers and suppliers; successful integration of acquired or merged businesses; achievement of the expected annual savings and synergies from past and future business combinations; competitive product and pricing pressures; the amount of the company's debt; the ability of the company to access capital markets; the credit ratings of the company's debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the Securities and Exchange Commission. See also "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Quantitative and Qualitative Disclosures about Market Risk" herein. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. 33 ARVINMERITOR, INC. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10a - Second Amendment to Second Amended and Restated Receivables Sale Agreement, dated as of March 25, 2003, among ArvinMeritor Receivables Corporation, the company, the Purchaser Agents named therein and Credit Lyonnais, acting through its New York Branch, as Agent. 10b - Second Amended and Restated Receivables Purchase Agreement, dated as of March 10, 2003, among Zeuna Staerker, Galleon Capital Corporation, as Purchaser, State Street Global Markets LLC, as Administrator, and State Street Bank and Trust Company, as Relationship Bank. 12 - Computation of ratio of earnings to fixed charges. 23 - Consent of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of the company. 99a - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99b - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. The company filed a Current Report on Form 8-K on April 23, 2003, reporting under "Item 12. Results of Operations and Financial Condition," that the company had issued a press release reporting its financial results for the fiscal quarter ended March 31, 2003, and filing the press release as an exhibit under "Item 7. Financial Statements and Exhibits." 34 ARVINMERITOR, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARVINMERITOR, INC. Date: May 13, 2003 By: /s/ V. G. Baker, II ------------------- V. G. Baker, II Senior Vice President and General Counsel (For the registrant) Date: May 13, 2003 By: /s/ D. S. Bullock ----------------- D. S. Bullock Vice President and Controller (Chief Accounting Officer) 35 ARVINMERITOR, INC. CERTIFICATIONS I, Larry, D. Yost, Chairman of the Board and Chief Executive Officer of ArvinMeritor, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ArvinMeritor, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Larry D. Yost ------------------------------------ Larry D. Yost, Chairman of the Board and Chief Executive Officer 36 ARVINMERITOR, INC. I, S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer of ArvinMeritor, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ArvinMeritor, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ S. Carl Soderstrom, Jr. --------------------------- S. Carl Soderstrom, Jr. Senior Vice President and Chief Financial Officer 37 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS 10a Second Amendment to Second Amended and Restated Receivables Sale Agreement, dated as of March 25, 2003, among ArvinMeritor Receivables Corporation, the company, the Purchaser Agents named therein and Credit Lyonnais, acting through its New York Branch, as Agent. 10b Second Amended and Restated Receivables Purchase Agreement, dated as of March 10, 2003, among Zeuna Staerker, Galleon Capital Corporation, as Purchaser, State Street Global Markets LLC, as Administrator, and State Street Bank and Trust Company, as Relationship Bank. 12 Computation of ratio of earnings to fixed charges. 23 Consent of M, Lee Murrah, Esq., Chief Intellectual Property Counsel of the company. 99a Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99b Certification of Chief Financial Officer Pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-10.(A) 3 k77025exv10wxay.txt 2ND AMENDMT. TO 2ND AMENDED & RESTATED RECEIVABLES EXHIBIT 10a SECOND AMENDMENT TO SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT THIS SECOND AMENDMENT (the "Amendment"), dated as of March 24, 2003, is entered into among ArvinMeritor Receivables Corporation, a Delaware corporation (the "Seller"), ArvinMeritor, Inc., an Indiana corporation (the "Initial Collection Agent," and, together with any successor thereto, the "Collection Agent"), the Related Committed Purchasers party hereto (the "Related Committed Purchasers"), Giro Balanced Funding Corporation ("GBFC"), La Fayette Asset Securitization LLC ("La Fayette"), Amsterdam Funding Corporation ("Amsterdam"), the other Conduit Purchasers from time to time party hereto, Credit Lyonnais, acting through its New York Branch, as agent for the Purchasers (the "Agent") and as a Purchaser Agent, Bayerische Landesbank, New York Branch ("BayernLB"), as a Purchaser Agent and ABN AMRO Bank N.V. ("ABN AMRO"), as a Purchaser Agent. Reference is hereby made to that certain Second Amended and Restated Receivables Sale Agreement, dated as of September 26, 2002 (as amended, supplemented or otherwise modified through the date hereof, the "Sale Agreement"), among the Seller, the Initial Collection Agent, Amsterdam, GBFC, La Fayette, the other Conduit Purchasers from time to time party thereto, the Agent, BayernLB, ABN AMRO and the other Purchaser Agents from time to time party thereto. Terms used herein and not otherwise defined herein which are defined in the Sale Agreement or the other Transaction Documents (as defined in the Sale Agreement) shall have the same meaning herein as defined therein. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Subject to the following terms and conditions, including without limitation the conditions precedent set forth in Section 2, upon execution by the parties hereto in the space provided for that purpose below, the Sale Agreement shall be, and it hereby is, amended as follows: (a) The defined term "Dilution Horizon Ratio Period" appearing in Schedule I to the Sale Agreement is amended in its entirety to be and to read as follows: "Dilution Horizon Ratio Period" means, at any time the same is to be determined, the four most recently completed calendar months. (b) The defined term "Dilution Ratio Period" appearing in Schedule I to the Sale Agreement is amended in its entirety to be and to read as follows: "Dilution Ratio Period" means, at any time the same is to be determined, the calendar month four months prior to the most recently completed calendar month. (c) The defined term "Performance Trigger Period" appearing in Schedule I to the Sale Agreement is amended in its entirety to be and to read as follows: "Performance Trigger Period" means the period of time commencing on the date the Dilution Ratio exceeds 7.25% and ending on the date the Dilution Ratio is 6.75% or less for three consecutive calendar months. (d) Clause (f) of the defined term "Termination Event" appearing in Schedule I to the Sale Agreement is amended in its entirety to be and to read as follows: (f) the average Delinquency Ratio for the three most recently completed calendar months exceeds 5%, the average Default Ratio for the three most recently completed calendar months exceeds 7%, the average Dilution Ratio for the three most recently completed calendar months exceeds 6.50%, the Loss-to Liquidation Ratio exceeds 2.5% or the average Turnover Ratio for the three most recently completed calendar months exceeds 90 days; or Section 2. The Agent and the Purchaser Agents hereby consent to the addition of Zeuna Staerker USA, Inc. as a new Originator under the Sale Agreement and the Purchase Agreement; provided, however, that the foregoing consent shall be effective only upon receipt by the Agent of the items specified in Section 7.3(a) of the Sale Agreement (other than Section 7.3(a)(ii) (but only with respect to the Agent's first priority security interests in the Lock-Box Accounts) and Section 7.3(a)(vi) thereof) with respect to such new Originator. Section 3. Not later than 30 days following the date hereof, the Seller shall have (i) opened a deposit account at Bank One, NA (the "New Account"), (ii) delivered to the Agent evidence of the agreement between the Seller and Bank of America providing for the sweep of all outstanding balances on deposit from Account No. 733841566 maintained at Bank of America (the "B of A Account") to the New Account on each Business Day and (iii) delivered to the Agent an acknowledgment to that certain Lockbox Agreement dated as of September 26, 2002 which subjects the New Account to the provisions thereof. Not later than 90 days following the date hereof, the Seller shall deliver to the Agent evidence that the Seller notified each of the Obligors currently submitting payments electronically to the B of A Account to remit all future payments to the New Account and that all such obligors shall have commenced the remittance of payments to the New Account. The Seller acknowledges and agrees that the failure to comply with the foregoing within such specified period shall constitute a Termination Event under the Agreement. Section 4. This Agreement shall become effective only once the Agent has received, in form and substance satisfactory to the Agent, all documents and certificates as the Agent may be reasonably request and all other matters incident to the execution hereof are satisfactory to the Agent. -2- Section 5. To induce the Agent and the Related Committed Purchasers to enter into this Amendment, the Seller and Collection Agent represent and warrant to the Agent and the Related Committed Purchasers that: (a) the representations and warranties contained in the Transaction Documents, are true and correct in all material respects as of the date hereof with the same effect as though made on the date hereof (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); (b) no Potential Termination Event exists; (c) this Amendment has been duly authorized by all necessary corporate proceedings and duly executed and delivered by each of the Seller and the Collection Agent, and the Sale Agreement, as amended by this Amendment, and each of the other Transaction Documents are the legal, valid and binding obligations of the Seller and the Collection Agent, enforceable against the Seller and the Collection Agent in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity; and (d) no consent, approval, authorization, order, registration or qualification with any governmental authority is required for, and in the absence of which would adversely effect, the legal and valid execution and delivery or performance by the Seller or the Collection Agent of this Amendment or the performance by the Seller or the Collection Agent of the Sale Agreement, as amended by this Amendment, or any other Transaction Document to which they are a party. Section 6. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. Section 7. Except as specifically provided above, the Sale Agreement and the other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed in all respects. The execution, delivery, and effectiveness of this Amendment shall not operate as a waiver of any right, power, or remedy of any Agent or any Related Committed Purchaser under the Sale Agreement or any of the other Transaction Documents, nor constitute a waiver or modification of any provision of any of the other Transaction Documents. All defined terms used herein and not defined herein shall have the same meaning herein as in the Sale Agreement. The Seller agrees to pay on demand all costs and expenses (including reasonable fees and expenses of counsel) of or incurred by the Agent and each Purchaser Agent in connection with the negotiation, preparation, execution and delivery of this Amendment. Section 8. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of New York. -3- IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written. CREDIT LYONNAIS, acting through its New York Branch, as the Agent and as a Purchaser Agent By: ________________________________________ Name: ___________________________________ Title: __________________________________ BAYERISCHE LANDESBANK, New York Branch, as a Purchaser Agent By: ________________________________________ Name: ___________________________________ Title: __________________________________ By: ________________________________________ Name: ___________________________________ Title: __________________________________ ABN AMRO BANK N.V., as a Purchaser Agent By: ________________________________________ Name: ___________________________________ Title: __________________________________ By: ________________________________________ Name: ___________________________________ Title: __________________________________ -4- ARVINMERITOR RECEIVABLES CORPORATION, as the Seller By: ________________________________________ Name:____________________________________ Title: __________________________________ ARVINMERITOR, INC., as the Initial Collection Agent By: ________________________________________ Name:____________________________________ Title: __________________________________ -5- EX-10.(B) 4 k77025exv10wxby.txt 2ND AMENDED AND RESTATED RECEIVABLES PURCHASE AGMT EXHIBIT 10b Schedule A Dated as of 10 March 2003 ZEUNA STAERKER GmbH & Co KG as Seller and Servicer GALLEON CAPITAL CORPORATION as Purchaser STATE STREET GLOBAL MARKETS, LLC, as Administrator STATE STREET BANK AND TRUST COMPANY as Relationship Bank ----------------------------------------------------------- SECOND AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT ----------------------------------------------------------- [FRESHFIELDS BRUCKHAUS DERINGER LOGO] - 2 - TABLE OF CONTENTS CLAUSE 1 DEFINITIONS AND RELATED MATTERS 5 1.1 Defined Terms 5 1.2 Other Interpretative Matters 5 1.3 Other Definitional Provisions 6 CLAUSE 2 ASSIGNMENT AND PURCHASE PROCEDURES 6 2.1 Assignment of Receivables 6 2.2 Transfer of Related Assets 7 2.3 Purchase Procedures; Reinvestments 8 2.4 Incremental Purchases 9 2.5 Purchase Price 10 2.6 Limitation on all Purchases 10 CLAUSE 3 PROCESSING OF COLLECTIONS; SETTLEMENTS 10 3.1 Regular Processing of Collections 10 3.2 Remittance of Collections and Other Payments 11 3.3 The Servicer Package 13 3.4 The Servicer's Fee Calculations 13 3.5 Deemed Collections 13 3.6 Reinvestment of Certain Collections; Payment of 14 Remaining Collections CLAUSE 4 FEES, COMPUTATIONS AND WITHHOLDING TAXES 16 4.1 The Servicer's Fee 16 4.2 Payments and Computations etc 16 4.3 Changes in Withholding Tax Rates 17 CLAUSE 5 PURCHASE CONDITIONS 18 CLAUSE 6 REPRESENTATIONS AND WARRANTIES OF THE SELLER 19 6.1 Organisation 19 6.2 Power, Authorisation and Non-Contravention 19 6.3 Enforceability: Valid Sale 20 6.4 Financial Condition 20 6.5 Litigation 21 6.6 Ownership of Receivables 21 6.7 Eligible Receivables 21 6.8 Accuracy of Information 21
- 3 - 6.9 Taxes 22 6.10 Compliance with Applicable Laws 22 6.11 Consumer Protection Laws 22 6.12 Location of Records 22 6.13 Extended Retention of Title Rights 22 CLAUSE 7 COVENANTS OF THE SELLER 23 7.1 Legal Matters 23 7.2 Books and Records 23 7.3 Audits 23 7.4 Credit and Collection Policy 24 7.5 Reporting Requirements of the Seller 24 7.6 Sale, Liens, Etc. 25 7.7 VAT 25 7.8 Mergers, Acquisitions, Sales, Etc. 26 7.9 Restricted Payments 26 7.10 Changes to Organisational Documents 27 7.11 Exercise of Rights 27 7.12 Payments to Other Bank Accounts 27 7.13 Servicer Reports 27 CLAUSE 8 ADMINISTRATION AND COLLECTION 27 8.1 Rights of the Administrator 27 8.2 Designation of the Servicer 29 8.3 Duties of the Servicer 30 8.4 Application of Collections 31 8.5 Responsibilities of the Seller 32 8.6 Further Action Evidencing Purchases 32 CLAUSE 9 TERMINATION EVENTS 33 9.1 Termination Events 33 9.2 Remedies on Termination 36 CLAUSE 10 THE ADMINISTRATOR AND THE RELATIONSHIP BANK 36 10.1 Authorisation and Action 36 10.2 The Administrator's and The Relationship Bank's Reliance etc. 36 10.3 State Street Capital, State Street Bank and their Affiliates 37 CLAUSE 11 ASSIGNMENT 37 11.1 Assignments 37
- 4 - 11.2 Rights of the Collateral Agent 38 11.3 Seller's Assignment 38 CLAUSE 12 Mandatory Repurchases and Indemnification 38 12.1. Mandatory Repurchase Obligations 38 12.2. Indemnity 39 CLAUSE 13 MISCELLANEOUS 40 13.1 Amendments, Waivers, etc. 40 13.2 Notices, etc. 41 13.3 Set Off 41 13.4 Binding Effect; Survival 41 13.5 Costs, Expenses and Taxes 42 13.6 No Proceedings 42 13.7 Restructuring 42 13.8 Confidentiality 43 13.9 Execution in Counterparts; Integration 44 13.10 Governing Law 44 13.11 Consent to Jurisdiction; Waiver of Immunities 44 13.12 No Recourse Against Other Parties 44 13.13 Effectiveness of Agreement
Schedule 1 Definitions Schedule 2 Priority of Payments Schedule 3 Standard Terms and Conditions Schedule 4 Credit and Collection Policy Schedule 5 Records Locations Schedule 6 Form of Notice of Sale Attachement A to the Notice of Sale Attachement B to the Notice of Sale Schedule 7 Form of Incremental Offer Schedule 8 Cut-Off Dates of the Seller Execution Pages - 5 - THIS RECEIVABLES PURCHASE AGREEMENT dated as of 10 March 2003 (as amended, supplemented or otherwise modified from time to time) (this "AGREEMENT") is made BETWEEN (1) ZEUNA STAERKER GMBH & CO KG, a limited partnership organised under the laws of the Federal Republic of Germany, having its registered office at Au(beta)ere Uferstra(beta)e 61-73, 86154 Augsburg, Federal Republic of Germany, with Novaferra Eisen GmbH, a German limited liability company, having its registered office at Au(beta)ere Uferstra(beta)e 61-73, 86154 Augsburg, Federal Republic of Germany as its sole general partner (the "GENERAL PARTNER"), as seller (in such capacity, the "SELLER") and as initial servicer (the "SERVICER"); (2) GALLEON CAPITAL CORPORATION, a company incorporated under the laws of the State of Delaware, with its registered office at c/o J.H. Management Corporation, One International Place, Room 516, Boston, Massachusetts 02110, United States of America (the "PURCHASER"); (3) STATE STREET GLOBAL MARKETS, LLC, a corporation incorporated under the laws of the State of Massachussets, with its registered office at 225 Franklin Street, Boston, Massachusetts 02110, United States of America (the "ADMINISTRATOR"); and (4) STATE STREET BANK AND TRUST COMPANY, a credit institution incorporated in Massachusetts, having its registered office at 225 Franklin Street, Boston, Massachusetts 02110, United States of America (the "RELATIONSHIP BANK"). THE PARTIES HERETO AGREE AS FOLLOWS: 1. DEFINITIONS AND RELATED MATTERS 1.1 DEFINED TERMS In this Agreement, unless otherwise specified: (a) capitalised terms are used as defined in Schedule 1; and (b) accounting terms shall be interpreted, and accounting determinations and computations made, in accordance with those generally accepted accounting principles that are legally relevant for the preparation of the financial statements referred to in Clause 6.4 ("GAAP"). 1.2 OTHER INTERPRETATIVE MATTERS In this Agreement, unless otherwise specified: (a) "INCLUDING" means including without limitation; and - 6 - (b) for the purposes of calculating any fee or any other amount accrued or accreted over a period of time, the first day of such period shall be included and the last day excluded. 1.3 OTHER DEFINITIONAL PROVISIONS The words "HEREOF", "HEREIN" and "HEREUNDER" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References in this Agreement to any "CLAUSE", "SUB-CLAUSE", "SCHEDULE" and "EXHIBIT" are references to such Clause or sub-clause of, or such Schedule or Exhibit to, this Agreement unless otherwise specified. 2. ASSIGNMENT AND PURCHASE PROCEDURES 2.1 ASSIGNMENT OF RECEIVABLES (a) The Seller may, in accordance with the procedures set forth in this Agreement offer to sell and assign Eligible Receivables and Related Assets to the Purchaser prior to the occurrence of a Termination Event, unless such sale and assignment shall result in the Purchaser's Total Investment exceeding the Purchase Limit. The Purchaser shall accept any such offer in accordance with the provisions of Clause 2.3 of this Agreement. (b) The Seller hereby assigns in advance to the Purchaser all of its present and future Receivables which shall be offered for sale to the Purchaser pursuant to the terms of this Agreement upon the condition precedent (aufschiebende Bedingung) that the Purchaser has accepted such offer (in accordance with Clause 2.3 or Clause 2.4, as applicable). The Purchaser hereby accepts such assignment. (c) The Seller hereby further sells and assigns all actual or contingent, present or future claims against any tax authority for the refund of value added tax following the default on any of the Sold Receivables (or any part thereof) by any of the Obligors. To the extent that the assignment of such refund claim requires certain actions or declarations in a specific form the Seller agrees to obtain and complete together with the Purchaser such form and provide it to the relevant tax authority. To the extent that the refund claim may not be separately assigned because it will be set off against the obligation of the Seller to pay value added tax the Seller shall pay to the Purchaser as a deemed collection an amount equal to such refund claim promptly after such refund claim has become due. (d) The parties hereto agree that any sale and assignment of Receivables hereunder (i) shall be without recourse, i.e. upon assignment of the Sold Receivables the credit risk of the respective Obligors shall vest in the Purchaser; - 7 - (ii) shall be undisclosed, i.e. except for the events specified in this Master Agreement no assignment of Sold Receivables will be disclosed to the respective Obligors. 2.2 TRANSFER OF RELATED ASSETS In the case of goods underlying Sold Receivables which have been delivered to Obligors subject to retention of title by the Seller, the Seller hereby transfers to the Purchaser its retained interest in such goods (Vorbehaltseigentum). The Seller's assignment of the claim for possession of such goods is in substitution for the transfer of physical possession of such goods (Herausgabeanspruch). The Seller hereby assigns all such claims for possession, whether present or future, to the Purchaser. The Purchaser hereby accepts the foregoing assignments and transfers. If the Seller is ever in possession of any such goods, the Seller shall act as the Purchaser's agent. The Seller shall be obligated to transfer without undue delay any other security interests the Seller may obtain in any Related Assets to the Purchaser. To the extent that title to the Related Assets cannot be transferred by mere agreement between the Seller and the Purchaser as provided in the foregoing paragraph, the Seller and the Purchaser agree that: (a) insofar as Related Assets governed by German law are concerned: (i) any transfer of possession (Ubergabe) necessary to transfer title in a Related Asset, in particular in relation to cheques, bills of exchange or Vorbehaltseigentum, is replaced by, as the case may be: (1) the Seller holding such instruments of debt or other movables in custody for the Purchaser free of charge (unentgeltliche Verwahrung); and/or (2) assigning hereby to the Purchaser all claims for return against the relevant persons which are in actual possession of such instrument or movable; (ii) any notice to be given in order to effect transfer of title shall, immediately be given by the Seller in such form as the Administrator requires and the Seller hereby agrees that if it fails to give such notice, the Administrator is hereby irrevocably authorised to give such notice on behalf of the Seller; and (iii) any other thing to be done or form or registration to be effected shall be immediately done and effected by the Seller at its own cost; and (b) insofar as Related Assets governed by the law of any other jurisdiction are concerned: - 8 - (i) the Seller shall do all acts and things at its own cost which, under applicable law, are necessary to be done in order to effect transfer of title; and (ii) insofar as applicable law does allow, sub-paragraphs (a) (i), (ii) and (iii) shall apply mutatis mutandis to such Related Assets. 2.3 PURCHASE PROCEDURES: REINVESTMENTS (a) Subject to and in accordance with the provisions of this Agreement, the Seller shall be entitled on each Augsburg Business Day, to apply all Collections for the purchase of additional Receivables (each such purchase is referred to as a "REINVESTMENT"), unless instructed otherwise in writing by the Purchaser prior to such purchase. The aggregate amount of the Unpaid Balances of the Receivables purchased in the aforementioned manner on a particular Augsburg Business Day shall not exceed the amount of Collections available to the Seller on such Augsburg Business Day. (b) The Seller shall be entitled to offer for sale Receivables to the Purchaser by preparing a Notice of Sale substantially in the form of Schedule 6 hereto and containing all information regarding the relevant Receivables as is required by such form. All information shall be given as of the date of such Notice of Sale. The Notice of Sale shall be signed by an authorized representative of the Seller. Such preparing and signing of a Notice of Sale by the Seller shall constitute an irrevocable offer by the relevant Seller for sale of all Receivables offered in the Notice of Sale and Related Assets to the Purchaser. Such offer shall be received by the Servicer on behalf of the Purchaser. In addition, all data contained in the Notice of Sale shall be recorded on a computer disk. Any Notices of Sale prepared in accordance with this Clause 2.3 shall be delivered to the Administrator on the Report Date immediately following their preparation. (c) The Aggregate Purchase Price to be specified in the Notice of Sale will be determined by the Seller on the basis of Clause 2.5. In connection with any such Reinvestment the Seller is entitled to Collections in the amount of the difference between the Aggregate Unpaid Balance of the Receivables purchased and the relating Aggregate Purchase Price. (d) The offer for sale made to the Purchaser as described above shall be accepted by the Seller on behalf of the Purchaser by countersigning the Notice of Sale in the name of the Purchaser. Payment of the Purchase Price shall be made on the Augsburg Business Day following such acceptance either by (i) set-off against the Purchaser's claim for transferring to it the relevant Collections, or by (ii) transfer of an amount equal to the Aggregate Purchase Price from the Collection Account to the Seller Account. (e) In addition to the representations and warranties set forth under Clause 6, the following representations and warranties shall be deemed to be made by the Seller to the Purchaser each time the Seller accepts an offer for sale of Receivables on behalf of the Purchaser in accordance with this provision: - 9 - (i) all information contained in the relevant Notice of Sale and in the delivered electronic data lists is true and accurate; (ii) no Termination Event or Unmatured Termination Event has occurred or is existing. (iii) the sale of the Receivables offered in the relevant Notice of Sale shall not result in the Purchaser's Total Investment exceeding the Purchase Limit. (iv) the sale of the Receivables offered in the relevant Notice of Sale shall not result in any Concentration Limits being exceeded. 2.4 INCREMENTAL PURCHASES (a) On each Settlement Date following a Report Date the Seller shall be entitled to offer Receivables to the Purchaser on behalf of the Seller in accordance with this provision the purchase of which will increase the Purchaser's Total Investment. To that end the Seller shall attach to the Servicer Package to be delivered in accordance with Clause 3.3 an offer in the form of Schedule 7 hereto and containing all information required to be given therein by 11.00 a.m. (Augsburg local time) on the Reporting Date (an "INCREMENTAL OFFER"). Such delivery of an Incremental Offer by the Servicer to the Program Administrator shall constitute an irrevocable offer of the Seller for sale of the Receivables offered in the Incremental Offer and all Related Assets to the Purchaser. (b) Upon timely receipt of the Servicer Package along with an Incremental Offer, the Purchaser shall accept such offer by transferring on the following Settlement Date the Aggregate Purchase Price specified in the relevant Incremental Offer to the Seller Account. (c) In addition to the representations and warranties set forth under Clause 6, the following representations and warranties shall be deemed to be made by the Seller to the Purchaser on each Report Date: (i) all information contained in the Incremental Offer delivered on this Reporting Date is true and accurate; (ii) no Termination Event or Unmatured Termination Event has occurred or is existing. (iii) the sale of the Receivables offered in the relevant Incremental Offer shall not result in the Purchaser's Total Investment exceeding the Purchase Limit. (iv) the sale of the Receivables offered in the relevant Incremental Offer shall not result in an exceeding of the Concentration Limits. - 10 - 2.5 PURCHASE PRICE The "Purchase Price" to be paid to the Seller for each Purchase shall be equal to the aggregate Unpaid Balance of all Sold Receivables less the aggregate Discount for such Receivables as determined by the Seller, acting for and on behalf of the Administrator in accordance with this Agreement. 2.6 LIMITATION ON ALL PURCHASES Without limiting the provisions of Clause 2.4 and Clause 5 hereof, the Seller acknowledges that no Purchase shall in any event be made hereunder to the extent that, after giving effect to such Purchase the Purchaser's Total Investment would exceed the Purchase Limit unless the Administrator shall have specifically agreed in writing to increase such limit in which case, and for as long as such increase has been agreed. The Administrator shall not consent to increase the foregoing limit without the prior consent of the Liquidity Purchasers and written confirmation from each of the Rating Agencies then rating the Commercial Paper Notes that such higher exposure will not result in a downgrading or withdrawal of the ratings of the Commercial Paper Notes. 3. PROCESSING OF COLLECTIONS; SETTLEMENTS 3.1 REGULAR PROCESSING OF COLLECTIONS (a) (i) The Purchaser at all times thereafter until the Final Payment Date shall maintain the Transaction Account; (ii) the Seller shall ensure that, as soon as possible but no later that 31 May 31 2003, the Account No. 2 will be established with The Bank of America, Frankfurt am Main, such Account shall be designated as Collection Account and shall be pledged for the benefit of the Purchaser pursuant to the Pledge Agreement and that such Account is notified to the Obligors as the Account on which payments on the Sold Receivables shall exclusively be made. (ii) the Seller shall at all times until the Final Payment Date maintain (at its own expense, including without limitation, all transaction fees and expenses), the Collection Account and, after the Pledge Agreement has been entered into, the pledge granted on it pursuant to the Pledge Agreement. (b) The Purchaser shall maintain the existing authorisation of the Transaction Account Bank to receive and execute the instructions of the Administrator, or its designee, with respect to the operation of the Transaction Account. Without limiting the generality of the foregoing, the Purchaser shall maintain the existing authorisation of the Transaction Account Bank to receive, disburse or transfer funds at such times and in such manner as may be specified by the Administrator or its designee from time to time, provided that any instructions - 11 - issued by or under the authority of the Administrator to the Transaction Account Bank shall be in accordance with this Agreement. (c) Subject to limitations of liability set forth in this Agreement, the Administrator accepts the authority granted by the Purchaser and shall operate Transaction Accounts to the extent permitted by the Transaction Account Bank in accordance with the terms and conditions of this Agreement. (d) From time to time as may be required during the term of this Agreement, the Purchaser shall maintain limited, revocable, powers of attorney to the Servicer for the purpose of operating the Collection Account. Without limiting the generality of the foregoing, for as long as the Servicer is so authorised, the Servicer may make deposits to, withdrawals from, or transfer funds to or from the Collection Account at such times and in such manner as the Servicer determines, provided that: (i) the Purchaser may terminate the power of attorney granted to the Servicer at any time following the occurrence of a Termination Event, an Unmatured Termination Event or Servicer Transfer Event, as the case may be, by delivering notice of such termination to the Servicer and the Collection Account Bank; and (ii) the Servicer agrees to cease withdrawing or transferring funds from the Collection Account upon receiving notice from the Administrator (acting for and on behalf of the Purchaser) that the Servicer's power of attorney has been revoked. (e) The Seller continues to procure that the Eligible Obligors shall remit payments in respect of Sold Receivables directly to the Collection Account. If any Obligor should remit payment to the Seller or the Servicer rather than to the Collection Account, and such payment constitutes a Collection of a Receivable (whether such payment is in the form of cash, cheques, or any similar instruments), it shall be immediately turned over to the Servicer (if such payment is received by the Seller) and the Servicer shall not later than three Augsburg Business Days after receiving such Collection, deposit it to the Collection Account. 3.2 REMITTANCE OF COLLECTIONS AND OTHER PAYMENTS (a) Subject to Clause 3.2 (d), for each Settlement Period, the Servicer shall transfer an amount equal to the aggregate of all Collections received in respect of Sold Receivables during such Settlement Period and not applied towards Reinvestments pursuant to Clause 3.6 to the Purchaser by making payment to the Transaction Account. Such payments shall be made by the close of business of the Augsburg Business Day immediately following the relevant Cut-Off Date. If at any time it is determined to the satisfaction of the Administrator that amounts deposited to the Transaction Account: - 12 - (i) are not actual or deemed Collections on Sold Receivables; or (ii) constitute Collections representing payments on Sold Receivables received prior to the relevant Cut-Off Date that were not included in the Unpaid Balance of such Sold Receivables for purposes of calculating the relevant Purchase Price; the Administrator shall forthwith give notice to the Servicer of such determination and not later than two Augsburg Business Days after issuing such notice make payment of such amounts to the Seller's Account. (b) On each Settlement Date, the Seller shall pay to the Administrator for the account of the Purchaser all other amounts due to the Purchaser on such date pursuant to the Transaction Documents, including VAT recovered pursuant to Clause 7.7 during the month that ended on the preceding Cut-Off Date. (c) Based on the information set forth in the Servicer Package delivered on the preceding Report Date, the Administrator shall on each Settlement Date disburse the aggregate of: (i) the balance standing to the credit of the Transaction Account on such Settlement Date; and (ii) all funds received by the Purchaser or the Administrator on such Settlement Date pursuant to Clauses 12.1, 12.2 and 13.5; to the Persons and in such amounts as are specified in Schedule 2, and, if the sum of the foregoing amounts is less than the total amount required to pay all Persons specified in Schedule 2, then according to the order of priority set out therein. (d) Upon request of the Administrator, after the occurrence and during the continuance of a Termination Event, an Unmatured Termination Event or a Servicer Transfer Event, the Servicer shall remit or cause to be remitted to the Collection Account or to the Administrator all Collections received in respect of Sold Receivables and all other amounts described in the foregoing sub-clause (b) on a weekly basis, or on a daily basis if directed to do so by the Administrator, and there shall be an additional "Cut-Off Date" on the second Business Day of each relevant week and an additional "Report Date", "Billing Date" and "Settlement Date" on successive one Business Day intervals after such Cut-Off Date. Following the occurrence of a Termination Event or Servicer Transfer Event, the Servicer shall segregate all cash, cheques and other instruments received by it from time to time constituting Collections of Sold Receivables as the Administrator may direct and deposit in the Collection Account designated by the Administrator all such cash, cheques and other instruments as soon as practicable and in any event on the first Augsburg Business Day following receipt by the Servicer of such Collections and will give - 13 - such payment instructions and take such other steps as the Administrator may reasonably require. (e) The Servicer shall not be authorised or permitted to make any withdrawals from the Collection Account other than as specifically provided in this Clause 3. 3.3 THE SERVICER PACKAGE On or before 9.00 a.m., CET, on each Report Date, the Servicer shall deliver to the Administrator and the Purchaser a Servicer Package, dated such Report Date. Such Servicer Package shall be accompanied by such information as the Administrator or the Purchaser may reasonably request for the purpose of effecting an accounting and settlement hereunder on the immediately following Settlement Date. 3.4 THE SERVICER'S FEE CALCULATIONS On each Billing Date, the Administrator shall notify the Servicer of the amount of the Servicer's Fee accrued during the Settlement Period preceding such Billing Date. 3.5 DEEMED COLLECTIONS (a) If on any day: (i) the Unpaid Balance of any Sold Receivable is reduced, cancelled or adjusted as a result of: (A) any defective, rejected, returned, repossessed or foreclosed goods; (B) any inaccuracies or clerical errors in the Contract (including cancellation of duplicate invoices, cancelling and re-issuing of invoices in subsequent Settlement Periods, cancelling invoices on account of failing to correctly identify the obligor, inaccuracies or errors in the Standard Terms and Conditions, etc.); (C) any defective or rejected services; (D) subsequent negotiation or agreement with any Obligor concerning the amount that an Obligor is required to pay for sold goods, the sale of which by the Seller to the Obligor has given rise to the Sold Receivable; (E) any discount or adjustment by the Seller or any other Person or any obligation of the Seller or any other Person to make such a discount or adjustment (including on account of credits, rebates, - 14 - chargebacks, inventory transfers and allowances for early payments and including, for the avoidance of doubt, any discount arrangement entered into in relation to payments of Obligors made by way of bills of exchange, cheques or other instruments, but excluding any adjustment on account of such Sold Receivable having been collected in whole or in part or having been written off or written down as a result of a good faith determination that the Obligor is not creditworthy); or (F) a setoff in respect of any claim by the Obligor thereof against the Seller or any other Person (whether such claim arises out of the same or a different transaction); (ii) any Sold Receivable is reduced, cancelled or adjusted and the Seller's representation and warranty to the Purchaser that such Sold Receivable was an Eligible Receivable was not true when made; or (iii) any Sold Receivable is subject to other security interests or the Purchaser does not have a valid and perfected interest therein notwithstanding the assignment of security to the Purchaser pursuant to Clause 2.1; then the Seller shall be deemed to have received a Collection of such Sold Receivable in the amount of such reduction, cancellation or adjustment on the date of such reduction, cancellation or adjustment. (b) Not later than the first Business Day after the Seller is deemed pursuant to this Clause 3.5 to have received any Collections, the Seller shall transfer to the Collection Account or make payment to the credit of the Collection Account in immediately available funds in the amount of such deemed Collections, and the Servicer shall allocate such deemed Collections to the same extent as if such Collections had actually been received on the date of such delivery by the Servicer. 3.6 REINVESTMENT OF CERTAIN COLLECTIONS: PAYMENT OF REMAINING COLLECTIONS (a) On the close of business on each Business Day during the period from the Effective Date to the Termination Date, the Servicer shall, out of all Collections received on such day relating to Sold Receivables and Related Assets: (i) set aside and hold in trust for the Purchaser an amount equal to the sum of the estimated amount of the Earned Discount (based on rate information provided by the Administrator), all other amounts due to the Purchaser, the Administrator or the Relationship Bank hereunder (in each case, accrued through such day) and not previously so set aside; - 15 - (ii) apply the Collections relating to Sold Receivables and not required to be set aside pursuant to sub-clause (a)(i) to Reinvestments, provided that: (x) if the then given Purchaser's Total Investment would exceed the Purchase Limit, then the Servicer shall not reinvest, but shall set aside and hold for the benefit of Purchaser, a portion of such Collections which, together with other of such Collections previously set aside and then so held, shall equal the amount necessary to reduce the Purchaser's Total Investment to the Purchase Limit; and (y) if any of the conditions precedent to Purchases (subject to the proviso set forth in this Agreement), are not satisfied, then the Servicer shall not reinvest any of such remaining Collections, but shall set them aside and hold them in trust for the benefit of the Purchaser; (iii) without prejudice to Clause 3.2(a), make available to the Seller the Collections applied to Reinvestments pursuant to sub-clause (a)(ii). (b) The Servicer shall set aside and hold in trust for the benefit of Purchaser all Collections which, pursuant to sub-clause (a)(ii), may not be reinvested in Eligible Receivables and Related Assets. If, prior to the date when such Collections are required to be paid to the Administrator for the benefit of Purchaser pursuant to sub-clause (c)(iii), the amount of Collections so set aside exceeds the amount, if any, necessary to reduce the Purchaser's Total Investment to the Purchase Limit, and the conditions precedent to Purchases (subject to the proviso set forth in this Agreement) are satisfied, then the Servicer shall apply the remaining portion of the Collections (or, if less, a portion of such Collections equal to the amount of such excess) to the making of a Reinvestment. (c) Payments of Amounts Set Aside: (i) On or before 12.00 noon (CET) on the last day of each Yield Period with respect to that portion of the Asset Interest funded by a Liquidity Purchase or a Credit Draw, the Administrator shall notify the Servicer of the amount of Earned Discount accrued in respect of such portion of the Asset Interest during such Yield Period and the Servicer shall pay such amount to the Administrator on such day out of the Collections set aside pursuant to sub-clause (a)(i). (ii) The Servicer shall pay all amounts of Collections set aside pursuant to sub-clause (a)(i) and not applied pursuant to sub-clause (c)(i) to the Administrator on the Settlement Date for each Settlement Period, as provided herein. - 16 - (iii) The Servicer shall pay all amounts set aside pursuant to sub-clause (b) to the Administrator for the account of the Purchaser (A) on the last day of the then current Yield Period for any portion of the Asset Interest funded by a Liquidity Purchase or a Credit Draw, and (B) on the Settlement Date for each Settlement Period, in an amount not exceeding that portion of the Asset Interest funded by Commercial Paper Notes; provided, however, that (x) no such payment shall be made under sub-clause (a)(ii)(x) above with respect to that portion of the Asset Interest funded by a Credit Draw unless the Aggregate Purchaser's Total Investment, if any, funded by Commercial Paper Notes or Liquidity Purchases shall have been reduced to zero; and (y) no payment shall be made under sub-clause (a)(ii)(y) above unless the Aggregate Purchaser's Total Investment, if any, funded by Liquidity Purchases shall have been reduced to zero. (d) Wherever in this Clause 3.6 the Servicer shall set aside and hold in trust for the Purchaser certain amounts out of all Collections received relating to purchased Eligible Receivables and Related Assets, in relation to such portion to be set aside and held in trust for the Purchaser the Servicer shall not be entitled to withdraw or transfer any funds from the Collection Account and the powers of attorney granted to the Servicer pursuant to Clause 3.1(d) shall, as between the Purchaser and the Servicer, be restricted and shall not apply to such portion. 4. FEES, COMPUTATIONS AND WITHHOLDING TAXES 4.1 THE SERVICER'S FEE From the date hereof until the Final Payout Date, the Servicer shall be entitled to receive from Collections, payable as provided in Clause 3.2, a fee (the "SERVICER'S FEE") which shall accrue during each Settlement Period, at a rate of 1.0 % per annum on the Receivables Balance at the opening of the Servicer's business on the first day of such Settlement Period. Subject to Clause 3.2, the Servicer's Fee accrued during each Settlement Period shall be paid in arrears on each Settlement Date and on the Final Payout Date. 4.2 PAYMENTS AND COMPUTATIONS ETC (a) All amounts to be transferred or paid by the Seller or the Servicer to the Administrator or any other Person hereunder shall be paid or deposited in accordance with the terms hereof, without setoff, deduction or counterclaim, not later than 11:00 a.m., CET, on the day when due in immediately available Euros to the Transaction Account. (b) The Seller or the Servicer, as applicable, shall, to the extent permitted by applicable law, pay to the Purchaser interest on all amounts not paid or - 17 - deposited when due by the Seller or the Servicer, as applicable, hereunder at a rate per annum equal to the sum of the Base Rate from time to time in effect plus a margin of 3 % p.a., payable on demand; provided that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. (c) All computations of interest and the Servicer's Fee shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed. (d) Each calculation or report made by the Administrator hereunder shall be conclusive and binding upon the parties hereto for all purposes of this Agreement in the absence of manifest error. (e) It is of the essence of this Agreement that the parties hereto make the various payments hereunder in EUR. The obligation of each party to make each payment in EUR shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgement, which is expressed in or converted into any other currency (including the payment of damages for breach of this Agreement) until and except to the extent such tender or recovery shall result in the actual receipt by the receiving party in EUR of the amount expressed to be payable in that currency. The obligation of each party to make payments in EUR shall be enforceable as an alternative or additional claim for the purpose of recovery of the amount (if any) by which such actual receipt shall fall short of the full amount of EUR and shall not be affected by judgement being obtained for any other sum due under this Agreement. (f) After the occurrence and during the continuance of any Programme Liquidation Event in respect of the Purchaser (as notified to the Seller and the Servicer by the Administrator), all of the Seller's and the Servicer's rights to payments (other than Purchase Price payments, payments under Clause 4.3, and Collections in respect of Receivables that are not Sold Receivables) from the Purchaser hereunder shall be subordinated and subject to the prior payment in full and in cash of all Commercial Paper Notes, amounts payable under related interest rate and currency exchange contracts and all amounts payable to the Purchaser Parties in respect of the financing of the Purchases hereunder. To the extent any such amount is owed by the Purchaser at a time when the Purchaser does not have sufficient funds available to pay such amount in full (whether as a result of the preceding sentence or otherwise), payment of such amount shall be deferred until such time as the Purchaser has such funds available. Neither the Seller nor the Servicer shall have any right to set off or net any amount owed by the Purchaser hereunder against any amount owed by the Seller or the Servicer (as the case may be) hereunder except as set forth in Clause 4.3. 4.3 CHANGES IN WITHHOLDING TAX RATES The Seller and the Purchaser intend for Purchases hereunder to be neutral from the perspective of withholding tax. Therefore, the Seller agrees to reimburse the Purchaser - 18 - for the amount of any withholding tax actually suffered with respect to Collections above what was assumed in determining the Purchase Price for the relevant Receivable(s). Similarly, the Purchaser agrees to make additional payments to the Seller in the amount of any increased actual Collections received as a result of the application of any withholding tax at a lower rate than was assumed in determining the Purchase Price of the relevant Receivable(s). Amounts payable pursuant to this Clause 4.3 in respect of each Settlement Period shall be netted, and the appropriate net amount (if any) shall be paid to the appropriate party on each Settlement Date following such Settlement Period. 5. PURCHASE CONDITIONS Each Purchase hereunder (and the Purchaser's obligation to pay any Purchase Price therefor) shall be subject, inter alia, to the further conditions precedent that: In relation to each Reinvestment, on the date of such Purchase the following statements shall be true (and the Seller shall be deemed to have certified that and, by delivering the Notice of Sale with respect to the Reinvestments having occurred during the preceding Settlement Period to which the relevant Notice of Sale relates, shall be deemed to have confirmed): (i) the representations and warranties contained in Clause 6 (other than, in the case of each Purchase, those set forth in Clause 6.4 (a)) are true and correct on and as of such day as though made on and as of such day; (ii) no Termination Event or Unmatured Termination Event has occurred and is continuing, or would result from such Purchase; (iii) the Termination Date has not occurred; and (iv) the aggregate Unpaid Balance of all Receivables being subject to Reinvestments having occurred during the preceding Settlement Period, as confirmed in the relevant Notice of Sale, shall be EUR 1,000,000 or greater. 6. REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the Purchaser as follows (it being agreed that the Seller shall not represent or warrant as to the collectability of any Receivable): 6.1 ORGANISATION The Seller is validly existing as a limited partnership under the laws of the Federal Republic of Germany with the General Partner as its sole general partner; the Seller is duly qualified to do business and possesses all necessary licenses and approvals in each jurisdiction in which the nature of its business requires such qualification, - 19 - licenses or approvals, except where the failure to have or maintain such qualifications, licenses or approvals is not reasonably likely to have a Material Adverse Effect. 6.2 POWER, AUTHORISATION AND NON-CONTRAVENTION The execution, delivery and performance by the Seller of the Transaction Documents to which either of them is a party, including the sale of Receivables thereunder: (a) are within the powers of the Seller; (b) have been duly authorised by all necessary action on the part of the Seller; (c) do not violate or constitute (with or without notice or lapse of time or both) a default under: (i) the organisational documents of the Seller; (ii) any contractual restriction binding on or affecting the properties of the Seller; or (iii) any law, rule, regulation, order, writ, judgement, injunction or decree binding the properties of the Seller; (d) do not result in the imposition of any Adverse Claim on the properties of the Seller other than in connection with the transactions contemplated by the Transaction Documents; and (e) do not require any authorisation, approval or other action by, or notice to or filing with, any governmental authority or regulatory body (except for any of such which have been obtained, made or given, which are in full force and effect and copies of which have been given to the Administrator). 6.3 ENFORCEABILITY: VALID SALE This Agreement constitutes, and each other Transaction Document to be signed by the Seller when duly executed and delivered will constitute, a legal, valid and binding obligation of the Seller enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganisation or other similar laws affecting the enforcement of creditors' rights generally. This Agreement has been duly executed and delivered by the Seller and each Purchase hereunder shall constitute a valid sale, transfer, and assignment of the relevant Sold Receivables and their Related Assets to the Purchaser pursuant to which the Purchaser shall obtain ownership of such Sold Receivables and Related Assets free and clear of any Adverse Claim, except that with respect to the goods underlying such Sold Receivables, the Purchaser shall obtain a valid security interest in such underlying goods, free and clear of any Adverse Claims other than the Adverse Claims, if any, with respect to such - 20 - underlying goods, enjoyed by suppliers of components, raw materials or parts to the Seller. 6.4 FINANCIAL CONDITION (a) The consolidated balance sheet and profit and loss accounts of the Seller and its consolidated Subsidiaries as at 31 December 1999 (the "STATEMENT"), and the related statement of consolidated cash flows (sources and uses of funds) and statement of changes in partners' equity for the fiscal year then ended, in each case certified by Deloitte & Touche, copies of which have been furnished to the Administrator, fairly present in all material respects the financial condition of the Seller and its consolidated Subsidiaries as at such date and the results of the operations of the Seller and its consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied. Since the date of such financial statements, there has been no material adverse change in the financial condition, operations, assets or business of the Seller and its consolidated Subsidiaries, taken as a whole. (b) The Seller is not insolvent (zahlungsunfahig) or overindebted (uberschuldet). 6.5 LITIGATION There is no pending or, to the knowledge of the Seller, threatened litigation, action, proceeding or labour controversy affecting the Seller or any of their respective Subsidiaries, or any of their respective properties, businesses, assets or revenues, which (a) might reasonably be expected to have a Material Adverse Effect, (b) asserts the invalidity of any Transaction Document, or (c) seeks to prevent the consummation of any of the transactions contemplated by any Transaction Document. 6.6 OWNERSHIP OF RECEIVABLES Immediately before its sale hereunder, each Sold Receivable and its Related Assets were owned by the Seller free and clear of any Adverse Claim, other than, with respect to the goods underlying such Sold Receivables, any Adverse Claim enjoyed, if any, by suppliers of components, raw materials or parts to the Seller. 6.7 ELIGIBLE RECEIVABLES Each Receivable included in each Purchase was an Eligible Receivable on the date of such Purchase, and all data set forth in each Notice of Sale relating to the Reinvestments occurring during the preceding Settlement Period were correct in every material respect on the date of such Purchase. 6.8 ACCURACY OF INFORMATION All written information furnished on or before the date on which this representation is made or deemed made or repeated by the Seller or any of its Affiliates to the Purchaser, the Administrator or the Relationship Bank for purposes of, or in - 21 - connection with, this Agreement and all other Transaction Documents or any transaction contemplated hereby or thereby, is true and accurate in every material respect on the date as of which such information is dated or certified, and is not incomplete by omitting to state a material fact or any fact necessary to make the statements contained therein not misleading on the date as of which such information is dated or certified, provided that the Seller or any of its Affiliates may update and correct any such information previously furnished by the Seller or such Affiliate that is inaccurate or misleading in any material respect, which shall be deemed to cure from and after the date such correction is provided to the parties who previously received the related inaccurate information, the inaccuracy of the representation and warranty made herein with respect to such information (without affecting the rights of the Purchaser, the Administrator or the Relationship Bank as a result of the existence of such inaccuracy prior to the time such cure is effected). 6.9 TAXES The Seller has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges owed by the Seller, as the case may be, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with the GAAP shall have been set aside on its books or where the failure to file such returns or pay such taxes or charges is not reasonably likely to have a Material Adverse Effect. 6.10 COMPLIANCE WITH APPLICABLE LAWS The Seller is in compliance with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities, except for violations which would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. 6.11 CONSUMER PROTECTION LAWS No Contract relating to any Sold Receivable or any transaction contemplated by such Contract, and no Purchase or other transaction contemplated hereby, requires compliance with any law on consumer contracts or consumer protection or any similar law of any relevant jurisdiction (including sections 491 et seq. of the German Civil Code). 6.12 LOCATION OF RECORDS The Seller (individually and as the Servicer) keeps all of the Records relating to Sold Receivables at one or more of the locations specified in Schedule 5a or at such other locations as have been approved in advance by the Administrator. - 22 - 6.13 EXTENDED RETENTION OF TITLE RIGHTS In the event a Sold Receivable is sold hereunder, which is subject to an extended retention of title right (verlangerter Eigentumsvorbehalt) of suppliers of the Seller, (a) the aggregate of the parts of such Sold Receivable assigned to such suppliers does not exceed 80% of the purchase price to be paid by the Purchaser to the Seller for the Sold Receivable; (b) the contracts concluded with such suppliers are such which are customary in the Seller's business as of the time of sale of such Sold Receivable; such contracts provide in particular for a right of the Seller to collect the Sold Receivables on behalf of the respective supplier holding the extended retention of title right. 7. COVENANTS OF THE SELLER From the date hereof until the Final Payout Date, unless the Administrator and Relationship Bank shall otherwise consent in writing, the Seller shall comply with the restrictions made applicable to them by this Clause 7. 7.1 LEGAL MATTERS The Seller shall comply in all material respects with all applicable laws, rules, regulations and orders; and shall preserve and maintain its existence, rights and franchises, except, in each case, where the failure to comply with such laws, rules, regulations or orders or to preserve or maintain any right or franchise could not reasonably be expected to have a Material Adverse Effect. 7.2 BOOKS AND RECORDS The Seller shall maintain administrative and operating procedures (including an ability to recreate records evidencing Sold Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information, reasonably necessary or advisable for the collection of all Sold Receivables (including records adequate to permit the identification of each Sold Receivable and all Collections of and adjustments to each Sold Receivable); and the Seller shall not change the locations at which it keeps Records without the advance written consent of the Administrator. 7.3 AUDITS (a) The Seller shall permit the Administrator, the Relationship Bank or any of their agents or representatives, at any time during regular business hours, (i) to examine and make copies and extracts from the Records, including the Contracts relating to the Sold Receivables, (ii) to visit the offices and properties of the Seller for the purpose of examining the Records and to discuss matters relating to the Sold Receivables or the Seller's performance hereunder with any of the officers or employees of the Seller having knowledge of such - 23 - matters and (iii) to meet with the Seller's independent auditors, to review such auditors' work papers relating to any letter delivered pursuant to Clause 8.3 (d) and otherwise to review with such auditors the Records; it being understood that the Administrator intends to make such visits at least twice in each calendar year, provided, however, that in the case of any aforementioned audit, meeting, or examination of records which is not required to take place at the offices or properties of the Seller, the time and place of such audit, meeting, or examination of records may take place shall be agreed upon by the Seller and the Administrator. (b) Without limiting the provisions of sub-clause (a) above, the Seller shall, on request of the Administrator made from time to time, permit accountants or other auditors acceptable to the Administrator to conduct, at the Seller's expense, a review of the Records, provided that the Administrator shall cause the auditors to use all reasonable commercial efforts to minimise any disruption to the Seller's business in the course of conducting any such review of the Records. (c) Notwithstanding anything in this Clause 7.3 to the contrary, unless a Servicer Transfer Event has occurred and is continuing, the Seller shall not be obligated to pay the expenses of more than two such reviews during the twelve month period following the date of this Agreement and one such review during any subsequent twelve month period. 7.4 CREDIT AND COLLECTION POLICY The Seller shall comply in all material respects with the Credit and Collection Policy with regard to each Sold Receivable and each Contract related thereto and not make any change in the Credit and Collection Policy which would impair the collectability of any Sold Receivable (other than adjustments that give rise to deemed Collections in respect thereof pursuant to Clause 3.5), reduce materially the creditworthiness required of the Seller's customers or otherwise adversely affect the Purchaser's interests or remedies under any Transaction Document. 7.5 REPORTING REQUIREMENTS OF THE SELLER The Seller shall furnish to the Administrator: (a) as soon as available, and in any event within two months after the end of each quarter other than the final quarter, and within three months after the end of the final quarter, of each fiscal year of the Seller, copies of the Seller's unaudited balance sheet, profit and loss accounts, and statement of changes in partners' equity, prepared in conformity with GAAP, duly certified by the chief financial officer of the Seller, together with a certificate from such officer; (b) as soon as available and in any event within six months after the end of each fiscal year of the Seller, copies of the Seller's balance sheet, profit and loss accounts and statement of changes in partners' equity, prepared in conformity - 24 - with GAAP, duly certified by Deloitte & Touche or such other firm of accountants approved by the Administrator, together with a certificate from Deloitte & Touche or such other firm of accountants approved by the Administrator and including the statement of cash flow (sources and uses of funds); (c) (i) as soon as available and in any event within 120 days after the end of each fiscal year of the Shareholder, copies of the Shareholder's annual balance sheet (and an annual profit and loss statement), certified by a designated financial officer of the Shareholder and prepared on a consolidated basis in conformity with GAAP; (ii) as soon as available, and in any event within 60 days after the end of each fiscal quarter of each fiscal year of the Shareholder (other than the last fiscal quarter of each fiscal year), copies of the Shareholder's quarterly balance sheet (and profit and loss statement) for the period from the beginning of the fiscal year to the close of such quarter), certified by a designated financial officer of the Shareholder; (iii) each time financial statements of the Shareholder are furnished pursuant to clauses (c)(i) or (c)(ii), a certificate signed by a designated financial officer, dated the date of such financial statements confirming (A) that the Shareholder maintains a system of accounting established and administered in accordance with GAAP and (B) that the financial statements furnished to the Administrator are in compliance with GAAP; (iv) promptly upon becoming available, a copy of each report or proxy statement filed by the parent of the Shareholder with the Securities and Exchange Commission or any exchange; (d) as soon as the Seller learns of the occurrence of any Termination Event or Unmatured Termination Event, notice of such event, followed (as soon as practicable and in any event within five Business Days of such notice) by a written statement of the chief financial officer or chief accounting officer of the Seller setting forth details of such event and the action that the Seller proposes to take with respect thereto; (e) as soon as possible and in any event within three Business Days of the Seller learning thereof, notice of: (i) any previously undisclosed litigation, action or proceeding which could reasonably be expected to have a Material Adverse Effect; (ii) any material adverse development in any previously disclosed litigation; and - 25 - (iii) the assertion of any Adverse Claim on or against any Sold Receivable or Related Asset (other than any Adverse Claim enjoyed by suppliers of components, raw materials or parts to the Seller prior to any attempt to foreclose on such Adverse Claim); (f) prior to its effective date, notice of any change in the Credit and Collection Policy; (g) within four Business Days of receipt of a request from the Administrator for the same, an interim Servicer Package for purposes of computing the Purchaser's Total Investment, the aggregate Unpaid Balance of all Receivables, the aggregate Collections being held in the Collection Account and the amount of Receivables that have become Defaulted Receivables, Delinquent Receivables or Diluted Receivables since the date of the last Servicer Package, in each case as of a date specified by the Administrator; and (h) so soon as is practicable, such other information, documents, records or reports as the Administrator may from time to time reasonably request. 7.6 SALES, LIENS, ETC. Except pursuant to the Transaction Documents, the Seller shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon, any Sold Receivable, any Related Asset, or any bank account to which any Collections of any Sold Receivable are sent, or any right to receive income or proceeds from or in respect of any of the foregoing, other than, with regard to the goods underlying such Sold Receivables, if any, any Adverse Claim enjoyed by suppliers of components, raw materials or parts to the Seller. 7.7 VAT The Seller shall use its best efforts promptly to recover VAT with respect to any Sold Receivable to the extent permitted by applicable law. 7.8 MERGERS, ACQUISITIONS, SALES, ETC. The Seller shall not be a party to any merger or consolidation, or purchase or otherwise acquire, in one or in a series of transactions, all or substantially all of the assets or any stock or other equity interest of any class of, or any partnership or joint venture interest in, any other Person, or, sell, transfer, convey or lease all or (except in the ordinary course of its business) any substantial part of its assets (other than sales of Receivables hereunder or otherwise) unless prior to and after giving effect to any such transaction no Termination Event has occurred. Any entity (i) into which the Seller may be merged or consolidated, (ii) that may result from any merger, conversion, or consolidation to which the Seller is a party, or (iii) that may succeed by purchase and assumption to all or substantially all of the business of the Seller, where the Seller in any of the foregoing cases is not the surviving entity, which entity in any of the foregoing cases shall execute an agreement of assumption to perform every obligation - 26 - of the Seller and the Servicer under this Agreement, shall be the successor to the Seller and the Servicer under this Agreement without any further action on the part of any of the parties to this Agreement, subject to receipt by the Administrator of any legal opinions, officer's certificates or other documents that the Administrator may reasonably require. 7.9 RESTRICTED PAYMENTS The Seller shall not purchase or redeem, or permit any Subsidiary to purchase or redeem, any partnership interests in the Seller, make any distribution to partners or set aside any funds for any such purpose, or repay, purchase or redeem, or permit any Subsidiary to purchase, any of the Seller's subordinated indebtedness or indebtedness to partners. 7.10 CHANGES TO ORGANISATIONAL DOCUMENTS The Seller shall provide prompt written notice to the Administrator of any proposed changes to the Seller's partnership agreement or any of the Seller's other financial arrangements with the Seller's partners shareholders. 7.11 EXERCISE OF RIGHTS The Seller shall not exercise any right it may have against any Obligor of any Sold Receivable with respect to the termination of any Contract or the repossession of any Related Asset without the prior written consent of the Administrator, such consent not to be unreasonably withheld. 7.12 PAYMENTS TO OTHER BANK ACCOUNTS In accordance with the terms of this Agreement, the Seller shall pay or cause to be paid all Collections of Receivables directly into the Collection Account or such other accounts as are permitted under this Agreement or approved by the Administrator from time to time. Should for any reason an Obligor make a payment of a Collection into a bank account other than as aforesaid or effect payment to the Seller in any manner whatsoever, regardless of the instructions received by the Seller, the Seller shall forthwith remit payment in amounts equal to such Collection to the Servicer, who shall deposit the payment to the Collection Account in accordance with Clause 3.1 (e). 7.13 SERVICER REPORTS The Servicer shall provide the Administrator with monthly Servicer reports for the immediately preceding Settlement Period in such form as the Administrator may from time to time specify. A monthly Servicer report shall be delivered to the Administrator on or before each Report Date with respect to the immediately preceding Settlement Period. - 27 - 8. ADMINISTRATION AND COLLECTION 8.1 RIGHTS OF THE ADMINISTRATOR (a) Upon the occurrence of a Termination Event or an Unmatured Termination Event, the Administrator may itself notify, or require the Seller or the Servicer to notify, some or all of the Obligors of Sold Receivables of the Purchaser's ownership of some or all of the Sold Receivables and the Related Assets and direct that payments be made directly to the Administrator, and the Seller or the Servicer (as the case may be) shall comply with any such requirement. (b) If the Seller fails to perform in any material respect any of its agreements or obligations under this Agreement, the Administrator or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Administrator or its designee incurred in connection therewith shall be payable by the Seller as provided in Clause 13.5. (c) The Purchaser hereby grants to the Administrator, and the Administrator accepts, an irrevocable mandate, effective upon the occurrence of a Servicer Transfer Event, to debit from the Collection Account any amounts standing or accruing to the credit thereof, to request the Collection Account Bank to transfer such amounts to any other account designated by the Administrator and to take any other action permitted under this Agreement. (d) In order to enable the Administrator to effect the mandate granted in sub-clause (c) above with greater accuracy, the Servicer, pending the appointment of a substitute servicer, shall, at the request of the Administrator, provide daily reports to the Administrator detailing the Collections received on each Business Day, each such report to be delivered not later than 9:00 a.m., CET, on the next following Business Day. (e) Without prejudice to the provisions of Clauses 8.1 (a) to (d) inclusive, the Seller irrevocably constitutes and appoints the Administrator, with full power of substitution, as its true and lawful attorney and agent, with full power and authority in its name or otherwise, and in its place and stead, and for its use and benefit at any time after the occurrence of a Termination Event to take such action as the Administrator may deem necessary or desirable in order to protect the interests of the Purchaser and/or the Liquidity Purchasers and/or the Administrator, and/or to perfect title to any of the Sold Receivables, or Related Assets, including the redirection of mail and the endorsement of drafts, cheques and other payment media, to perform any agreement or obligation of the Seller under or in connection with this Agreement, and to exercise all other remedies of the Seller under this Agreement or existing at law. In furtherance of the power herein granted, the Seller will assist and co-operate with the Administrator and provide such facilities as the Administrator may request. The power of attorney hereby granted is given by way of security, is coupled with an interest, and is irrevocable and will extend to and be binding upon the successors and assigns of the Seller. The Administrator is hereby released from the restrictions under Section 181 of the German Civil Code. - 28 - 8.2 DESIGNATION OF THE SERVICER (a) The servicing, administering and collection of the Sold Receivables shall be conducted by the Person designated as the Servicer hereunder ( the "SERVICER") from time to time in accordance with this Clause 8.2. The Seller is hereby designated as the initial Servicer and hereby agrees to act as such. So long as the Seller is the Servicer, the Servicer may use the Seller's Subsidiaries and sales representatives as its agents and/or subcontractors to fulfil its duties under this Agreement; provided that the Servicer shall remain liable for the performance of its obligations under this Agreement. (b) Upon or after the occurrence of any Termination Event (other than any Termination Event described in Clauses 9.1 (i), (k) or (l) or any event which, in the Administrator's reasonable opinion, could have a material adverse effect on the Seller's ability to perform its obligations as the Servicer hereunder (any such Termination Event or other event being herein called a "SERVICER TRANSFER EVENT"), the Administrator may designate a new Servicer by written notice to the other parties to this Agreement. The Seller agrees that upon notice of such designation it shall: (i) terminate its activities as the Servicer hereunder and, in connection therewith, will take such actions as may be requested by the Administrator or are otherwise necessary to facilitate the orderly transition of the performance of such activities to a new Servicer; and (ii) at the Administrator's or the Relationship Bank's request, (A) assemble all of the documents, instruments and other records (including, without limitation, computer programs, tapes and disks, cheques and bank drafts supplied by the Obligors) which evidence the Sold Receivables (including the relevant Contracts and Related Assets) or which are otherwise necessary or desirable for purposes of collecting such Sold Receivables, and make the same available to the Administrator (or as it may direct) at a place selected by the Administrator or the Relationship Bank, and (B) segregate all cash, cheques and other instruments received by it from time to time constituting Collections of Sold Receivables in a manner acceptable to the Administrator and promptly upon receipt, remit all such cash, cheques and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. (c) The Servicer's authorisation under this Agreement shall terminate upon the Final Payout Date. The Seller hereby agrees that the Servicer may take in the Seller's name any and all steps which are necessary or advisable to endorse, negotiate or otherwise realise on any writing or other right of any kind held or otherwise enjoyed by the Seller in connection with any Sold Receivable. - 29 - (d) Prior to a Termination Event, the Administrator may, on behalf of the Purchaser and at the Purchaser's expense, hire a back-up servicer and deliver to it any information contained in the Servicer Packages. (e) Each of the Servicer, the Seller and the Purchaser hereby authorises the Administrator, and grants to the Administrator an irrevocable power of attorney, to take any and all steps in the Seller's name and on behalf of the Servicer, the Seller and the Purchaser which are necessary or desirable, in the determination of the Administrator, to collect all amounts due under any and all Sold Receivables, including, without limitation, endorsing the Seller's name on cheques and other instruments representing Collections and enforcing such Sold Receivables and the provisions of the related Contracts that concern payment and/or enforcement of rights to payment; provided that the Administrator shall not exercise its rights under the foregoing power of attorney unless a Servicer Transfer Event shall have occurred and be continuing. (f) The Seller acknowledges that the Purchaser Parties have relied on the Seller's agreement to act as the Servicer hereunder in their respective decisions to execute and deliver the Transaction Documents and the documents, instruments and agreements relating thereto. In recognition of the foregoing, the Seller agrees not to resign as the Servicer voluntarily unless the Seller is not permitted by law to serve in such capacity. 8.3 DUTIES OF THE SERVICER In addition to its obligations specified elsewhere in this Agreement, the Servicer shall: (a) use commercially reasonable efforts to collect (and to preserve its ability either directly or through its representatives to collect) at its own expense each Sold Receivable from time to time (including repossessing and remarketing equipment and presenting to the relevant Obligor bank drafts for payment), all in accordance with applicable laws, rules and regulations, with reasonable care and diligence and in accordance with the Credit and Collection Policy and in particular, but without prejudice to the generality of the foregoing, exercise such enforcement measures concerning amounts due from Obligors as it shall deem reasonably appropriate. For this purpose, the Servicer is hereby authorised to sue Obligors in the Federal Republic of Germany or in any other competent jurisdiction in the Servicer's own name and for the benefit of the Purchaser (gewillkurte Proze(beta)standschaft), the Purchaser being obliged, where necessary, to assist the Servicer in exercising all rights and remedies under and in connection with the relevant Sold Receivables and for these purposes, the Servicer is released from the restrictions of Section 181 of the German Civil Code; (b) hold all of the Records at one or more of the locations specified in Schedule 5 unless the Administrator shall have agreed in advance to one or more alternative locations; - 30 - (c) if the Servicer is not the Seller, deliver to the Seller, as soon as practicable upon the Seller's demand, all of the records in its possession that evidence or relate to Receivables of the Seller other than Sold Receivables, and copies of the Records; (d) as soon as available and in any event within six months after the end of the Seller's fiscal year, provide to the Administrator a letter of Deloitte & Touche (or other accounting firm satisfactory to the Administrator) addressed to the Administrator confirming that it has performed the following procedures: (i) computed the mathematical accuracy of the calculations contained in the Servicer Package delivered on the Report Date immediately following the end of such fiscal year; (ii) verified the accuracy of the ageing and the calculations of the Delinquency Ratio and the Default Ratio contained in such Servicer Package as compared with the Seller's internal receivables reports; (iii) randomly selected 25 Receivables from the Sold Receivables referenced in such Servicer Package, and for each of such Receivables reviewed the underlying Contracts and any correspondence with the relevant Obligors, traced any Collections applied to such Receivables, and reported to the Administrator any inconsistencies between such Contracts, correspondence and collections, on the one hand, with such Servicer Package, on the other hand; (iv) reviewed the statements for the Collection Account and the Transaction Account supplied by the Collection Account Bank and the Transaction Account Bank and verified the period end balances set forth in such Servicer Package; and (v) reviewed the Sold Receivables that were written off by the Servicer during the fiscal year preceding such Servicer Package and reported to the Administrator any variation from the Credit and Collection Policy; and (e) as soon as the Servicer learns of the occurrence of any Termination Event or Unmatured Termination Event, provide notice of such event to the Administrator, followed (as soon as practicable and in any event within five Business Days of such notice) by a written statement of an officer of the Servicer setting forth details of such event. 8.4 APPLICATION OF COLLECTIONS Any payment by an Obligor in respect of any indebtedness owed by it to the Seller shall be applied in accordance with Section 366, sub-paragraph 2 of the German Civil Code. - 31 - 8.5 RESPONSIBILITIES OF THE SELLER Anything herein to the contrary notwithstanding: (a) the Seller shall perform all of its obligations under the Contracts related to the Sold Receivables to the same extent as if the Sold Receivables and Related Assets had not been sold hereunder, and the exercise by the Administrator or its designee of its rights hereunder shall not relieve the Seller from such obligations; (b) none of the Administrator, the Relationship Bank, the Collateral Agent or the Purchaser shall have any obligation or liability with respect to any Sold Receivables or any Contracts related thereto, nor shall any of them be obligated to perform any of the obligations of the Seller's thereunder; (c) the Seller promptly shall deliver to the Servicer, and the Servicer shall hold on behalf of the Purchaser, all documents, instruments and records (including, without limitation, computer tapes or disks and bank drafts supplied by the Obligors) that evidence or relate to Sold Receivables; and. (d) the Seller hereby grants to the Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest to take in the name of the Seller all steps which are necessary or advisable to endorse, negotiate or otherwise realise on any writing or other right of any kind evidencing or relating to any Collection on any Sold Receivable. 8.6 FURTHER ACTION EVIDENCING PURCHASES The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Administrator or its designee may reasonably request in order to perfect, protect or more fully evidence the Purchases hereunder, or to enable the Purchaser or the Administrator or its designee to exercise or enforce any of their respective rights hereunder or under any Transaction Document. Without limiting the generality of the foregoing, the Seller will: (a) upon the request of the Administrator or its designee, execute and file such instruments or notices, as may be necessary or appropriate; (b) mark conspicuously: (i) each Contract evidencing each Sold Receivable; and (ii) its master data processing records evidencing the Sold Receivables and related Contracts - 32 - with a legend, acceptable to the Administrator, evidencing that the relevant Receivable and Related Assets have been sold pursuant to this Agreement; and (c) upon the request of the Administrator or its designee, supply additional undated assignment notices in form and substance satisfactory to the Administrator, executed in blank by the Seller. 9. TERMINATION EVENTS 9.1 TERMINATION EVENTS Each of the following events shall constitute "Termination Events" hereunder: (a) SERVICER COVENANTS (i) the Servicer (if the Seller or its Affiliate is the Servicer) shall fail to perform any of its material obligations under any Transaction Document (other than as referred to in sub-clause (ii) below) and such failure shall remain unremedied for two Business Days after the date that written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Administrator, or after the date that a Responsible Officer of the Servicer shall have actual knowledge of such failure; or (ii) the Servicer (if the Seller or its Affiliate is the Servicer) shall fail to make any payment or deposit to be made by it hereunder when due; (b) REPRESENTATIONS AND WARRANTIES (i) any representation or warranty made or deemed to be made by the Seller (or any of its officers) under or in connection with this Agreement shall prove to have been false or incorrect in any material respect when made; or (ii) any Servicer Package (if prepared by the Seller or any of its Affiliates, or to the extent information therein was supplied by the Seller or any of its Affiliates) or other reports, financial statements or other information furnished by or on behalf of the Seller or any of its Affiliates to the Administrator, the Relationship Bank or the Purchaser in connection with this Agreement shall prove to have been inaccurate in any material respect as of the date it was dated or (except as otherwise disclosed to the Administrator and the Purchaser at such time) as of the date so furnished, or shall prove to have contained any material misstatement of fact or to have omitted to state a material fact or any fact necessary to make the statements contained therein not materially misleading; - 33 - (c) SELLER COVENANTS (i) the Seller shall fail to perform any of its obligations under any Transaction Document (other than those referred to in sub-clauses (ii) and (iii) below) and any such failure shall remain unremedied for 3 Business Days after the date that written notice of such failure, requiring the same to be remedied, shall have been given by the Administrator to the Seller or after the date that a Responsible Officer of the Seller shall have actual knowledge of such failure; (ii) the Seller shall fail to perform any of its obligations under Clauses 7.6, 7.8 or 7.9; or (iii) the Seller shall fail to make any payment or deposit to be made by it hereunder when due; (d) OTHER AGREEMENTS a default shall have occurred and be continuing under any instrument or agreement evidencing, securing or providing for the issuance of indebtedness for borrowed money in excess (individually or in the aggregate) of USD 20,000,000 (or its equivalent in any other currency) of, or guaranteed by, the Shareholder or any of the Shareholder's Subsidiaries, which default (with or without the passage of time or the giving of notice or both) would permit acceleration of the maturity of such indebtedness, and such default shall have continued unremedied, uncured or unwaived for a period long enough to permit such acceleration; or any default under any agreement, or instrument relating to the purchase of any receivables with an outstanding unpaid balance in excess (individually or in the aggregate) of USD 20,000,000 (or its equivalent in any other currency) originated by the Shareholder or any of the Shareholder's Subsidiaries, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or other event is to terminate, or permit the termination of, the commitment of any party to such agreement or instrument to purchase or reinvest in receivables or rights therein or to cause a termination to occur under such agreement or instrument (in each case prior to the scheduled termination or maturity date of such agreement or instrument); (e) BANKRUPTCY a Bankruptcy Event shall have occurred and remain continuing with respect to (i) the Seller; (ii) the General Partner; (iii) the Shareholder; or - 34 - (iv) any other Shareholder's Subsidiary, if such Bankruptcy Event would have a material adverse effect on the Seller or the Shareholder; (f) LITIGATION (i) any litigation, arbitration proceedings or governmental proceedings not disclosed in writing by the Seller to the Administrator prior to the date of execution and delivery of this Agreement is pending against the Seller or any Affiliate of either of them; or (ii) any material development not so disclosed has occurred in any litigation, arbitration proceedings or governmental proceedings so disclosed, which, in the case of either sub-clause (i) or this sub-clause (ii), could in the opinion of the Administrator be expected to have a Material Adverse Effect; (g) POOL PERFORMANCE (i) on any Cut-Off Date the Default Ratio shall be greater than 2%; (ii) on any Cut-Off Date the Delinquency Ratio shall be greater than 5%; (iii) on any Cut-Off Date the Dilution Ratio shall be greater than 10%; and (iv) on any given Settlement Date the Asset Interest shall exceed 100%; (h) MATERIAL ADVERSE EFFECT there shall exist any event or occurrence that has caused, or is reasonably likely to cause, a Material Adverse Effect; (i) ADVERSE CLAIMS Sold Receivables having an aggregate Unpaid Balance in excess of EUR 500,000 shall become subject to one or more Adverse Claims, other than any Adverse Claim of (or created by) the Purchaser or the Administrator; (j) CHANGE IN CONTROL a Change in Control shall occur without the prior written approval of the Administrator (provided that such approval, if sought, shall not be unreasonably withheld); (k) LIQUIDITY ASSET PURCHASE AGREEMENT no new Liquidity Asset Purchase Agreement shall be obtained in substitution for the then existing Liquidity Asset Purchase Agreement on or before the 30th day prior to the expiration of the commitments of the Liquidity Purchasers - 35 - thereunder, or the existing Liquidity Asset Purchase Agreement is terminated early for any reason; (l) LIQUIDITY PURCHASER DOWNGRADING a Downgrading Event with respect to a Liquidity Purchaser shall have occurred and been continuing for not less than 45 days, and (i) the Downgraded Liquidity Purchaser shall not have been replaced by a Qualifying Liquidity Purchaser pursuant to a Liquidity Asset Purchase Agreement in form and substance acceptable to the Purchaser and the Administrator, and (ii) the commitment of such Downgraded Liquidity Purchaser under the Liquidity Asset Purchase Agreement shall not have been funded or collateralised in such a manner that such Downgrading Event will not result in a reduction or withdrawal of the credit rating applied to the Commercial Paper Notes by any of the Rating Agencies then rating the Commercial Paper Notes; and (m) SHAREHOLDER DOWNGRADING a downgrading in the rating of the Shareholder shall have occurred with respect to the rating of its long term debt securities or its business by Standard & Poor's Rating Services below BB+ and Moody's Investors Service, Inc. below Ba1. 9.2 REMEDIES ON TERMINATION Upon the occurrence of a Termination Event (other than a Termination Event described in Clause 9.1 (e) (i) or (ii)), the Administrator shall, at the request of, or may, with the consent of the Purchaser, by notice to the Seller declare the Termination Date to have occurred. Upon the occurrence of a Termination Event described in Clause 9.1 (e) (i) or (ii), the Termination Date shall occur automatically. After the Termination Date has been declared or automatically occurred pursuant to this Clause 9.2, the Administrator and the Purchaser shall have, in addition to all rights and remedies under the Transaction Documents, all other rights and remedies provided under all applicable laws. 10. THE ADMINISTRATOR AND THE RELATIONSHIP BANK 10.1 AUTHORISATION AND ACTION Pursuant to other agreements between them, the Purchaser has appointed and authorised the Administrator and the Relationship Bank (or their respective designees) to take such action as agents on its behalf and to exercise such powers under this Agreement as are delegated to the Administrator or Relationship Bank by the terms hereof, together with such powers as are reasonably incidental thereto. - 36 - 10.2 THE ADMINISTRATOR'S AND THE RELATIONSHIP BANK'S RELIANCE ETC. Neither the Administrator, the Relationship Bank nor any of their respective directors, officers, agents or employees shall be liable to the Purchaser or any other holder of an interest in Sold Receivables for any action taken or omitted to be taken by it or them under or in connection with the Transaction Documents (including the servicing, administering or collecting Sold Receivables as the Servicer pursuant to Clauses 8.2 and 8.3), except for its or their own gross negligence or wilful misconduct. Without limiting the generality of the foregoing, each of the Administrator and the Relationship Bank may consult with legal counsel (including counsel for the Seller), accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, and neither the Administrator nor the Relationship Bank: (a) makes any representation or warranty to the Purchaser or any other holder of any interest in Sold Receivables (and neither shall be responsible to the Purchaser or any such other holder for any statements, or representations or warranties made in or in connection with any Transaction Document); (b) shall have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Transaction Document on the part of the Seller or to inspect the property (including the books and records) of the Seller; (c) shall be responsible to the Purchaser or any other holder of any interest in Sold Receivables for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document; or (d) shall incur any liability to the Purchaser or any other holder of an interest in Sold Receivables under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. 10.3 STATE STREET GLOBAL, STATE STREET BANK AND THEIR AFFILIATES State Street Global Markets LLC, State Street Bank and any of their respective Affiliates may generally engage in any kind of business with the Seller, the General Partner or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Seller, the General Partner or any Obligor or any of their respective Affiliates, all as if State Street Global Markets LLC was not the Administrator and State Street Bank was not the Relationship Bank and without any duty to account therefor to the Purchaser or any other holder of an interest in the Sold Receivables. - 37 - 11. ASSIGNMENTS 11.1 ASSIGNMENTS None of the Seller (individually or as the Servicer) or State Street Bank, individually or as the Relationship Bank (except as otherwise provided in other agreements between the Relationship Bank and the Administrator), may assign any of its rights or delegate any of its duties hereunder or any interest herein without the prior written consent of the Administrator. The Purchaser and its assignees may assign the Sold Receivables (or any portion thereof) or any of the Purchaser's rights hereunder to any Person without the consent of the Seller or the Servicer; provided that the Seller (and the Servicer, if different from the Seller) shall be notified prior to any such assignment. Upon any assignment by the Purchaser or its assignees, the assignee receiving such assignment shall have all of the rights of the Purchaser with respect to the Transaction Documents and the Sold Receivables and Related Assets (or such portion thereof as has been assigned). 11.2 RIGHTS OF THE COLLATERAL AGENT The Seller acknowledges that the Purchaser shall assign and grant a security interest in all of its rights in the Transaction Documents, together with all of its rights and interest in the Sold Receivables and their Related Assets, to the Collateral Agent to secure the Purchaser's obligations under or in connection with the Commercial Paper Notes, the Liquidity Asset Purchase Agreement, the Credit Agreement and any letter of credit issued thereunder, and certain other obligations of the Purchaser incurred in connection with the funding of the Purchases hereunder. The Seller hereby agrees that, upon notice to the Seller, the Collateral Agent may exercise all the rights of the Administrator hereunder with respect to the Sold Receivables and Related Assets (or any portions thereof), and Collections with respect thereto, which are owned by the Purchaser, and all other rights and interests of the Purchaser in, to or under this Agreement or any other Transaction Document. Without limiting the foregoing, upon such notice or at any time thereafter the Collateral Agent may give notices pursuant to Clause 8, may give or require the Administrator to give notice to the Transaction Account Bank as referred to in Clause 8 and may direct the Obligors of Sold Receivables to make payments in respect thereof directly to an account designated by it, in each case to the same extent as the Administrator might have done. 12. MANDATORY REPURCHASES AND INDEMNIFICATION 12.1 MANDATORY REPURCHASE OBLIGATIONS (a) MANDATORY REPURCHASES The Seller shall be required (unless the Administrator, upon request of the Purchaser, shall otherwise request in writing) to repurchase a Sold Receivable if: (i) any of the conditions precedent to the Purchase of such Receivable specified in Clause 5.2 (b) was not in fact satisfied (or waived in writing by the Administrator) on the date of such Purchase; - 38 - (ii) the Seller (acting as the Servicer) shall have extended, amended or modified any of the terms of such Receivable without the Administrator's advance written consent; or (iii) such Receivable shall have become subject to any Adverse Claim after its Purchase hereunder in favour of any Person claiming through, on behalf of or in respect of the Seller or any of its Affiliates. (b) PROVISIONS APPLICABLE TO ALL MANDATORY REPURCHASES The Seller's obligation with respect to each such mandatory repurchase shall be to repurchase the relevant Sold Receivable(s) from the Purchaser on the applicable Settlement Date following the Settlement Period in which such repurchase obligation was identified and to make when due any other payments related thereto and expressly provided for herein. On such Settlement Date, the Seller shall pay to the Administrator an amount equal to the original Purchase Price of such Receivable, less the amount of any Collections received on such Receivable, plus interest on such amount, at the Discount used in determining the Purchase Price of such Receivable, for the period from and including the original date of Purchase to but excluding such Settlement Date. Upon receipt of such amount and all other amounts then due hereunder, the Purchaser shall reassign its right, title and interest in and to such Receivable to the Seller, without any recourse, representation or warranty (other than that such Receivable is free of any Adverse Claim of (or created by) the Purchaser or the Administrator), effective as of such Settlement Date, whereupon (i) such Receivable shall no longer be considered a "Sold Receivable" for purposes of this Agreement (including the Servicer's Fee) and (ii) the Administrator may and the Servicer shall promptly notify the relevant Obligors to make payments to the Seller's Account or to another account specified by the Seller. The Seller's obligations to the Purchaser hereunder shall not be affected by reason of any invalidity, illegality or irregularity of any Sold Receivable or in connection with the sale thereof. The Purchaser will from time to time execute and deliver such documents as the Seller may reasonably request to confirm the absence of any interest of the Purchaser in any Receivables reassigned to the Seller pursuant hereto. 12.2 INDEMNITY Without limiting any other rights which any such Person may have hereunder, under any other Transaction Document or under applicable law, the Seller hereby agrees to indemnify each Purchaser Party, each of their respective Affiliates and all successors, transferees, participants and assigns and all officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an "INDEMNIFIED PARTY"), forthwith on demand, from and against any and all reasonable damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (collectively, the "INDEMNIFIED AMOUNTS") awarded against or incurred by any of them arising out of or relating to the Transaction Documents or the ownership or financing of the Sold Receivables, their - 39 - Related Assets or any Contracts related thereto, excluding, however, Indemnified Amounts (i) to the extent determined by a court of competent jurisdiction to have resulted from gross negligence or wilful misconduct on the part of such Indemnified Party, (ii) to the extent that the same include losses in respect of Receivables and reimbursement therefor would, directly or indirectly, constitute credit recourse to the Seller for the amount of such Receivables not paid by the related Obligors, (iii) to the extent that the same are or result from lost profits, or (iv) to the extent that the same are or result from taxes on or measured by the overall net income of such Indemnified Party imposed by the jurisdiction of organisation or residence of such Indemnified Party or the jurisdiction where any office through which the Indemnified Party is acting for purposes of this Agreement is located. Without limiting the foregoing (but subject to the foregoing enumerated exclusions), the Seller shall indemnify each Indemnified Party for Indemnified Amounts arising out of or relating to: (a) any event described in Clause 9.1 (b) (notwithstanding any investigation by or knowledge of any Indemnified Party); (b) any failure of the Seller, as the Servicer or otherwise, to perform any of its duties or obligations hereunder or under any other Transaction Document, including any failure by the Seller to comply with any applicable law, rule or regulation with respect to any Sold Receivable or any Contract related thereto, or the nonconformity of any Sold Receivable or any Contract related thereto with any such applicable law, rule or regulation; (c) any claim resulting from the sale of the goods or services related to any Sold Receivable or the furnishing or failure to furnish such goods or services; or any product liability claim arising out of or in connection with goods or services that are the subject of any Sold Receivable; (d) any Adverse Claim on any Sold Receivable or any of its Related Assets that is attributable to the Seller or the Servicer, if the Seller is then acting as the Servicer; or (e) any tax or governmental fee or charge, (but not including taxes described in sub-clause (iv) above), all interest or penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by the purchase or ownership of, or any other interest in, the Sold Receivables or their Related Assets. 13. MISCELLANEOUS 13.1 AMENDMENTS, WAIVERS, ETC. No amendment of this Agreement shall be effective unless the same shall be in writing and signed by the Seller, the Administrator, the Relationship Bank and the Purchaser and, if the Seller is not the Servicer, by the Servicer if such amendment adversely affects the interests, rights or obligations of the Servicer qua the Servicer. No waiver - 40 - of any provision of this Agreement or consent to any departure by the Seller therefrom shall be effective without the written consent of the Administrator, the Relationship Bank and the Purchaser. Any such waiver or consent shall be effective only in the specific instance given. No failure or delay on the part of any Indemnified Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 13.2 NOTICES, ETC. All notices and other communications provided for under this Agreement shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by express mail or overnight courier or by certificate mail, postage prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be deemed to be effective (a) if personally delivered, when delivered, (b) if sent by express mail or overnight courier, on the second Business Day after being sent (except that if the delivery receipt provides satisfactory evidence that such courier package was delivered on a day other than the second Business Day after being sent, then on the date of such receipt), (c) if sent by certified mail, on the tenth Business Day after being sent, and (d) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means (except that notices and communications to the Administrator shall be effective only when received). 13.3 SET OFF Each of the Purchaser, State Street Global Markets LLC, individually and as the Administrator, State Street Bank, individually and as the Relationship Bank, each Liquidity Purchaser and the Credit Bank is hereby authorised by the Seller at any time and from time to time, to the fullest extent permitted by law, to set off and apply against any amounts due from the Seller to such Person under the Transaction Documents any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Person to or for the credit or the account of the Seller. 13.4 BINDING EFFECT; SURVIVAL This Agreement shall be binding upon and inure to the benefit of the Seller, the Administrator, the Relationship Bank, the Purchaser and their respective successors and assigns, and the provisions of Clauses 12 and 13.3 shall inure to the benefit of the Indemnified Parties and their respective successors and assigns. Clauses 13.6 and 13.7, the rights and remedies with respect to any breach of any representation or warranty made by the Seller pursuant to Clause 6 and the indemnification and payment provisions of Clauses 4, 12 and Clause 13.5 shall be continuing and shall survive any termination of this Agreement. - 41 - 13.5 COSTS, EXPENSES AND TAXES In addition to its obligations under Clause 12, the Seller agrees to pay on demand: (a) all costs and expenses incurred by the Purchaser Parties and their respective Affiliates in connection with: (i) the negotiation, preparation, execution and delivery of the Transaction Documents, any amendment of or consent or waiver under any of the Transaction Documents which is requested or proposed by the Seller (whether or not consummated), or the enforcement of any Transaction Document, including the reasonable fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing; and (ii) subject to Clause 7.3 (c), the administration (including periodic auditing as provided for herein) of this Agreement and the other Transaction Documents, including all reasonable out-of-pocket expenses (including reasonable fees and expenses of independent accountants), incurred in connection with any review of the Seller's books and records either prior to the execution and delivery hereof or pursuant to Clause 7.3; and (iii) all stamp and other taxes (other than income or franchise taxes levied by the jurisdiction in which the relevant Person's principal executive office is located, or by any jurisdiction in which a branch of such Person is located) and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of any Transaction Document including, in particular any German trade tax improved on a Purchasing Party as a result of entering into the transactions contemplated by the Transaction Documents. 13.6 NO PROCEEDINGS The Seller, the Servicer, State Street Capital Markest LLC (individually and as the Administrator) and State Street Bank (individually and as the Relationship Bank) each hereby agrees that it will not institute against the Purchaser, or join any other Person in instituting against the Purchaser, any proceeding of the type referred to in the definition of Bankruptcy Event until one year and one day after the last day on which any Commercial Paper Notes shall have been outstanding. The foregoing shall not limit any such party's right to file any claim in or otherwise take any action with respect to any such proceeding that was instituted by any Person other than such party. 13.7 RESTRUCTURING It is hereby agreed by the parties to this Agreement that the provisions herein expressed to be for the benefit of the Relationship Bank, the Administrator and/or the Purchaser are intended to, and create rights in favour of the Relationship Bank, the - 42 - Administrator and/or the Purchaser as third parties, directly enforceable by each of them in accordance with the provisions hereof or under law (Vertrag zugunsten Dritter). 13.8 CONFIDENTIALITY The Seller agrees that it will maintain the confidentiality of, and not disclose to any third party: (a) any information regarding the pricing in, or copies of, any Transaction Document or any transaction contemplated thereby; (b) any information regarding the organisation, business or operations of the Purchaser generally; or (c) any other information which is furnished by State Street Global Markets LLC to any such party and which is designated by State Street Global Markets LLC to such party in writing as confidential; or other than, in each case, any such information which is or becomes generally available to the public or such party on a non-confidential basis from a source other than the Administrator or was known to such party on a non-confidential basis prior to its disclosure by the Administrator; provided that such party may disclose any such information (i) to the directors, employees, auditors, counsel or affiliates of such party, each of whom shall be informed by such party of the confidential nature of such information and of the terms of this Clause 13.7, (ii) to any other party to this Agreement for the purposes contemplated hereby, (iii) to any third party with the prior written consent of the Administrator and pursuant to a written confidentiality agreement in form and substance reasonably satisfactory to the Administrator, (iv) as may be required by any regulatory body having or claiming to have jurisdiction over such party or (v) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party; provided in the case of this sub-clause (v) that such party will give prior notice to the Administrator of such disclosure and use reasonable efforts to obtain and maintain confidential treatment of the information so disclosed. Each of the Purchaser and the Administrator severally agrees that it will maintain the confidentiality of, and not disclose to any third party any information which is furnished by the Seller or the Servicer to the Administrator or the Purchaser and which, in the reasonable opinion of the Purchaser or the Administrator, as the case may be, is confidential other than, in each case, any such information which is or becomes generally available to the public or such party on a non-confidential basis from a source other than the Seller or the Servicer or was known to such party on a non-confidential basis prior to its disclosure by the Seller and Servicer; provided that such party may disclose any such information (i) to the directors, employees, auditors, counsel or affiliates of such party, each of whom shall be informed by such party of the confidential nature of such information and of the terms of this Clause 13.7, (ii) to any Person, if disclosure of such information, is reasonably necessary to give effect to the transactions contemplated hereby, (iii) as may be required by any regulatory body - 43 - having or claiming to have jurisdiction over such party or (iv) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party; provided in the case of this sub-clause (iii) and (iv) that such party will give prior notice to the Seller or Servicer, as the case may be, of such disclosure and use reasonable efforts to obtain and maintain confidential treatment of the information so disclosed. 13.9 EXECUTION IN COUNTERPARTS; INTEGRATION This Agreement may be executed in any number of counterparts and by the different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. This Agreement, together with the Transaction Documents, constitutes the entire understanding among the parties hereto as to the subject matter hereof and supersedes all prior oral or written understandings. 13.10 GOVERNING LAW This Agreement and any other Transaction Document shall be exclusively construed in accordance with and governed by the laws of the Federal Republic of Germany without giving effect to conflict of laws principles. 13.11 CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES The Seller hereby irrevocably (a) submits to the jurisdiction of the District Court (Landgericht) in Frankfurt am Main in any action or proceeding arising out of or relating to this Agreement or any other Transaction Document; (b) agrees that all claims in respect of any such action or proceeding brought by the Seller may be heard and determined only in such court and not in any other court; (c) waives, to the fullest extent it may effectively do so, the defence of an inconvenient forum to the maintenance or such action or proceeding; and (d) to the extent that it has or hereafter may acquire the same, waives, in respect of its obligations under or in connection with this Agreement any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgement, attachment in aid to execution, execution or otherwise) as to itself or its property. 13.12 NO RECOURSE AGAINST OTHER PARTIES The obligations of the Purchaser under this Agreement are solely the obligations of the Purchaser. No recourse shall be had for the payment of any amount owing in respect of any Purchase or for the payment of any other obligation or claim arising out of or based on this Agreement against any stockholder, employee, agent, affiliate, officer, director or incorporator of the Purchaser. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorised, as of the date first above written. - 44 - SCHEDULE 1 Definitions "ACCOUNT NO. 1" means the account held by the Purchaser at Stadtsparkasse Augsburg: account no. [2084 085], bank sort code (BLZ) [720 500 00]. ,,ACCOUNT NO. 2" means the account held by the Seller at Bank of America, Frankfurt am Main: account no. [18008027], bank sort code (BLZ) 500 109 00; which account shall be pledged pursuant to the Pledge Agreement for the benefit of the Purchaser. "ACCRUED COST RESERVE" means for any Settlement Period the sum of: (i) the Earned Discount payable for such Settlement Period; (ii) the Servicer's Fee payable for such Settlement Period; and (iii) the Programme Costs payable for such Settlement Period. "ADJUSTED TURNOVER DAYS" means the number of Turnover Days multiplied by two. "ADMINISTRATOR" means State Street Global Markets LLC acting as the Administrator for the Purchaser, together with any successors in such capacity. "ADMINISTRATOR'S OFFICE" means the office of the Administrator at 225 Franklin Street, Boston, Massachusetts 02110, United States of America, Attention: Galleon Funds, or such other address as shall be designated by the Administrator in writing to the Seller and the Purchaser. "ADVERSE CLAIM" means any lien, mortgage, hypothecation, security interest, charge, encumbrance or other right or claim of any Person other than the assignment set forth in Clause 2.1. "AFFILIATE" means, as to any Person, any other Person controlling, controlled by, or under common control with, that Person. "AGREEMENT" is defined in the preamble. "AGGREGATE PURCHASE PRICE" means the sum of all Purchase Prices for the Offered Receivables included in a Notice of Sale. "AGGREGATE UNPAID BALANCE" means, at any time, the aggregate of Unpaid Balances of outstanding Sold Receivables. "ASSET INTEREST" means, with respect to any day during a Settlement Period (such day is referred to in this definition as the "CALCULATION DAY"), an amount (expressed as a percentage) determined in accordance with the following formula: - 45 - ([PTI + ACR + LCR + LR + DR]/NPB) x 100 where: PTI = the Purchaser's Total Investment calculated as of the close of business on the Calculation Day; ACR = the Accrued Cost Reserve maintained for the Settlement Period in which the Calculation Day falls; LCR = the Liquidation Cost Reserve maintained for the Settlement Period in which the Calculation Day falls; LR = the Loss Reserve maintained for the Settlement Period in which the Calculation Day falls; DR = the Dilution Reserve maintained for the Settlement Period in which the Calculation Day falls; and NPB = the Net Pool Balance calculated as of the close of business on the Calculation Day. "AUGSBURG BUSINESS DAY" means a day (other than a Saturday or Sunday) on which commercial banks in Augsburg are not authorised or required to be closed. "BANKRUPTCY EVENT" means, as to any Person, any of the following events: (a) if a case or other proceeding is commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganisation, debt arrangement, dissolution, winding up or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or other similar official for such Person or for any substantial part of its property, or any similar action as to such Person under any law relating to bankruptcy, insolvency, reorganisation, winding up or composition or adjustment of debts, and such case or proceeding shall continue unstayed or undismissed for a period of 30 days; or (b) if such Person either (i) commences a case or other proceeding under any applicable bankruptcy, insolvency, reorganisation, debt arrangement, dissolution or other similar law now or hereafter in effect, or (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for such Person or for any substantial part of its property, or (iii) makes any general assignment for the benefit of creditors, or fails to, or admits in writing its inability to, pay its debts generally as they become due, or, if a corporation or similar entity, its competent representative bodies resolves to implement any of the foregoing procedures or take any of the actions described in this sub-paragraph (b). - 46 - "BASE RATE" means, on any date, a fluctuating per annum interest rate equal to the rate of interest most recently announced by the Liquidity Agent as its 1 month EURIBOR rate or equivalent base rate. "BILLING DATE" means, with respect to any Report Date, the second Business Day following such Report Date, subject to Clause 3.2 (d). "BUSINESS DAY" means a day (other than a Saturday or Sunday) on which commercial banks in Munich, Augsburg, Boston, and New York are not authorised or required to be closed. "CET" means central European time. "CHANGE IN CONTROL" means any of the following: (a) at any time, a transfer of (i) 50% or more in the aggregate of the shares (Geschaftsanteile) (including all warrants, options, conversion rights, and other rights to purchase or convert into such shares) or voting rights (Stimmrechte) of the General Partner or (ii) 50% or more of the partnership equity (Kapitalanteile) or voting rights (Stimmrechte) of the Seller to a Person other than the Shareholder, or (b) the creation or imposition of any Adverse Claim on the shares (Geschaftsanteile) of the General Partner the partnership equity (Kapitalanteile) of the Seller. "COLLATERAL AGENT" means Deutsche Bank and Trust Company Americas (New York) in its capacity as collateral agent for the Purchaser's creditors, together with any successors in such capacity. "COLLECTION ACCOUNT" means, for the time being, Account No. 1 and, as soon as it is available and pledged for the benefit of the Purchaser under the Pledge Agreement, Account No. 2 and (iii) any other account so designated by the Purchaser and approved by the Servicer. "COLLECTION ACCOUNT BANK" means Stadtsparkasse Augsburg or Bank of America, Frankfurt am Main, as the case may be. "COLLECTIONS" means, as to any Receivable, (a) all cash collections and other cash proceeds of such Receivable, including (i) bank transfers, Uberweisungen, wire transfers, cheques, bills of exchange, direct debits (but excluding any cash proceeds arising under any transaction as referred to in Clause 11.1) and including proceeds of any Related Assets (including proceeds of sale or other disposition of repossessed goods), (ii) insurance payments that the Seller or the Servicer applies in the ordinary course of its business to such Receivable and (iii) VAT recoveries made in respect of such Receivable and (b) amounts deemed to have been received as a Collection pursuant to Clause 3.5. - 47 - "COMMERCIAL PAPER NOTES" means USD or EUR denominated short-term promissory notes issued by the Purchaser to fund the Purchases hereunder. "CONCENTRATION LIMIT" means the percentage rate of the Net Pool Balance which the Aggregate Unpaid Balance of Sold Receivables with respect to a single Obligor and its affiliated companies may not exceed. The following Concentration Limits shall apply for the following Obligors (for the definition of the Obligors below please refer to the definition of "Eligible Obligors"): - - Boysen: EUR 10,000,000; - - Eberspacher: EUR 18,000,000; - - BMW: EUR 15,000,000; - - DaimlerChrysler: EUR 15,000,000; - - Volvo: EUR 10,000,000; - - NedCar: 5,000,000; - - Karmann: EUR 3,000,000, - - Volkswagen AG : EUR 5,000,000 and - - Porsche: EUR 5,000,000. "CONSOLIDATED NET INCOME" means the net income of the Seller calculated on the basis of the audited consolidated balance sheet and profit and loss accounts of the Seller and its consolidated Subsidiaries, duly certified by the Seller's accountants. "CONTRACT" means a contract between the Seller and any Person pursuant to or under which such Person shall be obligated to make payments to the Seller for the sale of goods from time to time, including any purchase orders and other related agreements between the Purchaser and any such Person. "CREDIT AGREEMENT" means that certain Credit Agreement, dated as of September 14, 1994, among the Purchaser, State Street Global Markets LLC, as Administrator, and State Street Bank, as Credit Bank, as the same may be amended, supplemented, and/or restated or otherwise modified from time to time. "CREDIT AND COLLECTION POLICY" means those credit and collection policies and practices relating to Contracts and Receivables described in Schedule 4 and as modified without violating Clause 7.4. "CREDIT BANK" means the lender under the Credit Agreement. "CREDIT DRAWS" means loans or other extensions of credit to the Purchaser made in connection with the Sold Receivables pursuant to the Credit Agreement. "CUT-OFF DATE" means the last day of each fiscal month of the Seller as specified in Schedule 8, subject to Clause 3.2 (d). "DEFAULTED RECEIVABLE" means a Receivable: (a) as to which any payment, or part thereof, remains unpaid for 180 days or more from the original due date for such payment; or (b) as to - 48 - which the Obligor thereof is subject to a Bankruptcy Event or an event that, with lapse of time, will become a Bankruptcy Event. "DEFAULT RATIO" means, on any Cut-Off Date, the ratio (expressed as a percentage) computed by dividing (a) the aggregate Unpaid Balance of all Receivables that became Defaulted Receivables during the Settlement Period ending on such Cut-Off Date by (b) the Receivables Balance on such Cut-Off Date. "DELINQUENCY RATIO" means, on any Cut-Off Date, the ratio (expressed as a percentage) computed by dividing (a) the aggregate Unpaid Balance of all Sold Receivables that are Delinquent Receivables on such Cut-Off Date by (b) the Receivables Balance on such Cut-Off Date. "DELINQUENT RECEIVABLE" means a Receivable that is not a Defaulted Receivable and as to which any payment, or part thereof, remains unpaid for 90 days or more from the original due date for such payment. "DILUTED RECEIVABLE" means that portion of any Sold Receivable which is either (a) reduced or cancelled as a result of (i) any defective or rejected goods or services, or any failure by the Seller to deliver any goods or services or otherwise to perform under the underlying Contract or invoice, or (ii) any change in the terms of or cancellation of any Contract or invoice or any other adjustment by the Seller which reduces the amount payable by the Obligor on the related Sold Receivable or (iii) any set-off in respect of any claim by the Obligor on the related Sold Receivable or (iv) any other claim pursuant to which such Sold Receivable would give rise to a Deemed Collection under this Agreement or (b) subject to any specific dispute, offset, counterclaim or defence whatsoever (except the discharge in bankruptcy of the Obligor thereof). "DILUTION" means, for any given Settlement Period, the sum of all amounts deemed to be collected pursuant to Section 3.5 for such Settlement Period. "DILUTION RATIO" means, with respect to a Settlement Period, the ratio (expressed as a percentage) obtained by dividing (a) the aggregate Dilution for such Settlement Period, by (b) the aggregate Unpaid Balance of all Receivables owed by Eligible Obligors that were originated by the Seller during the Settlement Period immediately preceding such Settlement Period. "DILUTION RESERVE" means, during a Settlement Period, an amount equal to (a) the product of (i) 10% times (ii) the Net Pool Balance if the relevant Dilution Ratio is less than or equal to 6%, (b) an amount equal to the product of (i) 12% times (ii) the Net Pool Balance if the relevant Dilution Ratio is greater than 6% but does not exceed 8% or (c) an amount equal to the product of (i) 14% times (ii) the Net Pool Balance if the relevant Dilution Ratio is greater than 8%. "DISCOUNT" means, with respect to a Purchase of Receivables, the aggregate of the following amounts calculated in relation to the Settlement Period in which such Purchase of Receivables occurs: - 49 - (a) the Accrued Cost Reserve; (b) the Liquidation Cost Reserve; (c) the Loss Reserve; and (d) the Dilution Reserve; "DOWNGRADED LIQUIDITY PURCHASER" means a Liquidity Purchaser which has been the subject of a Downgrading Event. "DOWNGRADING EVENT" with respect to any Person means the lowering of the rating with regard to the short-term securities of such Person to below (a) A-1 by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., or (b) P-1 by Moody's Investors Service, Inc. "EARNED DISCOUNT" means for any given Settlement Period an amount determined in accordance with the following formula: [PTI x BR x ED]/360 where: PTI = the Purchaser's Total Investment (which, in the case of the first Settlement Period shall be determined by the Administrator at least two Business Days prior to the first Settlement Date, and for any Settlement Period thereafter, shall be determined as of the close of business on the Cut-Off Date immediately preceding the relevant Settlement Period); BR = the Base Rate applicable for such Settlement Period; and ED = the actual number of days elapsed, or to elapse, during such Settlement Period. "EFFECTIVE DATE" is 14 March 2003. "ELIGIBLE JURISDICTION" means the Federal Republic of Germany. "ELIGIBLE OBLIGOR" means - - DaimlerChrysler AG ("DAIMLERCHRYSLER"); - - BMW AG ("BMW"); - - Volkswagen AG ("VW"); - - Volvo Personvagnar AB, Volvo Cars Europe Industry NV ("VOLVO") as long as they have along-term rating of not less than BBB by Standard & Poor's Rating Services, a division of McGraw -Hill Companies, Inc., or its successor, or not less than Baa2 by Moody's Investors Service, Inc. or its successor, or the equivalent long-term or short-term - 50 - rating (as applicable) of such other rating agency as may be approved by the Administrator from time to time; and - - Friedrich Boysen GmbH & Co. KG ("BOYSEN"); - - Eberspacher GmbH & Co. KG ("EBERSPACHER"); - - Wilhelm KARMANN GmbH (,,KARMANN"); - - Dr. Ing. h.c. F. Porsche AG ("PORSCHE"); - - NedCar Netherlands Car. B.V. ("NEDCAR"); and any other Obligor expressly approved from time to time by both the Administrator acting for and on behalf of the Purchaser, and the Rating Agencies then rating the Commercial Paper Notes. "ELIGIBLE RECEIVABLE" means a Receivable: (a) the Obligor of which (i) is an Included Obligor, (ii) is an Eligible Obligor and (iii) is not an Affiliate of the Seller or the General Partner, and not an officer, employee or agent of the Seller; (b) which is not a Defaulted Receivable, a Delinquent Receivable, or a Diluted Receivable or, as to which any payment, or part thereof, remains unpaid for 30 days or more from the original due date for such payment; (c) with respect to which the representation and warranty of the Seller in Clause 6.6 is true; (d) the sale of which does not violate any law or contractual obligation of the Seller or the General Partner or any of their respective Affiliates (including any obligation arising out of any Contract relating to such Receivable); (e) which is freely transferable or for which prior written consent to the assignment under this Agreement has been obtained by the Seller, provided, however, that in the case of BMW or DaimlerChrysler no such consent shall be required; (f) with respect to which the Seller can transfer good title, and the sale of which is not void or voidable as a matter of law or contract and the transfer of which, or of any Related Asset, is not subject to stamp tax or any other duty; (g) which arises under a Contract that (i) has been duly authorised and that, together with such Sold Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms and (ii) is subject to the Standard Terms and Conditions; (h) which is not subject to any dispute, set off, counterclaim or defence whatsoever; (i) which, together with the Contract related thereto, does not violate in any material respect any laws, rules or regulations applicable thereto and as to which no party to the - 51 - Contract related thereto is in violation of any such law, rule or regulation in any material respect if such violation would impair the collectability of such Receivable; (j) which was originated by the Seller, in the normal course of the Seller's business and satisfies all applicable requirements of the relevant Credit and Collection Policy and which has not been reassigned to the Seller, as the case may be, pursuant to Clause 2.9; (k) the Obligor of which is a Person who will use the goods purchased in connection with such Receivable solely for business (and not consumer) purposes; (l) which arose from the sale of equipment in which the Seller retained title and in which such title is fully perfected by all necessary action and is, after giving effect to the purchase of such Receivable hereunder, prior to any other Adverse Claim on such equipment other than, with respect to the goods underlying such Receivable, any Adverse Claim enjoyed by suppliers of components, raw materials or parts to the Seller; (m) which is owing to the Seller by an Eligible Obligor; (n) which is payable in Euro and governed by German law; (o) which is documented or recorded by the Seller in the normal course of its business and for which all such documents or records necessary to create, evidence and service the obligation of the Obligor are in the possession of the Seller; (p) which does not require the relevant Obligor to withhold any amount from payment of the Receivable on account of any tax; and (q) which is payable by an Obligor with respect to which none of the Individual Obligor Default Ratio, Individual Obligor Dilution Ratio and Individual Obligor Delinquency Ratio has been exceeded. "EURIBOR" means in relation to any amount denominated in euros on which interest for a given period is to accrue: (a) the percentage rate per annum equal to the offered quotation which appears on the page of the Telerate Screen which displays the European Interbank Offered Rate for Deposits in euros of the relevant amount (currently expected to be page "248") for such period at or about 11:00 am (Brussels time) on the quotation date for such period, or if such page or such service is not or shall cease to be available or relevant, such other page or such other service for the purpose of displaying the average European Interbank Offered Rate for euros as the Administrator shall select, acting reasonably; or (b) if no such quotation for euros for the relevant period is displayed and the Administrator has not selected an alternative service on which a quotation is displayed, the arithmetic mean (rounded upwards to four decimal places) of the rates - 52 - (as notified to the Administrator) at which each of the Euro Reference Banks were offering to prime banks in the Euro interbank market deposits in euros for such amount and for such period at or about 11:00 am (Brussels time) on the quotation date for such period. "EURO REFERENCE BANKS" means three of the banks (none of which shall be located in the same financial centre) selected by the Administrator and whose offered rates would have been used for the purposes of the Telerate Screen rate referred to in paragraph (a) of the definition of EURIBOR if the events leading to the application of paragraph (b) of the definition of EURIBOR had not occurred, in each case acting through its principal office located in a financial centre within a participating member state. "FINAL PAYOUT DATE" means the date following the Termination Date on which all Sold Receivables have been collected or determined to be Defaulted Receivables and all amounts payable by the Seller under the Transaction Documents have been paid in full. "GAAP" is defined in Clause 1.1. "GENERAL PARTNER" is defined in the preamble. "HEDGE COUNTERPARTY" means State Street Bank. "INCLUDED OBLIGOR" means, at any time, each Obligor, except any Obligor as to whom the Administrator has, at least three Business Days prior to the date of determination, given notice to the Seller of the Purchaser's good faith belief that such Obligor is not creditworthy or that such Obligor's creditworthiness has been called into significant question. "INDEMNIFIED AMOUNTS" is defined in Clause 12.2. "INDEMNIFIED PARTY" is defined in Clause 12.2. "INDIVIDUAL OBLIGOR DEFAULT RATIO" means the Default Ratios applying for the following individual Obligors (for the definition of the Obligors below please refer to the definition of "Eligible Obligors"): - - Eberspacher: 2%; - - Boysen: 2% - - Karmann: 2% - - Porsche: 2% - - NedCar: 2% "INDIVIDUAL OBLIGOR DELINQUENCY RATIO" means the Delinquency Ratios applying for the following individual Obligors (for the definition of the Obligors below please refer to the definition of "Eligible Obligors"): - - Eberspacher: 5%; - - Boysen: 5% - - Karmann: 5% - 53 - - - Porsche: 5% - - NedCar: 5% "INDIVIDUAL OBLIGOR DILUTION RATIO" means the Dilution Ratios applying for the following individual Obligors (for the definition of the Obligors below please refer to the definition of "Eligible Obligors"): - - Eberspacher: 10%; - - Boysen: 10% - - Karmann: 10% - - Porsche: 10% - - NedCar: 10% "LIQUIDATION COST RESERVE" means for any given Settlement Period an amount equal to: (a) the sum of: (i) the Servicer's Fee (expressed as a percentage); (ii) 1%; and (iii) 150% of the Base Rate (established for such Settlement Period), multiplied by: (b) the Purchaser's Total Investment (which, in the case of the first Settlement Period shall be determined by the Administrator at least two Business Days prior to the first Settlement Date, and for any Settlement Period thereafter, shall be determined as of the close of business on the Cut-Off Date immediately preceding the relevant Settlement Period); multiplied by: (c) the quotient obtained by dividing: (i) the Adjusted Turnover Days in the immediately preceding Settlement Period; by: (ii) 360. "LIQUIDITY AGENT" means State Street Bank, as agent for the Liquidity Purchasers, or any successor in such capacity. "LIQUIDITY ASSET PURCHASE AGREEMENT" means and includes (a) the liquidity asset purchase agreement dated on or about the date hereof among the Purchaser, the Administrator, the - 54 - Liquidity Purchasers and the Liquidity Agent, and (b) any other agreement hereafter entered into by the Purchaser providing for the transfer of Sold Receivables to the Liquidity Purchasers against advancement of funds upon the occurrence of any of the triggering events set out therein. "LIQUIDITY PURCHASE" means a purchase made by the Liquidity Purchasers under the Liquidity Asset Purchase Agreement. "LIQUIDITY PURCHASER" means each purchaser under the Liquidity Asset Purchase Agreement. "LOSS RESERVE" means 2% for any Settlement Period 2% of the Net Pool Balance as of the close of business on the immediately preceding Cut-Off Date. "MASTER CURRENCY EXCHANGE AGREEMENT" means the currency exchange agreement dated as of September 14, 1994 between the Purchaser and the Hedge Counterparty. "MATERIAL ADVERSE EFFECT" means a material adverse effect on: (a) the financial condition, operations, assets or business of the Seller, the General Partner or (so long as the Servicer is the Seller or an Affiliate of the Seller) the Servicer; (b) the ability of the Seller or (so long as the Servicer is the Seller or an Affiliate of the Seller) the Servicer to perform its obligations under any Transaction Document; (c) the validity, enforceability or collectability of the Sold Receivables taken as whole; (d) the Purchaser's rights and interests pursuant to the Agreement; or "NET POOL BALANCE" means, at any time, an amount equal to the Aggregate Unpaid Balance of all Sold Receivables, that are Eligible Receivables, minus the Aggregate Unpaid Balance of (i) any Defaulted Receivables, (ii) Delinquent Receivables and (iii) of any Purchased Receivables exceeding any Concentration Limits. "NET INCOME" means the net income of the Seller calculated on the basis of the audited consolidated balance sheet and profit and loss accounts of the Seller duly certified by the Seller's accountants. "NOTICE OF SALE" means a duly completed notice, executed by a Responsible Officer of the Seller, substantially in the form of Schedule 6, confirming all Reinvestments (Einzelkaufvertrag) having occurred hereunder during the preceding Settlement Period to which such Notice of Sale relates and specifying the relevant Settlement Period and the other information provided for in such Schedule 6. "OBLIGOR" means a Person obligated to make payments on a Receivable, including any guarantor. "OFFERED RECEIVABLES" means Receivables that have been offered in accordance with Clause 2.3 or 2.4. - 55 - "PERMITTED INVESTMENTS" means any deposit or other investment with a maturity not longer than, or otherwise available within, one Business Day in the Purchaser's name at any financial institution with a rating of its short-term securities equal to or higher than (a) A-1 by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and (b) P-1 by Moody's Investors Service, Inc. "PERSON" means an individual, partnership, corporation, joint stock company, trust, unincorporated association, joint venture, government or any agency or political subdivision thereof or any other entity. "PLEDGE AGREEMENT" means the pledge agreement, which shall be entered into between the Seller, the Purchaser and the Collection Account Bank 2, which shall create a pledge over the Account No. 2. "PROGRAMME COSTS" means the amount determined by the Administrator to be the sum of (a) the Earned Discount, (b) accrued Programme Fee, (c) accrued Unused Fee, and (d) other Purchaser costs and expenses relating to the Sold Receivables other than the Servicer's Fee. "PROGRAMME FEE" means a fee which shall accrue during each Settlement Period, at a rate of 0.57 % per annum calculated on each Cut-Off Date on the Purchaser's Total Investment as at the relevant date. "PROGRAMME LIQUIDATION EVENT" means, any Bankruptcy Event which has occurred and is continuing with respect to the Purchaser. "PURCHASE" means a purchase (Einzelkaufvertrag) of Receivables by the Purchaser from the Seller pursuant to the terms of this Agreement. "PURCHASE DATE" means each Settlement Date. "PURCHASE LIMIT" means EUR 50,000,000. "PURCHASE PRICE" is defined in Clause 2.5. "PURCHASER" means Galleon Capital Corporation, a Delaware corporation, together with its successors and assigns. "PURCHASER PARTY" means each of the Purchaser, any assignee or participant of the Purchaser, any Liquidity Purchaser, the Liquidity Agent, the Credit Bank, the Collateral Agent, the Relationship Bank, the Administrator and any sub-agent of the Administrator. "PURCHASER'S CURRENT TOTAL INVESTMENT" means the Purchaser's Total Investment as of the immediately preceding Cut-Off Date. "PURCHASER'S TOTAL INVESTMENT" means at any time the aggregate of all Purchase Price payments made denominated in EUR (including, for the avoidance of doubt, any Collections applied towards Reinvestments pursuant to Clause 3.6(a)(ii), but excluding any Collections - 56 - set aside pursuant to Clause 3.6) for all Sold Receivables less all amounts applied against such aggregate Purchase Prices and distributed to the Purchaser pursuant to Schedule 2, provided that the Purchaser's Total Investment shall not be considered reduced by any distribution of any amount if at any time such distribution is rescinded or must otherwise be returned for any reason. "QUALIFYING LIQUIDITY PURCHASER" means a Liquidity Purchaser with a rating of its short-term securities equal to or higher than (a) A-1 by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and (b) P-1 by Moody's Investors Service, Inc. or the equivalent long term rating (as applicable) of any Rating Agency. "RATING AGENCIES" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc., and/or such other Rating Agencies as may be approved by the Administrator from time to time, and "RATING AGENCY" means any one of such rating agencies. "RECEIVABLE" means any right to payment from an Obligor (including interest or finance charges) as set out in an invoice, a bill of lading received by the Obligor or as otherwise communicated to the Obligor, as the case may be, arising from or in relation to the sale of goods or the rendering of services by the Seller to an Obligor who is a resident of and is acting through an office in an Eligible Jurisdiction and who is not a government or a governmental subdivision or agency. "RECEIVABLES BALANCE" means, at any time, the aggregate Unpaid Balance of all Sold Receivables at such time. "RECORDS" means books, documents, instruments and other records (including computer programs, tapes and disks) which evidence the Sold Receivables and/or their Related Assets, or which are otherwise necessary or desirable to collect the Sold Receivables, including bank drafts supplied by Obligors. "RELATED ASSETS" means, as to any Receivable, all of the Seller's right, title and interest in and to, but not its obligations relating to: (a) all Contracts that relate to such Receivable (including the right to terminate such Contracts on the grounds of late payment or non-payment); (b) all goods (including returned goods, repossessed goods and work in progress), if any, relating to the sale which gave rise to such Receivable (including any title retained by the Seller pursuant to any relevant Contract or pursuant to any applicable law); (c) all insurance policies, deposits, indemnities, letters of credit, bills of exchange, cheques, other negotiable instruments, warranties, retention of title and other agreements and arrangements not created or made by the Purchaser and all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; - 57 - (d) all guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; (e) all of the Records; and (f) all proceeds of such Receivable and the foregoing at any time arising out of the resale, redemption or other disposal (net of collection costs), or dealing with, or judgments relating to any of the foregoing, any debts represented thereby and all rights of action against any Person in connection therewith. "RELATIONSHIP BANK" means State Street Bank, acting as a referral agent for the Purchaser, together with any successors in such capacity. "REPORT DATE" means, subject to Clause 3.2 (d), in respect to any Cut-Off Date, the seventh day following such Cut-Off Date, provided that if the seventh day following such Cut-Off Date is not an Augsburg Business Day, then the Report Date shall fall on the next following Augsburg Business Day after the seventh day following the Cut-Off Date. "RESPONSIBLE OFFICER" of any Person means the president, the general manager (Geschaftsfuhrer) or any of the managing directors of such Person. "SELLER" is defined in the preamble. "SELLER'S ACCOUNT" means such account of the Seller specified by written notice from the Seller to the Administrator from time to time. "SERVICER" is defined in Clause 8.2 (a). "SERVICER PACKAGE" means, with respect to any Cut-Off Date, (a) a report, signed by a Responsible Officer of the Servicer summarising (i) the Receivables Balance and the balances of the Collection Account and Transaction Account, in each case as at such Cut-Off Date, (ii) (A) the total Collections received during the Settlement Period ending on such Cut-Off Date, (B) the aggregate Unpaid Balance of Receivables generated by the Seller during such Settlement Period, (C) the Receivables Balance on such Cut-Off Date, (D) the aggregate Unpaid Balance of Sold Receivables that became Delinquent Receivables or Defaulted Receivables during such Settlement Period and (E) the Default Ratio and the Delinquency Ratio as measured on such Cut-Off Date; and (b) a computer disc containing the foregoing data. "SERVICER TRANSFER EVENT" is defined in Clause 8.2 (b). "SERVICER'S FEE" is defined in Clause 4.1. "SETTLEMENT DATE" means with respect to any Report Date, the fourth Business Day following such Report Date, subject to Clause 3.2 (d). - 58 - "SETTLEMENT PERIOD" means the period from and including the day after any Cut-Off Date to and including the next following Cut-Off Date; provided that the last Settlement Period shall end on the Final Payout Date. "SHAREHOLDER" means Arvin Meritor, being the sole shareholder of the General Partner and the holder of all shares (Kommanditanteile) of the Seller. "SHAREHOLDER'S SUBSIDIARY" means a Person over which the Shareholder and/or any of its subsidiaries can exercise control as defined in Section 17 of the German Stock Corporation Act (Aktiengesetz). "SOLD RECEIVABLE" means a Receivable that has been sold and assigned under this Agreement. "STANDARD TERMS AND CONDITIONS" means those standard contract terms and conditions of the Seller., as the case may be, and each Eligible Obligor for the relevant Eligible Jurisdiction. "STATEMENT" is defined in Clause 6.4 (a). "STATE STREET BANK" means State Street Bank and Trust Company, a bank organised under the laws of the State of Massachusetts. "SUBSIDIARY" means a Person over which the Seller, the General Partner and/or their other Subsidiaries can exercise control as defined in Section 17 of the German Stock Corporation Act (Aktiengesetz). "TERMINATION DATE" means the earliest of: (a) the second anniversary of the date hereof; (b) the date of termination (whether by scheduled expiration, termination on default or otherwise) of the commitment of the Liquidity Purchasers under the Liquidity Asset Purchase Agreement or the Credit Bank's commitment under the Credit Agreement; and (c) the date on which the Termination Date is declared (or deemed automatically) to have occurred pursuant to Clause 9.2. "TERMINATION EVENT" is defined in Clause 9.1. "TRANSACTION ACCOUNT" means the account held by the Purchaser at the Transaction Account Bank or such other account as designated by the Purchaser as a Transaction Account. Deutsche Bank AG London 925 799 900, DEUTGB2L, reference: State Street/CTAS/JPotter/Galleon, to be wired via Deutsche Bank AG Frankfurt, DEUTDEFF "TRANSACTION ACCOUNT BANK" means Deutsche Bank AG, London. "TRANSACTION DOCUMENTS" means this Agreement, any Notice of Sale and any other documents to be executed and delivered pursuant hereto. "TURNOVER DAYS" means, with respect to any Settlement Period, the product obtained by multiplying (a) the quotient obtained by dividing (i) the Net Pool Balance as of the first day of such Settlement Period by (ii) the aggregate amount of Collections received on Sold - 59 - Receivables during such Settlement Period by (b) the number of days in such Settlement Period. "UNMATURED TERMINATION EVENT" means any event which, with the giving of notice or lapse of time, or both, would become a Termination Event. "UNPAID BALANCE" of any Receivable means at any time the unpaid amount thereof, including any VAT with respect thereto, less, in the case of any Receivable originated in any jurisdiction that subjects any payments on Receivables to withholding tax, the aggregate scheduled amount of any withholding taxes payable by the Obligor or by the Seller in respect of such Receivable. "UNUSED FEE" means, for any given Settlement Period, a fee payable for the Liquidity Asset Purchase Agreement determined in accordance with the following formula: (0.25% x {[(102% x PL)- PCTI] x UFD})/360 where: PL = the Purchase Limit; PCTI = the Purchaser's Current Total Investment (which in the case of the first Settlement Period shall be equal to the Purchaser's Total Investment as determined by the Administrator at least two Business Days prior to the first Settlement Date); and UFD = the number of days in such Settlement Period. "USD" means U.S. Dollar, being the lawful currency of the United States of America. "VAT" means value added tax. "YIELD PERIOD" with respect to any portion of the Asset Interest funded by a Liquidity Purchase or a Credit Draw means: (a) the period commencing on the date of the making of a Liquidity Purchase or Credit Draw (whichever is latest) and ending such number of days thereafter as the Administrator shall select; and (b) each period commencing on the last day of the immediately preceding Yield Period for the related portion of the Asset Interest and ending such number of days thereafter as the Administrator shall select; provided, however, that: (i) any such Yield Period (other than a Yield Period consisting of one day) which would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day (unless the related portion of the Asset Interest shall be - 60 - accruing Earned Discount at a rate determined by reference to EURIBOR, in which case if such succeeding Business Day is in a different calendar month, such Yield Period shall instead be shortened to the immediately preceding Business Day); (ii) in the case of Yield Periods of one day for any portion of the Asset Interest, (A) the initial Yield Period shall be the date such Yield Period commences as described in clause (a) above; and (B) any subsequently occurring Yield Period which is one day shall, if the immediately preceding Yield Period is more than one day, be the last day of such immediately preceding Yield Period, and if the immediately preceding Yield Period is one day, shall be the next day following such immediately preceding Yield Period; and (iii) in the case of any Yield Period for any portion of the Asset Interest which commences before the Termination Date and would otherwise end on a date occurring after such Termination Date, such Yield Period shall end on such Termination Date and the duration of each such Yield Period which commences on or after the Termination Date for such Portion of the Asset Interest shall be of such duration as shall be selected by the Administrator. - 61 - SCHEDULE 2 PRIORITY OF PAYMENTS Pursuant to Clause 3.2(c), the Administrator shall disburse funds from the Transaction Account on each Settlement Date to the following Persons in the following amounts and, if the sum of such amounts is less than the total amount of such funds, in the following order of priority: (a) FIRST, to the extent payable to any Purchaser Party or any Indemnified Party pursuant to Clauses 12.2 or 13.5 of the Receivables Purchase Agreement, to the Administrator in an amount equal to the aggregate of such amounts received from the Seller pursuant to such Clauses and/or agreements (for the benefit of the relevant Persons); (b) SECOND, if the Servicer is a Person other than the Seller, to the Servicer in an amount equal to the accrued Servicer's Fee payable to such Servicer and not previously paid; (c) THIRD, to the Purchaser in an amount equal to the accrued and unpaid Programme Costs of the types described in paragraph (a) (Earned Discount) of the definition thereof (disregarding, in the case of any interest under the Liquidity Asset Purchase Agreement or the Credit Agreement, any margins over specified base rates) with respect to the Commercial Paper Notes, Liquidity Loans and/or Credit Draws that financed the purchase of such Receivables; (d) FOURTH, to the Purchaser in an amount equal to the accrued and unpaid Programme Costs of the types described in paragraphs (b) and (c) of the definition thereof (disregarding, in the case of any interest under the Liquidity Asset Purchase Agreement or the Credit Agreement, any margins over specified base rates) with respect to the Commercial Paper Notes, Liquidity Loans and/or Credit Draws that financed the purchase of such Receivables; (e) FIFTH, so long as no Termination Event has occurred and is continuing or would result from such payment, to the Purchaser in an amount equal to the accrued and unpaid Programme Costs of the type described in paragraph (d) of the definition thereof; (f) SIXTH, to the Purchaser in reduction of the Purchaser's Total Investment until reduced to zero; (g) SEVENTH, to the Purchaser in an amount equal to the accrued and unpaid Programme Costs of the type described in paragraph (d) of the definition thereof (to the extent not payable under paragraph (e) of this Schedule 2); (h) EIGHTH, so long as no Termination Event of the type described in sub-clause (g) of Clause 9.1 has occurred and is continuing, to the Servicer in an amount equal to the accrued and unpaid Servicer's Fee, if any, not paid pursuant to paragraph (b) of this Schedule 2; (i) NINTH, to the Servicer in an amount equal to the accrued and unpaid Servicer's Fee, if any, not paid pursuant to paragraphs (b) and (h) of this Schedule 2; and - 62 - (j) TENTH, to the Seller all amounts standing to the credit of the Transaction Account after payment of the amounts set forth in (a) through (i) above, by way of a success fee in respect of the collection of Sold Receivables. - 63 - SCHEDULE 3 STANDARD TERMS AND CONDITIONS [of the Seller and each Eligible Obligor] (ATTACHED) - 64 - SCHEDULE 4 CREDIT AND COLLECTION POLICY (ATTACHED) - 65 - SCHEDULE 5 RECORDS LOCATIONS ZEUNA STAERKER GMBH & CO KG AuBere UferstraBe 61-73 86154 Augsburg Federal Republic of Germany - 66 - SCHEDULE 6 FORM OF NOTICE OF SALE [Letterhead of Zeuna Staerker GmbH & Co KG] Date: To: State Street Global Markets LLC as the Administrator, acting for and on behalf of Galleon Capital Corporation 225 Franklin Street Boston Massachusetts 02110 U.S.A. Attention: Galleon Funds RE: RECEIVABLES PURCHASE AGREEMENT, DATED AS OF 10 MARCH 2003, AMONG ZEUNA STAERKER GMBH & CO KG, GALLEON CAPITAL CORPORATION, STATE STREET GLOBAL MARKETS LLC AND STATE STREET BANK AND TRUST COMPANY (AS FROM TIME TO TIME AMENDED, SUPPLEMENTED OR NOVATED, THE "AGREEMENT") Ladies and Gentlemen 1. We refer you to the above-captioned Agreement. Except as otherwise provided herein, capitalised terms in this letter shall have the meaning ascribed to them in the Agreement. 2. Without affecting the validity of each Reinvestment made pursuant to the terms of the Agreement and having occurred during the previous Settlement Period, we hereby confirm that (i) the Reinvestments listed in Attachment A hereto have occurred at such time as is specified in Attachment A hereto and that (ii) we have applied the relevant Collections towards such Reinvestments pursuant to the terms of the Agreement. 3. The aggregate Unpaid Balance of all Receivables being subject to Reinvestments having occurred during the previous Settlement Period to which this Notice of Sale relates exceeds the minimum threshold of [EUR 1,000,000] as set out in Clause 5.2(b)(iv) and is EUR [MID DOT]. A calculation (made in accordance with the "Settlement Report" attached to this Notice of Sale) of (i) the aggregate Unpaid Balance of all Receivables having being sold under Reinvestments during the preceding Settlement Period that are owed by each Obligor and its Affiliates and (ii) the Unpaid Balance of each of such Receivable, and (iii) an ageing of such Receivables is attached hereto. 4. We warrant that each of the representations referred to in Clause 6 of the Receivables Purchase Agreement is true on and as of the date hereof. - 67 - 5. The provisions of the Receivables Purchase Agreement apply to this notice and the related Reinvestments. 6. We confirm that the Receivables having been sold under Reinvestments during the preceding Settlement Period were not and are not subject to withholding tax when paid by the Obligor. 7. The aggregate Purchase Price for the Receivables having been sold under Reinvestments during the preceding Settlement Period to which this Notice of Sale relates is EUR [MID DOT]. Very truly yours ZEUNA STAERKER GMBH & CO KG, A LIMITED PARTNERSHIP BY NOVAFERRA EISEN GMBH, its General Partner By: Title: By: Title: - 68 - ATTACHMENT A TO THE NOTICE OF SALE LIST OF ELIGIBLE RECEIVABLES HAVING BEEN SOLD UNDER REINVESTMENTS DURING THE PRECEDING SETTLEMENT PERIOD OBLIGORS UNPAID BALANCE DATE OF ORIGINATION DUE DATE (WITH VAT NO.) - 69 - ATTACHMENT B TO THE NOTICE OF SALE [FORM OF SETTLEMENT REPORT] - 70 - SCHEDULE 7 [FORM OF INCREMENTAL OFFER] - 71 - SCHEDULE 8 [CUT-OFF DATES OF THE SELLER]
MONTH CUT-OFF DATE - --------------------------------------------------------------------------- February 2003 02 March 2003 - --------------------------------------------------------------------------- March 2003 30 March 2003 - --------------------------------------------------------------------------- April 2003 04 May 2003 - --------------------------------------------------------------------------- May 2003 01 June 2003 - --------------------------------------------------------------------------- June 2003 29 June 2003 - --------------------------------------------------------------------------- July 2003 03 August 2003 - --------------------------------------------------------------------------- August 2003 31 August 2003 - --------------------------------------------------------------------------- September 2003 28 September 2003 - --------------------------------------------------------------------------- October 2003 02 November 2003 - --------------------------------------------------------------------------- November 2003 30 November 2003 - --------------------------------------------------------------------------- December 2003 28 December 2003 - --------------------------------------------------------------------------- January 2004 01 February 2004 - --------------------------------------------------------------------------- February 2004 29 February 2004 - --------------------------------------------------------------------------- March 2004 28 March 2004 - --------------------------------------------------------------------------- April 2004 02 May 2004 - --------------------------------------------------------------------------- May 2004 30 May 2004 - --------------------------------------------------------------------------- June 2004 27 June 2004 - --------------------------------------------------------------------------- July 2004 01 August 2004 - --------------------------------------------------------------------------- August 2004 29 August 2004 - --------------------------------------------------------------------------- September 2004 03 October 2004 - --------------------------------------------------------------------------- October 2004 07 November 2004 - --------------------------------------------------------------------------- November 2004 05 December 2004 - --------------------------------------------------------------------------- December 2004 02 January 2005 - --------------------------------------------------------------------------- January 2005 06 February 2005 - --------------------------------------------------------------------------- February 2005 06 March 2005 - --------------------------------------------------------------------------- March 2005 03 April 2005 - ---------------------------------------------------------------------------
- 72 - EXECUTION PAGES ZEUNA STAERKER GMBH & CO KG as Seller and Servicer By: NOVAFERRA EISEN GMBH its General Partner (ON BEHALF OF ZEUNA STAERKER GMBH & CO KG By: Title: Address: AuBere UferstraBE 61-73 86154 Augsburg Federal Republic of Germany Tel: +49 821 410 3240 Fax: +49 821 410 3234 Attn: Mark Benedickter, Thomas Rust - ABS Transaktion GALLEON CAPITAL CORPORATION as Purchaser By: Title: Address: c/o J.H. Management Corporation One International Place Room 516 Boston Massachusetts 02110 United States of America Tel: +1 617 951 7690 Fax: +1 617 951 7050 Attn: Galleon Funds - 73 - STATE STREET GLOBAL MARKETS LLC as Administrator By: Title: Address: State Street Global Markets LLC c/o State Street Bank GmbH Brienner StraBe 59 80333 Munchen Federal Republic of Germany Tel: +49 89 55 878 0 Fax: +49 89 55 878 300 Attn: Galleon Funds - Investment Banking STATE STREET BANK AND TRUST COMPANY as Relationship Bank By: Title: Address: 225 Franklin Street Boston Massachusetts 02110 United States of America Tel: +1 617 6544020 Facsimile: +1 617 3504020 Attn: Galleon Funds EX-12 5 k77025exv12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 ArvinMeritor, Inc. Computation of Earnings to Fixed Charges Six Months Ended March 31, 2003 Earnings Available for Fixed Charges: Pre-tax income from continuing operations $ 86 Adjustments: Undistributed income of affiliates 11 -------- 97 Add fixed charges included in earnings: Interest expense 54 Interest element of rentals 5 -------- Total 59 Total earnings available for fixed charges: $ 156 -------- Fixed Charges: Fixed charges included in earnings $ 59 Capitalized interest - -------- Total fixed charges $ 59 -------- Ratio of Earnings to Fixed Charges (1) 2.64 ======== (1) - "Earnings" are defined as pre-tax income from continuing operations, adjusted for undistributed earnings of less than majority owned subsidiaries and fixed charges excluding capitalized interest. "Fixed charges" are defined as interest on borrowings (whether expensed or capitalized), the portion of rental expense applicable to interest, and amortization of debt issuance costs. EX-23 6 k77025exv23.txt CONSENT OF M. LEE MURRAH, ESQ. EXHIBIT 23 CONSENT OF EXPERT I consent to the reference to me under the heading "Item 1. Legal Proceedings" in Part II of the Quarterly Report on Form 10-Q of ArvinMeritor, Inc. ("ArvinMeritor") for the quarterly period ended March 30, 2003, and to the incorporation by reference of such reference into the following Registration Statements of ArvinMeritor:
Form Registration No. Purpose - ---- ---------------- ------- S-3 333-58760 Registration of debt securities S-8 333-53396 ArvinMeritor, Inc. Savings Plan S-8 333-53498 ArvinMeritor, Inc. Hourly Employees Savings Plan S-8 333-49610 1997 Long-Term Incentives Plan S-8 333-42012 Employee Stock Benefit Plan, 1988 Stock Benefit Plan and 1998 Employee Stock Benefit Plan S-3 333-43110 Arvin Industries, Inc. Employee Savings Plan S-3 333-43112 Arvin Industries, Inc. Employee Stock Benefit Plan S-3 333-43116 Arvin Industries, Inc. 1998 Stock Benefit Plan S-3 333-43118 Arvin Industries, Inc. 1988 Stock Benefit Plan S-3 333-43146 Arvin Industries, Inc. Savings Plan
/s/ M. Lee Murrah ------------------------------------ M. Lee Murrah Chief Intellectual Property Counsel of ArvinMeritor, Inc. Date: May 13, 2003 EX-99.(A) 7 k77025exv99wxay.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99-a CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 As required by 18 U.S.C. Section 1350, I, Larry D. Yost, Chairman of the Board and Chief Executive Officer of ArvinMeritor, Inc., hereby certify that: 1. The Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the Quarterly Period Ended March 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and 2. The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of ArvinMeritor, Inc. /s/ Larry D. Yost - --------------------------- Larry D. Yost Date: May 13, 2003 This certification accompanies the Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the Quarterly Period ended March 30, 2003, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by ArvinMeritor, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.(B) 8 k77025exv99wxby.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99-b CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 As required by 18 U.S.C. Section 1350, I, S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer of ArvinMeritor, Inc., hereby certify that: 3. The Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the Quarterly Period Ended March 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and 4. The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of ArvinMeritor, Inc. /s/ S. Carl Soderstrom, Jr. - ----------------------------- S. Carl Soderstrom, Jr. Date: May 13, 2003 This certification accompanies the Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the Quarterly Period ended March 30, 2003, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by ArvinMeritor, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----