-----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, Txy+r4q+28+k62VzPgqPjlJgggAXk/ONbiCUxbVj2XrSOVAYHhz1Ij+MTn/mLdo7 00B76a/MbOGJM/8+fRfwcA== 0000075234-01-000002.txt : 20010409 0000075234-01-000002.hdr.sgml : 20010409 ACCESSION NUMBER: 0000075234-01-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS CORNING CENTRAL INDEX KEY: 0000075234 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 344323452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03660 FILM NUMBER: 1588633 BUSINESS ADDRESS: STREET 1: OWENS CORNING WORLD HEADQUARTERS STREET 2: ONE OWENS CORNING PKWY CITY: TOLEDO STATE: OH ZIP: 43659 BUSINESS PHONE: 4192488000 MAIL ADDRESS: STREET 1: OWENS CORNING WORLD HEADQUARTERS STREET 2: ONE OWENS CORNING PARKWAY CITY: TOLEDO STATE: OH ZIP: 43659 FORMER COMPANY: FORMER CONFORMED NAME: OWENS CORNING FIBERGLAS CORP DATE OF NAME CHANGE: 19920703 10-K405 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2000 Commission File No. 1-3660 Owens Corning One Owens Corning Parkway Toledo, Ohio 43659 Area Code (419) 248-8000 A Delaware Corporation I.R.S. Employer Identification No. 34-4323452 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock - $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] At February 28, 2001, the aggregate market value of Registrant's $.10 par value common stock (Registrant's voting stock) held by non-affiliates was $164,382,797, assuming for purposes of this computation only that all directors and executive officers are considered affiliates. At February 28, 2001, there were outstanding 55,364,882 shares of Registrant's $.10 par value common stock. - 2 - PART I ITEM 1. BUSINESS Owens Corning, a global company incorporated in Delaware in 1938, serves consumers and industrial customers with building materials systems and composites systems. Owens Corning's executive offices are at One Owens Corning Parkway, Toledo, Ohio 43659; telephone (419) 248-8000. Owens Corning's web site provides information on our business and products, and assists our customers in various building projects. It is located at www.owenscorning.com. Unless the context requires otherwise, the terms "Owens Corning", "Company", "we" and "our" in this report refer to Owens Corning and its subsidiaries. PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE On October 5, 2000 (the "Petition Date"), Owens Corning and 17 of its United States subsidiaries, including Fibreboard Corporation (collectively, the "Debtors"), filed voluntary petitions for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the "Chapter 11 Cases") are being jointly administered under Case No. 00-3837 (JKF). The Chapter 11 Cases do not include other United States subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the "Non-Debtor Subsidiaries"). The Chapter 11 Cases are discussed in greater detail in Note 1 to the Consolidated Financial Statements. The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning's cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 19 to the Consolidated Financial Statements. OVERVIEW OF OPERATIONS Owens Corning operates in two reportable operating segments -- Building Materials Systems and Composite Systems. In 2000, the Building Materials Systems segment accounted for approximately 80% of our total sales while Composite Systems accounted for the remainder. The products and systems provided by our Building Materials Systems segment are used in residential remodeling and repair, commercial improvement, new residential and commercial construction, and other related markets. The products and systems offered by our Composite Systems segment are used in end-use markets such as building construction, automotive, telecommunications, marine, aerospace, energy, appliance, packaging and electronics. Many of Owens Corning's products are marketed under registered trademarks, including Propink(R), Advantex(R), Miravista(R) and/or the color PINK. Approximately 80% of Owens Corning's sales are related to home improvement, non-residential markets, sales of composite materials and sales outside U.S. markets. Approximately 20% of our sales are related to new U.S. residential construction. Owens Corning also has affiliate companies in a number of countries. Generally, affiliated companies' sales, earnings and assets are not included in either operating segment unless we own more than 50% of the affiliate and the ownership is not considered temporary. - 3 - As part of our strategy to divest non-strategic businesses, we sold our Falcon Foam business in the U.S. during the first quarter of 2000 and sold our Building Materials business in Europe during the second quarter of 2000 to an unconsolidated joint venture, Alcopor Owens Corning, in which we maintained a 40% interest. Revenue from external customers, income from operations and total assets attributable to each of Owens Corning's operating segments and geographic regions, as well as information concerning the dependence of our operating segments on foreign operations, for each of the years 2000, 1999, and 1998, are contained in Note 2 to Owens Corning's Consolidated Financial Statements, entitled "Segment Data", on pages 62 through 67 hereof. BUILDING MATERIALS SYSTEMS Principal Products And Methods Of Distribution Building Materials Systems operates primarily in North America. It also has a presence in Latin America and Asia Pacific. Building Materials Systems sells a variety of products and systems in two major categories: (i) glass fiber, foam and mineral wool insulation systems and (ii) exterior systems for the home, including roofing systems, vinyl and metal siding and accessories, vinyl windows and patio doors, rainware (consisting primarily of gutters and downspouts), manufactured stone veneer and rebranded housewrap. These products are used primarily in the home improvement, new residential construction, manufactured housing and commercial construction markets. The businesses responsible for these markets include: Insulating Systems, Exterior Systems, Roofing Solutions, Cultured Stone, Distribution and Fabricating Solutions. Sales of building insulation systems, roofing shingles and accessories, housewrap, windows/patio doors, and vinyl siding are made through home centers, lumberyards, retailers and distributors. Other channels of distribution for insulation systems in North America include insulation contractors, wholesalers, specialty distributors, metal building insulation laminators, mechanical insulation distributors and fabricators, manufactured housing producers, and appliance, office products and automotive manufacturers. Foam insulation and related products are sold to distributors and retailers who resell to residential builders, remodelers and do-it-yourself customers; commercial and industrial markets through specialty distributors; and, in some cases, large contractors, particularly in the agricultural and cold storage markets. Owens Corning sells asphalt products, primarily for industrial and specialty applications, under the Trumbull brand name. There are three principal kinds of industrial asphalt: Built-Up Roofing Asphalt (BURA), used in commercial flat roof systems to provide waterproofing and adhesion; saturants or coating asphalt, used to manufacture roofing mats, felts and residential shingles; and industrial specialty asphalt, used by manufacturers in a variety of products such as waterproofing systems, adhesives, coatings, dyes, and product extenders, as well as in various automotive applications. There are several channels of distribution for these products. They are used internally in the manufacture of residential roofing products and are also sold to other shingle manufacturers. In addition, asphalt is sold to roofing contractors and distributors for BURA systems and to manufacturers in a variety of other industries, including automotive, chemical, rubber and construction. Glass fiber mat is used to provide fire and mildew resistance in 95% of all asphalt roofing shingles. Owens Corning sells glass fiber and/or mat directly to a small number of major shingle manufacturers, including our own roofing business. Outside North America, Owens Corning has a foam technology facility in Italy and a joint venture foam plant in China and has licensed others for the manufacture of foam products at locations in Europe, the Middle East and Asia. Owens Corning sells foam products through traditional agents and distributors. - 4 - In Latin America, Owens Corning produces and sells building and mechanical insulation primarily through an affiliate joint venture in Mexico, as well as exports from U.S. plants. In Asia Pacific, we sell primarily mechanical insulation through joint venture businesses, including two majority owned insulation plants and an insulation fabrication center in China, two minority owned joint ventures, one in Saudi Arabia and one in Thailand, and licensees. Seasonality Sales in the Building Materials Systems segment tend to follow seasonal home improvement, remodeling and renovation, and new construction industry patterns. Sales levels for the segment, therefore, are typically lower in the winter months. Major Customers No customer in the Building Materials Systems segment accounted for more than 5% of the segment's sales in 2000. COMPOSITE SYSTEMS Principal Products and Methods of Distribution Composite Systems operates in North America, Europe, Latin America and Asia Pacific, with affiliates and licensees around the world. The businesses responsible for these products include: Composites Systems and Engineered Pipe Systems. Owens Corning is the world's leading producer of glass fiber materials used in composites. Composites systems are made up of two or more components (e.g., plastic resin and a fiber, traditionally a glass fiber) used in various applications to replace traditional materials, such as aluminum, wood, and steel. We are increasingly providing systems that are designed for a specific end-use application, and entail a material, a proprietary process and a fully assembled part or system. The global composites industry has thousands of end-use applications. Owens Corning has selected strategic markets and end-users, where we provide integral solutions, such as the automotive, telecommunications/electronics, and building construction markets. A large portion of the business also serves thousands of applications within the consumer, industrial and infrastructure markets. Tubs, showers and other related internal building components used for both remodeling and new construction are also major applications of composite materials in the construction market. These end-use products are some of the first successful material substitution conversions normally encountered in developing countries. Glass fiber reinforcements and composite material solutions for these markets are sold to direct accounts, and also to distributors around the world, who in turn service thousands of customers. More than 80% of transportation-related composite solutions are used in automotive applications. Non-automotive transportation applications include heavy trucks, rail cars, shipping containers, refrigerated containers, trailers and commercial ships. Growth continues in automotive applications, as composite systems create new applications or displace other materials in existing applications. There are hundreds of composites applications, including body panels, door modules, integrated front-end systems, instrument panels, chassis and underbody components and systems, pick-up truck beds, and heat and noise shields. These composite parts are either produced by original equipment manufacturers (OEMs), or are purchased by OEMs from first-tier suppliers. - 5 - Within the telecommunications and electronics markets, glass fiber composites are used to protect and reinforce fiber optic and copper cables. Owens Corning also produces central strength members for fiber optic cables. Other end-uses include connectors, circuit breaker boxes, computer housings, electricians' safety ladders, and hundreds of various electro/mechanical components. Through its 49% interest in a yarns joint venture, Owens Corning continues to participate in the yarns and specialty material markets, where glass fiber is used extensively in printed circuit boards made for the consumer electronics, transportation, and telecommunications industries. The consumer, industrial and infrastructure markets include sporting goods and marine applications. Owens Corning sells composite materials to OEMs and boat builders, both directly and through distributors. Owens Corning manufactures large diameter glass-reinforced plastic (GRP) pipe designed for use in underground pressure and gravity fluid handling systems. The pipe is a filament-wound structural composite made with glass fiber and polyester resins and is sold to governments and private industry for major infrastructure projects, primarily for the safe and efficient transport of water and waste. As of March 2001, Owens Corning had divested substantially all of this pipe business. Major Customers No customer in the Composite Systems segment accounted for more than 7% of the segment's sales in 2000. GENERAL Raw Materials and Patents Owens Corning considers the sources and availability of raw materials, supplies, equipment and energy necessary for the conduct of business in each of our operating segments to be adequate. Owens Corning has numerous U.S. and foreign patents issued and applied for relating to our products and processes in each operating segment, resulting from research and development efforts. We have issued royalty-bearing patent licenses to companies in several foreign countries. The licenses cover technology relating to both operating segments. Including registered trademarks for the Owens Corning logo, the color PINK, and FIBERGLAS, Owens Corning has approximately 300 trademarks registered in the United States and approximately 1,600 trademarks registered in other countries. We consider our patent and trademark positions to be adequate for the present conduct of business in each of our operating segments. Working Capital Owens Corning's manufacturing operations in each operating segment are generally continuous in nature and we warehouse much of our production prior to sale since we operate primarily with short delivery cycles. Number of Employees Owens Corning averaged approximately 20,000 employees during 2000 and had approximately 20,000 employees at December 31, 2000. - 6 - Research and Development During 2000, 1999 and 1998, Owens Corning spent approximately $52 million, $59 million, and $57 million, respectively, for research and development activities. Customer-sponsored research and development was not material in any of the last three years. Environmental Control Owens Corning's capital expenditures relating to compliance with environmental control requirements were approximately $23 million in 2000. We currently estimate that such capital expenditures will be approximately $14 million in 2001 and $14 million in 2002. We do not consider that we have experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control legislation and regulations. Operating costs of environmental control equipment were approximately $55 million in 2000. We continue to invest in equipment and process modifications to remain in compliance with applicable environmental laws and regulations. The 1990 Clean Air Act Amendments (Act) provide that the United States Environmental Protection Agency (EPA) will issue regulations on a number of air pollutants over a period of years. These regulations will define the monitoring and control technology requirements for new and existing facilities to which the specific standard applies. The Company has determined the following regulations will apply and may potentially impact its operations. In June 1999, the EPA issued regulations for wool fiberglass and mineral wool production with compliance dates in 2002. During the first quarter of 2000, the EPA issued regulations for secondary aluminum smelting and amino/phenolic resin production with compliance dates in 2003. During 2000, the EPA proposed regulations for metal coil coating and wet formed fiberglass mat production, anticipating final issue in 2001. The EPA's currently announced schedule is to propose regulations covering fiber-reinforced plastics production and asphalt roofing and processing in 2001 and issue final regulations in 2002 with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity. Competition Owens Corning's products compete with a broad range of products made from numerous basic, as well as high-performance, materials. We compete with a number of manufacturers in the United States of glass fibers in primary forms, not all of which produce a broad line of glass fiber products. Approximately one-half of these producers compete with our Building Materials operating segment in the sale of glass fibers in primary form. A similar number compete with our Composite Systems operating segment. Companies in other countries export small quantities of glass fiber products to the United States. We also compete outside the United States with a number of manufacturers of glass fibers in primary forms. We also compete with many manufacturers, fabricators and distributors in the sale of products made from glass fibers. In addition, we compete with many other manufacturers in the sale of roofing materials for sloped roofing, industrial asphalts, vinyl siding, windows and patio doors and other products. Methods of competition include product performance, price, terms, service and warranty. - 7 - ITEM 2. PROPERTIES PLANTS Owens Corning's principal plants as of December 31, 2000, are listed below by operating segment and primary products, and are owned except as noted. We consider that these properties are in good condition and well maintained, and are suitable and adequate to carry on our business. The capacity of each plant varies depending upon product mix. Certain of the facilities listed below are shown as "leased" properties. Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be accepted or rejected. The Bankruptcy Court has extended the time period within which the Debtors must make their elections through June 4, 2001, and may grant further extensions. In the process of their review, the Debtors may conclude that certain of the arrangements constitute secured financings rather than leases, in which event the applicable facility will be owned rather than leased. - 8 - BUILDING MATERIALS SYSTEMS Thermal and Acoustical Insulation Delmar, New York Newark, Ohio Eloy, Arizona Palestine, Texas Fairburn, Georgia Phenix City, Alabama (1) Kansas City, Kansas Salt Lake City, Utah Ladysmith, Wisconsin Santa Clara, California Mount Vernon, Ohio Waxahachie, Texas Anshan, China Guangzhou, China Babelegi, South Africa Scarborough, Canada Candiac, Canada Shanghai, China Edmonton, Canada Springs, South Africa (1) Facility is leased. Foam Insulation Rockford, Illinois Tallmadge, Ohio Valleyfield, Canada Volpiano, Italy (1) (1) Facility is leased. Roofing and Asphalt Processing (one of each at every location, except as noted). Adelanto, California (1) (3) Jessup, Maryland Atlanta, Georgia Kearny, New Jersey Brookville, Indiana (1) Medina, Ohio Channelview, Texas (2) Memphis, Tennessee Compton, California Minneapolis, Minnesota Denver, Colorado Morehead City, North Detroit, Michigan (2) Carolina (2) (3) Ennis, Texas (2) North Bend, Ohio (2) Ft. Lauderdale, Florida (2) Oklahoma City, Oklahoma (2) Houston, Texas Portland, Oregon (4) Irving, Texas Savannah, Georgia (1) Jacksonville, Florida Summit, Illinois (1) Roofing plant only. (2) Asphalt processing plant only. (3) Facility is leased. (4) Two asphalt processing plants, as well as one roofing plant. Glass Mat/Wet Chop Aiken, South Carolina Jackson, Tennessee (1) Fort Smith, Arkansas (1) Facility is leased.
- 9 - OEM Solutions Group Angola, Indiana Indianapolis, Indiana (1) Athens, Alabama Johnson City, Tennessee (1) Cleveland, Tennessee (1) Los Angeles, California (1) Columbus, Ohio (1) Louisville, Kentucky (1) Dallas, Texas (1) Montgomery, Alabama (1) Grand Rapids, Michigan (1) Oklahoma City, Oklahoma (1) Hazleton, Pennsylvania (1) Springfield, Tennessee (1) Hebron, Ohio Tiffin, Ohio (1) Brantford, Canada (1) Facility is leased. Manufactured Housing/Recreational Vehicles/Specialty Parts Douglas, Georgia Plant City, Florida (1) Goshen, Indiana Waco, Texas (1) Nappanee, Indiana (1) Facility is leased. Metal Products Ashville, Ohio Bellwood, Virginia Beloit, Wisconsin (1) Roxboro, North Carolina (2) (1) Facility is leased. (2) Two facilities, one of which is leased. Cultured Stone Products Chester Co., South Carolina (1) Navarre, Ohio Napa, California (2) (1) Under construction. (2) Facility is leased. Vinyl Siding Atlanta, Georgia (1) Joplin, Missouri Claremont, North Carolina Olive Branch, Mississippi London, Ontario Mission, British Columbia (1) Facility is leased.
- 10 - Windows/Patio Doors Bradenton, Florida In addition, Owens Corning has approximately 185 Specialty Distribution Centers in 36 states in the U.S. COMPOSITE SYSTEMS Textiles and Reinforcements Amarillo, Texas Huntingdon, Pennsylvania (1) Anderson, South Carolina New Braunfels, Texas (1) Duncan, South Carolina (1) Apeldoorn, The Netherlands Liversedge, United Kingdom Battice, Belgium Rio Claro, Brazil Birkeland, Norway San Vincente deCastellet/ Guelph, Canada Barcelona, Spain Kimchon, Korea Springs, South Africa L'Ardoise, France Wrexham, United Kingdom (1) Facility is leased. Engineered Pipe Systems Bagneres-De-Bigorre, France (1) Sandefjord, Norway (2) (1) Facility is leased. (2) Facility is partly leased.
OTHER PROPERTIES Owens Corning's principal executive offices of approximately 400,000 square feet are located in the Owens Corning World Headquarters, Toledo, Ohio. Owens Corning's research and development activities are primarily conducted at our Science and Technology Center, located on approximately 500 acres of land outside Granville, Ohio. It consists of more than 20 structures totaling more than 600,000 square feet. Owens Corning also has Application Development Centers in Battice, Belgium; Shanghai, China; and Bangalore, India. ITEM 3. LEGAL PROCEEDINGS The paragraphs in Note 19 to Owens Corning's Consolidated Financial Statements, entitled "Contingent Liabilities", on pages 92 through 103 hereof, are incorporated here by reference. On October 5, 2000, Owens Corning and 17 of its United States subsidiaries, including Fibreboard Corporation (collectively, the "Debtors"), filed voluntary petitions for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States - 11 - Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the "Chapter 11 Cases") are being jointly administered under Case No. 00-3837 (JKF). The Company anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. As a consequence of the Filing, all pending litigation against the Debtors is stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. Please see Note 1 to the Consolidated Financial Statements. Securities and Exchange Commission rules require us to describe certain governmental proceedings arising under federal, state or local environmental provisions unless we reasonably believe that the proceeding will result in monetary sanctions of less than $100,000. The following proceeding is reported in response to this requirement. Based on the information presently available to us, however, we believe that the costs which may be associated with this matter will not have a materially adverse effect on Owens Corning's financial position or results of operations. As previously reported, Owens Corning has received information that the Ohio Environmental Protection Agency may be contemplating an enforcement action relating to our plant in Newark, Ohio. It is believed that this matter primarily involves alleged air emission violations that occurred in the early 1990's. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Owens Corning has nothing to report under this Item. - 12 - Executive Officers of Owens Corning (as of February 28, 2001) The name, age and business experience during the past five years of Owens Corning's executive officers as of February 28, 2001, are set forth below. Each executive officer holds office until his or her successor is elected and qualified or until his or her earlier resignation, retirement or removal. All those listed have been employees of Owens Corning during the past five years except as indicated. Name and Age Position* Glen H. Hiner (66) Chairman of the Board and Chief Executive Officer since January 1992. Director since 1992. Rhonda L. Brooks (49) Vice President and President, Exterior Systems Business since April 2000; formerly Vice President and President, Roofing Systems Business (1998), Vice President, Investor Relations (1997), and Vice President, Marketing, Composites. David T. Brown (52) Executive Vice President and Chief Operating Officer since February 2001; formerly Vice President and President, Insulating Systems Business (1998), Vice President and President, Building Materials Sales and Distribution (1996), and Vice President and President, Roofing/Asphalt. Deyonne F. Epperson (44) Vice President and Controller since February 2000; formerly Vice President, Corporate Audit (1997) and Director, Corporate Treasury, at Honeywell, Inc. David L. Johns (42) Senior Vice President and Chief Technology Officer since September 1999; formerly Chief Information Officer (1994), and Management Position, Global Resource Center, at Honeywell, Inc. George E. Kiemle (53) Vice President and President, Insulating Systems Business since February 2001; formerly Vice President, Manufacturing, Insulating Systems Business. Richard D. Lantz (49) Vice President and President, Roofing Solutions Business since May 2000; formerly Vice President and President, System Thinking Sales and Distribution Business (1998), Vice President - Marketing, Insulation Business (1997), Vice President, Marketing and Sales Support, Building Materials Sales and Distribution (1996), and Vice President, Marketing, Roofing and Asphalt. - 13 - Name and Age Position* Edward Mirra, Jr. (61) Senior Vice President, Human Resources since July 2000; formerly Vice President of Roofing Operations (1998), and Vice President, Trumbull Asphalt. Heinz-J. Otto (51) Vice President and President, Composites Systems Business since October 1996; formerly Member of the Executive Board and Head of Region Europe at Landis & Gyr Corp. Maura Abeln Smith (45) Chief Restructuring Officer since November 2000 and Senior Vice President, General Counsel and Secretary since February 1998; formerly Vice President and General Counsel of GE Plastics. Michael H. Thaman (36) Senior Vice President and Chief Financial Officer since April 2000; formerly Vice President and President, Exterior Systems Business (1999), Vice President and President, Engineered Pipe Systems (1997), General Manager, OEM Solutions Group (1996), and Plant Manager - Toronto, Canada.
*Information in parentheses indicates year in which service in position began. - 14 - Part II ITEM 5. MARKET FOR OWENS CORNING'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market on which Owens Corning's common stock is traded is the New York Stock Exchange. The high and low sales prices in dollars per share for Owens Corning's common stock as reported in the consolidated transaction reporting system for each quarter during 1999 and 2000 are set forth in the following tables. 1999 High Low 2000 High Low - --------------------------------------------------- ---------------------------------------------- First Quarter 37-5/8 28-11/16 First Quarter 20-3/8 13-5/8 Second Quarter 43-3/4 30-13/16 Second Quarter 20-15/16 9-15/64 Third Quarter 35-15/16 21-11/16 Third Quarter 10-1/8 2-3/4 Fourth Quarter 22-7/8 14-9/16 Fourth Quarter 2-1/4 3/4 - --------------------------------------------------- ----------------------------------------------
The number of stockholders of record of Owens Corning's common stock on February 28, 2001 was 6,808. Owens Corning declared regular dividends of $.075 per share of common stock for each of the first three quarters of 2000 and for each of the quarters of 1999. As a result of the Filing on October 5, 2000, Owens Corning (1) did not pay the regular dividend declared for the third quarter of 2000 and (2) will not pay additional cash dividends for the foreseeable future. - 15 - ITEM 6. SELECTED FINANCIAL DATA The following is a summary of certain financial information of the Company. 2000 (a) 1999 1998(c) 1997(d) 1996(e) -------- ---- ------- ------- ------- (In millions of dollars, except per share data and where noted) Net sales $ 4,940 $ 5,048 $ 5,009 $ 4,373 $ 3,832 Cost of sales 4,014 3,815 3,933 3,482 2,840 Marketing, administrative and other expenses 659 594 668 572 523 Science and technology expenses 52 61 59 69 84 Restructure costs 32 - 117 68 38 Provision for asbestos litigation claims 790 - 1,415 - 875 Chapter 11 related reorganization items 24 - - - - Gain on sale of assets - - 359 - 37 Income (loss) from operations (631) 578 (824) 182 (491) Cost of borrowed funds 155 152 140 111 77 Other 5 - - - - Income (loss) before provision for income taxes (791) 426 (964) 71 (568) Provision (credit) for income taxes (312) 149 (306) 9 (283) Net income (loss) (478) 270 (705) 47 (284) Net income (loss) per share Basic (8.71) 4.98 (13.16) .89 (5.54) Diluted (8.71) 4.67 (13.16) .88 (5.54) Dividends per share on common stock Declared 0.1523 0.3000 .3000 .2750 .1250 Paid 0.2277 0.3000 .3000 .2625 .0625 Weighted-average number of shares outstanding (in thousands) Basic 54,816 54,083 53,579 52,860 51,349 Diluted 54,816 59,452 53,579 53,546 51,349 Net cash flow from operations (190) (28) 124 131 335 Capital spending 476 244 253 227 325 Total assets 6,912 6,494 5,101 4,996 3,913 Long-term debt (b) 7 1,764 1,535 1,595 818 Liabilities subject to compromise (b) 6,935 - - - - Average number of employees (in thousands) 20 21 20 22 19
(a) During 2000, the Company recorded a pretax charge of $790 million ($486 million after-tax) for asbestos litigation claims and a pretax charge of $229 million ($149 million after-tax) for restructuring and other actions. - 16 - ITEM 6. SELECTED FINANCIAL DATA (continued) (b) On October 5, 2000, Owens Corning and 17 of its United States subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. In accordance with AICPA Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," beginning in October 2000, the Company classifies substantially all pre-petition liabilities of the Debtors (Note 1) as "Liabilities Subject to Compromise" on the Consolidated Balance Sheet. Included in this item at December 31, 2000 were: 2000 ---- (amounts in millions) Accounts payable $ 255 Accrued interest payable 39 Accrued liabilities 72 Debt 2,832 Income taxes payable 214 Reserve for asbestos litigation claims - Owens Corning (Note 19) 2,249 Reserve for asbestos litigation claims - Fibreboard (Notes 19 and 20) 1,274 ---------- Total consolidated 6,935 Payables to non-debtors 688 ----------- Total debtor $ 7,623 =========
(c) During 1998, the Company recorded a pretax charge of $1.415 billion ($906 million after-tax) for asbestos litigation claims, a pretax charge of $243 million ($171 million after-tax) for restructuring and other actions, a pretax net credit of $275 million ($165 million after-tax) from the sale of the Company's yarns and other businesses, a pretax credit of $84 million ($52 million after tax) from the sale of its ownership interest in Alpha/Owens-Corning, LLC, a $39 million after-tax extraordinary loss from the early retirement of debt, and a $10 million charge for various tax adjustments. (d) During 1997, the Company recorded a pretax charge of $143 million ($104 million after-tax) for restructuring and other actions as well as a $15 million after-tax charge for the cumulative effect of the change in method of accounting for business process reengineering costs. The incremental sales from the 1997 acquisitions were $534 million during 1997. (e) During 1996, the Company recorded a net pretax charge of $875 million ($542 million after-tax) for asbestos litigation claims that may be received after 1999 and probable additional insurance recovery; special charges totaling $42 million ($27 million after- tax) including valuation adjustments associated with prior divestitures, major product line productivity initiatives and a contribution to the Owens-Corning Foundation; a pretax charge of $43 million ($26 million after-tax) for restructuring and other actions; a $27 million reduction of tax reserves due to favorable legislation; and a pretax gain of $37 million ($27 million after-tax) from the sale of the Company's ownership interest in its former Japanese affiliate, Asahi Fiber Glass Co. Ltd. - 17 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All per share information discussed below is on a diluted basis.) CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Some of the important factors that may influence possible differences are continued competitive factors and pricing pressures, material costs, construction activity, interest rate movements, issues involving implementation of new business systems, achievement of expected cost reductions, development in and the outcome of the Chapter 11 proceedings described below, and general economic conditions. GENERAL Voluntary Petition for Relief Under Chapter 11 On October 5, 2000 (the "Petition Date"), Owens Corning and the 17 United States subsidiaries listed below (collectively, the "Debtors"), filed voluntary petitions for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the "Chapter 11 Cases") are being jointly administered under Case No. 00-3837 (JKF). The Chapter 11 Cases do not include other United States subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the "Non-Debtor Subsidiaries"). The subsidiary Debtors that filed Chapter 11 petitions for relief are: CDC Corporation Integrex Testing Systems LLC Engineered Yarns America, Inc. HOMExperts LLC Falcon Foam Corporation Jefferson Holdings, Inc. Integrex Owens-Corning Fiberglas Technology Inc. Fibreboard Corporation Owens Corning HT, Inc. Exterior Systems, Inc. Owens-Corning Overseas Holdings, Inc. Integrex Ventures LLC Owens Corning Remodeling Systems, LLC Integrex Professional Services LLC Soltech, Inc. Integrex Supply Chain Solutions LLC
The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning's cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 19 to the Consolidated Financial Statements. Consequence of Filing As a consequence of the Filing, all pending litigation against the Debtors is stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory - 18 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) contracts and unexpired leases, and other parties to contracts or leases that are rejected may assert rejection damages claims as permitted by the Bankruptcy Code. Two creditors' committees, one representing asbestos claimants and the other representing unsecured creditors, have been appointed as official committees in the Chapter 11 Cases and, in accordance with the provisions of the Bankruptcy Code, will have the right to be heard on all matters that come before the Bankruptcy Court. Owens Corning expects that the appointed committees, together with a legal representative of future asbestos claimants to be appointed by the Bankruptcy Court, will play important roles in the Chapter 11 Cases and the negotiation of the terms of any plan or plans of reorganization. Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. Although the Debtors intend to file and seek confirmation of such a plan or plans, there can be no assurance as to when the Debtors will file such a plan or plans, or that such plan or plans will be confirmed by the Bankruptcy Court and consummated. As provided by the Bankruptcy Code, the Debtors initially had the exclusive right to propose a plan of reorganization for 120 days following the Petition Date, until February 2, 2001. On January 17, 2001, the Bankruptcy Court extended such exclusivity period until August 2, 2001, and similarly extended the Debtors' exclusive rights to solicit acceptances of a reorganization plan from April 3, 2001 to October 3, 2001. If the Debtors fail to file a plan of reorganization during such period or any extension thereof, or if such plan is not accepted by the requisite numbers of creditors and equity holders entitled to vote on the plan, other parties in interest in the Chapter 11 Cases may be permitted to propose their own plan(s) of reorganization for the Debtors. Owens Corning is unable to predict at this time what the treatment of creditors and equity holders of the respective Debtors will be under any proposed plan or plans of reorganization. Such plan or plans may provide, among other things, that all present and future asbestos-related liabilities of Owens Corning and Fibreboard will be discharged and assumed and resolved by one or more independently administered trusts established in compliance with Section 524(g) of the Bankruptcy Code. Such plan or plans may also provide for the issuance of an injunction by the Bankruptcy Court pursuant to Section 524(g) of the Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect to any claims resulting from asbestos-containing products allegedly manufactured, sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or in part by one or more Section 524(g) trusts. Similar plans of reorganization have been confirmed in the Chapter 11 cases of other companies involved in asbestos-related litigation. Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are satisfied, a court may issue a supplemental permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust. Owens Corning is unable to predict at this time what treatment will be accorded under any such reorganization plan or plans to inter-company indebtedness, licenses, transfers of goods and services and other inter-company and intra-company arrangements, transactions and relationships that were - 19 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) entered into prior to the Petition Date. These arrangements, transactions and relationships may be challenged by various parties in the Chapter 11 Cases and the outcome of those challenges, if any, may have an impact on the treatment of various claims under such plan or plans. For example, Owens Corning is unable to predict at this time what the treatment will be under any such plan or plans with respect to (1) the guaranties issued by certain of Owens Corning's U.S. subsidiaries, including Owens-Corning Fiberglas Technology Inc. ("OCFT") and IPM, Inc. ("IPM", a Non-Debtor Subsidiary that holds Owens Corning's ownership interest in a majority of Owens Corning's foreign subsidiaries), with respect to Owens Corning's $1.8 billion pre-petition bank credit facility (the "Pre-Petition Credit Facility" which is now in default) or (2) OCFT's license agreements with Owens Corning and Exterior Systems, Inc., a wholly-owned subsidiary of Owens Corning ("Exterior"), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. The payment rights and other entitlements of pre-petition creditors and Owens Corning's shareholders may be substantially altered by any plan or plans of reorganization confirmed in the Chapter 11 Cases. There is no assurance that there will be sufficient assets to satisfy the Debtors' pre-petition liabilities in whole or in part, and the pre-petition creditors of some Debtors may be treated differently than those of other Debtors. Pre-petition creditors may receive under a plan or plans less than 100% of the face value of their claims, and the interests of Owens Corning's equity security holders may be substantially diluted or cancelled in whole or in part. As noted above, it is not possible at this time to predict the outcome of the Chapter 11 Cases, the terms and provisions of any plan or plans of reorganization, or the effect of the Chapter 11 reorganization process on the claims of the creditors of the Debtors or the interests of Owens Corning's equity security holders. Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the proceedings in the Chapter 11 Cases. No bar dates have been set for the filing of proofs of claim against the Debtors. Accordingly, the ultimate number and allowed amount of such claims are not presently known. RESULTS OF OPERATIONS Business Overview - ----------------- Owens Corning is committed to continuing to invest in our businesses and provide quality products to our customers. In recent years, we have focused on increasing sales and earnings by (i) achieving productivity improvements and cost reductions in existing and acquired businesses, (ii) targeting growth markets and (iii) forming strategic alliances and partnerships to complement our existing businesses. Our two major initiatives, the System Thinking(TM) strategy and Advantage 2000, have favorably impacted sales and productivity across all businesses. We are also committed to taking full advantage of e-Business opportunities. We are also expanding our role as a service provider by offering complementary services in order to meet all of our consumers' needs. In the Composite Systems Business, Owens Corning has partnered with end users, OEMs, systems suppliers and other players within the supply chain for development of substitution opportunities for composite systems. - 20 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Owens Corning's strategy also includes the divestiture of non-strategic businesses and the realignment of existing businesses. This strategy resulted in the sale of our Falcon Foam business in the U.S. during the first quarter of 2000 and the sale of our Building Materials business in Europe during the second quarter of 2000 to an unconsolidated joint venture, Alcopor Owens Corning, in which we maintained a 40% ownership interest. Please see Notes 2 and 6 to the Consolidated Financial Statements. During 1999, we realized the benefits of pricing improvements applicable to many of our products and cost reductions resulting from restructuring programs and other productivity initiatives. These cost reductions and pricing improvements have continued into the first half of 2000. However, during 2000, we experienced significant increases in certain of our costs, particularly roofing and vinyl raw material costs, due to higher crude oil prices and tight supply conditions for polyvinyl chloride (PVC), respectively. Increased energy costs, reflecting changes in the availability of natural gas, also contributed to cost increases during 2000. These increases, coupled with a fall in demand for building materials, associated with a weakening economy, significantly reduced our margins and income from operations for the second half of the year and, as a result, for the full year. As a result, during 2000 we implemented the first phase of a strategic restructuring program. The specific objectives of this program are discussed in "Restructuring of Operations and Other Charges" below and in Note 5 to the Consolidated Financial Statements. Years Ended December 31, 2000, 1999 and 1998 - -------------------------------------------- Sales and Profitability - ----------------------- Net sales for the year ended December 31, 2000, were $4.940 billion, a decline from the 1999 level of $5.048 billion. Net sales in 1998 were $5.009 billion. Adjusted for the disposition of the Falcon Foam and Building Materials Europe businesses, sales in 2000 reflect an increase of approximately one percent compared to 1999. Sales in 2000 reflect the benefits of price increases in the Building Materials business, primarily in the U.S., as well as both price and volume increases in the Composites business, particularly in Europe. The price increases in the U.S. reflect, in part, the partial pass-through of raw material cost increases. Partially offsetting these increases was a decline in volume in the U.S. Building Materials business. This downward trend appears to be industry wide, as the housing market appears to be slowing due to sharply increased interest rates in the first six months of 2000 resulting in declines in housing starts and the remodeling market. Additionally, the impact of currency translation on sales denominated in foreign currencies was unfavorable during 2000 compared to 1999, reflecting a stronger U.S. dollar during 2000. Please see Note 2 to the Consolidated Financial Statements. Sales outside the U.S. represented 16% of total sales for the year ended December 31, 2000, compared to 18% during 1999 and 19% during 1998. The decline in non-U.S. sales is due to the sale of the Building Materials Europe business. Gross margin for 2000 was 19% of net sales, compared to 24% and 21% in 1999 and 1998, respectively. The decrease in gross margin percentage reflects the increase during 2000 in raw material costs of approximately $222 million, the majority of which related to asphalt and PVC resin, and increased energy costs during 2000. Approximately half of the increase in raw material costs was passed through to customers. Lower volumes in Building Materials negatively impacted both revenue and cost absorption, resulting in a decline in gross margin. - 21 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) For the year ended December 31, 2000, Owens Corning reported a net loss of $478 million, or $8.71 per share, compared to net income of $270 million, or $4.67 per share, for 1999 and a net loss of $705 million, or $13.16 per share, for 1998. The net loss in 2000 reflects the decrease in gross margin, primarily reflecting the adverse impact of increased raw material and energy costs, as discussed above. It also reflects the following special items: a $790 million pretax charge ($486 million after-tax) for asbestos litigation claims, a $229 million pretax charge ($149 million after-tax) for restructuring and other charges, and $24 million of Chapter 11 reorganization related expenses. Cost of borrowed funds during 2000 was $155 million, $3 million higher than 1999, resulting from increased debt and higher interest rates during 2000, partially offset by the cessation of interest costs during the fourth quarter on pre-petition debt of Debtors (totaling approximately $52 million) as a result of the Filing, described above. Marketing and administrative expenses were $542 million during 2000, compared to $599 million in 1999. The decrease is primarily attributable to cost cutting measures introduced in 2000. We reported a $631 million loss from operations. When adjusted for the asbestos litigation claims cost, the cost of restructuring and other charges, and the Chapter 11 related expenditures detailed in the prior paragraph, Owens Corning generated $412 million in income from operations for the year ended December 31, 2000 compared to $578 million for the same period in 1999. On a comparative basis, the decline from 1999 reflects the adverse effects of increased raw material and energy costs that were not fully passed through in price increases. Additionally, lower volumes and product mix in building materials contributed to a decline in income from operations. This, however, was partially offset through curtailment in operating expenses and productivity initiatives. Net income in 1999 reflects an increase in gross margin over 1998, attributable primarily to pricing improvements, particularly in U.S. residential insulation markets, and the incremental benefits of the cost-saving programs implemented throughout 1999 and 1998. Net income in 1999 also reflects a tax credit of approximately $13 million for a special tax election associated with U.K. operations. During 1999, cost of borrowed funds was $152 million, up $12 million from 1998. The increase was primarily the result of higher average debt outstanding during 1999. Marketing and administrative expenses totaled $599 million in 1999, up slightly from the 1998 level, resulting from growth funding and partially offset by incremental restructuring benefits. The net loss in 1998 included a $1.415 billion pretax charge ($906 million after-tax) for asbestos litigation claims, a $243 million pretax charge ($171 million after-tax) for restructuring and other actions and a $359 million pretax gain ($217 million after-tax) from the sale of certain businesses. Also included were manufacturing and operating expense reductions resulting from a strategic restructuring program. The reduction in equity in net income of affiliates for the year ended December 31, 1998, reflects the first quarter 1998 sale of Owens Corning's 50 percent ownership interest in Alpha/Owens Corning, LLC. As part of a debt realignment strategy, we repurchased, via a tender offer, certain debt securities during the third quarter of 1998 and recorded an extraordinary loss of $39 million, or $.72 per share, net of related income taxes of $25 million. Restructuring of Operations and Other Actions - --------------------------------------------- In conjunction with softening overall economic conditions occurring during the second half of the year and the Filing on October 5, the Company reassessed its business strategies with respect to investments in certain ventures, facilities and overhead expenditures. As a result of this assessment, a $229 million pretax charge to income from operations for restructuring and other activities was recorded during the year 2000; $203 million in the fourth quarter and $26 million in the third quarter. - 22 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The fourth quarter charges, totaling $203 million pretax, consisted of $26 million associated with the restructuring of the Company's business segments and $177 million for other actions, the majority of which represents impairments of long-lived assets. In addition, the Company recorded a $6 million pretax credit to minority interest resulting from charges related to a majority owned consolidated subsidiary. The $26 million restructure charge has been classified as a separate component of operating expenses on the Company's Consolidated Statement of Income (Loss). The components of the restructuring charge included $16 million for personnel reductions and $10 million for the divestiture of non-strategic businesses and facilities, which consisted of $6 million for non-cash asset write-downs to fair value and $4 million for exit cost liabilities, mostly removal of equipment. The $16 million for personnel reductions represented severance costs associated with the elimination of approximately 340 positions, primarily in the U.S. The primary groups affected included manufacturing and administrative personnel. As of December 31, 2000, approximately $2 million has been paid and charged against the reserve for personnel reductions. The $177 million of other charges was comprised of $84 million of asset impairments and $93 million of charges focused on improving business operations, and was accounted for as a $77 million charge to cost of sales and a $100 million charge to other operating expenses. Weakening economic conditions occurring principally in the Building Materials Europe and South Africa markets, along with the constraints on the Company's ability to provide financial support as a result of its bankruptcy filing, required the Company to reassess the carrying amounts of its investments in those regions. The reassessment resulted in $84 million of charges, as follows: 1) $54 million to write-down the Company's investment and related assets in Alcopor Owens Corning, a building materials joint venture in Europe, to estimated fair value on a held for sale basis. The write down to estimated fair value resulted from a number of significant recent developments, including a material unexpected softening of the building materials markets in Europe during the second half of 2000 and continuing into 2001 and constraints on the Company's ability to provide financial support as a result of its bankruptcy filing. The Company's board of directors has authorized management to sell its remaining 40% interest in the joint venture to the majority shareholder. The $54 million charge, which was recorded as other operating expenses, reflects management's current and best estimates of the fair value of investments and assets based on the current status of the sales negotiation; 2) $12 million to write-down the Company's investment in the majority-owned, consolidated venture in South Africa, on a held-in-use basis based upon management's analysis of current and expected future financial results and constraints on the Company's ability to fund significant future capital investments in this subsidiary as a consequence of the bankruptcy filing. The charge, which was measured using an analysis of estimated fair value of the related assets, consisted of $8 million to write-down fixed assets, charged to cost of sales, and $4 million to write-down the remaining goodwill, charged to other operating expenses. The $12 million charge was offset by a $6 million credit to record the minority owner's share, recorded in the minority interest line on the Consolidated Statement of Income (Loss); 3) $8 million write-down to fair value the investments in its Pipe joint ventures and subsidiaries on a held-for-sale basis, based upon current best estimates of the expected loss on disposition, which consisted of $3 million of equipment write-down recorded as cost of sales and $5 million as other operating expenses. The sale of a majority of the investments and subsidiaries held for sale was completed in March 2001; 4) $10 million to write-down the equity investment in ImproveNet, due to a significant decrease in market value which management believes is other than temporary, recorded as other operating expenses. - 23 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company continues to focus on achieving synergies within its strategic businesses. These efforts include assessments of market strategies, manufacturing capabilities, product line rationalization and infrastructure requirements which maximize the Advantage 2000 enterprise-wide, global computer investments. As a result of these assessments and ongoing financial analysis, the Company recorded charges of $93 million during the fourth quarter which includes: $43 million to write-down inventory made obsolete by changes in the Company's manufacturing and marketing strategies and to reflect updated estimates of the net realizable value and carrying amounts of certain inventories, recorded as cost of sales; $19 million to write-down equipment and receivables, recorded $8 million to cost of sales and $11 million to other operating expenses; $15 million to increase warranty reserves due to general changes in estimates associated with these reserves, recorded as cost of sales; and various other charges totaling $16 million recorded as other operating expenses. During the third quarter of 2000, the Company recorded a $26 million pretax charge for restructuring and other actions. This charge is comprised of a $6 million pretax restructure charge and a $20 million pretax charge for other actions. The $6 million restructure charge has been classified separately as a component of operating expenses on the consolidated statement of income and represents asset impairments associated with the planned closing of two lines at our Newark, Ohio manufacturing facility. This restructure charge represents the first phase of the Company's plan to realign operations at the Newark facility. The remaining $20 million of other actions is comprised of a $14 million pretax charge to other operating expenses, representing an $11 million charge associated with asset impairments within our Cultured Stone and other businesses, and a $3 million charge associated with severance costs for certain employees; and a $6 million pretax charge to marketing and administrative expenses, representing a settlement loss associated with one of our U.S. pension plans. During 1997 and 1998, the Company recorded pretax charges of $386 million for restructuring and other actions to implement the Company's announced program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. Of the total pretax charge of $386 million, $143 million was recorded in the fourth quarter of 1997 and the remaining $243 million was recorded during 1998. The $386 million pretax charge was comprised of a $185 million charge associated with the restructuring of the Company's business segments and a $201 million charge associated with asset impairments, including investments in certain affiliates. The components of the restructuring charge include $115 million for personnel reductions; $68 million for the divestiture of non-strategic businesses and facilities, of which $52 million represented non-cash asset revaluations and $16 million represented exit cost liabilities, primarily for leased warehouse and office facilities that were vacated; and $2 million for other actions. The divestiture of non-strategic businesses and facilities included the closure of the Candiac, Quebec manufacturing facility. During the second quarter of 1999, the Candiac manufacturing facility was re-opened in order to meet market demands. As of December 31, 2000, approximately $102 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 2,450 employees, the majority of whose severance payments were made over the course of 1998 and 1999, and approximately $13 million has been charged against exit cost liabilities. Due to timing of events, we anticipate that additional restructuring and other charges will be recorded during 2001. - 24 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Building Materials Systems - -------------------------- In the Building Materials Systems segment, sales decreased 4% in 2000, compared to 1999, resulting mostly from the Building Materials Europe and Falcon transactions. Excluding the sales related to these divestitures, sales remained constant. Volume decreases in insulation and vinyl siding products were offset by price improvements attributable to U.S. roofing and vinyl siding products. The constant level of sales in Building Materials is associated with an overall softness in the industry, reflecting a decline in housing starts and the remodeling market during 2000. Income from operations was $353 million in 2000, compared to $523 million in 1999. Income from operations in 2000 reflects raw material and energy cost increases and volume decreases, only partially offset by price increases. The roofing and vinyl markets suffered most from the raw material cost increases, with asphalt and PVC resin increases of approximately $185 million for the entire year 2000. Due to the rapid rise in crude oil prices and significantly increased demand for PVC during 2000, Owens Corning has been unable to fully pass through to customers the rapidly rising costs of asphalt and PVC resin. Actions taken during the year to improve productivity have partially narrowed the gap. Please see Note 2 to the Consolidated Financial Statements. Composite Systems - ----------------- In the Composite Systems segment, sales during 2000 were up 7% compared to 1999, to $932 million, due to price improvements and significant volume increases. Price increases were seen across all markets, especially in Europe, and volume increases were significant in Europe and the U.S. The translation impact of sales denominated in foreign currencies was a loss of approximately $40 million during 2000, reflecting a stronger U.S. dollar. Income from operations was $108 million in 2000, compared to $83 million in 1999, reflecting price and volume increases, most notably in Europe, partially offset by production inefficiencies in the U.S. and Canada. Please see Note 2 to the Consolidated Financial Statements. Accounting Changes - ------------------ We have assessed the impact of SFAS 133 on our financial statements and will adopt this accounting change effective January 1, 2001. We have completed an inventory of both our freestanding derivatives, including forward contracts, option contracts, currency swaps and interest rate swaps, and derivatives which are embedded in other contracts. Under the current literature and interpretations of the pronouncements, we have assessed our current derivatives position and have determined that adoption at January 1, 2001, would result in a gain of approximately $20 million in net income and a deferred gain of $1 million in other comprehensive income. However, there are additional interpretations currently under review by the Financial Accounting Standards Board which could change the accounting treatment and classification of the affected instruments resulting in only an immaterial gain reflected in net income. LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS Cash flow from operations was a negative $190 million for the year ended December 31, 2000, versus negative $28 million for the year ended December 31, 1999. The year-over-year decline in cash flow from operations is driven primarily by the decline in earnings in 2000 compared to 1999 - 25 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) and the increased cash used for accounts receivable. The increase in accounts receivable reflects the termination of a $125 million receivables securitization program in the U.S. and a $49 million reduction in the European receivables securitization program. Please see Note 11 to the Consolidated Financial Statements. Cash outflow for asbestos litigation claims in 2000 was $685 million ($521 million for claims payments and $164 million paid into escrow as restricted cash) and was partially offset by insurance proceeds of $380 million. This net amount of $305 million paid in 2000 compares favorably to the net amount of $680 million paid in 1999. Please see Notes 1 and 19 to the Consolidated Financial Statements. Inventories at December 31, 2000, were $469 million, an increase of $3 million from the December 31, 1999 level. Receivables at December 31, 2000, were $488 million, a $130 million increase over the December 31, 1999 level, primarily due to the reduction of the receivables securitization programs, less the impact of the Building Materials Europe and Falcon Foam sales. The decrease in accounts payable and accrued liabilities from $839 million at December 31, 1999, to $491 million at December 31, 2000, is a result of the Filing, which caused payables of Debtors to be reclassified as subject to compromise. At December 31, 2000, our net working capital was $955 million and we had a current ratio of 2.57, compared to negative $828 million and .72, respectively, at December 31, 1999. The change in working capital and current ratio is the direct result of the Filing, which reclassified all liabilities of Debtors outstanding at the date of the Filing to subject to compromise. Please see Note 1 to the Consolidated Financial Statements. Cash and cash equivalents at December 31, 2000, reflect an increase of $480 million compared to December 31, 1999. At December 31, 2000, we had $2.832 billion of borrowings subject to compromise and $75 million of other borrowings (of which $64 million were in default as a consequence of the Filing). (See Note 3). Borrowings outstanding at December 31, 1999, were $1.991 billion. At December 31, 2000, the Company had $550 million of Cash and Cash Equivalents (of which approximately $46 million is subject to an administrative freeze pending the resolution of certain alleged set-off rights which, upon approval of the Bankruptcy Court, may be exercised by certain pre-petition lenders). In addition, in connection with the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a group of lenders led by Bank of America, N.A. (the "DIP Financing"). At December 31, 2000, this facility had not been utilized except for approximately $15 million of standby letters of credit. As a consequence of the Filing and the impact of certain provisions in the Company's DIP Financing and in a cash management order entered by the Bankruptcy Court, the Company and its subsidiaries are now subject to certain restrictions, including on their ability to transfer cash and other assets to each other and to their affiliates. The Company believes, based on information presently available to it, that cash available from operations and the DIP Financing will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company's ability to comply with the terms of the DIP Financing and any cash management order entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, - 26 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company's ability to achieve profitability following such confirmation. Capital spending for property, plant and equipment, excluding acquisitions, was $476 million in 2000. This includes approximately $126 million of capital expended as a result of our Chapter 11 filing to purchase some assets that had been previously leased. We anticipate that 2001 capital spending, exclusive of acquisitions and investments in affiliates, will be approximately $300 million, the majority of which is uncommitted. The Company expects that funding for these expenditures will be from the Company's operations and the credit availability from the DIP Financing. Environmental Matters - --------------------- The Company has been deemed by the Environmental Protection Agency (EPA) to be a Potentially Responsible Party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state or local laws. In other instances, other PRPs have brought suits against the Company as a PRP for contribution under such federal, state or local laws. During 2000, the Company was designated as a PRP for three additional sites, while six cases were closed during this period. At December 31, 2000, a total of 43 such PRP designations remained unresolved by the Company. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP. The Company has established a $27 million reserve for its Superfund (and similar state, local and private action) contingent liabilities. Based upon information presently available to the Company, and without regard to the application of insurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity. The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue regulations on a number of air pollutants over a period of years. These regulations will define the monitoring and control technology requirements for new and existing facilities to which the specific standard applies. The Company has determined the following regulations will apply and may potentially impact its operations. In June 1999, the EPA issued regulations for wool fiberglass and mineral wool production with compliance dates in 2002. During the first quarter of 2000, EPA issued regulations for secondary aluminum smelting and amino/phenolic resin production with compliance dates in 2003. During 2000, EPA proposed regulations for metal coil coating and wet formed fiberglass mat production, anticipating final issue in 2001. The EPA's currently announced schedule is to propose regulations covering fiber-reinforced plastics production and asphalt roofing and processing in 2001 and issue final regulations in 2002 with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity. - 27 - ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. The Company manages such exposures through the use of certain financial and derivative financial instruments. The Company's objective with these instruments is to reduce exposure to fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. The Company enters into various forward contracts and options, which change in value as foreign currency exchange rates change, to preserve the carrying amount of foreign currency-denominated assets, liabilities, commitments, and certain anticipated foreign currency transactions and earnings. The Company also enters into certain currency and interest rate swaps to protect the carrying amount of its investments in certain foreign subsidiaries, to hedge the principal and interest payments of certain debt instruments, and to manage its exposure to fixed versus floating interest rates. The Company's policy is to use foreign currency and interest rate derivative financial instruments only to the extent necessary to manage exposures as described above. The Company does not enter into foreign currency or interest rate derivative transactions for speculative purposes. The Company uses a variance-covariance Value at Risk (VAR) computation model to estimate the potential loss in the fair value of its interest rate-sensitive financial instruments and its foreign currency-sensitive financial instruments. The VAR model uses historical foreign exchange rates and interest rates as an estimate of the volatility and correlation of these rates in future periods. It estimates a loss in fair market value using statistical modeling techniques. The amounts presented below represent the maximum potential one-day loss in fair value that the Company would expect from adverse changes in foreign currency exchange rates or interest rates assuming a 95% confidence level: December 31, December 31, Risk Category 2000 1999 ------------- ---- ---- (In millions of dollars) Foreign currency $ 1 $ - Interest rate $ 8 $ 6
Virtually all of the potential loss associated with interest rate risk is attributable to fixed-rate long-term debt instruments. The potential loss, identified above, includes interest or debt subject to compromise. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 42 through 109 hereof are incorporated here by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Owens Corning has nothing to report under this Item. - 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING INFORMATION CONCERNING DIRECTORS At February 28, 2001, Owens Corning's Board of Directors was composed of ten directors, divided into three classes. Each class of directors serves for a term expiring at the third succeeding annual meeting of stockholders after the year of election of such class, and until their successors are elected and qualified. As of February 28, 2001, Owens Corning has not scheduled an annual meeting of stockholders for 2001 or any subsequent period. Information concerning each director of Owens Corning as of February 28, 2001, is set forth below. Class Expiring At First Succeeding Annual Meeting Of Stockholders Gaston Caperton, 61. President and Chief Executive Officer of The College Board, not-for-profit educational association, New York, NY and Chairman of The Caperton Group, a business investment and development company, Shepherdstown, WV; former Governor of the State of West Virginia. Director since 1997. A graduate of the University of North Carolina, Mr. Caperton began his career in a small insurance agency, became its principal owner and chief operating officer, and led the firm to become the tenth largest privately-owned insurance brokerage firm in the U.S. He also has owned a bank and mortgage banking company. He was elected Governor of West Virginia in 1988 and 1992 and, under his leadership, the state significantly improved its education system, infrastructure and economy. In 1997, Mr. Caperton taught at Harvard University as a fellow at the John F. Kennedy Institute of Politics. Prior to beginning his current position in mid-1999, Mr. Caperton also taught at Columbia University, where he served as Director of the Institute on Education and Government at Teachers College. Mr. Caperton is a director of United Bankshares, Inc. and Energy Corporation of America. He was the 1996 Chair of the Democratic Governors' Association, and served on the National Governors' Association executive committee and as a member of the Intergovernmental Policy Advisory Committee on U.S. Trade. He also was Chairman of the Appalachian Regional Commission, Southern Regional Education Board, and the Southern Growth Policy Board. William W. Colville, 66. Retired; former Senior Vice President, General Counsel and Secretary of Owens Corning. Director since 1995. A graduate of Yale University and the Columbia University Law School, Mr. Colville began his career at Owens Corning in 1984 as Senior Vice President and General Counsel. Prior to joining Owens Corning, he was President of the Sohio Processed Minerals Group from 1982 to 1984, and General Counsel of Kennecott Corporation from 1980 to 1982. Mr. Colville is a director of Nordson Corporation. Landon Hilliard, 61. Partner, Brown Brothers Harriman & Co., private bankers, New York, NY. Director since 1989. - 29 - ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued) A graduate of the University of Virginia, Mr. Hilliard began his career at Morgan Guaranty Trust Company of New York. He joined Brown Brothers Harriman in 1974 and became a partner in 1979. Mr. Hilliard is a director of Norfolk Southern Corporation and Western World Insurance Company. He is also Chairman of the Board of Trustees of the Provident Loan Society of New York and Secretary of The Economic Club of New York. Glen H. Hiner, 66. Chairman of the Board and Chief Executive Officer, Owens Corning. Director since 1992. A graduate of West Virginia University, Mr. Hiner spent 35 years of his professional career at General Electric Company, eventually becoming Senior Vice President and head of GE Plastics. He was elected Chairman and Chief Executive Officer of Owens Corning in January 1992. Mr. Hiner is a director of Dana Corporation, Kohler Co., and The Prudential Insurance Company of America. Class Expiring At Second Succeeding Annual Meeting Of Stockholders Ann Iverson, 57. President and Chief Executive Officer of International Link, an international consulting firm, Scottsdale, AZ. Director since 1996. Ms. Iverson began her career in retailing and held various buying and executive positions at retail stores in the U.S. through 1989, including Dayton Hudson, US Shoe and Bloomingdales. She then joined British Home Stores as Director of Stores Planning, Design, Construction and Merchandising in 1990; Mothercare as Chief Executive Officer in 1992; Kay-Bee Toy Stores as President and Chief Executive Officer in 1994; and Laura Ashley Holdings plc. as Group Chief Executive in 1995. In 1998, she founded and became President and Chief Executive Officer of International Link. She also serves on the Boards of several privately-held companies. W. Walker Lewis, 56. Chairman, Devon Value Advisers, financial consulting and investment banking firm, Greenwich, CT and New York, NY. Director since 1993. Previously, Mr. Lewis served as Senior Advisor to SBC Warburg Dillon Read, Senior Advisor to Marakon Associates and Managing Director, Kidder, Peabody & Co., Inc. Prior to April 1994, he was President, Avon U.S. and Executive Vice President, Avon Products, Inc. Prior to March 1992, Mr. Lewis was Chairman of Mercer Management Consulting, Inc., a wholly-owned subsidiary of Marsh & McLennan, which is the successor to Strategic Planning Associates, a management consulting firm he founded in 1972. He is a graduate of Harvard College, where he was President and Publisher of the Harvard Lampoon. Mr. Lewis is Chairman of London Fog Industries, Inc. and a director of American Management Systems, Inc. and Mrs. Fields' Original Cookies, Inc. He is also a member of the Council on Foreign Relations, the Washington Institute of Foreign Affairs, and The Harvard Committee on University Resources. Furman C. Moseley, Jr., 66. Chairman of Sasquatch Books, Inc., publishing, Seattle, WA. Director since 1983. - 30 - ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued) Mr. Moseley joined Simpson Paper Company in 1960 and retired in June 1995 as Chairman of that company and President of Simpson Investment Company. Mr. Moseley is a director of Eaton Corporation. Class Expiring At Third Succeeding Annual Meeting Of Stockholders Norman P. Blake, Jr., 59. Chairman, President and Chief Executive Officer of Comdisco, Inc., global technology services, Rosemont, IL. Director since 1992. A graduate of Purdue University, Mr. Blake became Chairman, President and Chief Executive Officer of Comdisco, Inc. in February 2001. Previously, he served as Chief Executive Officer and Secretary General of the United States Olympic Committee beginning in 2000; Chief Executive Officer and President of Promus Hotel Corporation beginning in 1998; Chairman, Chief Executive Officer and President of USF&G Corporation beginning in 1990; and Chairman and Chief Executive Officer of Heller International Corporation of Chicago. Mr. Blake is a director of Enron Corporation. He is also a member of the Purdue Research Foundation and Purdue University's President's Council and Dean's Advisory Council, Krannert Graduate School of Management. He is the recipient of the degree of Doctor of Economics honoris causa from Purdue University, granted jointly by the Krannert Graduate School of Management and School of Liberal Arts. He has also been awarded The Ellis Island Medal of Honor. Leonard S. Coleman, Jr., 52. Senior Advisor to Major League Baseball, and former President of The National League of Professional Baseball Clubs, professional sports, New York, NY. Director since 1996. A graduate of Princeton and Harvard Universities, Mr. Coleman became President of The National League of Professional Baseball Clubs in 1994 after serving as Executive Director, Market Development of Major League Baseball. He assumed his current position in 1999. Mr. Coleman is a director of H. J. Heinz Company, the Omnicom Group, New Jersey Resources, Cendant Corporation, Radio Unica and several privately-held companies. He also serves as a director of The Metropolitan Opera, The Schumann Fund, The Jackie Robinson Foundation, The Children's Defense Fund, Seton Hall University, and The National Urban League. W. Ann Reynolds, 63. President of The University of Alabama at Birmingham, Birmingham, AL. Director since 1993. A graduate of Kansas State Teachers College and the University of Iowa, Dr. Reynolds assumed her current position in 1997. Previously, she was Chancellor of City University of New York for seven years and served eight years as Chancellor of the twenty-campus California State University system. Dr. Reynolds is a director of Humana, Inc., Abbott Laboratories and Maytag Corporation. She is also a member of the American Association for the Advancement of Science, the American Association of Anatomists, the American Board of Medical Specialties, the Society for Gynecological Investigation, and the Perinatal Research Society. - 31 - INFORMATION CONCERNING EXECUTIVE OFFICERS Certain information concerning Owens Corning's executive officers is included on pages 12 through 13 hereof. As indicated in Item 1 above, Owens Corning and 17 of its domestic subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code on October 5, 2000. In addition to serving as executive officers of Owens Corning, Mr. Hiner, Mr. Brown, Ms. Smith and Mr. Thaman also served as executive officers of one or more of such domestic subsidiaries at or within two years before the time of such filing. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations require Owens Corning's directors, and certain officers and greater than ten percent stockholders, to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange Commission. Owens Corning undertakes to file such forms on behalf of the reporting directors and officers pursuant to a power of attorney given to certain attorneys-in-fact. Such reporting officers, directors and ten percent stockholders are also required by Securities and Exchange Commission rules to furnish Owens Corning with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports received or written representations from such executive officers, directors and ten percent stockholders, Owens Corning believes that all Section 16(a) filing requirements applicable to its directors, executive officers and ten percent stockholders were complied with during fiscal year 2000. ITEM 11. EXECUTIVE COMPENSATION Executive Officer Compensation The following tables provide information on compensation and stock-based awards received by Owens Corning's Chief Executive Officer and the four other highest paid individuals who were serving as executive officers of Owens Corning at the end of 2000 (these five individuals collectively are referred to as the "Named Executive Officers"). - 32 - ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table contains information about compensation paid, and certain awards made, by Owens Corning to the Named Executive Officers for the three-year period ended December 31, 2000. Long Term Compensation ------------------------- Annual Compensation Awards Payouts ------------------------------------------------------------------ ------ ------- Restricted Securities Other Annual Stock Underlying LTIP All Other Name and Salary Bonus Compensation Award(s) Options/ Payouts Compensation Principal Position Year ($) ($) ($)(1) ($)(2) SARs(#)(3) ($) ($) - ----------------------- ---- ------ ----- ------------ --------- ----------- ------- ----------- Glen H. Hiner............. 2000 1,000,000 2,035,600 207,341(6) 0 0 637,451(8) Chairman and Chief 1999 970,833 3,029,000 224,907(6) 2,280,219 243,000 35,688(8) Executive Officer 1998 950,000 1,900,000 138,360(6) 241,719 90,000 337,695 37,898(8) David T. Brown(4)......... 2000 343,750 425,000 0 0 245,275(8) Executive Vice President 1999 300,000 771,900 348,125 36,000 11,913(8) and Chief Operating 1998 271,500 595,400 51,188 28,000 72,942 5,095(8) Officer Maura Abeln Smith(4)(5)... 2000 497,917 705,000 0 0 345,090(8) Senior Vice President, 1999 450,000 950,000 452,562 50,000 15,896(8) General Counsel and 1998 356,250 1,250,000 149,771(7) 133,656 52,000 5,333(8) Secretary and Chief Restructuring Officer Michael H. Thaman(4)...... 2000 362,500 404,500 0 0 261,900(8) Senior Vice President 1999 275,000 497,500 348,125 36,000 12,000(8) and Chief Financial Officer 1998 216,875 398,000 42,656 24,000 5,600(8) Domenico Cecere(4)........ 2000 497,917 715,000 0 0 344,400(8) Executive Vice President 1999 450,000 995,000 452,562 50,000 12,000(8) (through January 2001) 1998 332,917 1,020,000 56,875 34,000 54,031 4,885(8)
(1) "Other Annual Compensation" includes perquisites and personal benefits, where such perquisites and personal benefits exceed the lesser of $50,000 or 10% of the Named Executive Officer's annual salary and bonus for the year, as well as certain other items of compensation. For 2000, none of the Named Executive Officers received perquisites and/or personal benefits in excess of the applicable threshold. (2) Reflects awards of restricted stock under the stockholder-approved Owens Corning Stock Performance Incentive Plan. The values of the restricted stock awards shown in the table were calculated by multiplying the number of shares awarded by the closing price of Owens Corning common stock on the date of award (as reported in the New York Stock Exchange Composite Transactions). There were no restricted stock awards to any of the Named Executive Officers in 2000. The 1998 award to Ms. Smith consisted of 4,700 shares, of which 1,500 vested on each of December 31, 1998, and 1999, and the remainder vest in 3 equal annual installments beginning February 13, 2001. At the end of 2000, Mr. Hiner held a total of 90,499 shares of restricted stock valued at $73,530; Mr. Brown held a total of 14,249 shares of restricted stock valued at $11,577; Ms. Smith held a total of 14,700 shares of restricted stock valued at $11,944; Mr. Thaman held a total of 12,833 shares of restricted stock valued at $10,427; and Mr. Cecere held a total of 16,700 shares of restricted stock valued at $13,569. The value of these aggregate restricted stock holdings was calculated by multiplying the number of shares held by the closing price of Owens Corning common stock on December 31, 2000 (as reported in the New York Stock Exchange Composite Transactions). Dividends are paid by Owens Corning on restricted stock held by the Named Executive Officers if paid on stock generally. - 33 - (3) Represents shares of Owens Corning common stock underlying options granted under the Stock Performance Incentive Plan in 1998 through 2000. For 1998 grants, one-third of each stock option award becomes exercisable in each of the first through the third years following the grant. The 1999 awards become exercisable three years after date of grant if Owens Corning common stock achieves a ten-consecutive-day-average-closing-price of $55 or more on or before February 4, 2002, or, if such average-closing-price is not achieved by such date, become exercisable five years after date of grant. Vesting may accelerate in the event of death, disability, retirement, involuntary termination due to job elimination, Change of Control (as defined in the Stock Performance Incentive Plan), and in certain other events at the discretion of the Compensation Committee. No stock options were awarded to any of the Named Executive Officers in 2000 and no stock appreciation rights (SARs) were granted in 1998 through 2000. (4) Prior to February 2001, Mr. Brown served as Vice President and President, Insulating Systems Business. Ms. Smith assumed the additional duties of Chief Restructuring Officer in November 2000. Prior to April 2000, Mr. Thaman served as Vice President and President, Exterior Systems Business; prior to January 1999, he served as Vice President and President, Engineered Pipe Systems. Prior to April 2000, Mr. Cecere served as Senior Vice President and President, Building Materials Systems Business; prior to January 1999, he served as Senior Vice President and Chief Financial Officer. (5) Ms. Smith joined Owens Corning in February 1998. (6) Mr. Hiner's numbers reflect contractually required tax payments on income from his Pension Preservation Trust account. The Pension Preservation Trust is described on page 35. (7) Number reflects $112,213 as reimbursement of certain taxes on sign-on bonus and $37,558 as supplemental reimbursement of relocation expenses. (8) Of Mr. Hiner's numbers, $23,468, $23,965 and $32,714 were the present values (based upon the Applicable Federal Rate from date of payment to earliest date of repayment to Owens Corning) of split-dollar life insurance premiums paid by Owens Corning which were invested on his behalf in 2000, 1999 and 1998, respectively. Upon termination of employment, Mr. Hiner is obligated to reimburse Owens Corning for all premiums invested on his behalf. Of Ms. Smith's numbers, $8,690, $9,496 and $5,333 were the present values of split-dollar life insurance premiums paid by Owens Corning during 2000, 1999 and 1998, respectively. Ms. Smith also is obligated to reimburse Owens Corning for premium payments made on her behalf. The numbers shown for 2000 include amounts payable for 2000 under the Owens Corning Key Employee Retention Incentive Plan, as follows: Mr. Hiner, $600,000; Mr. Brown, $231,000; Ms. Smith, $330,000; Mr. Thaman, $247,500; and Mr. Cecere, $330,000. Except as indicated in the preceding paragraphs, the amounts shown for each of the Named Executive Officers represent contributions made by Owens Corning to such officer's account in the Owens Corning Savings and Profit Sharing Plan during the year indicated. - 34 - Option Grant Table ------------------ No stock options or stock appreciation rights (SARs) were granted to any of the Named Executive Officers during 2000. Option/SAR Exercises and Year-End Value Table --------------------------------------------- The following table contains information about the options for Owens Corning common stock that were exercised in 2000 by the Named Executive Officers, and the aggregate values of these officers' unexercised options at the end of 2000. None of the Named Executive Officers held stock appreciation rights (SARs) at December 31, 2000. Aggregated Option/SAR Exercises in 2000, and 12/31/00 Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Acquired Value Options/SARs at Options/SARs at Name on Exercise (#) Realized ($) 12/31/00 (#) 12/31/00 ($)(1) - ---- --------------- ------------ Exercisable/ Exercisable/ Unexercisable Unexercisable ---------------- ---------------- Glen H. Hiner --0-- --0-- 391,666/273,000 0/0 David T. Brown --0-- --0-- 78,167/45,333 0/0 Maura Abeln Smith --0-- --0-- 34,667/67,333 0/0 Michael H. Thaman --0-- --0-- 38,657/44,000 0/0 Domenico Cecere --0-- --0-- 62,167/61,333 0/0
(1) No options were in-the-money at December 31, 2000. Retirement Benefits ------------------- Owens Corning maintains a tax-qualified Cash Balance Plan covering certain of its salaried and hourly employees in the United States, including each of the Named Executive Officers, in lieu of the qualified Salaried Employees' Retirement Plan maintained prior to 1996 ("Prior Plan"), which provided retirement benefits primarily on the basis of age at retirement, years of service and average earnings from the highest three consecutive years of service. In addition, Owens Corning has a non-qualified Executive Supplemental Benefit Plan ("ESBP") to pay eligible employees leaving the Company the difference between the maximum benefits payable under Owens Corning's tax-qualified retirement plan and those benefits which would have been payable except for limitations imposed by the Internal Revenue Code. Named Executive Officers are eligible to participate in both the Cash Balance Plan and the ESBP. Cash Balance Plan - Under the Cash Balance Plan, each covered employee's earned retirement benefit under the Prior Plan (including the ESBP) was converted to an opening cash balance. Each year, Owens Corning credits to each covered employee's account 2% of such employee's covered pay up to 50% of the Social Security Taxable Wage Base and 4% of covered pay in excess of such wage base. For this purpose, covered pay includes base pay, overtime pay, other wage premium pay and annual incentive bonuses payable during the year. Cash Balance Plan accounts earn monthly interest based on the average interest rate for five-year U.S. treasury securities. Employees may receive their account balance as a lump sum or as a monthly payment when they leave Owens Corning. - 35 - For employees who were at least age 40 with 10 years of service as of December 31, 1995 ("Grandfathered Employees"), including Mr. Brown, the credit percentages applied to covered pay are increased pursuant to a formula based on age and years of service on such date. In addition, Grandfathered Employees are guaranteed that, through the year 2000, they will earn at least as much under the Cash Balance Plan as they would have earned under the Prior Plan (in each case including the ESBP). The estimated annual annuity amounts payable under the Cash Balance Plan (including the ESBP) to the Named Executive Officers at age 65 are: Mr. Hiner, $134,324; Mr. Brown, $202,490; Ms. Smith, $153,291; Mr. Thaman, $215,335; and Mr. Cecere, $101,196. Except for Mr. Cecere, these estimated amounts assume continued employment and current levels of covered pay through age 65, and are based on estimated interest rates. Supplemental Executive Retirement Plan - Owens Corning maintains a Supplemental Executive Retirement Plan ("SERP") covering certain executive officers, including Ms. Smith, who join Owens Corning in mid-career. The SERP provides for a lump sum payment following termination of employment equal to a multiple of the covered employee's Cash Balance Plan balance minus an offset equal to the present value of retirement benefits attributable to prior employment. The applicable multiplier for each covered employee ranges from 0 to 4 (determined by the covered employee's age when first employed by Owens Corning) and is 1.7 in the case of Ms. Smith. The estimated annual annuity amount payable to Ms. Smith to satisfy the lump sum obligation under this plan at age 65, under the assumptions described in the preceding paragraph, is $260,595, less the annualized offset due to her prior employment. Other Arrangements - Mr. Hiner's Employment Agreement calls for him to receive a pension which will, together with amounts payable under his prior employer's pension plan, any qualified defined benefit plan maintained by Owens Corning, and Social Security, total 60% of his "average annual compensation" (the pension he would have obtained had he remained with his prior employer until retirement). His "average annual compensation" is one third of his highest 36 months of compensation from Owens Corning or his prior employer. At the time of his employment, Owens Corning agreed to provide Mr. Cecere a supplemental pension benefit. At December 31, 2000, the estimated annual annuity amount payable to Mr. Cecere beginning at age 65 to satisfy the obligations under this benefit is $207,462, less an offset due to his prior employment. In 1992, Owens Corning established a Pension Preservation Trust for amounts payable under the ESBP as well as under the individual pension arrangements described above. Each year, the Compensation Committee determines (except with respect to Mr. Hiner, where payments are contractually determined) the participants in and any amounts to be paid with respect to the Pension Preservation Trust, which may include a portion of benefits earned under the ESBP and the pension agreements described above. During 2000, pretax payments of $61,190, $93,000, $7,357 and $209,510 were made to the Trust for the accounts of Mr. Brown, Ms. Smith, Mr. Thaman and Mr. Cecere, respectively. Amounts paid into the Trust and income from the Trust reduce the pension otherwise payable at retirement. Employment and Severance Agreements ----------------------------------- Mr. Hiner is employed under an amended agreement that continues through April 16, 2002. Under this agreement, Mr. Hiner would receive a lump sum termination payment equal to 330% of his base salary if he were to be terminated by Owens Corning without "cause," or if he should - 36 terminate his employment for "good reason," as defined by the terms of the agreement. Mr. Hiner is entitled to an annual salary review, and any salary approved may not be decreased in a later year. Mr. Hiner is also to receive a contractual bonus calculated as a percentage of base pay based upon mutually agreed entry, target and maximum company performance objectives. For 2000, these performance objectives were the same as those applicable to the other participants in Owens Corning's Corporate Incentive Plan. Owens Corning also has entered into severance arrangements with each of the other Named Executive Officers. These agreements provide for the payment of an amount equal to two times base salary plus annual incentive bonuses (based on an average of the three previous years' annual incentive payments or the average of the three previous years' annual incentive targets, whichever is greater) plus continuation of insurance benefits for a period of up to two years and, in the case of Messrs. Brown, Thaman and Cecere, a payment equal to the additional lump sum pension benefit that would have accrued had such individuals been three years older, with three additional years of service, at the time of employment termination. The base salaries as of December 31, 2000, of these Named Executive Officers are: Mr. Brown, $350,000; Ms. Smith, $500,000; Mr. Thaman, $425,000; and Mr. Cecere, $500,000. Directors' Compensation Retainer and Meeting Fees - In 2000, Owens Corning paid each director who was not an Owens Corning employee an annual retainer of $25,000. Non-employee Committee Chairmen receive an additional retainer of $4,000 each year. In addition, Owens Corning paid non-employee directors a fee of $1,000 for (a) attendance at one or more meetings of the Board of Directors on the same day, (b) attendance at one or more meetings of each Committee of the Board of Directors on the same day, and (c) for each day's attendance at other functions in which directors were requested to participate. During 2000, a director could elect to defer all or a portion of his or her annual retainer and meeting fees under the Directors' Deferred Compensation Plan, in which case his or her account was credited with the number of shares of common stock that such compensation could have purchased on the date of payment. The account was also credited with the number of shares which dividends on the credited shares could have purchased on dividend payment dates. Payments are made in cash based on the value of the account, which is determined by the then fair market value of Owens Corning common stock, at the time the individual ceases to be a director. Stock Plan for Directors - Owens Corning maintains a stockholder approved Stock Plan for Directors, applicable to each director who is not an Owens Corning employee. The plan provides for two types of grants to each eligible director: (1) a one-time non-recurring grant of options to each new outside director to acquire 10,000 shares of common stock at a per share exercise price of 100 percent of the value of a share of common stock on the date of grant, and (2) an annual grant of 500 shares of common stock on the fourth Friday in April. Initial option grants become exercisable in equal installments over five years from date of grant, subject to acceleration in certain events, and generally expire ten years from date of grant. No grant may be made under the plan after August 20, 2007, and a director may not receive an annual grant of common stock in the same calendar year he or she receives an initial option grant. A director entitled to receive an annual grant may elect to defer receipt of the common stock until he or she leaves the Board of Directors. - 37 - In 2000, Messrs. Blake, Caperton, Coleman, Colville, Hilliard, Lewis, and Moseley, Ms. Iverson and Dr. Reynolds each received (or deferred) an annual 500 share grant valued at $9,125 on the date of grant (based on the closing price of Owens Corning common stock as reported in the New York Stock Exchange Composite Transactions). Indemnity Agreements - Owens Corning has entered into an indemnity agreement with each member of the Board of Directors which provides that, if the director becomes involved in a claim (as defined in the agreement) by reason of an indemnifiable event (as defined in the agreement), Owens Corning will indemnify the director to the fullest extent authorized by Owens Corning's by-laws, notwithstanding any subsequent amendment, repeal or modification of the by-laws, against any and all expenses, judgments, fines, penalties and amounts paid in settlement of the claim. The indemnity agreement also provides that, in the event of a potential change of control (as defined in the agreement), the director is entitled to require the creation of a trust for his or her benefit, the assets of which would be subject to the claims of Owens Corning's general creditors, and the funding of such trust from time to time in amounts sufficient to satisfy Owens Corning's indemnification obligations reasonably anticipated at the time of the funding request. Charitable Award Program - To recognize the interest of Owens Corning and its directors in supporting worthy educational institutions and other charitable organizations, Owens Corning permits each director (subject to certain vesting requirements) to nominate up to two organizations to share a contribution of $1 million to be made in ten annual installments after the death of the director. Owens Corning expects to fully fund its contributions (as well as insurance premiums) from the proceeds of life insurance policies which it maintains on directors. Directors will receive no financial benefit from this program, since the charitable deduction and insurance proceeds accrue solely to Owens Corning. Compensation Committee Interlocks and Insider Participation The Compensation Committee presently consists of Landon Hilliard (Chairman), Norman P. Blake, Jr., Gaston Caperton, Furman C. Moseley, Jr. and W. Ann Reynolds. Curtis H. Barnette served on the Committee until September 2000. No other persons have served on the Compensation Committee since the beginning of 2000. Mr. Hilliard is a partner of Brown Brothers Harriman & Co. ("BBH"), a private banking firm. BBH acts as one of the investment managers for the Fibreboard Settlement Trust, which holds certain assets that are available to fund asbestos-related liabilities of Fibreboard Corporation, a subsidiary of Owens Corning. During 2000, BBH was paid fees of approximately $510,000 from the Trust for these services. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Major Stockholders Based on Schedule 13G filings, stockholders holding 5% or more of Owens Corning common stock as of December 31, 2000 were: - 38 - NAME ADDRESS SHARES % - ---------------------------------------- --------------------------- ------------ ---- AXA Financial, Inc. and related entities 1290 Avenue of the Americas 5,330,217(1) 9.6 New York, NY 10104
(1) Sole dispositive power; sole voting power over 3,223,735 shares (5.8%) and shared voting power over 235,743 shares (less than 1%). In addition, as of February 28, 2001, Owens Corning employees, including officers, beneficially owned 3,264,672 shares (5.9%) of Owens Corning common stock under Owens Corning sponsored savings plans in the United States and Canada. Stock Ownership of Management The following table shows information concerning beneficial ownership of Owens Corning common stock on February 28, 2001, by each of the directors, by each of the Named Executive Officers, and by all directors and executive officers as a group. With the exception of the ownership of Mr. Hiner (1.1%) and all directors and executive officers as a group (2.4%), each ownership shown represents less than 1% of the shares of common stock outstanding. Amount And Nature Name Of Beneficial Ownership ---------------------------------------------------------- ----------------------- Norman P. Blake, Jr....................................... 14,120(1)(3) David T. Brown............................................ 108,132(1)(2) Gaston Caperton........................................... 9,532(1)(3) Domenico Cecere........................................... 95,837(1)(2)(4) Leonard S. Coleman, Jr.................................... 10,052(1)(3) William W. Colville....................................... 15,611(1) Landon Hilliard........................................... 6,575(3) Glen H. Hiner............................................. 603,262(1)(2) Ann Iverson............................................... 12,032(1)(3) W. Walker Lewis........................................... 13,620(1)(3) Furman C. Moseley, Jr..................................... 45,582(3) W. Ann Reynolds........................................... 15,827(1)(3)(4) Maura Abeln Smith......................................... 68,369(1)(2) Michael H. Thaman......................................... 61,646(1)(2) All Directors and Executive Officers (including Named Executive Officers) (21 persons)....................... 1,375,269(1)(2)(3)(4)
(1) Includes shares which are not owned but are unissued shares subject to exercise of options, or which will be subject to exercise of options under Owens Corning benefit plans within 60 days after February 28, 2001, as follows: Mr. Blake, 10,000; Mr. Brown, 87,500; Mr. Caperton, 8,000; Mr. Cecere, 73,500; Mr. Coleman, 8,000; Mr. Colville, 10,000; Mr. Hiner, 421,666; Ms. Iverson, 10,000; Mr. Lewis, 10,000; Dr. Reynolds, 10,000; Ms. Smith, 52,000; Mr. Thaman, 46,657; All Directors and Executive Officers (21 persons), 963,651. (2) Includes shares over which there is sole voting power, but no investment power, as follows: Mr. Brown, 12,516; Mr. Cecere, 15,133; Mr. Hiner, 81,999; Ms. Smith, 14,133; Mr. Thaman, 11,933; All Directors and Executive Officers (21 persons), 188,552. - 39 - (3) Includes deferred shares over which there is currently no voting or investment power, as follows: Mr. Blake, 3,620; Mr. Caperton, 1,532; Mr. Coleman, 2,052; Mr. Hilliard, 2,575; Ms. Iverson, 1,532; Mr. Lewis, 3,620; Mr. Moseley, 6,232; Dr. Reynolds, 3,097; All Directors and Executive Officers (21 persons), 24,260. (4) Does not include shares of common stock held by family members as to which beneficial interest is disclaimed, as follows: Mr. Cecere, 1,800; Dr. Reynolds, 700; All Directors and Executive Officers (21 persons), 9,560. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Owens Corning Upon his retirement as an executive officer on December 31, 1994, Owens Corning entered into an agreement with William W. Colville, who subsequently became a director of Owens Corning. Such agreement was amended in September 1997 in connection with Mr. Colville's agreement to serve in an interim officer capacity for Owens Corning. The amended agreement provided for Mr. Colville's retention as a consultant for annually renewable terms through 2000. Under this agreement, Mr. Colville received a monthly consulting fee of $14,583, and was also eligible for office space and related services plus reimbursement of expenses incurred in the performance of services for Owens Corning. Under this agreement, Mr. Colville was entitled to have his retirement benefit recomputed to include five years of service under the agreement as if it were employment by Owens Corning. Upon expiration of the agreement in 2000, Mr. Colville received a lump sum payment of $164,327 in satisfaction of this obligation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT 1. See Financial Statements on page 41 hereof 2. See Index to Financial Statement Schedules on page 110 hereof 3. See Exhibit Index beginning on page 112 hereof Management contracts and compensatory plans and arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K are denoted in the Exhibit Index by an asterisk ("*"). (b) REPORTS ON FORM 8-K During the fourth quarter of 2000, Owens Corning filed the following current report on Form 8-K: - Dated October 5, 2000, under Item 3, "Bankruptcy or Receivership" - 40 - Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OWENS CORNING By /s/ Glen H. Hiner Date March 30, 2001 ------------------------------------------ ----------------- Glen H. Hiner, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Glen H. Hiner Date March 30, 2001 ------------------------------------------ ------------------ Glen H. Hiner, Chairman of the Board, Chief Executive Officer and Director /s/ Michael H. Thaman Date March 28, 2001 ------------------------------------------ ------------------ Michael H. Thaman, Senior Vice President and Chief Financial Officer /s/ Deyonne F. Epperson Date March 30, 2001 ------------------------------------------ ------------------ Deyonne F. Epperson, Vice President and Controller /s/ Norman P. Blake, Jr. Date March 27, 2001 ------------------------------------------ ------------------ Norman P. Blake, Jr., Director /s/ Gaston Caperton Date March 27, 2001 ------------------------------------------ ------------------ Gaston Caperton, Director /s/ Leonard S. Coleman, Jr. Date March 28, 2001 ------------------------------------------ ------------------ Leonard S. Coleman, Jr., Director /s/ William W. Colville Date March 28, 2001 ------------------------------------------ ------------------ William W. Colville, Director /s/ Landon Hilliard Date March 28, 2001 ------------------------------------------ ------------------ Landon Hilliard, Director /s/ Ann Iverson Date March 27, 2001 ------------------------------------------ ------------------ Ann Iverson, Director /s/ W. Walker Lewis Date March 29, 2001 ------------------------------------------ ------------------ W. Walker Lewis, Director /s/ Furman C. Moseley, Jr. Date March 29, 2001 ------------------------------------------ ------------------ Furman C. Moseley, Jr., Director /s/ W. Ann Reynolds Date March 27, 2001 ------------------------------------------ ------------------ W. Ann Reynolds, Director
- 41 - INDEX TO FINANCIAL STATEMENTS ----------------------------- Item Page - ---- ---- Report of Independent Public Accountants................................................................42 Summary of Significant Accounting Policies.........................................................43 - 44 Consolidated Statement of Income (Loss) - for the years ended December 31, 2000, 1999 and 1998....................................................45 - 46 Consolidated Statement of Comprehensive Income (Loss) - for the years ended December 31, 2000, 1999 and 1998.................................................47 Consolidated Balance Sheet - December 31, 2000 and 1999...........................................48 - 49 Consolidated Statement of Stockholders' Equity - for the years ended December 31, 2000, 1999 and 1998.................................................50 Consolidated Statement of Cash Flows - for the years ended December 31, 2000, 1999 and 1998..........................................................51 - 52 Notes to Consolidated Financial Statements Notes 1 through 21.............................................................................53 - 109
- 42 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders of Owens Corning: We have audited the accompanying consolidated balance sheet of OWENS CORNING (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2000, and 1999, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Owens Corning and subsidiaries as of December 31, 2000, and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company voluntarily filed for Chapter 11 bankruptcy protection on October 5, 2000. This action, which was taken primarily as a result of asbestos litigation as discussed in Note 19 to the consolidated financial statements, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index to Financial Statement Schedules is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP February 20, 2001 Toledo, Ohio - 43 - OWENS CORNING AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation Owens Corning and subsidiaries' (the "Company") consolidated financial statements generally include the accounts of majority owned subsidiaries, unless ownership is considered temporary. Intercompany accounts and transactions are eliminated. Revenue Recognition The Company recognizes revenue when goods are shipped and title passes to the customer. Provisions for discounts and rebates to customers, returns and other adjustments are provided in the same period that the related sales are recorded. Net Income per Share Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilutive effect of common equivalent shares and increased shares that would result from the conversion of debt and equity securities. The effects of anti-dilution are not presented. Unless otherwise indicated, all per share information included in the Notes to the Consolidated Financial Statements is presented on a diluted basis. Inventory Valuation Inventories are stated at cost, which is less than market value, and include material, labor and manufacturing overhead. The majority of the U.S. inventories are valued using the last-in, first-out (LIFO) method and the balance of inventories are generally valued using the first-in, first-out (FIFO) method. Goodwill Goodwill is carried at cost, less accumulated amortization, and is amortized on a straight-line basis over a period of forty years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the undiscounted cash flows of the related business over the remaining life of the goodwill in assessing whether the goodwill is recoverable. Investments in Affiliates Investments in affiliates are accounted for using the equity method, under which the Company's share of earnings of these affiliates is reflected in income as earned and dividends are credited against the investment in affiliates when received. Capitalization of Software Developed for Internal Use The Company capitalizes the direct external and internal costs incurred in connection with the development, testing and installation of software for internal use. Internally developed software is included in plant and equipment and is amortized over its estimated useful life using the straight-line method. - 44 - OWENS CORNING AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Depreciation For assets placed in service prior to January 1, 1992, the Company's plant and equipment is depreciated primarily using the double-declining balance method for the first half of an asset's estimated useful life and the straight-line method is used thereafter. For assets placed in service after December 31, 1991, the Company's plant and equipment is depreciated using the straight-line method. Derivative Financial Instruments Gains and losses on hedges of existing assets or liabilities are included in the carrying amount of those assets or liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses on hedges of net investments in foreign subsidiaries are included in stockholders' equity. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions also are deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. Gains and losses on forward currency exchange contracts that do not qualify as hedges are recognized as other income or expense. Stock Based Compensation Plans The Company applies Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS 123. Reorganization Items and Other Expenses In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7), revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business are reported separately as reorganization items in the Consolidated Statement of Income (Loss). Foreign Currency Translation The functional currency of the Company's subsidiaries is generally the applicable local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the period-end rate of exchange and their statements of income (loss) and statements of cash flows are converted on an ongoing basis at the rate of exchange when transactions occur. The resulting translation adjustment is included in the Consolidated Statement of Stockholders' Equity "Accumulated other comprehensive loss." Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the Consolidated Statement of Income (Loss) as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to 1999 and 1998 to conform with the classifications used in 2000. - 45 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 ---- ---- ---- (In millions of dollars, except share data) NET SALES $ 4,940 $ 5,048 $ 5,009 COST OF SALES 4,014 3,815 3,933 ------------ ------------ ------------- Gross margin 926 1,233 1,076 ------------ ------------ ------------- OPERATING EXPENSES Marketing and administrative expenses 542 599 596 Science and technology expenses 52 61 59 Provision for asbestos litigation claims (Note 19) 790 - 1,415 Restructure costs (Note 5) 32 - 117 Chapter 11 related reorganization items (Note 1) 24 - - Other 117 (5) 72 ------------ ------------- ------------- Total operating expenses 1,557 655 2,259 ------------ ------------ ------------- Gain on sale of assets (Note 6) - - 359 INCOME (LOSS) FROM OPERATIONS (631) 578 (824) OTHER Cost of borrowed funds (Notes 1, 3, 4 and 18) 155 152 140 Other (Notes 18 and 20) 5 - - ------------ ------------ ------------- INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES (791) 426 (964) Provision (credit) for income taxes (Note 10) (312) 149 (306) ------------- ------------ -------------- INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES (479) 277 (658) Minority interest (Note 7) (2) (6) (16) Equity in net income (loss) of affiliates (Note 13) 3 (1) 8 ------------ ------------- ------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (478) 270 (666) Extraordinary loss (Note 3) - - (39) ------------ ------------ -------------- NET INCOME (LOSS) $ (478) $ 270 $ (705) ============== ============ ============== The accompanying summary of significant accounting policies and notes are an integral part of this statement.
- 46 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (continued) 2000 1999 1998 ---- ---- ---- (In millions of dollars, except share data) NET INCOME (LOSS) PER COMMON SHARE (Note 17) Basic: Income (loss) before extraordinary item $ (8.71) $ 4.98 $ (12.44) Extraordinary loss (Note 3) - - (.72) ---------------- -------------- ------------ Net income (loss) per share $ (8.71) $ 4.98 $ (13.16) ================ ============== ============ Diluted: Income (loss) before extraordinary item $ (8.71) $ 4.67 $ (12.44) Extraordinary loss (Note 3) - - (.72) ---------------- -------------- ------------ Net income (loss) per share $ (8.71) $ 4.67 $ (13.16) ================ ============== ============ Weighted average number of common shares outstanding and common equivalent shares during the period (in millions) Basic 54.8 54.1 53.6 Diluted 54.8 59.5 53.6
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 47 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 2000 1999 1998 ---- ---- ---- (In millions of dollars) Net Income (Loss) $ (478) $ 270 $ (705) Other comprehensive income (loss), net of tax: Currency translation adjustment (41) (21) 6(a) Minimum pension liability adjustment (net of taxes of $2 million in 2000 and $1 million in 1999 and 1998) (3) 2 1 Deferred gains (losses) on hedges (2) 5 (4) ----------- ---------- ---------- Other comprehensive income (loss) (46) (14) 3 ----------- ---------- ---------- Comprehensive income (loss) $ (524) $ 256 $ (702) =========== ========== ========== (a) Includes certain reclassifications to net income due to the sale or disposition of certain businesses, the impact of which was not material to other comprehensive income.
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 48 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2000 AND 1999 2000 1999 ---- ---- ASSETS (In millions of dollars) - ------ CURRENT Cash and cash equivalents (Note 1) $ 550 $ 70 Restricted cash and securities - Fibreboard - current portion (Notes 19 and 20) - 900 Receivables, less allowances of $29 million in 2000 and $26 million in 1999 (Note 11) 488 358 Inventories (Note 12) 469 466 Insurance for asbestos litigation claims - current portion (Note 19) - 25 Deferred income taxes (Note 10) 6 185 Income tax receivable (Note 10) 31 61 Other current assets 20 23 ----------- ----------- Total current 1,564 2,088 ----------- ----------- OTHER Insurance for asbestos litigation claims (Note 19) 59 205 Restricted cash - asbestos related (Note 19) 164 - Restricted cash and securities - Fibreboard (Notes 19 and 20) 1,274 938 Deferred income taxes (Note 10) 1,075 547 Goodwill, less accumulated amortization of $113 million in 2000 and $97 million in 1999 (Notes 5 and 6) 636 743 Investments in affiliates (Notes 5 and 13) 62 65 Other noncurrent assets (Note 9) 257 208 ----------- ----------- Total other 3,527 2,706 ----------- ----------- PLANT AND EQUIPMENT, at cost Land 60 70 Buildings and leasehold improvements 663 725 Machinery and equipment 2,717 2,639 Construction in progress 327 258 ----------- ----------- 3,767 3,692 Less: Accumulated depreciation (1,946) (1,992) ------------ ------------ Net plant and equipment 1,821 1,700 ----------- ----------- TOTAL ASSETS $ 6,912 $ 6,494 =========== ===========
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 49 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2000 AND 1999 (continued) 2000 1999 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY (In millions of dollars) - ------------------------------------ CURRENT Accounts payable and accrued liabilities (Note 14) $ 491 $ 839 Reserve for asbestos litigation claims - current portion (Note 19) - 950 Asbestos related liabilities - Fibreboard - current portion (Note 20) - 900 Short-term debt (Note 4) 50 68 Long-term debt - current portion (Note 3) 68 159 ----------- ----------- Total current 609 2,916 ----------- ----------- LONG-TERM DEBT (Note 3) 7 1,764 ----------- ----------- OTHER Reserve for asbestos litigation claims (Note 19) - 820 Asbestos related liabilities - Fibreboard (Note 20) - 938 Other employee benefits liability (Note 8) 322 318 Pension plan liability (Note 9) 75 42 Other 124 339 ----------- ----------- Total other 521 2,457 ----------- ----------- LIABILITIES SUBJECT TO COMPROMISE (Notes 1 and 7) 6,935 - ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 16, 18 and 19) COMPANY-OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO COMPROMISE (Note 7) 200 194 ----------- ----------- MINORITY INTEREST 39 44 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, no par value; authorized 8 million shares, none outstanding - - Common stock, par value $.10 per share; authorized 100 million shares; issued 2000 - 55.4 million and 1999 - 54.8 million shares (Notes 6 and 17) 699 695 Deficit (1,996) (1,510) Accumulated other comprehensive loss (97) (51) Other (Note 17) (5) (15) ------------ ------------ Total stockholders' equity (1,399) (881) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,912 $ 6,494 =========== ===========
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 50 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 ---- ---- ---- COMMON STOCK (In millions of dollars) Balance beginning of year $ 695 $ 679 $ 657 Issuance of stock for: Awards under stock compensation plans (Note 17) 4 16 22 ---------- ---------- ------------- Balance end of year 699 695 679 ---------- ---------- ------------- DEFICIT Balance beginning of year (1,510) (1,762) (1,041) Net income (loss) (478) 270 (705) Cash dividends declared (8) (18) (16) ----------- ----------- -------------- Balance end of year (1,996) (1,510) (1,762) ----------- ----------- -------------- ACCUMULATED OTHER COMPREHENSIVE LOSS Balance beginning of year Currency translation adjustment (62) (41) (47) Minimum pension liability adjustment - (2) (3) Deferred gains (losses) on hedges 11 6 10 ---------- ---------- ------------- (51) (37) (40) Adjustments Currency translation adjustment (41) (21) 6 Minimum pension liability adjustment (3) 2 1 Deferred gains (losses) on hedges (2) 5 (4) ----------- ---------- -------------- (46) (14) 3 Balance end of year Currency translation adjustment (103) (62) (41) Minimum pension liability adjustment (3) - (2) Deferred gains (losses) on hedges 9 11 6 ---------- ---------- ------------- Balance end of year (97) (51) (37) ----------- ----------- -------------- OTHER Balance beginning of year (15) (14) (17) Net increase (decrease) 10 (1) 3 ---------- ----------- ------------- Balance end of year (5) (15) (14) ----------- ----------- -------------- STOCKHOLDERS' EQUITY $ (1,399) $ (881) $ (1,134) =========== =========== ==============
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 51 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 2000 1999 1998 ---- ---- ---- (In millions of dollars) NET CASH FLOW FROM OPERATIONS Net income (loss) $ (478) $ 270 $ (705) Reconciliation of net cash provided by operating activities: Noncash items: Provision for asbestos litigation claims (Note 19) 790 - 1,415 Extraordinary loss from early retirement of debt (Note 3) - - 39 Provision for depreciation and amortization 203 210 197 Provision (credit) for deferred income taxes (Note 10) (361) 163 (416) Gain on sale of assets (Note 6) - - (359) Other (Note 5) 126 (2) 122 (Increase) decrease in receivables (Note 11) (198) 112 (58) (Increase) decrease in inventories (78) (25) 16 Increase (decrease) in accounts payable and accrued liabilities 218 (113) 120 (Increase) decrease in restricted cash - asbestos related (Note 19) (164) - - Change in liabilities subject to compromise (Note 1) (100) - - Proceeds from insurance for asbestos litigation claims, excluding Fibreboard (Note 19) 380 180 47 Payments for asbestos litigation claims, excluding Fibreboard (Note 19) (521) (860) (455) Other (7) 37 161 ------------ ----------- ------------- Net cash flow from operations (190) (28) 124 ------------ ------------ ------------- NET CASH FLOW FROM INVESTING Additions to plant and equipment (476) (244) (253) Investment in subsidiaries, net of cash acquired (4) (1) - Proceeds from the sale of affiliate or business (Note 6) 193 - 668 Other (45) 20 (33) ------------ ----------- -------------- Net cash flow from investing $ (332) $ (225) $ 382 ------------- ------------ -------------
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 52 - OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (continued) 2000 1999 1998 ---- ---- ---- NET CASH FLOW FROM FINANCING (Notes 3 and 4) Net additions (reductions) to long-term credit facilities $ 1,073 $ 91 $ (635) Other additions to long-term debt 29 253 971 Other reductions to long-term debt (91) (38) (494) Net increase (decrease) in short-term debt 7 (24) 41 Repurchase of trust preferred hybrid securities - - (309) Premiums paid for early retirement of debt - - (62) Dividends paid (12) (16) (16) Other (4) 2 (4) ------------ ----------- ----------- Net cash flow from financing 1,002 268 (508) ----------- ----------- ----------- Effect of exchange rate changes on cash - 1 (2) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 480 16 (4) Cash and cash equivalents at beginning of year 70 54 58 ----------- ----------- ---------- Cash and cash equivalents at end of year $ 550 $ 70 $ 54 ============ =========== ==========
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 53 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 On October 5, 2000 (the "Petition Date"), Owens Corning and the 17 United States subsidiaries listed below (collectively, the "Debtors"), filed voluntary petitions for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the "Chapter 11 Cases") are being jointly administered under Case No. 00-3837 (JKF). The Chapter 11 Cases do not include other United States subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the "Non-Debtor Subsidiaries"). The subsidiary Debtors that filed Chapter 11 petitions for relief are: CDC Corporation Integrex Testing Systems LLC Engineered Yarns America, Inc. HOMExperts LLC Falcon Foam Corporation Jefferson Holdings, Inc. Integrex Owens-Corning Fiberglas Technology Inc. Fibreboard Corporation Owens Corning HT, Inc. Exterior Systems, Inc. Owens-Corning Overseas Holdings, Inc. Integrex Ventures LLC Owens Corning Remodeling Systems, LLC Integrex Professional Services LLC Soltech, Inc. Integrex Supply Chain Solutions LLC
The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning's cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 19 to the Consolidated Financial Statements. Consequence of Filing - --------------------- As a consequence of the Filing, all pending litigation against the Debtors is stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases, and other parties to contracts or leases that are rejected may assert rejection damages claims as permitted by the Bankruptcy Code. Two creditors' committees, one representing asbestos claimants and the other representing unsecured creditors, have been appointed as official committees in the Chapter 11 Cases and, in accordance with the provisions of the Bankruptcy Code, will have the right to be heard on all matters that come before the Bankruptcy Court. Owens Corning expects that the appointed committees, together with a legal representative of future asbestos claimants to be appointed by the Bankruptcy Court, will play important roles in the Chapter 11 Cases and the negotiation of the terms of any plan or plans of reorganization. Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. Although the Debtors intend to file and seek confirmation of such a plan or plans, there can be no assurance as to - 54 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) when the Debtors will file such a plan or plans, or that such plan or plans will be confirmed by the Bankruptcy Court and consummated. As provided by the Bankruptcy Code, the Debtors initially had the exclusive right to propose a plan of reorganization for 120 days following the Petition Date, until February 2, 2001. On January 17, 2001, the Bankruptcy Court extended such exclusivity period until August 2, 2001, and similarly extended the Debtors' exclusive rights to solicit acceptances of a reorganization plan from April 3, 2001 to October 3, 2001. If the Debtors fail to file a plan of reorganization during such period or any extension thereof, or if such plan is not accepted by the requisite numbers of creditors and equity holders entitled to vote on the plan, other parties in interest in the Chapter 11 Cases may be permitted to propose their own plan(s) of reorganization for the Debtors. Owens Corning is unable to predict at this time what the treatment of creditors and equity holders of the respective Debtors will be under any proposed plan or plans of reorganization. Such plan or plans may provide, among other things, that all present and future asbestos-related liabilities of Owens Corning and Fibreboard will be discharged and assumed and resolved by one or more independently administered trusts established in compliance with Section 524(g) of the Bankruptcy Code. Such plan or plans may also provide for the issuance of an injunction by the Bankruptcy Court pursuant to Section 524(g) of the Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect to any claims resulting from asbestos-containing products allegedly manufactured, sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or in part by one or more Section 524(g) trusts. Similar plans of reorganization have been confirmed in the Chapter 11 cases of other companies involved in asbestos-related litigation. Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are satisfied, a court may issue a supplemental permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust. Owens Corning is unable to predict at this time what treatment will be accorded under any such reorganization plan or plans to inter-company indebtedness, licenses, transfers of goods and services and other inter-company and intra-company arrangements, transactions and relationships that were entered into prior to the Petition Date. These arrangements, transactions and relationships may be challenged by various parties in the Chapter 11 Cases and the outcome of those challenges, if any, may have an impact on the treatment of various claims under such plan or plans. For example, Owens Corning is unable to predict at this time what the treatment will be under any such plan or plans with respect to (1) the guaranties issued by certain of Owens Corning's U.S. subsidiaries, including Owens-Corning Fiberglas Technology Inc. ("OCFT") and IPM, Inc. ("IPM", a Non-Debtor Subsidiary that holds Owens Corning's ownership interest in a majority of Owens Corning's foreign subsidiaries), with respect to Owens Corning's $1.8 billion pre-petition bank credit facility (the "Pre-Petition Credit Facility" which is now in default) or (2) OCFT's license agreements with Owens Corning and Exterior Systems, Inc., a wholly-owned subsidiary of Owens Corning ("Exterior"), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. The payment rights and other entitlements of pre-petition creditors and Owens Corning's shareholders - 55 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) may be substantially altered by any plan or plans of reorganization confirmed in the Chapter 11 Cases. There is no assurance that there will be sufficient assets to satisfy the Debtors' pre-petition liabilities in whole or in part, and the pre-petition creditors of some Debtors may be treated differently than those of other Debtors. Pre-petition creditors may receive under a plan or plans less than 100% of the face value of their claims, and the interests of Owens Corning's equity security holders may be substantially diluted or cancelled in whole or in part. As noted above, it is not possible at this time to predict the outcome of the Chapter 11 Cases, the terms and provisions of any plan or plans of reorganization, or the effect of the Chapter 11 reorganization process on the claims of the creditors of the Debtors or the interests of Owens Corning's equity security holders. Financial Statement Presentation - -------------------------------- The accompanying Consolidated Financial Statements have been prepared in accordance with AICPA Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," and on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, such realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the ordinary course of business, the Debtors, or some of them, may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements. Substantially all of the Company's pre-petition debt is now in default due to the Filing. As described below, the accompanying Consolidated Financial Statements present the Debtors' pre-petition debt under the caption "LIABILITIES SUBJECT TO COMPROMISE." This includes debt under the Pre-Petition Credit Facility and approximately $1.4 billion of other outstanding debt. As required by SOP 90-7, the Company, beginning in the fourth quarter of 2000, recorded the Debtors' pre-petition debt instruments at the allowed amount, as defined by SOP 90-7. Accordingly, the Company accelerated the amortization of its debt-related costs attributable to the Debtors and recorded a pretax expense of approximately $30 million during October 2000, which is classified as Chapter 11 Related Reorganization Items. As reflected in the Consolidated Financial Statements, "liabilities subject to compromise" refer to Debtors' liabilities incurred prior to the commencement of the Chapter 11 Cases. The amounts of the various liabilities that are subject to compromise are set forth below following the Debtor-In-Possession financial statements. These amounts represent Owens Corning's estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3) further developments with respect to disputed claims; (4) rejection of executory contracts and unexpired leases; (5) the determination as to the value of any collateral securing claims; (6) proofs of claim; or (7) other events. Payment terms for these amounts will be established in connection with the Chapter 11 Cases. - 56 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the proceedings in the Chapter 11 Cases. No bar dates have been set for the filing of proofs of claim against the Debtors. Accordingly, the ultimate number and allowed amount of such claims are not presently known. The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations, including employee wages, salaries, benefits and other employee obligations, pre-petition claims of critical vendors, and certain other pre-petition claims including certain customer program and warranty claims. Contractual interest expense not accrued or recorded on pre-petition debt totaled $52 million for 2000. At December 31, 2000, the Company had $550 million of Cash and Cash Equivalents (of which approximately $46 million is subject to an administrative freeze pending the resolution of certain alleged set-off rights which, upon approval of the Bankruptcy Court, may be exercised by certain pre-petition lenders). In addition, in connection with the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a group of lenders led by Bank of America, N.A. (the "DIP Financing"). The Company believes, based on information presently available to it, that cash available from operations and the DIP Financing will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company's ability to comply with the terms of the DIP Financing and any cash management order entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company's ability to achieve profitability following such confirmation. Debtor-In-Possession Financial Statements - ----------------------------------------- The condensed financial statements of the Debtors are presented as follows: - 57 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Owens Corning and Subsidiaries Debtor-in-Possession Statement of Income for the year ended December 31, 2000 2000 ---- (In millions of dollars) NET SALES $ 4,218 COST OF SALES 3,509 --------- Gross margin 709 --------- OPERATING EXPENSES Marketing and administrative expenses 460 Science and technology expenses 47 Provision for asbestos litigation claims (Note 19) 790 Restructure costs (Note 5) 26 Chapter 11 reorganization items (Note 1) 24 Other (Including interest income from non-Debtors $82 million) (94) --------- Total operating expenses 1,253 --------- LOSS FROM OPERATIONS (544) OTHER Cost of borrowed funds (Notes 3, 4 and 18) 174 Other (Notes 18 and 20) 5 --------- LOSS BEFORE CREDIT FOR INCOME TAXES (723) Credit for income taxes (Note 10) (340) --------- LOSS BEFORE EQUITY IN NET LOSS OF AFFILIATES (383) Equity in net loss of affiliates (2) --------- NET LOSS $ (385) =========
The accompanying notes are an integral part of this statement. - 58 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Owens Corning and Subsidiaries Debtor-in-Possession Balance Sheet December 31, 2000 2000 ---- (In millions of dollars) ASSETS CURRENT Cash and cash equivalents $ 461 Receivables, net 338 Receivables - non-debtors 672 Inventories 347 Deferred income taxes 4 Income tax receivable 31 Other current assets 18 ---------- Total current 1,871 ---------- OTHER Insurance for asbestos litigation claims (Note 19) 59 Restricted cash - asbestos related (Note 19) 164 Restricted cash and securities - Fibreboard (Notes 19 and 20) 1,274 Deferred income taxes 1,058 Goodwill, net 530 Investments in affiliates 38 Investments in non-debtor subsidiaries 745 Other noncurrent assets 209 ---------- Total other 4,077 ---------- PLANT AND EQUIPMENT, at cost Land 34 Buildings and leasehold improvements 522 Machinery and equipment 2,078 Construction in progress 259 ---------- 2,893 Less: Accumulated depreciation (1,502) ----------- Net plant and equipment 1,391 ---------- TOTAL ASSETS $ 7,339 ==========
The accompanying notes are an integral part of this statement. - 59 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Owens Corning and Subsidiaries Debtor-in-Possession Balance Sheet December 31, 2000 2000 ---- LIABILITIES AND STOCKHOLDERS' EQUITY (In millions of dollars) - ------------------------------------ CURRENT Accounts payable and accrued liabilities $ 320 Accounts payable and accrued liabilities - non-debtors 46 Long-term debt - current portion 1 ------------ Total current 367 ---------- OTHER Other employee benefits liability 308 Pension plan liability 68 Other 96 ----------- Total other 472 ---------- LIABILITIES SUBJECT TO COMPROMISE 7,623 STOCKHOLDERS' EQUITY Common stock 699 Deficit (1,807) Accumulated other comprehensive loss (12) Other (3) ------------- Total stockholders' equity (1,123) ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,339 =========
The accompanying notes are an integral part of this statement. - 60 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Owens Corning and Subsidiaries Debtor-in-Possession Statement of Cash Flows for the year ended December 31, 2000 2000 ---- (In millions of dollars) NET CASH FLOW FROM OPERATIONS Net loss $ (385) Reconciliation of net cash provided by operating activities Noncash items: Provision for asbestos litigation claims 790 Provision for depreciation and amortization 142 Credit for deferred income taxes (345) Other 116 Increase in receivables (154) Increase in inventories (70) Increase in accounts payable and accrued liabilities 452 Increase in restricted cash - asbestos related (164) Change in liabilities subject to compromise (100) Proceeds from insurance for asbestos litigation claims, excluding Fibreboard (Note 19) 380 Payments for asbestos litigation claims, excluding Fibreboard (Note 19) (521) Other (167) ---------- Net cash flow from operations (26) ---------- NET CASH FLOW FROM INVESTING Additions to plant and equipment (422) Investment in non-debtor subsidiaries, net of cash acquired (5) Proceeds for liquid of non-debtors subsidiary 83 Investment in non-debtor subsidiaries (146) Proceeds from the sale of affiliate or business (Note 6) 50 Other (7) ---------- Net cash flow from investing $ (447) ----------
The accompanying notes are an integral part of this statement. - 61 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued) Owens Corning and Subsidiaries Debtor-in-Possession Statement of Cash Flows for the year ended December 31, 2000 2000 ---- (In millions of dollars) NET CASH FLOW FROM FINANCING Net additions to long-term credit facilities $ 1,088 Other additions to long-term debt 7 Other reductions to long-term debt (61) Net decrease in short-term debt (21) Dividends paid (12) Other (79) ---------- Net cash flow from financing 922 ---------- Net increase in cash and cash equivalents 449 Cash and cash equivalents at beginning of period 12 ---------- Cash and cash equivalents at end of period $ 461 ==========
The amounts subject to compromise in the Consolidated and Debtor-in-Possession Balance Sheets consist of the following items at December 31: 2000 ---- (amounts in millions) Accounts payable $ 255 Accrued interest payable 39 Accrued liabilities 74 Debt (Notes 3 and 4) 2,832 Income taxes payable 212 Reserve for asbestos litigation claims - Owens Corning (Note 19) 2,249 Reserve for asbestos litigation claims - Fibreboard (Notes 19 and 20) 1,274 ---------- Total consolidated 6,935 Payables to non-debtors 688 ---------- Total debtor $ 7,623 ==========
The amounts for reorganizational items in the Consolidated and Debtor-in-Possession Income Statements consist of the following for the year ended December 31: 2000 ---- (amounts in millions) Accelerated amortization of debt issuance costs $ 30 Interest income (5) Other expenses net of liability settlements (1) --------- Total $ 24 =========
- 62 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data The Company has identified two reportable operating segments and has reported financial and descriptive information about each of those segments below on a basis that is used internally for evaluating segment performance and deciding how to allocate resources to those segments. The Company's two reportable operating segments are defined as follows: Building Materials Systems - -------------------------- Production and sale of glass wool fibers formed into thermal and acoustical insulation and air ducts; extruded polystyrene insulation; roofing shingles, glass fiber mat and asphalt materials; windows and doors; vinyl and metal siding and accessories; cast stone building products; and the branded sale of housewrap. Composite Systems - ----------------- Production and sale of glass fiber rovings and veils; long-fibre reinforced thermoplastic compounds, glass reinforced plastic pipe; tailored composite solutions for the automotive, buildings and telecommunications markets, and composite manufacturing services. Income (loss) from operations by operating segment consists of net sales less related costs and expenses and is presented on a basis that is used internally for evaluating segment performance. Certain categories of expenses such as cost of borrowed funds, general corporate expenses or income, and certain expense or income items are excluded from the internal evaluation of segment performance. Accordingly, these items are not reflected in income (loss) from operations for the Company's reportable operating segments. Please refer to the reconciliation of reportable operating segment income from operations to consolidated income before income taxes below for additional information about such items. Total assets by reportable operating segment are those assets that are used in the Company's operations in each operating segment and do not include general corporate assets. General corporate assets consist primarily of cash and cash equivalents, deferred taxes, asbestos assets, and corporate property and equipment. Please refer to the reconciliation of reportable operating segment assets to consolidated total assets below for additional information about such items. External customer sales by geographic region are attributed based upon the location from which the product is shipped. Long-lived assets by geographic region are attributed based upon the location of the assets. - 63 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data (continued) During 2000, the Company realigned its internal operating segments. Following this realignment, the Company reviewed its segments in accordance with SFAS 131 and concluded that the aggregation of its operating segments into two reportable segments was still appropriate. As a result of this realignment, intersegment transactions no longer exist between reportable segments. Net sales and income from operations have been restated for all periods presented to reflect this change. NET SALES 2000 1999 1998 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials Systems United States $ 3,728 $ 3,757 $ 3,470 Europe 90 234 271 Canada and other 190 188 170 ----------- ----------- ------------- Total Building Materials Systems $ 4,008 4,179 3,911 ----------- ----------- ------------- Composite Systems United States 410 374 576 Europe 340 338 372 Canada and other 182 157 150 ----------- ----------- ------------- Total Composite Systems 932 869 1,098 ----------- ----------- ------------- Total Reportable Operating Segments $ 4,940 $ 5,048 $ 5,009 =========== =========== ============= External Customer Sales by Geographic Region - -------------------------------------------- United States $ 4,138 $ 4,131 $ 4,046 Europe 430 572 643 Canada and other 372 345 320 ----------- ----------- ------------- Net Sales $ 4,940 $ 5,048 $ 5,009 =========== =========== =============
- 64 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data (continued) INCOME (LOSS) FROM OPERATIONS 2000 1999 1998 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials Systems United States $ 318 $ 480 $ 279 Europe 2 10 14 Canada and other 33 33 6 ------------- ----------- ------------- Total Building Materials Systems 353 523 299 ----------- ----------- ------------- Composite Systems United States 73 68 169 Europe 15 - 28 Canada and other 20 15 14 ----------- ----------- ------------- Total Composite Systems 108 83 211 ----------- ----------- ------------- Total Reportable Operating Segments $ 461 $ 606 $ 510 ============ =========== ============= Geographic Regions - ------------------ United States $ 391 $ 548 $ 448 Europe 17 10 42 Canada and other 53 48 20 ----------- ----------- ------------- Total Reportable Operating Segments $ 461 $ 606 $ 510 ============ =========== ============= Reconciliation to Consolidated Income (Loss) Before - --------------------------------------------------- Provision (Credit) for Income Taxes ----------------------------------- Restructuring and other charges (Note 5) (229) - (243) Chapter 11 related reorganization items (24) - - Asbestos litigation claims (Note 20) (790) - (1,415) Gain on sale of affiliate or business (Note 6) - - 359 General corporate expense (49) (28) (35) Cost of borrowed funds (155) (152) (140) Other (5) - - ------------ ----------- ------------- Consolidated Income (Loss) Before Provision (Credit) for Income Taxes $ (791) $ 426 $ (964) ============= =========== ==============
- 65 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data (continued) December 31, TOTAL ASSETS 2000 1999 1998 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials Systems United States $ 2,094 $ 2,020 $ 1,938 Europe 6 226 280 Canada and other 184 193 190 ------------ ------------ ------------- Total Building Materials Systems 2,284 2,439 2,408 ------------ ------------ ------------- Composite Systems United States 492 282 299 Europe 294 201 244 Canada and other 283 317 180 ------------ ------------ ------------- Total Composite Systems 1,069 800 723 ------------ ------------ ------------- Total Reportable Operating Segments $ 3,353 $ 3,239 $ 3,131 ============ ============ ============= Reconciliation to Consolidated Total Assets - ------------------------------------------- Restricted cash - asbestos related 164 - - Insurance for asbestos litigation claims 59 230 484 Deferred income taxes 1,081 732 901 Income tax receivable 31 61 117 Cash and cash equivalents 550 70 54 Restricted cash and securities - Fibreboard 1,274 1,838 - Investments in affiliates 62 65 45 LIFO inventory valuation adjustment (93) (66) (56) Other general corporate assets 431 325 425 ------------ ------------ ------------- Consolidated Total Assets $ 6,912 $ 6,494 $ 5,101 ============ ============ ============= LONG-LIVED ASSETS BY GEOGRAPHIC REGION - -------------------------------------- United States $ 1,939 $ 1,711 $ 1,702 Europe 160 339 371 Canada and other 358 393 307 ------------ ------------ ------------- Total Long-Lived Assets $ 2,457 $ 2,443 $ 2,380 ============ ============ =============
- 66 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data (continued) PROVISION FOR DEPRECIATION AND AMORTIZATION 2000 1999 1998 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials Systems United States $ 92 $ 95 $ 96 Europe 17 20 20 Canada and other 10 13 12 ------------- ------------- ----------- Total Building Materials Systems 119 128 128 ------------- ------------- ----------- Composite Systems United States 16 16 19 Europe 20 19 18 Canada and other 9 18 11 ------------- ------------- ----------- Total Composite Systems 45 53 48 ------------- ------------- ----------- Total Reportable Operating Segments $ 164 $ 181 $ 176 ============== ============= =========== Geographic Regions - ------------------ United States $ 108 $ 111 $ 115 Europe 37 39 38 Canada and other 19 31 23 --------------- ------------- ----------- Total Reportable Operating Segments $ 164 $ 181 $ 176 ============== ============= =========== Reconciliation to Consolidated Provision for - -------------------------------------------- Depreciation and Amortization ----------------------------- General Corporate Depreciation and Amortization 39 29 21 -------------- ------------- ----------- Consolidated Provision for Depreciation and Amortization $ 203 $ 210 $ 197 ============== ============= ===========
- 67 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Segment Data (continued) ADDITIONS TO LONG-LIVED ASSETS - ------------------------------ ADDITIONS TO PLANT AND EQUIPMENT 2000 1999 1998 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials Systems United States $ 180 $ 127 $ 117 Europe 5 17 15 Canada and other 5 9 17 ------------ ------------- ----------- Total Building Materials Systems 190 153 149 ------------ ------------- ----------- Composite Systems United States 135 12 32 Europe 66 18 35 Canada and other 59 25 4 ------------ ------------- ----------- Total Composite Systems 260 55 71 ------------ ------------- ----------- Total Reportable Operating Segments $ 450 $ 208 $ 220 ============ ============= =========== Geographic Regions - ------------------ United States $ 315 $ 139 $ 149 Europe 71 35 50 Canada and other 64 34 21 ------------ ------------- ----------- Total Reportable Operating Segments $ 450 $ 208 $ 220 ============ ============= =========== ADDITIONS TO GOODWILL (1) $ 12 $ - $ - ============ ============= =========== Total additions to long-lived assets of reportable operating segments $ 462 $ 208 $ 220 ============ ============= ===========
(1) During 2000, the Company made certain acquisitions which included cash expenditures for goodwill of $12 million, all of which was in Building Materials Systems in the U.S. - 68 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Long-Term Debt 2000 1999 ---- ---- (In millions of dollars) Long-Term Debt: - -------------- Asian credit facility due in 2003, variable $ 22 $ 23 Guaranteed debentures due in 2001, 10% 42 42 Eurobonds due through 2001, 9.814% - 25 U.S. medium term notes due in 2000, 7.0% - 60 Other long-term debt due through 2004, at rates from 7.24% to 11.45% 11 32 ----------- ----------- 75 182 Less: current portion (68) (99) ------------ ----------- Total long-term debt $ 7 $ 83 =========== =========== Long-Term Debt Subject to Compromise: - ------------------------------------ U.S. credit facility due in 2002, variable $ 1,443 $ 366 Debentures due in 2005, 7.5% 300 300 Debentures due in 2008, 7.7% 250 250 Debentures due in 2009, 7.0% 250 250 Debentures due in 2018, 7.5% 400 400 Debentures due in 2002, 8.875% 40 40 Debentures due in 2012, 9.375% 7 7 Bonds due in 2000, 7.25%, payable in Deutsche marks (Note 18) 63 50 Other long-term debt due through 2012, at rates from 6.25% to 13.80% 70 78 ----------- ----------- Total long-term debt subject to compromise $ 2,823 $ 1,741 =========== ===========
Due to the Filing (see Note 1), pre-petition long-term debt of the Debtors has been reclassified to the caption Subject to Compromise in the above table and on the Consolidated Balance Sheet. At December 31, 2000, the amounts shown under the caption "Long-Term Debt" in the table above represents long-term debt of non-Debtor subsidiaries. Amounts listed in 1999 "Long-Term Debt Subject to Compromise" were reclassified from their current and long term status in the prior year for comparison purposes in the above table. These instruments did not become subject to compromise until the Filing. In connection with the Filing, the Company obtained a $500 million debtor-in-possession credit facility from Bank of America, N.A., which expires in 2002. The interest rate applicable is a floating rate varying from .75% - 2.00%, based upon the average daily outstanding balance, plus LIBOR. The facility had a commitment fee on unused portions of .375% at December 31, 2000. The Company had no outstanding amounts on the facility at year end, however, approximately $15 million of this facility was used for standby letters of credit. This facility has super priority in the bankruptcy proceeding. The Asian credit facility is payable in U.S. dollars and had a rate of interest at December 31, 2000, of 7.24%. As a result of the Filing, this facility violated a non-financial covenant and is considered callable at the discretion of the financial institution. The liability has been moved to current at December 31, 2000. After the Filing, the Company discontinued debt payments to its non-Debtor subsidiary responsible for the $42 million in guaranteed debentures due 2001. As this subsidiary has no assets other than this intercompany receivable, it was unable to make required payments and is in default. At December 31, 2000, this instrument was classified as a current liability. - 69 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Long-Term Debt (continued) As is typical for bank credit facilities, the agreements relating to the facilities described above contain restrictive covenants, including requirements for a minimum EBITDA and limitations on additional borrowings, among other restrictions. The agreements include a provision that would result in all of the unpaid principal and accrued interest of the facilities becoming due immediately upon a change of control in ownership of the Company. A material adverse change in the Company's business, assets, liabilities, financial condition or results of operations constitutes default under the agreements. During 1998, $361 million of debt securities were retired by the Company in response to cash tender offers. In connection with this early retirement of debt, the Company paid premiums of approximately $62 million, incurred non-cash costs of approximately $2 million, and recorded an extraordinary loss of approximately $39 million, or $.72 per share, net of related income taxes of $25 million. The aggregate maturities for all long-term debt issues for each of the five years following December 31, 2000 are: Year (In millions of dollars) ---- 2001 $68 2002 2 2003 1 2004 4 2005 -
4. Short-Term Debt 2000 1999 ---- ---- Short-Term Debt: (In millions of dollars) --------------- Balance outstanding at December 31 $ 50 $ 68 Weighted average interest rates on short-term debt outstanding at December 31 7.5% 6.7%
2000 1999 ---- ---- Short-Term Debt Subject to Compromise: (In millions of dollars) ------------------------------------- Balance outstanding at December 31 $ 9 $ -
The Company had unused short-term lines of credit totaling $7 million and $174 million at December 31, 2000, and 1999, respectively. As a result of the Filing (see Note 1), the Company's lines of credit have been significantly reduced. After the Filing, the Company discontinued debt payments to its non-Debtor European subsidiary responsible for $30 million in short-term debt. As this subsidiary has no assets other than this intercompany receivable, it was unable to make required payments and is in default. - 70 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Restructuring of Operations and Other Charges In conjunction with softening overall economic conditions occurring during the second half of the year and the Filing on October 5, the Company reassessed its business strategies with respect to investments in certain ventures, facilities and overhead expenditures. As a result of this assessment, a $229 million pretax charge to income from operations for restructuring and other activities was recorded during the year 2000; $203 million in the fourth quarter and $26 million in the third quarter. The fourth quarter charges, totaling $203 million pretax, consisted of $26 million associated with the restructuring of the Company's business segments and $177 million for other actions, the majority of which represents impairments of long-lived assets. In addition, the Company recorded a $6 million pretax credit to minority interest resulting from charges related to a majority-owned consolidated subsidiary. The $26 million restructure charge has been classified as a separate component of operating expenses on the Company's Consolidated Statement of Income (Loss). The components of the restructuring charge included $16 million for personnel reductions and $10 million for the divestiture of non-strategic businesses and facilities, which consisted of $6 million for non-cash asset write-downs to fair value and $4 million for exit cost liabilities, mostly removal of equipment. The $16 million for personnel reductions represented severance costs associated with the elimination of approximately 340 positions, primarily in the U.S. The primary groups affected included manufacturing and administrative personnel. As of December 31, 2000, approximately $2 million has been paid and charged against the reserve for personnel reductions. The $177 million of other charges was comprised of $84 million of asset impairments and $93 million of charges focused on improving business operations, and was accounted for as a $77 million charge to cost of sales and a $100 million charge to other operating expenses. Weakening economic conditions occurring principally in the Building Materials Europe and South Africa markets, along with the constraints on the Company's ability to provide financial support as a result of its bankruptcy filing, required the Company to reassess the carrying amounts of its investments in those regions. The reassessment resulted in $84 million of charges, as follows: 1) $54 million to write-down the Company's investment and related assets in Alcopor Owens Corning, a building materials joint venture in Europe, to estimated fair value on a held for sale basis. The write down to estimated fair value resulted from a number of significant recent developments, including a material unexpected softening of the building materials markets in Europe during the second half of 2000 and continuing into 2001 and constraints on the Company's ability to provide financial support as a result of its bankruptcy filing. The Company's board of directors has authorized management to sell its remaining 40% interest in the joint venture to the majority shareholder. The $54 million charge, which was recorded as other operating expenses reflects management's current and best estimates of the fair value of investments and assets based on the current status of the sales negotiation; 2) $12 million to write-down the Company's investment in the majority owned, consolidated venture in South Africa, on a held-in-use basis based upon management's analysis of current and expected future financial results and constraints on the Company's ability to fund future significant capital investments in this subsidiary as a consequence of the bankruptcy filing. The charge, which was measured using an analysis of estimated fair value of the related assets consisted of $8 million to write-down fixed assets, charged to cost of sales, and $4 million to write-down the remaining goodwill, charged to other operating expenses. The $12 million charge was offset by a $6 million credit to record the minority owner's share, recorded in the minority interest line on the Consolidated Statement of Income (Loss); 3) $8 million write-down to fair value the investments in its Pipe joint ventures and subsidiaries on a held for sale basis, - 71 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Restructuring of Operations and Other Charges (continued) based upon current best estimates of the expected loss on disposition, which consisted of $3 million of equipment write-down recorded as cost of sales and $5 million as other operating expenses. The sale of a majority of the investments and subsidiaries held for sale was completed in March 2001; 4) $10 million to write-down the equity investment in ImproveNet, due to a significant decrease in market value which management believes is other than temporary, recorded as other operating expenses. The Company continues to focus on achieving synergies within its strategic businesses. These efforts include assessments of market strategies, manufacturing capabilities, product line rationalization and infrastructure requirements which maximize the Advantage 2000 investments. As a result of these assessments and ongoing financial analysis, the Company recorded charges of $93 million during the fourth quarter which includes: $43 million to write-down inventory made obsolete by changes in the Company's manufacturing and marketing strategies and to reflect updated estimates of the net realizable value and carrying amounts of certain inventories, recorded as cost of sales; $19 million to write-down equipment and receivables, recorded $8 million to cost of sales and $11 million to other operating expenses; $15 million to increase warranty reserves due to general changes in estimates associated with these reserves, recorded as cost of sales; and various other charges totaling $16 million recorded as other operating expenses. During the third quarter of 2000, the Company recorded a $26 million pretax charge for restructuring and other actions. This charge is comprised of a $6 million pretax restructure charge and a $20 million pretax charge for other actions. The $6 million restructure charge has been classified separately as a component of operating expenses on the consolidated statement of income and represents asset impairments associated with the planned closing of two lines at our Newark, Ohio manufacturing facility. This restructure charge represents the first phase of the Company's plan to realign operations at the Newark facility. The remaining $20 million of other actions is comprised of a $14 million pretax charge to other operating expenses, representing an $11 million charge associated with asset impairments within our Cultured Stone and other businesses, and a $3 million charge associated with severance costs for certain employees; and a $6 million pretax charge to marketing and administrative expenses, representing a settlement loss associated with one of our U.S. pension plans. During 1997 and 1998, the Company recorded pretax charges of $386 million for restructuring and other actions to implement the Company's announced program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. Of the total pretax charge of $386 million, $143 million was recorded in the fourth quarter of 1997 and the remaining $243 million was recorded during 1998. The $386 million pretax charge was comprised of a $185 million charge associated with the restructuring of the Company's business segments and a $201 million charge associated with asset impairments, including investments in certain affiliates. The components of the restructuring charge include $115 million for personnel reductions; $68 million for the divestiture of non-strategic businesses and facilities, of which $52 million represented non-cash asset revaluations and $16 million represented exit cost liabilities, primarily for leased warehouse and office facilities that were vacated; and $2 million for other actions. The divestiture of non-strategic businesses and facilities included the closure of the Candiac, Quebec manufacturing facility. During the second quarter of 1999, the Candiac manufacturing facility was re-opened in order to meet market demands. As of December 31, 2000, approximately $102 million has been - 72 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Restructuring of Operations and Other Charges (continued) paid and charged against the reserve for personnel reductions, representing the elimination of approximately 2,450 employees, the majority of whose severance payments were made over the course of 1998 and 1999, and approximately $13 million has been charged against exit cost liabilities. The following table summarizes the status of the liabilities from the 1997, 1998 and 2000 restructure program described above, including cumulative spending and adjustments and the remaining balance as of December 31, 2000: Liability at Original Total December 31, (In millions of dollars) Liability Payments 2000 --------- -------- ---- Personnel Costs $ 131 $ (104) $ 27 Facility and Business Exit Costs 20 (14) 6 Other 2 (2) - ------- --------- --------- Total $ 153 $ (120) $ 33 ======= ========= =========
The Company continually evaluates whether events and circumstances have occurred that indicate that the carrying amount of certain long-lived assets is recoverable. When factors indicate that a long-lived asset should be evaluated for possible impairment, the Company uses an estimate of the expected undiscounted cash flows to be generated by the asset to determine whether the carrying amount is recoverable or if an impairment exists. When it is determined that an impairment exists, the Company uses the fair market value of the asset, usually measured by the discounted cash flows to be generated by the asset, to determine the amount of the impairment to be recorded in the financial statements. 6. Acquisitions and Divestitures of Business Acquisitions - ------------ In connection with a proposal received from its Korean joint venture partner, the Company infused approximately $29 million of cash into this venture in March 1999. As a result of this investment, along with additional investments by the other partner, the Company increased its ownership interest in Owens Corning Korea to 70%. The Company accounted for this transaction under the purchase method of accounting whereby the assets acquired and liabilities assumed, including $84 million in debt, have been recorded at their fair values and the results of operations have been consolidated since the date of acquisition. Prior to that date, the Company accounted for this joint venture under the equity method. The pro forma effect of this acquisition was not material to the financial statements. Divestitures - ------------ During the second quarter of 2000, the Company completed the sale of its European Building Materials business to an unconsolidated joint venture, Alcopor Owens Corning, in which the Company has a 40% interest. Proceeds from the sale, net of the Company's $34 million cash infusion into the joint venture, were - 73 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Acquisitions and Divestitures of Business (continued) $177 million. In connection with this transaction, the joint venture assumed $62 million of debt from Owens Corning and the Company incurred fees of approximately $6 million, resulting in net cash proceeds of approximately $109 million. A pretax gain of approximately $5 million, including a $54 million write-off of goodwill, was realized from the sale. During the fourth quarter of 2000, the Company reduced its investment in Alcopor Owens Corning to estimated net realizable value. See Note 5 to the Consolidated Financial Statements. The results of operations of the European Building Materials business are reflected in the Company's Consolidated Statement of Income (Loss) through the period ending May 31, 2000. For the five months ended May 31, 2000, and the year ended December 31, 1999, the European Building Materials business generated sales of approximately $79 million and $234 million, respectively, and income from operations of approximately $3 million and $12 million, respectively. Effective May 31, 2000, the Company accounts for its ownership interest in Alcopor Owens Corning under the equity method. During the first quarter of 2000, the Company completed the sale of the assets of Falcon Foam, a producer of foam insulation in Michigan and California. Net proceeds from the sale were $50 million and resulted in a pretax loss of approximately $5 million, including a $32 million write-off of goodwill. Late in the first quarter of 1998, the Company sold its 50% ownership interest in Alpha/Owens Corning, LLC. With cash proceeds of approximately $103 million, the Company recorded a pretax gain of approximately $84 million. During the third quarter of 1998, the Company formed a joint venture for its yarns and specialty materials business (the "yarns business") to which it contributed two manufacturing plants and certain proprietary technology. On September 30, 1998, the Company completed the sale of 51% of the yarns business to a U.S. subsidiary of Groupe Porcher Industries of Badinieres, France for $340 million. The Company continues to have a 49% ownership interest in the joint venture. Upon closing, the Company also received a distribution of $193 million from the joint venture. As a result of the sale of 51% interest in the yarns business and the receipt of the distribution from the joint venture, the Company recorded a net pretax gain of $295 million. The results of operations of the yarns business are reflected in the Company's consolidated statement of income through the period ending September 30, 1998. For the nine months ended September 30, 1998, and the year ended December 31, 1997, the yarns business recorded sales of approximately $205 million and $277 million, respectively, and income from operations of approximately $57 million and $80 million, respectively. Effective September 30, 1998, the Company accounts for its ownership interest in the yarns business under the equity method. Additionally, during the third quarter of 1998, the Company sold its Kitsons distribution business in the U.K. and its windows manufacturing business in the U.S. and recorded a pretax loss of approximately $20 million. - 74 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Convertible Monthly Income Preferred Securities (MIPS) In 1995, Owens Corning Capital, LLC ("OC Capital"), a Delaware limited liability company, all of the common limited liability company interests in which are owned indirectly by Owens Corning (the "Common Securities"), completed a private offering of 4 million shares of 6-1/2% Convertible Monthly Income Preferred Securities ("Preferred Securities"). The aggregate purchase price for the offering was $200 million. The only asset of OC Capital is $253 million of 6-1/2% Convertible Subordinated Debentures due 2025 of Owens Corning (the "Debentures"), which were issued in exchange for the proceeds of the Preferred Securities and the Common Securities. As a result of the Filing (see Note 1), Owens Corning is no longer making interest payments to OC Capital on the Debentures. As a result, OC Capital no longer has funds available to pay distributions on the Preferred Securities and stopped paying such distributions in October, 2000. Distributions of $10 million ($6 million after-tax) for 2000 and $13 million ($8 million after-tax) for each of 1999 and 1998 have been recorded net of tax as minority interest on the Company's consolidated statement of income 8. Postemployment and Postretirement Benefits Other Than Pensions The Company and its subsidiaries maintain health care and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the U.S. are unfunded and pay either 1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or, 2) fixed amounts of medical expense reimbursement. Employees become eligible to participate in the health care plans upon retirement under the Company's pension plans if they have accumulated 10 years of service after age 45. Some of the plans are contributory, with some retiree contributions adjusted annually. The Company has reserved the right to change or eliminate these benefit plans subject to the terms of collective bargaining agreements. In accordance with Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," the following tables provide a reconciliation of the changes in the accumulated postretirement benefits obligation and the accrued benefits cost liability at October 31, 2000, and 1999, as reflected on the Consolidated Balance Sheet at December 31, 2000, and 1999: - 75 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Postemployment and Postretirement Benefits Other Than Pensions (continued) 2000 1999 ---- ---- (In millions of dollars) Change in Accumulated Postretirement Benefit Obligation - ------------------------------------------------------- Benefits obligation at beginning of period $ 319 $ 343 Service cost 7 8 Interest cost 24 24 Amendments - 1 Actuarial (gain) loss 50 (35) Currency (gain) loss (1) 1 Benefits paid (25) (23) ------------- ------------ Benefits obligation at end of period $ 374 $ 319 ============= ============ Funded status $ (374) $ (319) Unrecognized net actuarial loss 52 2 Benefit payments subsequent to valuation date 5 4 ------------ ------------ Accrued benefit cost (includes current liabilities of $25 million in 2000 and 1999) $ (317) $ (313) ============= ============= Weighted-average assumptions as of December 31 2000 1999 - ---------------------------------------------- ---- ---- Discount rate 8.0% 8.0% The following table presents the components of net periodic benefits cost during 2000, 1999 and 1998: Components of net periodic benefit cost 2000 1999 1998 - --------------------------------------- --------- --------- --------- (In millions of dollars) Service cost $ 7 $ 8 $ 9 Interest cost 24 24 23 Amortization of prior service cost - (9) (20) Curtailment gain - - (3) ------ -------- --------- Net periodic benefit cost $ 31 $ 23 $ 9 ====== ======== ========
For measurement purposes, a 9 - 17% annual rate of increase in the per capita cost of covered health care claims was assumed for 2001, varying by plan. This rate will ultimately decrease to 4.5 - 6% by 2006. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, a one-percentage point change in the assumed health care cost trend rate would have the following effects as of October 31, 2000, and 1999: 2000 1999 ---- ---- 1-Percentage Point 1-Percentage Point Increase Decrease Increase Decrease -------- -------- -------- -------- (In millions of dollars) Effect on total of service and interest cost components $ 4 $ (3) $ 4 $ (3) Effect on accumulated postretirement benefit obligation 37 (31) 29 (23)
- 76 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Postemployment and Postretirement Benefits Other Than Pensions (continued) The Company also recognizes the obligation to provide benefits to former or inactive employees after employment but before retirement under certain conditions. These benefits include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits (including workers' compensation), job training and counseling, and continuation of benefits such as health care and life insurance coverage. The accrued postemployment benefits cost liability at October 31, 2000, and 1999, as reflected on the balance sheet at December 31, 2000, and 1999 was $34 million, including current liabilities of $4 million for both years. The net postemployment benefits expense was approximately $4 million in 2000 and $2 million in 1999 and 1998. 9. Pension Plans The Company has several defined benefit pension plans covering most employees. Under the plans, pension benefits are generally based on an employee's pay and number of years of service. Company contributions to these pension plans are based on the calculations of independent actuaries using the projected unit credit method. Plan assets consist primarily of equity securities with the balance in fixed income investments. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits. In accordance with Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," the following tables provide a reconciliation of the changes in the projected pension benefits obligation, the changes in the pension plan assets, and the net pension liability at October 31, 2000, and 1999, as reflected on the consolidated balance sheet at December 31, 2000, and 1999: 2000 1999 ---- ---- (In millions of dollars) Change in Projected Pension Benefit Obligation - ---------------------------------------------- Benefits obligation at beginning of period $ 865 $ 975 Service cost 18 19 Interest cost 64 65 Amendments 55 2 Impact of curtailment 3 (4) Impact of foreign currency translation (24) - Actuarial (gain) loss 117 (57) Employee contributions 2 2 Benefits paid (121) (137) ------------ ------------ Benefits obligation at end of period $ 979 $ 865 ============ ===========
Benefits paid during 2000 and 1999 include payments resulting from the Company's restructuring program and the sale of certain businesses. (Notes 5 and 6). - 77 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Pension Plans (continued) Change in Pension Plan Assets 2000 1999 - ----------------------------- ---- ---- (In millions of dollars) Fair value of plan assets at beginning of period $ 977 $ 961 Actual return on plan assets 91 154 Impact of foreign currency translation (23) 2 Employer contributions 3 2 Employee contributions 2 3 Settlement - (16) Benefits paid (114) (129) ------------ ----------- Fair value of plan assets at end of period $ 936 $ 977 ============ =========== Funded status $ (43) $ 112 Unrecognized net transition asset (17) (22) Unrecognized net actuarial (gain) loss 37 (53) Unrecognized prior service cost 30 (25) ------------ ----------- Prepaid (accrued) benefit cost $ 7 $ 12 ============ ===========
Amounts Recognized in the Consolidated Balance Sheet 2000 1999 - ---------------------------------------------------- ---- ---- (In millions of dollars) Prepaid benefit cost $ 56 $ 51 Accrued benefit liability (includes current liabilities of $5 million and less than $1 million in 2000 and 1999, respectively) (80) (39) Intangible asset 26 - Accumulated other comprehensive income 3 - Deferred tax asset 2 - ----------- ----------- Net amount recognized $ 7 $ 12 =========== ===========
Weighted-average assumptions as of December 31 2000 1999 - ----------------------------------------------- ---- ---- Discount rate 8.00% 8.00% Expected return on plan assets 9.00% 9.00% Rate of compensation increase 5.50% 5.50%
- 78 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Pension Plans (continued) The following table presents the components of net periodic pension cost during 2000, 1999 and 1998: Components of Net Periodic Pension Cost 2000 1999 1998 --------------------------------------- ---- ---- ---- (In millions in dollars) Service cost $ 18 $ 19 $ 19 Interest cost 64 65 69 Expected return on plan assets (73) (75) (83) Amortization of transition amount (5) (5) (5) Amortization of prior service cost (2) (4) (7) Amortization of net actuarial loss 1 5 4 Curtailment/Settlement (gain) loss 9 (6) 1 --------- ---------- --------- Net periodic benefit cost $ 12 $ (1) $ (2) ========= ========== ==========
Certain of the Company's pension plans have an accumulated benefit obligation (ABO) in excess of the fair value of plan assets. The ABO and fair value of plan assets for such plans are $742 million and $669 million, respectively, at October 31, 2000, and $9 million and $4 million, respectively, at October 31, 1999. Certain of the Company's pension plans are unfunded. The portion of the total projected benefit obligation attributable to unfunded plans is approximately $9 million and $3 million at October 31, 2000, and 1999, respectively. The Company also sponsors defined contribution plans available to substantially all U.S. employees. Company contributions for the plans are based on matching a percentage of employee savings up to a maximum savings level. The Company's contributions were $17 million in 2000 and $14 million in 1999 and 1998. 10. Income Taxes 2000 1999 1998 ---- ---- ---- (In millions in dollars) Income (loss) before provision (credit) for income taxes: U.S. $ (849) $ 374 $ (897) Foreign 58 52 (67) ---------- -------- ---------- Total $ (791) $ 426 $ (964) =========== ======== ==========
- 79 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Income Taxes (continued) 2000 1999 1998 ---- ---- ---- (In millions in dollars) Provision (credit) for income taxes: Current U.S. $ 7 $ (56) $ (86) State and local (1) (2) - Foreign 31 16 5 ---------- ------- --------- Total current 37 (42) (81) ---------- ------- ---------- Deferred U.S. (330) 158 (203) State and local (23) 25 (20) Foreign 4 8 (2) ---------- ------- ---------- Total deferred (349) 191 (225) ----------- ------- ---------- Total provision (credit) for income taxes $ (312) $ 149 $ (306) =========== ======= ==========
The reconciliation between the U.S. federal statutory rate and the Company's effective income tax rate is: 2000 1999 1998 ---- ---- ---- U.S. federal statutory rate (35)% 35% (35)% State and local income taxes (4) 4 (1) Operating losses of foreign subsidiaries 1 2 3 Other, net (2) (6) 1 ----------- ----------- --------- Effective tax rate (40)% 35% (32)% ============ =========== ===========
As of December 31, 2000, the Company has not provided for withholding or U.S. federal income taxes on approximately $340 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, approximately $37 million of deferred income taxes would have been provided. At December 31, 2000, the Company had net operating loss carryforwards for certain of its foreign subsidiaries and certain of its state tax jurisdictions, the tax benefit of which is approximately $290 million. Tax benefits of $230 million expire over the period from 2001 through 2021, and the remaining $60 million have an indefinite carryforward. The cumulative temporary differences giving rise to the deferred tax assets and liabilities at December 31, 2000, and 1999 are as follows: - 80 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Income Taxes (continued) 2000 1999 ---- ---- Deferred Deferred Deferred Tax Deferred Tax Tax Assets Liabilities Tax Assets Liabilities ---------- ----------- ---------- ----------- (In millions of dollars) Asbestos litigation claims $ 847 $ - $ 618 $ - Other employee benefits 146 - 140 - Pension plans 15 21 20 17 Depreciation - 303 - 254 Operating loss carryforwards 290 - 275 - State and local taxes - 52 - 58 Other 492 252 283 214 --------- --------- --------- --------- Subtotal 1,790 628 1,336 543 Valuation allowances (81) - (61) - ---------- ----------- --------- --------- Total deferred taxes $ 1,709 $ 628 $ 1,275 $ 543 ========= ========= ========= =========
Management fully expects to realize its net deferred tax assets through income from future operations. 11. Accounts Receivable Securitization Prior to its expiration in October 2000, Owens Corning, through its subsidiary Owens Corning Funding Corporation, had an agreement allowing sale, on a revolving basis, of accounts receivable, up to a maximum of $125 million. At December 31, 1999, $125 million had been sold under this agreement, and the sale was reflected as a reduction of accounts receivable in the Company's Consolidated Balance Sheet. In 2000, 1999 and 1998, the Company also sold certain accounts receivable of certain European operations. At December 31, 2000 and 1999, $21 million and $70 million had been sold, respectively, and the sale was reflected as a reduction of accounts receivable in the Company's Consolidated Balance Sheet. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold by OC Funding and the European operations. Discounts of $8 million, $9 million and $9 million on the receivables sold were recorded as other expenses on the Company's Consolidated Statement of Income (Loss) for the years ended December 31, 2000, 1999 and 1998, respectively. - 81 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. Inventories Inventories are summarized as follows: 2000 1999 ---- ---- (In millions of dollars) Finished goods $ 397 $ 374 Materials and supplies 165 158 ----------- ------- FIFO inventory 562 532 Less: reduction to LIFO basis (93) (66) ------------ ------- Total inventory $ 469 $ 466 ========== =======
Approximately $300 million and $269 million of total inventories were valued using the LIFO method at December 31, 2000 and 1999, respectively. 13. Investments in Affiliates At December 31, 2000 and 1999, the Company's affiliates, which generally are engaged in the manufacture of fibrous glass and related products for the insulation, construction, reinforcements, and textile markets, include: Percent Ownership 2000 1999 ---- ---- Advanced Glassfiber Yarns, LLC (U. S.) 49% 49% Alcopor Owens Corning Holding AG 40% - Amiantit Fiberglass Industries, Ltd. (Saudi Arabia) 30% 30% Arabian Fiberglass Insulation Company, Ltd. (Saudi Arabia) 49% 49% Fiberteq LLC (U. S.) 50% 50% Flowtite Andercol S.A. (Colombia) - 50% (a) Flowtite Argentina (Argentina) 100% 100% Flowtite (Botswana) (Proprietary) Limited (Botswana) 49% 49% (a) Flowtite Iberica, S.A. (Spain) 100% 100% Owens Corning Energy LLC (U. S.) 50% 50% Owens Corning (India) Limited (India) 49% 49% Owens Corning (Nanjing) (China) 50% 50% Owens Corning Yapi Merkezi Boru Sanayi VeTicaret A.S. (Turkey) 50% 50% (a) Owens-Corning Eternit Rohre GmbH (Germany) 100% 50% Siam Fiberglass Co., Ltd. (Thailand) 17% 17% Stamax LLC (Netherlands) 50% 50% Stamax NA LLC (U. S.) 50% 50% Vitro-Fibras, S.A. (Mexico) 40% 40%
(a) Although the Company owns 100% of Flowtite Argentina, Flowtite Iberica and Owens-Corning Eternit Rohre GmbH, it considers its ownership to be temporary and therefore accounts for these entities as unconsolidated affiliates under the equity method. - 82 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. Investments in Affiliates (continued) The following table provides summarized financial information on a combined 100% basis for the Company's affiliates accounted for under the equity method: 2000 1999 1998 ---- ---- ---- (In millions of dollars) At December 31: Current assets $266 $239 $245 Noncurrent assets 827 623 684 Current liabilities 188 171 143 Noncurrent liabilities 706 514 585 For the year ended December 31: Net sales 699 477 540 Gross margin 172 138 159 Net income 22 7 30
The Company's equity in undistributed net losses of affiliates was $13 million at December 31, 2000. Net sales, gross margin, and net income for the year ended December 31, 2000, have been presented on a full year basis for Alcopor Owens Corning Holding AG. The Company's former European building materials business is included in the consolidated financial statements through the period ending May 31, 2000 (Note 5). Net sales, gross margin, and net income for the year ended December 31, 1998, have been presented on a full year basis for Advanced Glassfiber Yarns, LLC (AGY). The Company's former specialty yarns business is included in the Company's consolidated financial statements through the period ending September 30, 1998 (Note 5). 14. Accounts Payable and Accrued Liabilities 2000 1999 -------------- ------------- (In millions of dollars) Accounts payable $ 235 $ 456 Payroll and vacation pay 27 26 Payroll, property, and miscellaneous taxes 30 32 Other employee benefits liability (Note 8) 29 29 Restructure costs (Note 5) 24 17 Other 146 279 --------- ---------- Total $ 491 $ 839 ========= ==========
- 83 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. Consolidated Statement of Cash Flows Cash payments (refunds) for income taxes and cost of borrowed funds are summarized as follows: 2000 1999 1998 ----------- --------- ---------- (In millions of dollars) Income taxes $ (26) $ (77) $ (80) Cost of borrowed funds (Note 3) 154 154 151
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. During the years ended December 31, 2000, 1999 and 1998, gross payments for asbestos litigation claims filed against Fibreboard were approximately $820 million, $136 million and $129 million, respectively, all of which were paid/reimbursed by Fibreboard's insurers or the Fibreboard Settlement Trust. 16. Leases The Company leases certain manufacturing equipment and office and warehouse facilities under operating leases, some of which include cost escalation clauses, expiring on various dates through 2015. Total rental expense charged to operations was $185 million in 2000, $143 million in 1999, and $130 million in 1998. At December 31, 2000, the minimum future rental commitments under noncancellable leases with initial maturities greater than one year payable over the remaining lives of the leases are: Minimum Future Period Rental Commitments ------------------ (In millions of dollars) 2001 $ 66 2002 66 2003 52 2004 50 2005 30 2006 through 2015 159 ---------- $ 423
Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be accepted or rejected. The Bankruptcy Court has extended the time period within which the Debtors must make their elections as to leases of real property through June 4, 2001, and may grant further extensions. - 84 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock Compensation Plans The Company currently has three stock-based compensation plans. The Company's Stock Performance Incentive Plan ("SPIP") grants stock options, restricted stock, performance restricted stock and phantom performance units. The Owens Corning 1995 Stock Plan ("95 Stock Plan") grants options, restricted stock and performance stock awards. The SPIP and the 95 Stock Plan (collectively, the "Plans"), permit up to 2 percent and 1 percent, respectively, of common shares outstanding at the beginning of each calendar year to be awarded as stock options and restricted stock (with 25% of this amount as the maximum permitted number of restricted stock awards). The Company may carry forward, independently for each plan, unused shares from prior years and may increase the shares available for awards in any calendar year through an advance of up to 25% of the subsequent year's allocation (determined by using 25% of the current year's allocation). These shares are also subject to the 25% limit for restricted stock awards. During 2000, the maximum number of shares available under the Plans for stock awards was 2,100,425 shares. The following are descriptions of the awards granted under the Plans: Stock Options - ------------- Under the Plans, the exercise prices of each option equal the market price of the Company's common stock on the date of grant and an option's maximum term is 10 years. Shares issued from the exercise of options are recorded in the common stock accounts at the option price. The awards and vesting periods of such awards are determined at the discretion of the compensation committee of the Board of Directors. During 2000, 1999 and 1998, respectively, 1,531,244, 1,930,292 and 1,747,472 stock options were awarded under the Plans. Restricted Stock Awards - ----------------------- Under the Plans, compensation expense is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the vesting period. Stock restrictions lapse, subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2006. At December 31, 2000, the Company had 286,629 shares of restricted stock outstanding. During 2000, 1999 and 1998, 11,000, 284,500 and 64,550 shares of restricted stock were granted, respectively. The weighted-average grant-date fair value for shares granted was $15.38, $34.81, and $30.36 for 2000, 1999 and 1998 respectively. Performance Restricted Stock Awards - ----------------------------------- Under the Plans, certain officers are awarded performance shares. Performance shares represent the opportunity to earn up to a specified number of shares of the Company's common stock, if the Company achieves specified performance goals during the designated performance period. Any portion of the award not earned during the performance period is forfeited by the officer at the end of such period. Compensation expense is measured based on market price of the Company's common stock and is recognized over the performance period, which is generally three years. At December 31, 2000, the Company had 27,330 units outstanding and none were granted during 2000 and 1999. During 1998, 46,600 performance shares were granted. - 85 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock Compensation Plans (continued) Phantom Performance Units - ------------------------- Under the Plans, certain officers are awarded phantom performance units. Each unit provides the holder the opportunity to earn a cash award equal to the fair market value of the Company's common stock upon the attainment of certain performance goals. Any portion of the award not earned during the performance period is forfeited by the officer at the end of such period. Compensation expense is measured based on market price of the Company's common stock and is recognized over the performance period, which is generally three years. At December 31, 2000, the Company had 48,313 phantom performance units outstanding and none were granted during 2000 and 1999. During 1998, 65,750 units were awarded. Performance Stock Awards - ------------------------ Under the Plans, certain employees are awarded unrestricted stock based upon achievement of certain goals within a designated performance period. Compensation cost for these awards is accrued over the performance period based upon a base compensation level and the performance level achieved. Stock awards are issued in the year subsequent to the performance period. The number of shares issued is based upon the market price of the stock on date of issuance and the level of compensation earned. In 2000, 1999 and 1998, respectively, 638,541, 267,711 and 74,854 shares were issued to employees. The Company also has a plan to award stock and stock options to non-employee directors. The receipt of the stock awards may be deferred at the discretion of the directors. Approximately 343,500 shares were available under this plan at December 31, 2000. As of December 31, 2000, 24,259 deferred awards were outstanding. In 2000, there were no options issued, however, 5,000 stock awards were granted, 1,000 of which were issued. In 1999, 10,000 options and 5,000 stock awards were granted, 500 of which were issued. In 1998, no options and 5,500 stock awards were granted, 500 of which were issued. The weighted-average grant-date fair value for shares granted was $17.97, $36.53 and $40.72 for 2000, 1999 and 1998, respectively. The Company applies Financial Accounting Standards Board Statement No. 123 (SFAS 123) for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS 123. All stock options issued by the Company are exercisable at a price equal to the market price at the date of grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Plans. The compensation cost that has been recorded for awards other than options was $1 million in 2000 and $21 million in 1999 and 1998. - 86 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock Compensation Plans (continued) A summary of the status of the Company's plans that issue options as of December 31, 2000, 1999, and 1998 and changes during the years ending on those dates is presented below: 2000 1999 1998 ---- ---- ---- Weighted- Weighted- Weighted- Number Average Number Average Number Average of Exercise of Exercise of Exercise Shares Price Shares Price Shares Price ------ --------- ------ --------- ------ --------- Beginning of Year 7,720,367 $ 36.29 6,095,968 $ 36.72 5,126,158 $ 38.15 Options granted 1,531,244 $ 15.37 1,940,292 $ 34.81 1,747,472 $ 32.17 Options exercised (183) $ 15.37 (79,850) $ 28.66 (495,797) $ 32.74 Options canceled (1,120,899) $ 31.68 (236,043) $ 38.02 (281,865) $ 41.62 ------------ ------------ --------- End of year 8,130,529 $ 32.98 7,720,367 $ 36.29 6,095,968 $ 36.72 =========== ========= ========= Exercisable 4,903,779 $ 37.42 4,426,982 $ 37.22 3,568,291 $ 36.60 Weighted-average fair-value of options granted during the year $ 7.03 $ 12.14 $ 10.96
The following table summarizes information about options outstanding at December 31, 2000: Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------- Number Weighted-Average Number Weighted- Range of Outstanding Remaining Exercise Exercisable Average Exercise Prices at 12/31/00 Contractual Life Price at 12/31/00 Exercise Price - --------------- ----------- ---------------- ----------- ----------- -------------- $ 14.187 - $26.750 1,567,055 7.85 $16.393 236,103 $22.142 $ 28.437 - $34.625 1,643,371 4.31 $29.950 1,265,290 $30.397 $ 34.812 - $37.500 2,207,529 6.69 $35.612 857,720 $36.846 $ 37.812 - $44.250 1,677,668 4.68 $40.624 1,509,760 $40.898 $ 44.750 - $47.000 1,034,906 4.98 $44.910 1,034,906 $44.910
- 87 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock Compensation Plans (continued) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions by year: Assumptions 2000 1999 1998 ---------------------- ------------------------------------------ Risk-free interest rate 6.50% 4.79% 5.46% Expected life (in years) 5 5 5 Expected volatility 40.72% 32.44% 29.89% Expected dividends .00% .61% .69%
Had compensation cost for the Plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method described in SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below: 2000 1999 1998 --------- --------- -------- (In millions of dollars, except share data) Net income (loss) As reported $ (478) $ 270 $ (705) Pro forma $ (487) $ 260 $ (714) Basic net income As reported $ (8.71) $ 4.98 $ (13.16) (loss) per share Pro forma $ (8.88) $ 4.80 $ (13.33) Diluted net income As reported $ (8.71) $ 4.67 $ (13.16) (loss) per share Pro forma $ (8.88) $ 4.50 $ (13.33)
The following table reconciles the net income (loss) and weighted average number of shares used in the basic earnings per share calculation to the net income (loss) and weighted average number of shares used to compute diluted earnings per share. - 88 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock Compensation Plans (continued) 2000 1999 1998 ----------- ------------ ------------ (In millions of dollars, except share data) Net income (loss) used for basic earnings per share $ (478) $ 270 $ (705) Net income effect of assumed conversion of preferred securities - 8 - --------- -------- ---------- Net income (loss) used for diluted earnings per share $ (478) $ 278 $ (705) ========== ======== =========== Weighted average number of shares outstanding used for basic earnings per share (thousands) 54,816 54,083 53,579 Deferred awards and stock options - 803 - Shares from assumed conversion of preferred securities - 4,566 - --------- -------- ---------- Weighted average number of shares outstanding and common equivalent shares used for diluted earnings per share (thousands) 54,816 59,452 53,579 ======== ======== =========
During 2000 and 1998, diluted shares outstanding exclude approximately 4.6 million common shares from the potential conversion of certain preferred securities of a subsidiary (Note 7) due to their anti-dilutive effect. For the years ended December 31, 2000, and December 31, 1998, diluted shares also exclude approximately 500 thousand and 700 thousand shares respectively, due to their anti-dilutive effect. 18. Derivative Financial Instruments and Fair Value of Financial Instruments The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to help meet financing needs and to reduce exposure to fluctuating foreign currency exchange rates and interest rates. The Company is exposed to credit loss in the event of nonperformance by the other parties to the financial instruments described below. However, the Company does not anticipate nonperformance by the other parties. The Company does not engage in trading activities with these financial instruments and does not generally require collateral or other security to support these financial instruments. The amounts of derivatives summarized in the foreign exchange risk and interest rate risk management section below do not generally represent the amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged were calculated on the basis of the notional amounts and the other terms of the derivatives, which relate to interest rates, exchange rates, securities prices, or financial or other indexes. Foreign Exchange Risk and Interest Rate Risk Management - ------------------------------------------------------- The Company enters into various types of derivative financial instruments to manage its foreign exchange risk and interest rate risk, as indicated in the following table. - 89 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Derivative Financial Instruments and Fair Value of Financial Instruments (continued) Notional Amount Notional Amount December 31, 2000 December 31, 1999 ----------------- ----------------- (In millions of dollars) Forward currency exchange contracts $ 9 $ 203 Combined interest rate currency swaps - 140 Options purchased - 1 Currency swaps - 190 Interest rate swaps 18 151
The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. As of December 31, 2000, the Company has 3 forward currency exchange contracts maturing in 2001 which exchange less than 1 million Euro, approximately 1 million U.S. dollars and less than 1 million British pounds. As of December 31, 1999, the Company had 26 forward currency exchange contracts which matured in 2000 that exchanged 89 million Euro, 32 million U.S. dollars, 23 million British pounds, 255 million Norwegian krone, and various other currencies. Gains and losses on these foreign currency hedges are included in the carrying amount of the related assets and liabilities. During 2000 and 1999, the Company also entered into a foreign currency exchange contract to reduce its exposure to certain U.S. dollar - denominated debt instruments in China. The 2000 contract, which matures in 2001, will exchange approximately 66 million Chinese renminbi against approximately 8 million U.S. dollars. The 1999 contract, which matured in 2000, exchanged approximately 67 million Chinese renminbi against approximately 8 million U.S. dollars. Cross currency interest rate swaps - ---------------------------------- During 2000, the Company invested excess cash in South America in Brazilian certificates of deposit, treasury bonds and debentures. At the same time these investments are made, the Brazilian real are swapped into U.S. dollars at a U.S. dollar interest rate with perfectly matching investment amounts and maturity dates. At December 31, 2000, there were 17 such cross-currency interest rate swaps outstanding at a notional amount of $18 million U.S. dollars. During 1998, the Company entered into forward currency exchange contracts to reduce its exposure to currency fluctuations on the anticipated 1999 net sales to certain Japanese companies. The four forward currency exchange contracts, which matured in 1999, exchanged approximately 1.356 billion Japanese yen against approximately 10 million U.S. dollars. For the year ended December 31, 1999, the Company recorded losses on these forward currency exchange contracts of approximately $2 million. The Company enters into combined interest rate currency swaps to hedge its equity investments in certain foreign subsidiaries to manage its exposure against fluctuations in foreign currency rates. As of December 31, 1998, the Company had three combined interest rate currency swaps which matured in 1999 to manage this exposure. These contracts exchanged 921 million Belgian francs, 50 million French francs, 17 million Dutch guilders and 50 million U.S. dollars. At December 31, 2000, and 1999, deferred gains of $9 million and $11 million, respectively, are included as a component of stockholders' equity. - 90 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Derivative Financial Instruments and Fair Value of Financial Instruments (continued) The Company had a cross-currency swap converting from Deutsche marks into U.S. dollars to hedge the interest and principal payments of its 7.25% Deutsche mark bonds, due in 2000. The agreement establishes a fixed interest rate of 11.1%. This instrument was canceled during 2000 prior to the Filing. During 1999, the Company entered into an interest rate swap to convert one half of the principal payments on its $250 million debt issuance from a fixed rate of 7.0% to a floating LIBOR rate. This instrument was canceled in 2000 by the financial institution as a result of the Filing. During 1997, the Company entered into interest rate swaps to manage its interest rate risk. As of December 31, 1997, the Company had seven ordinary interest rate swaps that effectively converted an aggregate principal amount of $350 million of variable rate long-term debt into fixed rate borrowings. These swaps were terminated during 1998, resulting in the deferral of a loss of approximately $8 million which is being amortized through 2002. For the year ended December 31, 1998, a loss of approximately $1 million related to these swaps has been recorded as a component of cost of borrowed funds. During 1997, the Company entered into three interest rate swaps as a hedge against interest rate fluctuation on an anticipated refinancing of the Trust Preferred Hybrid Securities. These swaps were intended to lock in an interest rate of 6.3% on a notional amount of $150 million. During 1998, the Company terminated these swaps and incurred an $8 million loss on the transaction. This loss was recorded as other operating expenses on the Company's consolidated statement of income (loss) for the year ended December 31, 1998. Other Financial Instruments with Off-Balance-Sheet Risk - ------------------------------------------------------- As of December 31, 2000 and 1999, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates of $35 million and $125 million, respectively. As of December 31, 2000, approximately $20 million of such indebtedness was alleged to be in default as a result of the Filing. The affected affiliate is in negotiations with its lenders concerning the status of this indebtedness. While the Company believes that the affected affiliate should be able to restructure its indebtedness, if the negotiations are unsuccessful, it is possible that the lender will attempt to enforce the related guarantee against Owens Corning. Subject to the foregoing uncertainties, the Company is of the opinion that its unconsolidated affiliates will be able to perform under their respective payment obligations in connection with such guaranteed indebtedness and that no payments will be required and no losses will be incurred by the Company under such guarantees. Concentrations of Credit Risk - ----------------------------- As of December 31, 2000, and 1999, the Company has no significant group concentrations of credit risk. Fair Value of Financial Instruments - ----------------------------------- The following methods and assumptions were used to estimate the fair value of each category of financial instruments: Cash and Short-term Financial Instruments ----------------------------------------- The carrying amount approximates fair value due to the short maturity of these instruments. - 91 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Derivative Financial Instruments and Fair Value of Financial Instruments (continued) Restricted Cash and Marketable Securities - Fibreboard ------------------------------------------------------ The fair values of cash and marketable securities in the Fibreboard Settlement Trust have been estimated by traded market values or by obtaining quotes from brokers. Long-term Notes Receivable -------------------------- The fair value has been estimated using the expected future cash flows discounted at market interest rates. Long-term Debt -------------- The fair value of the Company's long-term debt which is not subject to compromise has been estimated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. The Company is unable to estimate the fair value of long-term debt of the Debtors which is subject to compromise at December 31, 2000, due to the uncertainties associated with the Filing. Foreign Currency Swaps and Interest Rate Swaps ---------------------------------------------- The fair values of foreign currency swaps and interest rate swaps have been estimated by traded market values or by obtaining quotes from brokers. Forward currency exchange contracts, option contracts, and financial guarantees - ------------------------------------------------------------------------------- The fair values of forward currency exchange contracts, option contracts, and financial guarantees are based on fees currently charged for similar agreements or on the estimated cost to terminate these agreements or otherwise settle the obligations with the counter parties at the reporting date. The estimated fair values of the Company's financial instruments as of December 31, 2000, and 1999, which have fair values different than their carrying amounts, are as follows: 2000 1999 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ------ ------ ------- ----- (In millions of dollars) Assets - ------ Long-term notes receivable $ 24 $ 24 $ 15 $ 13 Liabilities - ----------- Long-term debt 7 7 1,764 1,654 Off-Balance-Sheet Financial - --------------------------- Instruments - Unrealized gains (losses) -------------------------------------- Currency swaps - - - 19 Interest rate swaps - 1 - (1) Combined interest rate currency swaps - - - 4 Forward currency exchange contracts - - - (1)
- 92 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. Derivative Financial Instruments and Fair Value of Financial Instruments (continued) As of December 31, 2000 and 1999, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates. There is no market for these guarantees and they were issued without explicit cost. Therefore, it is not practicable to establish their fair value. Accounting Changes - ------------------ We have assessed the impact of SFAS 133 on our financial statements and will adopt this accounting change effective January 1, 2001. We have completed an inventory of both our freestanding derivatives, including forward contracts, option contracts, currency swaps and interest rate swaps, and derivatives which are embedded in other contracts. Under the current literature and interpretations of the pronouncements, we have assessed our current derivatives position and have determined that adoption at January 1, 2001, would result in a gain of approximately $20 million in net income and will result in a deferred gain of $1 million in other comprehensive income. However, there are additional interpretations currently under review by the Financial Accounting Standards Board which could change the accounting treatment and classification of the affected instruments resulting in only an immaterial gain reflected in net income. 19. Contingent Liabilities Asbestos Liabilities - -------------------- ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) Numerous claims have been asserted against Owens Corning alleging personal injuries arising from inhalation of asbestos fibers. Virtually all of these claims arise out of Owens Corning's manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture and distribution of which was discontinued in 1972. Owens Corning received approximately 18,000 asbestos personal injury claims during 2000, approximately 32,000 such claims during 1999 and approximately 69,000 such claims during 1998. Prior to October 5, 2000, when the Debtors, including Fibreboard (see Item B below), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, the vast majority of asserted asbestos personal injury claims were in the process of being resolved through the National Settlement Program described below. As a result of the Filing, all pre-petition asbestos claims and pending litigation against the Debtors, including without limitation claims arising under the National Settlement Program, were automatically stayed (see Note 1). Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to a plan or plans of reorganization. Owens Corning is unable to determine at this time whether asbestos-related claims asserted against Fibreboard will be treated in the same manner as those asserted against Owens Corning in any such plan or plans. National Settlement Program - --------------------------- Beginning in late 1998, Owens Corning implemented a National Settlement Program ("NSP") to resolve personal injury asbestos claims through settlement agreements with individual plaintiffs' law firms. The NSP was intended to better manage the asbestos liabilities of Owens Corning and Fibreboard (see Item B - 93 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) below), and to help Owens Corning better predict the timing and amount of indemnity payments for both pending and future asbestos claims. The number of law firms participating in the NSP expanded from approximately 50 when the NSP was established to approximately 120 as of the Petition Date. Each of these participating law firms agreed to a long-term settlement agreement which varied by firm ("NSP Agreement") extending through at least 2008 which provided for the resolution of their existing asbestos claims, including unfiled claims pending with the participating law firm at the time it entered into an NSP Agreement ("Initial Claims"). The NSP agreements also established procedures and fixed payments for resolving without litigation claims against either Owens Corning or Fibreboard, or both, arising after a participating firm entered into an NSP Agreement ("Future Claims"). Terms and Conditions of NSP Agreements - -------------------------------------- Settlement amounts for both Initial Claims and Future Claims were negotiated with each firm participating in the NSP, and each firm was to communicate with its respective clients to obtain authority to settle individual claims. Payments to individual claimants were to vary based on a number of factors, including the type and severity of disease, age and occupation. All such payments were subject to delivery of satisfactory evidence of a qualifying medical condition and exposure to Owens Corning's and/or Fibreboard's products, delivery of customary releases by each claimant, and other conditions. Certain claimants settling non-malignancy claims with Owens Corning and/or Fibreboard were entitled to an agreed pre-determined amount of additional compensation if they later developed a more severe asbestos-related medical condition. As to Future Claims, each participating NSP firm agreed (consistent with applicable legal requirements) to recommend to its future clients, based on appropriately exercised professional judgment, to resolve their asbestos personal injury claims against Owens Corning and/or Fibreboard through an administrative processing arrangement, rather than litigation. In the case of Future Claims involving non-malignancy, claimants were required to present medical evidence of functional impairment, as well as the product exposure criteria and other requirements set forth above, to be entitled to compensation. Owens Corning and Fibreboard (see Item B below) each retained the right to terminate any individual NSP Agreement if in any year more than a specified number of plaintiffs represented by the plaintiffs' firm in question rejected and ultimately opted out of such agreement. Opt out procedures were specified in the settlement agreements, and provided for mediation and further negotiation before a claimant could pursue his or her case in the court system. Through the Petition Date, fewer than 300 claimants had elected to reject the original settlement proposal, and to mediate under the terms of the NSP Agreement. As of the Petition Date, the NSP covered approximately 240,000 Initial Claims, approximately 147,000 of which had satisfied all conditions to final settlement, including receipt of executed releases, or other resolution (the "Final NSP Settlements") at an average cost per claim of approximately $9,000. As of the Petition Date, approximately 83,000 of such Final NSP Settlements had been paid in full or otherwise resolved, and approximately 64,000 were unpaid in whole or in part. As of such date, the remaining balance payable under NSP Agreements in connection with these unpaid Final NSP Settlements was approximately $560 million. Through the Petition Date, Owens Corning had received approximately 3,800 Future Claims under the NSP. - 94 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) At this time, Owens Corning is unable to predict the manner in which the NSP Agreements and the resolution of claims thereunder will be treated under the terms of any plan or plans of reorganization. Non-NSP Claims - -------------- As of the Petition Date, approximately 36,000 asbestos personal injury claims were pending against Owens Corning outside the NSP. This compares to approximately 25,300 such claims pending on December 31, 1999. The information needed for a critical evaluation of pending claims, including the nature and severity of disease and definitive identifying information concerning claimants, typically becomes available only through the discovery process or as a result of settlement negotiations, which often occur years after particular claims are filed. As a result, Owens Corning has limited information about many of such claims, and the actual number of pending claims may vary from the numbers indicated. Owens Corning resolved (by settlement or otherwise) approximately 10,200 asbestos personal injury claims outside the NSP during 1998, 4,800 such claims during 1999 and 3,100 such claims during 2000 prior to the Petition Date. The average cost of resolution was approximately $35,900 per claim for claims resolved during 1998, $34,600 per claim for claims resolved during 1999, and $44,800 per claim for claims resolved during 2000 prior to the Petition Date. As a rule, these claims were settled as they were scheduled for trial, and they typically involved more serious injuries and diseases. Accordingly, Owens Corning does not believe that such average costs of resolution are representative of the value of the non-NSP claims then pending against the Company. During the implementation of the NSP, Owens Corning attempted to settle individual non-NSP claims for amounts generally consistent with payments to NSP claimants. Such settlements were preferable to trials, provided that the agreed settlement was fair in relation to similarly situated NSP claimants, because both the timing and amount of such payments were more predictable. Beginning in late 1999, Owens Corning received a number of settlement demands from non-NSP plaintiffs' counsel which exceeded historical settlement averages for similar cases and were higher than the settlement values of such cases within the NSP. In addition, during the third quarter of 2000 Owens Corning began to see evidence that a higher than anticipated number of new asbestos-related claims, particularly claims alleging serious medical impairment, were being filed by non-NSP firms, including firms without significant prior asbestos litigation experience against Owens Corning. At this time, Owens Corning is unable to predict the manner in which non-NSP claims will be treated under the terms of any plan or plans of reorganization. Asbestos-Related Payments - ------------------------- During 1999 and 2000 (prior to the Petition Date), Owens Corning (excluding Fibreboard) made asbestos-related payments falling within four major categories: (1) Settlements in respect of verdicts incurred or claims resolved prior to the implementation of the NSP ("Pre-NSP Settlements"); (2) NSP settlements; (3) Non-NSP settlements covering cases not resolved by the NSP; and (4) Defense, claims processing and administrative expenses, as follows: - 95 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) (In millions of dollars) 2000 (through 1999 October 4, 2000) ---- ---------------- Pre-NSP Settlements $ 170 $ 51 NSP Settlements 570 538 Non-NSP Settlements 30 42 Defense, Claims Processing and Administrative Expenses 90 54 ------- ------- $ 860 $ 685 ======= =======
Prior to the Petition Date, Owens Corning deposited certain amounts in escrow accounts to facilitate claims processing under the NSP ("Administrative Deposits"). Amounts deposited into escrow in Administrative Deposits during a reporting period are included in the payments shown for NSP Settlements during the period. At December 31, 2000, approximately $164 million of Administrative Deposits previously made by Owens Corning had not been finally distributed to claimants ("Undistributed Administrative Deposits") and, accordingly, are reflected in Owens Corning's consolidated balance sheet as restricted assets (under the caption "Restricted cash - asbestos related") and have not been subtracted from Owens Corning's reserve for asbestos personal injury claims (discussed below). At this time, Owens Corning is unable to predict what the treatment of funds held in Undistributed Administrative Deposits will be under the terms of any plan or plans of reorganization. All amounts discussed above are before tax and application of insurance recoveries. Tax Legislation - --------------- In the spring of 2000, the United States House of Representatives introduced proposed legislation (HR 4543) to exempt investment income earned by an asbestos-related trust from federal income tax, and to allow asbestos defendants to carry-back net operating losses ("NOLs") created by asbestos payments to the years in which the products containing asbestos were produced or distributed (and to each subsequent year) in order to obtain a refund of federal income taxes paid in those periods. In the case of Owens Corning, this would entitle the Company to carry-back its NOLs to the early 1950s. The exemption of investment income would benefit the Fibreboard Settlement Trust (described below) by having the effect of enlarging the corpus of the trust through tax-free interest accumulation. While HR 4543 did not pass during the 106th Congress, the bill received strong bipartisan support in the form of 92 cosponsors, including 25 members of the House Ways and Means Committee. Key members of the House Ways and Means Committee have recently sent written notice to their colleagues advising of their intent to introduce the Asbestos Tax Fairness Bill (previously HR 4543) during the current 107th Congress. However, there can be no assurance that any such legislation will be introduced or, if introduced, ultimately enacted. Moreover, as a result of the Filing, there is uncertainty regarding the impact of the proposed tax legislation on the Debtors' respective estates. Other Asbestos-Related Litigation - --------------------------------- As previously reported, the Company believes that it has spent significant amounts to resolve claims of asbestos claimants whose injuries were caused or exacerbated by cigarette smoking. Owens Corning and Fibreboard are pursuing litigation against tobacco companies (discussed below) to obtain payment of - 96 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) monetary damages (including punitive damages) for payments made by Owens Corning and Fibreboard to asbestos claimants who developed smoking related diseases. In October 1998, the Circuit Court for Jefferson County, Mississippi granted leave to file an amended complaint in an existing action to add claims by Owens Corning against seven tobacco companies and several other tobacco industry defendants. The court has set a mid-June 2001 trial date for this action. In addition to the Mississippi lawsuit, a lawsuit brought in December 1997 by Owens Corning and Fibreboard is pending in the Superior Court for Alameda County, California against the same tobacco companies. The court has set a mid-July 2001 trial date for this action. There can be no assurance that either case will be successful. Insurance - --------- As of December 31, 2000, Owens Corning's financial statements reflect $59 million in unexhausted insurance coverage (net of deductibles and self-insured retentions) under its liability insurance policies applicable to asbestos personal injury claims. Most of this amount represents unconfirmed potential non-products coverage with excess level insurance carriers, as to which Owens Corning has estimated its probable recoveries. Owens Corning also has a significant amount of other unconfirmed potential non-products coverage with excess level carriers. Owens Corning is actively pursuing non-products insurance recoveries under these policies. The amount and timing of recoveries from excess level policies will depend on subsequent negotiations and/or proceedings. During the second quarter of 2000, Owens Corning received a $335 million settlement payment from a group of excess insurers, resolving a dispute concerning coverage from such insurers for non-products asbestos-related personal injury claims. Of this amount, $125 million had been reflected on Owens Corning's financial statements as a probable insurance recovery. The balance of $210 million was recorded as pre-tax income in the second quarter. Reserve - ------- Owens Corning estimates a reserve in accordance with generally accepted accounting principles to reflect asbestos-related liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. This reserve was established initially through a charge to income in 1991, with additional charges to income of $1.1 billion in 1996, $1.4 billion in 1998, and $1.0 billion during the second quarter of 2000. The $1.0 billion increase in the reserve in the second quarter of 2000 was made as a result of Owens Corning's review during the second quarter of the sufficiency of its provision for asbestos-related liabilities in light of recent trends and developments in the administration of the NSP and in asbestos litigation generally. As of December 31, 2000, a reserve of approximately $2.2 billion in respect of Owens Corning's asbestos-related liabilities was one of the items included in Owens Corning's consolidated balance sheet under the category "LIABILITIES SUBJECT TO COMPROMISE." For prior periods, these liabilities were reflected as current or other liabilities (depending on the period in which payment was expected) under the category "Reserve for asbestos litigation claims." The approximate balances of the components of the reserve at December 31, 1999 and at September 30, 2000 were: - 97 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) December 31, 1999 September 30, 2000 ----------------- ------------------ (In billions of dollars) NSP backlog $ 1.10 $ 1.10 Non-NSP backlog 0.20 0.30 Future Claims 0.30 0.70 Defense, Claims Processing and Administrative Expenses 0.20 0.10
In connection with this asbestos reserve, Owens Corning notes that: - - The "NSP backlog" component represented the remaining estimated cost of resolving Initial Claims under the NSP. - - The "Non-NSP backlog" component represented the estimated cost of resolving asbestos personal injury claims pending against Owens Corning outside the NSP. - - The "Future claims" component represented the estimated cost of resolving (i) Future Claims under the NSP and (ii) non-NSP claims subsequently made. As Owens Corning has discussed in previous public filings, any estimate of its liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict. As discussed further below, such uncertainties significantly increased as a result of the Chapter 11 Cases. Prior to the Petition Date, such variables included, among others, the cost of resolving pending non-NSP claims; the disease mix and severity of disease of pending NSP claims; the number, severity of disease, and jurisdiction of claims filed in the future (especially the number of mesothelioma claims); how many future claimants were covered by an NSP Agreement; the extent, if any, to which individual claimants exercised a right to opt out of an NSP Agreement and/or engage counsel not participating in the NSP; the extent, if any, to which counsel not bound by an NSP Agreement undertook the representation of asbestos personal injury plaintiffs against Owens Corning; the extent, if any, to which Owens Corning exercised its right to terminate one or more of the NSP Agreements due to excessive opt-outs or for other reasons; and Owens Corning's success in controlling the costs of resolving future non-NSP claims. The Chapter 11 Cases significantly increase the inherent difficulties and uncertainties involved in estimating the number and cost of resolution of present and future asbestos-related claims against Owens Corning and may have the effect of increasing the number and ultimate cost of resolution of such claims, perhaps substantially. In particular, the status of the NSP Agreements and the treatment of pending and future claims thereunder will depend on the outcome of negotiations among the various constituencies in the Chapter 11 Cases and determinations by the Bankruptcy Court as to the issues involved, none of which can be predicted at this time. The uncertainties associated with the status of the NSP Agreements and the treatment of claims thereunder include the following: - - It is possible that one or more constituencies in the Chapter 11 Cases may seek to set aside the NSP Agreements on various grounds. In any event, it is highly uncertain how any plan or plans of - 98 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) reorganization will treat the various types of NSP claims, including without limitation claims with no evidence of significant medical impairment, or whether such unimpaired claims will be treated as allowed claims thereunder. - - The settlement values for specified categories of disease set forth in the NSP Agreements were established by arms-length negotiations with the participating law firms in circumstances very different from those prevailing in the Chapter 11 Cases. The settlement values available to individual claimants under the arrangements to be included in any plan or plans of reorganization may vary substantially from those contemplated by the NSP Agreements. Because Owens Corning's estimate of liabilities in respect of non-NSP claims assumed payment of settlement values similar to those contained in the NSP Agreements, such estimate is subject to similar uncertainty. Additional uncertainties raised by the Chapter 11 Cases include the following: - - As a result of the Filing, all of the holders of pre-petition asbestos claims against Owens Corning or Fibreboard will be required to comply with formal proof of claim requirements in order to have their claims taken into account as allowed claims. Moreover, the Filing, including the significant publicity associated with the Chapter 11 Cases and notices required by the Bankruptcy Code that must be given to creditors and other parties in interest, has significantly increased the inherent difficulties and uncertainties involved in estimating the number and cost of resolution of not only pre-petition claims but also additional claims that may be asserted in the course of the Chapter 11 Cases. Among other things, it is not possible to predict at this time how many proofs of claim will be timely filed, how many proofs of claim will represent allowed claims, or the aggregate value of such allowed claims. - - Owens Corning anticipates that the number and estimated aggregate value of allowed future claims will be determined as a result of negotiations involving a legal representative for the class of future asbestos claimants and the other interested constituencies, or if necessary, by the Bankruptcy Court. It is not possible to predict the outcome of such negotiations at this time. Ultimately, Owens Corning's (and Fibreboard's) total liability for asbestos claims will be determined after a lengthy period of negotiations and, if necessary, by the Bankruptcy Court following the bar date for submission of proofs of claim, taking into account numerous factors not present in Owens Corning's pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed and the total amount of future asbestos claims allowed. At December 31, 2000, as a result of the Filing and the uncertainties referred to above, the approximate balances of the components of Owens Corning's asbestos-related reserve were: Balance ------- (In billions of dollars) Unpaid Final Settlements (NSP and other) $ 0.70 Other Pending and Future Claims 1.50
- 99 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) In connection with this asbestos reserve, Owens Corning notes that: - - The "Unpaid Final Settlements" component represented the remaining estimated cost for all asbestos personal injury claims pending against Owens Corning which were subject to final settlement agreements for which releases from claimants were obtained, and under which all other conditions to settlement had been satisfied, as of the Petition Date. - - The "Other Pending and Future Claims" component represented the estimated cost of resolving (i) asbestos personal injury claims pending against Owens Corning which were subject to resolution under NSP Agreements but for which releases were not obtained from claimants prior to the Petition Date; (ii) all other asbestos personal injury claims pending against Owens Corning which were not subject to any settlement agreement; and (iii) future asbestos personal injury claims against Owens Corning made after the Petition Date. Owens Corning will continue to review its asbestos reserve on a periodic basis and make such adjustments as may be appropriate. However, it is possible that Owens Corning will not be in a position to conclude that a revision to the reserve is appropriate until significant developments occur during the course of the Chapter 11 Cases, including resolution of the uncertainties described above. Any such revision could, however, be material to the Company's consolidated financial position and results of operations in any given period. ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING) Prior to 1972, Fibreboard manufactured insulation products containing asbestos. Fibreboard has since been named as defendant in many thousands of personal injury claims for injuries allegedly caused by asbestos exposure. Fibreboard received approximately 21,600 asbestos personal injury claims during 2000. Prior to the Petition Date, the vast majority of Fibreboard asbestos personal injury claims were in the process of being resolved through the NSP, as described below. As a result of the Filing, all pre-petition asbestos claims and pending litigation against the Debtors were automatically stayed (see Note 1). Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to a plan or plans of reorganization. Owens Corning is unable to determine at this time whether asbestos-related claims asserted against Fibreboard will be treated in the same manner as those asserted against Owens Corning in any such plan or plans. National Settlement Program - --------------------------- Fibreboard is a participant in the NSP and is a party to the NSP Agreements discussed in Item A. The NSP Agreements became effective as to Fibreboard in the fourth quarter of 1999, when the Insurance Settlement (discussed below) became effective. The NSP Agreements settled asbestos personal injury claims that had been filed against Fibreboard by participating plaintiffs' law firms and claims that could have been filed against Fibreboard by such firms following the lifting, in the third quarter of 1999, of an injunction which had barred the filing of asbestos personal injury claims against Fibreboard. As of the Petition Date, the NSP covered approximately 212,000 Initial Claims against Fibreboard, approximately 115,000 of which had satisfied all conditions to final settlement, including receipt of executed releases, or other resolution as Final NSP Settlements at an average cost per claim of approximately $7,500. As of the Petition Date, approximately 55,000 of such Final NSP Settlements had - 100 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) been paid in full or otherwise resolved and approximately 60,000 were unpaid in whole or in part. As of such date, the remaining balance payable under NSP Agreements in connection with these unpaid Final NSP Settlements was approximately $380 million. The NSP Agreements also provided for the resolution of Future Claims against Fibreboard through the administrative processing arrangement described in Item A. Through the Petition Date, Fibreboard had received approximately 3,800 Future Claims under the NSP. At this time, Owens Corning is unable to predict the manner in which the NSP Agreements and the resolution of Fibreboard claims thereunder will be treated under the terms of any plan or plans of reorganization. Non-NSP Claims - -------------- As of the Petition Date, approximately 15,000 asbestos personal injury claims were pending against Fibreboard outside the NSP. This compares to approximately 1,000 such claims pending on December 31, 1999. Fibreboard resolved (by settlement or otherwise) approximately 2,300 asbestos personal injury claims outside the NSP during 2000 prior to the Petition Date at an average cost of resolution of approximately $45,000 per claim. Generally, these claims were settled as they were scheduled for trial, and they typically involved more serious injuries and diseases. Accordingly, Owens Corning does not believe that such average costs of resolution are representative of the value of the non-NSP claims then pending against Fibreboard. At this time, Owens Corning is unable to predict the manner in which Fibreboard non-NSP claims will be treated under the terms of any plan or plans of reorganization. Insurance Settlement - -------------------- In 1993, Fibreboard and two of its insurers, Continental Casualty Company ("Continental") and Pacific Indemnity Company ("Pacific"), entered into the Insurance Settlement. The Insurance Settlement became effective in the fourth quarter of 1999, is final and is not subject to appeal. Since 1993, Continental and Pacific paid, either directly or through an escrow account funded by them, for substantially all settlements of asbestos claims reached prior to the initiation of the NSP. Under the Insurance Settlement, Continental and Pacific provided $1,873 million during the fourth quarter of 1999 to fund costs of resolving pending and future asbestos claims, whether under the NSP, in the tort system, or otherwise. As of December 31, 2000, the Insurance Settlement funds were held in and invested by the Fibreboard Settlement Trust. As of that date, $1,104 million (net of outstanding payables) was held in the Fibreboard Settlement Trust and $170 million was held in Undistributed Administrative Deposits in respect of Fibreboard claims. On an ongoing basis, the funds held in the Fibreboard Settlement Trust will be subject to investment earnings/losses and will be reduced if and as applied to satisfy asbestos-related liabilities. Under the terms of the Fibreboard Settlement Trust, any of such assets that ultimately are not used to fund Fibreboard's asbestos-related liabilities must be distributed to charity. It will not be known whether any such assets will remain for distribution until the conclusion of the Chapter 11 Cases. - 101 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) Funds held in the Fibreboard Settlement Trust and Fibreboard's Undistributed Administrative Deposits are reflected on Owens Corning's consolidated balance sheet as restricted assets. At December 31, 2000, these assets were reflected as current assets, denoted "Restricted cash and securities - Fibreboard." See Note 20 for additional information concerning the Fibreboard Settlement Trust. At this time, Owens Corning is unable to predict what the treatment of funds held in the Fibreboard Settlement Trust and in Undistributed Administrative Deposits in respect of Fibreboard claims will be under the terms of any plan or plans of reorganization. Asbestos-Related Payments - ------------------------- During 2000 (prior to the Petition Date), gross payments for asbestos-related claims against Fibreboard, all of which were paid/reimbursed by the Fibreboard Settlement Trust, fell within four major categories, as follows: (In millions of dollars) 2000 (through October 4, 2000) ---------------- Pre-NSP Settlements $ 29 NSP Settlements 705 Non-NSP Settlements 41 Defense, Claims Processing and Administrative Expenses 45 ------- $ 820
The payments for NSP Settlements include Administrative Deposits during the quarter in respect of Fibreboard claims. At December 31, 2000, there were approximately $170 million of Undistributed Administrative Deposits made in respect of Fibreboard claims. As described above, these Undistributed Administrative Deposits are included as restricted assets (under the caption "Restricted cash and securities - Fibreboard") on Owens Corning's consolidated balance sheet. Reserve - ------- Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities. As of December 31, 2000, a reserve of approximately $1.25 billion in respect of these liabilities was one of the items included in Owens Corning's consolidated balance sheet under the category "LIABILITIES SUBJECT TO COMPROMISE." For prior periods, they were reflected as current or other liabilities (depending on the period in which payment was expected) under the category "Asbestos-related liabilities - Fibreboard." These liabilities (including any reserve for the charitable remainder) are always at least equal to the funds held in the Fibreboard Settlement Trust and Fibreboard's Undistributed Administrative Deposits since, under the terms of the Trust, the funds held in the Trust must be expended either in connection with Fibreboard's asbestos-related liabilities, or to satisfy the obligation under the Trust to distribute to charity the assets, if any, remaining in the Trust after satisfaction of all such liabilities (see Note 20). - 102 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) The approximate balances of the components of the Fibreboard asbestos-related reserve at December 31, 1999 and at September 30, 2000 were: December 31, 1999 September 30, 2000 ----------------- ------------------ (In billions of dollars) NSP backlog $ 1.00 $ 0.80 Non-NSP backlog 0.10 0.10 Future Claims 0.45 0.30 Defense, Claims Processing and Administrative Expenses 0.20 0.05
In connection with this asbestos reserve, Owens Corning notes that: - - The "NSP backlog" component represented the remaining estimated cost of resolving Initial Claims against Fibreboard under the NSP. - - The "Non-NSP backlog" component represented the estimated cost of resolving asbestos personal injury claims pending against Fibreboard outside the NSP. - - The "Future claims" component represented the estimated cost of resolving (i) Future Claims against Fibreboard under the NSP and (ii) non-NSP claims subsequently made against Fibreboard. As noted in Item A above as to Owens Corning, the estimate of Fibreboard's liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict, and such uncertainties significantly increased as a result of the Filing including those set forth in Item A above. In addition, as noted above, at this time Owens Corning is unable to predict what the treatment of funds held in the Fibreboard Settlement Trust and in Undistributed Administrative Deposits in respect of Fibreboard claims will be under the terms of any plan or plans of reorganization. At December 31, 2000, as a result of the Filing and the uncertainties referred to above, the approximate balances of the components of the Fibreboard asbestos-related reserve were: Balance ------- (In billions of dollars) Unpaid Final Settlements (NSP and other) $ 0.40 Other Pending and Future Claims 0.85
In connection with this asbestos reserve, Owens Corning notes that: - - The "Unpaid Final Settlements" component represented the remaining estimated cost for all asbestos personal injury claims pending against Fibreboard which were subject to final settlement agreements for which releases from claimants were obtained, and under which all other conditions to settlement had been satisfied, as of the Petition Date. - - - 103 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Contingent Liabilities (continued) - - The "Other Pending and Future Claims" component represented the estimated cost of resolving (i) asbestos personal injury claims pending against Fibreboard which were subject to resolution under NSP Agreements but for which releases were not obtained from claimants prior to the Petition Date; (ii) all other asbestos personal injury claims pending against Fibreboard which were not subject to any settlement agreement; and (iii) future asbestos personal injury claims against Fibreboard made after the Petition Date. Owens Corning will continue to review Fibreboard's asbestos reserve on a periodic basis and make such adjustments as may be appropriate. However, it is possible that Owens Corning will not be in a position to conclude that a revision to the reserve is appropriate until significant developments occur during the course of the Chapter 11 Cases, including resolution of the uncertainties described above. Any such revision could, however, be material to the Company's consolidated financial position and results of operations in any given period. 20. FIBREBOARD SETTLEMENT TRUST Under the Insurance Settlement described in Note 19, two of Fibreboard's insurers provided $1.873 billion during the fourth quarter of 1999 to fund the costs of resolving pending and future asbestos claims. As of December 31, 2000, the Insurance Settlement funds were held in and invested by the Fibreboard Settlement Trust (the "Trust"). On an ongoing basis, the funds held in the Trust will be subject to investment earnings/losses and will be reduced if and as applied to satisfy Fibreboard asbestos-related liabilities. Under the terms of the Trust, any Trust assets that ultimately are not used to fund Fibreboard's asbestos-related liabilities must be distributed to charity. The Trust is a qualified settlement fund for federal income tax purposes, and is taxed separately from Owens Corning on its net taxable income, after deduction for related administrative expenses. While there can be no assurance that the proposed Asbestos Tax Fairness Bill discussed in Item A will be enacted by Congress, such legislation would benefit the Trust during the pendency of the Chapter 11 proceedings by eliminating the tax on investment income, thereby enlarging the corpus of the Trust through tax-free interest accumulation. At this time, Owens Corning is unable to predict what the treatment of the Fibreboard Settlement Trust will be under the terms of any plan or plans of reorganization. General Accounting Treatment - ---------------------------- The assets of the Trust are comprised of cash and marketable securities (collectively, the "Trust Assets") and, with Fibreboard's Undistributed Administrative Deposits, are reflected on Owens Corning's consolidated balance sheet as restricted assets. At December 31, 2000, these assets were reflected as current assets, denoted "Restricted cash and securities - Fibreboard". Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities (see Note 19, Part B). As of December 31, 2000, these liabilities were one of the items included in Owens Corning's consolidated balance sheet under the category "LIABILITIES SUBJECT TO COMPROMISE." For prior periods, they were reflected as current or other liabilities (depending on the period in which payment was expected) under the category "Asbestos-related liabilities - Fibreboard." These liabilities (including any reserve for the charitable remainder) are always at least equal to the funds - 104 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. Fibreboard Settlement Trust (continued) held in the Trust and Fibreboard's Undistributed Administrative Deposits since, under the terms of the Trust, the funds held in the Trust must be expended either in connection with Fibreboard's asbestos-related liabilities, or to satisfy the obligation under the Trust to distribute to charity the assets, if any, remaining in the Trust after satisfaction of all such liabilities. It will not be known whether any such assets will remain for distribution until the conclusion of the Chapter 11 Cases. At December 31, 2000, the Consolidated Financial Statements reflect Fibreboard's asbestos-related liabilities at $1.25 billion, with a residual obligation to charity of $24 million. For accounting purposes, the Trust Assets are classified from time to time as "available for sale" or "held to maturity" and are reported in the Consolidated Financial Statements in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, marketable securities classified as available for sale are recorded at fair market value and marketable securities designated as held to maturity are recorded at amortized cost. Any unrealized increase/decrease in fair market value is reflected as a change in the carrying amount of the asset on the consolidated balance sheet as well as an increase/decrease to other comprehensive income within stockholders' equity, net of tax. The residual liability that may be paid to charity will also increase/decrease, with a related decrease/increase to other comprehensive income within stockholders' equity, net of tax. Any earnings and realized gains/losses on the Trust Assets are reflected as an increase/decrease in the carrying amount of such assets on the consolidated balance sheet as well as other income/expense on the consolidated statement of income. The residual liability that may be paid to charity will also increase/decrease, with related other expense/ income on the consolidated statement of income. Cost for purposes of computing realized gains/losses is determined using the specific identification method. Results for the Period Ending December 31, 2000 and 1999 - -------------------------------------------------------- During 2000 and 1999 respectively, Trust Assets generated interest/dividend earnings of approximately $71 million and $17 million, which have been recorded as an increase in the carrying amount of the assets on Owens Corning's consolidated balance sheet and as other income on the consolidated statement of income. This income, however, has been offset by an equal charge to other expense, which represents the increase in the residual liability to charity. Payments for asbestos litigation claims from the Trust during 2000 and 1999, respectively, were approximately $820 million and $51 million. Such payments were funded by existing cash in the Trust or proceeds from the sale of securities. The sale of securities during 2000 and 1999 resulted in a realized gain of $2 million and less than $1 million, respectively. Realized gains or losses from the sale of securities are reflected on the Company's financial statements in the same manner as actual returns on Trust Assets, described above. At December 31, 2000, and 1999, the fair market value adjustment for those securities designated as available for sale resulted in an unrealized gain of approximately $1 million and an unrealized loss of approximately $1 million, respectively. These amounts have been reflected in the Company's consolidated balance sheet as a change to the carrying amount of the asset and to other comprehensive income. These amounts have also been reflected as a change to the liability to charity, with a corresponding effect to other comprehensive income. - 105 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. Fibreboard Settlement Trust (continued) At December 31, 2000, the fair value of Trust Assets was $1.274 billion, which was comprised of $1.092 billion of marketable securities, $30 million of cash, $18 million of outstanding payables and $170 million of restricted cash, which represents undistributed administrative deposits. These marketable securities have been classified as noncurrent assets. The amortized cost, gross unrealized holding gains and losses and fair value of the investment securities available for sale at December 31, 2000, are as follows: Gross Gross Amortized Unrealized Unrealized Cost Gain Loss Fair Value ---- ---- ---- ---------- (In millions of dollars) Corporate Bonds $ 148 $ - $ - $ 148 Corporate Notes 449 1 - 450 Municipal Bonds 284 - - 284 Mutual Funds 116 - - 116 Time Deposits 37 - - 37 US Government Bonds 57 - - 57 ---------- ---------- --------- ---------- Total $ 1,091 $ 1 $ - $ 1,092 ======= ========= ======== =======
The amortized cost, gross unrealized holding gains and losses and fair value of the investment securities available for sale at December 31, 1999, are as follows: Gross Gross Amortized Unrealized Unrealized Cost Gain Loss Fair Value ---- ---- ---- ---------- (In millions of dollars) Corporate Bonds $ 85 $ - $ - $ 85 Corporate Notes 1,334 - (1) 1,333 Municipal Bonds 199 - - 199 US Government Bonds 221 - - 221 --------- --------- ------------ --------- Total $ 1,839 $ - $ (1) $ 1,838 ======= ======== =========== =======
Maturities of investment securities classified as available for sale by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to recall or prepay obligations with or without call or prepayment penalties. - 106 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. Fibreboard Settlement Trust (continued) 2000 1999 ---- ---- Amortized Amortized Cost Fair Value Cost Fair Value ---- ---------- ---- ---------- Due within one year $ 656 $ 656 $ 1,152 $ 1,152 Due after one year through five years 2 2 72 72 Due after five years through ten years 51 51 87 87 Due after ten years 382 383 528 527 --------- -------- -------- --------- Total $ 1,091 $ 1,092 $ 1,839 $ 1,838 ========= ======== ======== =========
- 107 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. FIBREBOARD SETTLEMENT TRUST (continued) The table below summarizes Trust and Administrative Deposits activity for the year ended December 31, 2000: Interest Unrealized Net Sales Realized Balance and Gain/ of Gain/ Balance 12/31/99 Dividends (Loss) Securities (Loss) Adjustments Other Payments 12/31/00 -------- --------- ------ ---------- ------ ----------- ----- -------- -------- Assets - ------ Cash (Note 20) $ - $ - $ - $ 832 $ - $ - $ - $ (820) $ 12 Restricted Cash (Note 20) - - - - - - 170 - 170 Marketable Securities: Available for Sale 1,838 71 1 (832) 2 - 12 - 1,092 --------- -------- -------- --------- -------- -------- -------- -------- -------- Total Assets $ 1,838 $ 71 $ 1 $ - $ 2 $ - $ 182 $ (820) $1,274 ========= ======== ======== ========== ======== ======== ======== ========= ======== Liabilities - ----------- Asbestos Litigation Claims (Note 20) $ 1,750 $ - $ - $ - $ - $ 150 $ 170 $ (820) $1,250 Charity 88 71 1 - 2 (150) 12 - 24 --------- -------- -------- -------- -------- --------- -------- -------- -------- Total Liabilities $ 1,838 $ 71 $ 1 $ - $ 2 $ - $ 182 $ (820) $1,274 ========= ======== ======== ========= ======== ======== ======== ========= ========
- 108 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. FIBREBOARD SETTLEMENT TRUST (continued) The table below summarizes Trust activity from inception to December 31, 1999: Interest Unrealized Net Sales Realized Balance and Gain/ of Gain/ Balance 12/8/99 Dividends (Loss) Securities (Loss) Payments 12/31/99 ------- --------- ------ ---------- ------ ------- -------- (In millions of dollars) Assets - ------ Cash $ - $ - $ - $ 51 $ - $ (51) $ - Marketable Securities: Available for Sale $ 1,873 $ 17 $ (1) $ (51) - - $ 1,838 ---------- ----------- ------------- ------------ ----------- ---------- ----------- Total Assets $ 1,873 $ 17 $ (1) $ - $ - $ (51) $ 1,838 ========== =========== ============= =========== =========== =========== =========== Liabilities - ----------- Asbestos Litigation Claims $ 1,801 $ - $ - $ - $ - $ (51) $ 1,750 Charity $ 72 $ 17 $ (1) - - - $ 88 ---------- ----------- ------------- ----------- ----------- ---------- ----------- Total Liabilities $ 1,873 $ 17 $ (1) $ - $ - $ (51) $ 1,838 ========== =========== ============= =========== =========== =========== ===========
- 109 - OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 21. quarterly financial information (unaudited) Quarter --------------------------------------------------------------- First Second Third Fourth ----- ------ ----- ------ (In millions of dollars, except share data) 2000 - ---- Net sales $ 1,257 $ 1,295 $ 1,281 $ 1,107 Cost of sales 972 996 1,036 1,010 ---------- --------- ---------- --------- Gross margin $ 285 $ 299 $ 245 $ 97 ========== ========= ========== ========= Net income (loss) $ 48 $ (425) $ 14 $ (115) ========== ========== ========== ========== Net income (loss) per share: Basic net income per share $ .88 $ (7.76) $ .25 $ (2.08) ========== ========== ========== ========= Diluted net income per share $ .84 $ (7.76) $ .25 $ (2.08) ========== ========== ========== =========
Quarter --------------------------------------------------------------- First Second Third Fourth ----- ------ ----- ------ (In millions of dollars, except share data) 1999 - ---- Net sales $ 1,130 $ 1,310 $ 1,333 $ 1,275 Cost of sales 869 985 984 977 ---------- --------- ---------- --------- Gross margin $ 261 $ 325 $ 349 $ 298 ========== ========= ========== ========= Net income $ 44 $ 76 $ 89 $ 61 ========== ========= ========== ========= Net income per share: Basic net income per share $ .81 $ 1.41 $ 1.64 $ 1.11 ========== ========= ========== ======== Diluted net income per share $ .77 $ 1.31 $ 1.53 $ 1.05 ========== ========= ========== ========
- 110 - INDEX TO FINANCIAL STATEMENT SCHEDULES -------------------------------------- Number Description Page - ------ ----------- ---- II Valuation and Qualifying Accounts and Reserves - for the years ended December 31, 2000, 1999, and 1998..................................................................111
- 111 - OWENS CORNING AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 Column A Column B Column C Column D Column E Additions --------- (1) (2) Balance at Charged to Charged to Balance Beginning Costs and Other at End Classification of Period Expenses Accounts Deductions of Period - -------------- ----------- ------------ ------------ ---------- --------- (In millions of dollars) FOR THE YEAR ENDED DECEMBER 31, 2000: Allowance deducted from asset to which it applies - Doubtful Accounts $ 26 $ 5 $ - $ 2(A) $ 29 Reserve to which it applies - Restructure Costs 21 23 - 11(B) 33(E) FOR THE YEAR ENDED DECEMBER 31, 1999: Allowance deducted from asset to which it applies - Doubtful Accounts $ 23 $ 5 $ - $ 2(A) $ 26 Reserve to which it applies - Restructure Costs 49 - - 28(B) 21(D) FOR THE YEAR ENDED DECEMBER 31, 1998: Allowance deducted from asset to which it applies - Doubtful Accounts $ 20 $ 9 $ - $ 6(A) $ 23 Reserve to which it applies - Restructure Costs 44 93 - 88(B) 49(C)
Notes: (A) Uncollectible accounts written off, net of recoveries. (B) Cash payments. (C) Includes non-current liabilities of $14 million. (D) Includes non-current liabilities of $4 million. (E) Includes non-current liabilities of $7 million. - 112 - EXHIBIT INDEX ------------- Exhibit Number Document Description - ------- -------------------- (3) Articles of Incorporation and By-Laws. (i) Certificate of Incorporation of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1997). (ii) By-Laws of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year 1999). (4) Instruments Defining the Rights of Security Holders, Including Indentures. Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of America, N.A., as Agent (filed herewith). License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning Fiberglas Technology Inc. and Amendment thereto, dated as of December 8, 1993, (filed herewith). Standstill Agreement, dated as of January 30, 2001, between Owens Corning and Owens-Corning Fiberglas Technology Inc. (filed herewith). License Agreement, made as of April 27, 1999, between Owens- Corning Fiberglas Technology Inc. and AmeriMark Building Products, Inc. (now Exterior Systems, Inc.) (filed herewith). Standstill Agreement, dated as of January 30, 2001, between Exterior Systems, Inc. and Owens-Corning Fiberglas Technology Inc. (filed herewith). Indenture, dated as of May 5, 1997, between Owens Corning and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.5.1 to Owens Corning's current report on Form 8-K (File No. 1-3660), filed May 14, 1997). Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998). Owens Corning agrees to furnish to the Securities and Exchange Commission, upon request, copies of all instruments defining the rights of holders of long-term debt of Owens Corning where the total amount of securities authorized under each issue does not exceed ten percent of Owens Corning's total assets.
- 113 - EXHIBIT INDEX ------------- Exhibit Number Document Description - ------- -------------------- (10) Material Contracts. Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of America, N.A., as Agent (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein by reference). License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning Fiberglas Technology Inc. and Amendment thereto, dated as of December 8, 1993, (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein by reference). Standstill Agreement, dated as of January 30, 2001, between Owens Corning and Owens-Corning Fiberglas Technology Inc. (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein by reference). License Agreement, made as of April 27, 1999, between Owens- Corning Fiberglas Technology Inc. and AmeriMark Building Products, Inc. (now Exterior Systems, Inc.) (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein by reference). Standstill Agreement, dated as of January 30, 2001, between Exterior Systems, Inc. and Owens-Corning Fiberglas Technology Inc. (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein by reference). Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998). * Key Management Severance Agreement with Michael H. Thaman (filed herewith). * Owens Corning Key Employee Retention Incentive Plan (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2000). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1999: * - Director's Charitable Award Program, as amended. * - Key Management Severance Agreement with David T. Brown.
- 114 - EXHIBIT INDEX ------------- * Corporate Incentive Plan Terms Applicable to Key Employees Other Than Certain Executive Officers (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1999). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1999: * - Owens Corning Deferred Compensation Plan. * - Corporate Incentive Plan Terms Applicable to Certain Executive Officers. The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998: * - Stock Performance Incentive Plan, as amended. * - Key Management Severance Agreement with Maura Abeln Smith. * - Key Management Severance Agreement with Domenico Cecere. * - Letter to Maura Abeln Smith. * Owens Corning Supplemental Executive Retirement Plan, effective as of January 1, 1998, (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1998). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997: * - Renewal Agreement, effective as of July 31, 1999, with Glen H. Hiner. * - Agreement with Domenico Cecere. * 1987 Stock Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1996: * - Long-Term Performance Incentive Plan Terms Applicable to Certain Executive Officers. * - Long-Term Performance Incentive Plan Terms Applicable to Officers Other Than Certain Executive Officers. - 115 - EXHIBIT INDEX ------------- * Agreement, dated as of January 1, 1995, with William W. Colville (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1994) and amendment dated September 29, 1997, (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997). * Executive Supplemental Benefit Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1993). * Employment Agreement, dated as of December 15, 1991, with Glen H. Hiner (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1991), as amended by First Amending Agreement made as of April 1, 1992 (incorporated herein by reference to Exhibit (19), to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1992). * Form of Directors' Indemnification Agreement (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1989). * Deferred Compensation Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1987). (11) Statement re Computation of Per Share Earnings (filed herewith). (21) Subsidiaries of Owens Corning (filed herewith). (23) Consent of Arthur Andersen LLP (filed herewith). * Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. EX-4 2 0002.txt Exhibit (4) ----------- POST-PETITION CREDIT AGREEMENT Dated as of December 8, 2000 Among THE FINANCIAL INSTITUTIONS NAMED HEREIN as the Lenders -------------- BANK OF AMERICA, N.A. .. as the Agent and OWENS CORNING AND THE SUBSIDIARIES OF OWENS CORNING NAMED HEREIN as the Borrowers ---------------- iii TABLE OF CONTENTS Article Page ARTICLE 1 LOANS AND LETTERS OF CREDIT.............................................................................0 1.1 TOTAL FACILITY...........................................................................................0 1.2 REVOLVING LOANS..........................................................................................0 1.3 [INTENTIONALLY OMITTED]..................................................................................0 1.4 LETTERS OF CREDIT........................................................................................0 1.5 BANK PRODUCTS............................................................................................0 1.6 JOINT AND SEVERAL LIABILITY OF BORROWERS.................................................................0 ARTICLE 2 INTEREST AND FEES.......................................................................................0 2.1 INTEREST.................................................................................................0 2.2 CONTINUATION AND CONVERSION ELECTIONS....................................................................0 2.3 MAXIMUM INTEREST RATE....................................................................................0 2.4 FACILITY FEE; SYNDICATION FEE; ADMINISTRATION FEE........................................................0 2.5 UNUSED LINE FEE..........................................................................................0 2.6 LETTER OF CREDIT FEE.....................................................................................0 ARTICLE 3 PAYMENTS AND PREPAYMENTS................................................................................0 3.1 REVOLVING LOANS..........................................................................................0 3.2 TERMINATION OF FACILITY; REDUCTIONS IN REVOLVING LOAN COMMITMENTS........................................0 3.3 [INTENTIONALLY OMITTED.].................................................................................0 3.4 [INTENTIONALLY OMITTED.].................................................................................0 3.5 LIBOR RATE LOAN PREPAYMENTS..............................................................................0 3.6 PAYMENTS BY THE BORROWERS................................................................................0 3.7 PAYMENTS AS REVOLVING LOANS..............................................................................0 3.8 APPORTIONMENT, APPLICATION AND REVERSAL OF PAYMENTS......................................................0 3.9 INDEMNITY FOR RETURNED PAYMENTS..........................................................................0 3.10 AGENT'S AND LENDERS' BOOKS AND RECORDS; MONTHLY STATEMENTS............................................0 ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY..................................................................0 4.1 TAXES....................................................................................................0 4.2 ILLEGALITY...............................................................................................0 4.3 INCREASED COSTS AND REDUCTION OF RETURN..................................................................0 4.4 FUNDING LOSSES...........................................................................................0 4.5 INABILITY TO DETERMINE RATES.............................................................................0 4.6 CERTIFICATES OF AGENT....................................................................................0 4.7 SURVIVAL.................................................................................................0 4.8 AFFECTED LENDERS.........................................................................................0 ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.......................................................0 5.1 BOOKS AND RECORDS........................................................................................0 5.2 FINANCIAL INFORMATION....................................................................................0 5.3 NOTICES TO THE LENDERS...................................................................................0 ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS..................................................................0 6.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS AGREEMENT AND THE LOAN DOCUMENTS.....................0 6.2 BORROWERS' ORGANIZATION AND QUALIFICATION OF BORROWERS...................................................0 6.3 [INTENTIONALLY OMITTED.].................................................................................0 6.4 OTHER SUBSIDIARIES AND AFFILIATES........................................................................0 6.5 FINANCIAL STATEMENTS AND PROJECTIONS.....................................................................0 6.6 [INTENTIONALLY OMITTED.].................................................................................0 6.7 DEBT.....................................................................................................0 6.8 [INTENTIONALLY OMITTED.].................................................................................0 6.9 TITLE TO PROPERTY; LIENS.................................................................................0 6.10 PROPRIETARY RIGHTS....................................................................................0 6.11 [INTENTIONALLY OMITTED.]..............................................................................0 6.12 LITIGATION............................................................................................0 6.13 [INTENTIONALLY OMITTED.]..............................................................................0 6.14 ENVIRONMENTAL LAWS....................................................................................0 6.15 NO VIOLATION OF LAW...................................................................................0 6.16 NO DEFAULT............................................................................................0 6.17 ERISA COMPLIANCE......................................................................................0 6.18 TAXES.................................................................................................0 6.19 REGULATED ENTITIES....................................................................................0 6.20 USE OF PROCEEDS; MARGIN REGULATIONS...................................................................0 6.21 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC.....................................................0 6.22 FULL DISCLOSURE.......................................................................................0 6.23 GOVERNMENTAL AUTHORIZATION............................................................................0 6.24 SUBSIDIARY BORROWERS..................................................................................0 ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS......................................................................0 7.1 TAXES AND OTHER OBLIGATIONS..............................................................................0 7.2 LEGAL EXISTENCE AND GOOD STANDING........................................................................0 7.3 COMPLIANCE WITH LAW AND AGREEMENTS; MAINTENANCE OF LICENSES..............................................0 7.4 MAINTENANCE OF PROPERTY; INSPECTION OF PROPERTY..........................................................0 7.5 INSURANCE................................................................................................0 7.6 ENVIRONMENTAL LAWS.......................................................................................0 7.7 COMPLIANCE WITH ERISA....................................................................................0 7.8 MERGERS, CONSOLIDATIONS OR SALES.........................................................................0 7.9 DISTRIBUTIONS; CAPITAL CHANGE; RESTRICTED INVESTMENTS....................................................0 7.10 [INTENTIONALLY OMITTED]...............................................................................0 7.11 GUARANTIES............................................................................................0 7.12 DEBT..................................................................................................0 7.13 PREPAYMENT............................................................................................0 7.14 TRANSACTIONS WITH AFFILIATES..........................................................................0 7.15 INVESTMENT BANKING AND FINDER'S FEES..................................................................0 7.16 BUSINESS CONDUCTED....................................................................................0 7.17 LIENS.................................................................................................0 7.18 [INTENTIONALLY OMITTED.]..............................................................................0 7.19 [INTENTIONALLY OMITTED.]..............................................................................0 7.20 FISCAL YEAR...........................................................................................0 7.21 CONSOLIDATED EBITDA...................................................................................0 7.22 [INTENTIONALLY OMITTED.]..............................................................................0 7.23 USE OF PROCEEDS.......................................................................................0 7.24 FURTHER ASSURANCES....................................................................................0 7.25 SECTION 364(C)(1) SUPERPRIORITY ADMINISTRATIVE CLAIM. (A)............................................0 7.26 BORROWERS' ACCOUNTS...................................................................................0 7.27 INVENTORY; RECORDS....................................................................................0 ARTICLE 8 CONDITIONS OF LENDING...................................................................................0 8.1 CONDITIONS PRECEDENT TO MAKING OF INITIAL LOANS..........................................................0 8.2 CONDITIONS PRECEDENT TO EACH LOAN........................................................................0 ARTICLE 9 DEFAULT; REMEDIES.......................................................................................0 9.1 EVENTS OF DEFAULT........................................................................................0 9.2 REMEDIES.................................................................................................0 ARTICLE 10 TERM AND TERMINATION...................................................................................0 10.1 TERM AND TERMINATION..................................................................................0 ARTICLE 11 AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS...........................................0 11.1 AMENDMENTS AND WAIVERS................................................................................0 11.2 ASSIGNMENTS; PARTICIPATIONS...........................................................................0 ARTICLE 12 THE AGENT..............................................................................................0 12.1 APPOINTMENT AND AUTHORIZATION.........................................................................0 12.2 DELEGATION OF DUTIES..................................................................................0 12.3 LIABILITY OF AGENT....................................................................................0 12.4 RELIANCE BY AGENT.....................................................................................0 12.5 NOTICE OF DEFAULT.....................................................................................0 12.6 CREDIT DECISION.......................................................................................0 12.7 INDEMNIFICATION.......................................................................................0 12.8 AGENT IN INDIVIDUAL CAPACITY..........................................................................0 12.9 SUCCESSOR AGENT.......................................................................................0 12.10 WITHHOLDING TAX.......................................................................................0 12.11 [INTENTIONALLY OMITTED.]..............................................................................0 12.12 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS...............................................0 12.13 [INTENTIONALLY OMITTED]...............................................................................0 12.14 PAYMENTS BY AGENT TO LENDERS..........................................................................0 12.15 SETTLEMENT............................................................................................0 12.16 LETTERS OF CREDIT; INTRA-LENDER ISSUES................................................................0 12.17 CONCERNING THE RELATED LOAN DOCUMENTS.................................................................0 12.18 FIELD AUDIT AND EXAMINATION REPORTS; DISCLAIMER BY LENDERS............................................0 12.19 RELATION AMONG LENDERS................................................................................0 ARTICLE 13 MISCELLANEOUS..........................................................................................0 13.1 NO WAIVERS; CUMULATIVE REMEDIES.......................................................................0 13.2 SEVERABILITY..........................................................................................0 13.3 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS....................................................0 13.4 WAIVER OF JURY TRIAL..................................................................................0 13.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................................................0 13.6 [INTENTIONALLY OMITTED.]..............................................................................0 13.7 FEES AND EXPENSES.....................................................................................0 13.8 NOTICES...............................................................................................0 13.9 WAIVER OF NOTICES.....................................................................................0 13.10 BINDING EFFECT........................................................................................0 13.11 INDEMNITY OF THE AGENT AND THE LENDERS BY THE BORROWERS...............................................0 13.12 LIMITATION OF LIABILITY...............................................................................0 13.13 FINAL AGREEMENT.......................................................................................0 13.14 COUNTERPARTS..........................................................................................0 13.15 CAPTIONS..............................................................................................0 13.16 RIGHT OF SETOFF.......................................................................................0 13.17 CONFIDENTIALITY.......................................................................................0 13.18 CONFLICTS WITH OTHER LOAN DOCUMENTS...................................................................0
ANNEXES, EXHIBITS AND SCHEDULES ------------------------------- ANNEX A - DEFINED TERMS EXHIBIT A - FORM OF REVOLVING LOAN NOTE EXHIBIT B - FORM OF BORROWING BASE CERTIFICATE EXHIBIT C - FINANCIAL STATEMENTS EXHIBIT D - FORM OF NOTICE OF BORROWING EXHIBIT E - FORM OF NOTICE OF CONTINUATION/CONVERSION EXHIBIT F - FORM OF FINAL ORDER EXHIBIT G - [INTENTIONALLY OMITTED] EXHIBIT H - FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT SCHEDULE 1.1 - LENDERS' COMMITMENTS (ANNEX A - DEFINED TERMS) SCHEDULE 1.2 PERSONS DESIGNATED TO REQUEST BORROWINGS SCHEDULE 6.2 - ORGANIZATION AND QUALIFICATIONS OF BORROWERS SCHEDULE 6.4 - OTHER SUBSIDIARIES AND AFFILIATES SCHEDULE 6.7 - DEBT; GUARANTIES; LIENS SCHEDULE 6.12 - LITIGATION; JUDGMENTS SCHEDULE 6.17 - ERISA COMPLIANCE SCHEDULE 6.24 - OTHER DOMESTIC SUBSIDIARIES SCHEDULE 7.14 - TRANSACTIONS WITH AFFILIATES SCHEDULE A-1 - EXISTING INVESTMENTS POST-PETITION CREDIT AGREEMENT This Post-Petition Credit Agreement, dated as of December 8, 2000, among the financial institutions from time to time parties hereto (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), Bank of America, N.A. with an office at 231 South LaSalle Street, Chicago, Illinois 60697, as agent for the Lenders, Owens Corning, a Delaware corporation (the "Company"), and the Subsidiaries of the Company which are parties to this Agreement (together with the Company and the other Domestic Subsidiaries, if any, which hereafter are permitted to become parties to this Agreement with the prior written consent of the Required Lenders, each a "Borrower" and collectively, the "Borrowers"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrowers, each of which is a debtor and debtor-in-possession in a case pending under chapter 11 of the Bankruptcy Code (the cases of the Borrowers each, a "Bankruptcy Case" and, collectively the "Bankruptcy Cases"), have requested the Lenders to make available to the Borrowers a revolving line of credit for loans and letters of credit in an amount not to exceed $500,000,000, and which extensions of credit the Borrowers will use for the purposes permitted hereunder; WHEREAS, capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed thereto in Annex A which is attached hereto and incorporated herein; the rules of construction contained therein shall govern the interpretation of this Agreement, and all Annexes, Exhibits and Schedules attached hereto are incorporated herein by reference; WHEREAS, the Lenders have agreed to make available to the Borrowers a revolving credit facility upon the terms and conditions set forth in this Agreement. WHEREAS, on October 5, 2000 (the "Filing Date"), the Borrowers filed voluntary petitions with the Bankruptcy Court initiating the Bankruptcy Cases; WHEREAS, the Borrowers have continued in possession of their respective assets and in the management of their respective businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, to provide security for the repayment of the loans and letters of credit made available pursuant hereto and payment of the other obligations of the Borrowers under the Loan Documents, the Borrowers have agreed to provide the Agent and the Lenders (upon and after the entry of the Final Order) with respect to the obligations of the Borrowers hereunder and under the other Loan Documents, an allowed administrative expense claim in each of the Bankruptcy Cases pursuant to section 364(c)(1) of the Bankruptcy Code having priority over all administrative expenses of the kind specified in, or arising or ordered under, any sections of the Bankruptcy Code, including without limitation, sections 503(b), 105, 326, 328, 330, 331, 506(c), 507(a), 507(b), 546(c), 726 or 1112 of the Bankruptcy Code, subject only to the Carve-Out; and WHEREAS, all of the claims granted in the Bankruptcy Cases to the Agent and the Lenders shall be subject to the Carve-Out. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the Lenders, the Agent, and the Borrowers hereby agree as follows. ARTICLE 1 LOANS AND LETTERS OF CREDIT --------------------------- 1.1 Total Facility. Subject to all of the terms and conditions of this Agreement, the Lenders agree to make available a total credit facility of up to $500,000,000 (the "Total Facility") to the Borrowers from time to time until the Termination Date. The Total Facility shall be composed of a revolving line of credit consisting of Revolving Loans and Letters of Credit. 1.2 Revolving Loans. --------------- (a) (i) Amounts. Subject to the satisfaction of the conditions precedent set forth in Article 8, each Lender severally, but not jointly, agrees, upon the Borrower Representative's request from time to time on any Business Day during the period from the Closing Date to the Termination Date, to make revolving loans (the "Revolving Loans") to the Borrowers in amounts not to exceed such Lender's Pro Rata Share of Availability, except for Non-Ratable Loans. The Lenders, however, in their unanimous discretion, may elect to make Revolving Loans or issue or arrange to have issued Letters of Credit in excess of the Borrowing Base on one or more occasions, but if they do so, neither the Agent nor the Lenders shall be deemed thereby to have changed the limits of the Borrowing Base or to be obligated to exceed such limits on any other occasion. If the Aggregate Revolver Outstandings would exceed Availability after giving effect to any Borrowing, the Lenders may refuse to make or may otherwise restrict the making of Revolving Loans as the Lenders determine until such excess has been eliminated. The entire unpaid balance of the Revolving Loans and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Termination Date. (ii) The Borrowers shall execute and deliver to each Lender that requests the same a note to evidence the Revolving Loans of that Lender to the Borrowers. Each note shall be in the principal amount of the Lender's Pro Rata Share of the Revolving Loan Commitments, dated the date hereof and substantially in the form of Exhibit A (each a "Revolving Loan Note" and, collectively, the "Revolving Loan Notes"). Each Revolving Loan Note shall represent the joint and several obligation of the Borrowers to pay the amount of Lender's Pro Rata Share of the Revolving Loan Commitments, or, if less, such Lender's Pro Rata Share of the aggregate unpaid principal amount of all Revolving Loans to the Borrowers together with interest thereon as prescribed in Section 2.1. (b) Procedure for Borrowing. ----------------------- (1) Each Borrowing shall be made upon the Borrower Representative's irrevocable written notice delivered to the Agent in the form of a notice of borrowing ("Notice of Borrowing"), which must be received by the Agent prior to (i) 12:00 noon (Chicago, Illinois time) three Business Days prior to the requested Funding Date, in the case of LIBOR Rate Loans and (ii) 11:00 a.m. (Chicago, Illinois time) on the requested Funding Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which in the case of a LIBOR Rate Loan must equal or exceed $5,000,000 (and increments of $1,000,000 in excess of such amount); (B) the requested Funding Date, which must be a Business Day; (C) whether the Revolving Loans requested are to be Base Rate Revolving Loans or LIBOR Revolving Loans (and if not specified, it shall be deemed a request for a Base Rate Revolving Loan); (D) the duration of the Interest Period for LIBOR Revolving Loans (and if not specified, it shall be deemed a request for an Interest Period of one month); provided, however, that with respect to any Borrowing to be made on the Closing Date, such Borrowings will initially consist of Base Rate Revolving Loans only. (2) In lieu of delivering a Notice of Borrowing, the Borrower Representative may give the Agent telephonic notice of such Borrowing request for advances to the Designated Account(s). The Agent at all times shall be entitled to rely on such telephonic notice in making such Revolving Loans, regardless of whether any written confirmation is received. (3) The Borrower shall have no right to request a LIBOR Rate Loan while an Event of Default has occurred and is continuing. (c) Appointment of Borrower Representative; Reliance upon Authority. --------------------------------------------------------------- (1) Each Borrower hereby designates the Company as its representative and agent on its behalf (the "Borrower Representative") for the purposes of issuing Notices of Borrowing and Notices of Conversion/Continuation, giving instructions with respect to the disbursement of the proceeds of the Loans, selecting interest rate options, requesting Letters of Credit, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. The Borrower Representative hereby accepts such appointment. The Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from the Borrower Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to the Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by the Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower. (2) Prior to the Closing Date, the Borrower Representative shall deliver to the Agent, a notice setting forth an account of the Borrowers to which the Agent is authorized to transfer the proceeds of the Revolving Loans requested hereunder (the "Designated Account"). The Borrower Representative may designate a replacement account from time to time by written notice. Such Designated Account must be reasonably satisfactory to the Agent. The Agent is entitled to rely conclusively on any request by a person listed on Schedule 1.2 for Revolving Loans on behalf of the Borrower Representative, so long as the proceeds thereof are to be transferred to the Designated Account. The Agent has no duty to verify the identity of any individual representing himself or herself as a person authorized by the Borrower Representative to make such requests on its behalf. (d) No Liability. The Agent shall not incur any liability to any Borrower as a result of acting upon any notice referred to in Sections 1.2(b) and (c), which the Agent believes in good faith to have been given by an officer or other person duly authorized by the Borrower Representative to request Revolving Loans. The crediting of Revolving Loans to the Designated Account conclusively establishes the joint and several obligation of the Borrowers to repay such Revolving Loans as provided herein. (e) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice ------------------- in lieu thereof) made pursuant to Section 1.2(b) and (c) shall be irrevocable. ------------- --- The Borrowers shall be bound to borrow the funds requested therein in accordance therewith. (f) Agent's Election. Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof) for a Base Rate Revolving Loan, the Agent shall elect to have the terms of Section 1.2(g) or the terms of Section 1.2(h) apply to such requested Borrowing. If the requested Borrowing consists of a LIBOR Revolving Loan or if the Bank otherwise declines in its sole discretion to make a Non-Ratable Loan pursuant to Section 1.2(h), the terms of Section 1.2(g) shall apply to the requested Borrowing. (g) Making of Revolving Loans. If the requested Borrowing consists of a LIBOR Revolving Loan or if the Agent otherwise elects to have the terms of this Section 1.2(g) apply to a requested Borrowing, then promptly after receipt of a Notice of Borrowing or telephonic notice in lieu thereof, the Agent shall notify the Lenders by telecopy, telephone or e-mail of the requested Borrowing. Each Lender shall transfer its Pro Rata Share of the requested Borrowing available to the Agent in immediately available funds, to the account from time to time designated by Agent, not later than 12:00 noon (Chicago, Illinois time) on the applicable Funding Date. The Agent shall make the proceeds of such Revolving Loans (to the extent actually received by the Agent from the Lenders) available to the Borrowers on the applicable Funding Date by transferring same day funds to the Designated Account; provided, however, that, subject to the second sentence of Section 1.2(a)(i), the amount of Revolving Loans so made on any date shall not exceed the Availability on such date. (h) Making of Non-Ratable Loans. --------------------------- (A) If the Agent elects, with the consent of the Bank, to have the terms of this Section 1.2(h) apply to a requested Borrowing, the Bank shall make a Revolving Loan in the amount of that Borrowing available to the Borrowers on the applicable Funding Date by transferring same day funds to the Designated Account. Each Revolving Loan made solely by the Bank pursuant to this Section is herein referred to as a "Non-Ratable Loan", and such Revolving Loans are collectively referred to as the "Non-Ratable Loans." Each Non-Ratable Loan shall be subject to all the terms and conditions applicable to other Revolving Loans except that all payments thereon shall be payable to the Bank solely for its own account. The aggregate amount of Non-Ratable Loans outstanding at any time shall not exceed $30,000,000. The Agent shall not request the Bank to make any Non-Ratable Loan if (1) the Agent has received written notice from any Lender that one or more of the applicable conditions precedent set forth in Article 8 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (2) the requested Borrowing would exceed Availability on that Funding Date. The Agent shall not otherwise be required to determine whether the applicable conditions precedent set forth in Article 8 have been satisfied or the requested Borrowing would exceed the Availability on that Funding Date applicable thereto prior to requesting the Bank to make a Non-Ratable Loan. (B) The Non-Ratable Loans shall constitute Base Rate Revolving Loans and Obligations hereunder. 1.3 [Intentionally Omitted] 1.4 Letters of Credit. (a) Agreement to Issue or Cause To Issue. Subject to the terms and conditions of this Agreement, the Agent agrees (i) to cause the Letter of Credit Issuer to issue for the account of any Borrower one or more commercial/documentary or standby letters of credit ("Letter of Credit") and/or (ii) to provide credit support or other enhancement to a Letter of Credit Issuer acceptable to Agent, which issues a Letter of Credit for the account of any Borrower (any such credit support or enhancement being herein referred to as a "Credit Support") from time to time during the term of this Agreement. Letters of Credit may be requested for the benefit of Other Subsidiaries, provided that a Borrower shall be the account party with respect thereto and the foregoing shall not effect the Borrowers' joint and several reimbursement Obligations with respect to such Letters of Credit and any related Credit Supports, and, provided further, that the sum of the undrawn face amount of all such Letters of Credit plus all amounts drawn thereunder for which the Borrowers have not been repaid by the Other Subsidiaries shall not exceed $50,000,000 in the aggregate at any time. (b) Amounts; Outside Expiration Date. The Agent shall not have any obligation to issue or cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit at any time if: (i) the maximum face amount of the requested Letter of Credit is greater than the Unused Letter of Credit Subfacility at such time; (ii) subject to the second sentence of Section 1.2(a)(i), the maximum face amount of the requested Letter of Credit and all commissions, fees, and charges due from the Borrowers in connection with the opening thereof would exceed Availability at such time; or (iii) such Letter of Credit has an expiration date less than 5 Business Days prior to the Stated Termination Date or more than 12 months from the date of issuance for standby letters of credit (although any such Letter of Credit may provide for automatic extensions of its expiration date for one or more successive 12 month periods provided that the Letter of Credit Issuer has the right to terminate such Letter of Credit on each such annual expiration date and no renewal term may extend the final expiration date to a date later than the fifth Business Day prior to the Stated Termination Date) and 180 days for documentary letters of credit. With respect to any Letter of Credit which contains any "evergreen" or automatic renewal provision, each Lender shall be deemed to have consented to any such extension or renewal unless any such Lender shall have provided to the Agent, written notice that it declines to consent to any such extension or renewal at least thirty (30) days prior to the date on which the Letter of Credit Issuer is entitled to decline to extend or renew the Letter of Credit. If all of the requirements of this Section 1.4 are met and no Default or Event of Default has occurred and is continuing, no Lender shall decline to consent to any such extension or renewal. (c) Other Conditions. In addition to conditions precedent contained in Article 8, the obligation of the Agent to issue or to cause to be issued any Letter of Credit or to provide Credit Support for any Letter of Credit is subject to the following conditions precedent having been satisfied in a manner reasonably satisfactory to the Agent: (1) The Borrower Representative shall have delivered to the Letter of Credit Issuer, at such times and in such manner as such Letter of Credit Issuer may prescribe, an application in form and substance satisfactory to such Letter of Credit Issuer and reasonably satisfactory to the Agent for the issuance of the Letter of Credit and such other documents as may be required pursuant to the terms thereof, and the form, terms and purpose of the proposed Letter of Credit shall be reasonably satisfactory to the Agent and the Letter of Credit Issuer; and (2) As of the date of issuance, no order of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed Letter of Credit Issuer refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit. (d) Issuance of Letters of Credit. ----------------------------- (1) Request for Issuance. The Borrower Representative must notify the Agent of a requested Letter of Credit at least three (3) Business Days prior to the proposed issuance date. Such notice shall be irrevocable and must specify the Borrower for whose account such Letter of Credit will be issued, the original face amount of the Letter of Credit requested, the Business Day of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the Business Day on which the requested Letter of Credit is to expire, the purpose for which such Letter of Credit is to be issued, and the beneficiary of the requested Letter of Credit. The Borrower Representative shall attach to such notice the proposed form of the Letter of Credit. (2) Responsibilities of the Agent; Issuance. As of the Business Day immediately preceding the requested issuance date of the Letter of Credit, the Agent shall determine the amount of the Unused Letter of Credit Subfacility and Availability. If (i) the face amount of the requested Letter of Credit is less than the Unused Letter of Credit Subfacility and (ii) the amount of such requested Letter of Credit and all commissions, fees, and charges due from the Borrowers in connection with the opening thereof would not exceed Availability (subject to the second sentence of Section 1.2(a)(i)), the Agent shall cause the Letter of Credit Issuer to issue the requested Letter of Credit on the requested issuance date so long as the other conditions hereof are met. (3) No Extensions or Amendment. The Agent shall not be obligated to cause the Letter of Credit Issuer to extend or amend any Letter of Credit issued pursuant hereto unless the requirements of this Section 1.4 are met as though a new Letter of Credit were being requested and issued. (e) Payments Pursuant to Letters of Credit. -------------------------------------- The Borrowers jointly and severally agree to reimburse the Letter of Credit Issuer for any draw under any Letter of Credit and the Agent for the account of the Lenders upon any payment pursuant to any Credit Support within one (1) Business Day following notification from the Letter of Credit Issuer or the Agent of the amount of such drawing or payment, and to pay the Letter of Credit Issuer the amount of all other charges and fees payable to the Letter of Credit Issuer in connection with any Letter of Credit within one (1) Business Day following notification from the Letter of Credit Issuer or the Agent of the amount of such other charges and fees then due, irrespective of (but without waiving) any claim, setoff, defense or other right which any Borrower may have at any time against the Letter of Credit Issuer or any other Person. The failure of the Borrowers to satisfy any such reimbursement or other payment obligation by 12:00 noon (Chicago, Illinois time) on the date when due as set forth above shall constitute a request by the Borrowers to the Agent for a Borrowing of a Base Rate Revolving Loan in the unpaid amount of such reimbursement or other payment obligation. The Funding Date with respect to such Borrowing shall be the date such reimbursement or other payment obligation was due. (f) Indemnification; Exoneration; Power of Attorney (1) Indemnification. In addition to amounts payable as elsewhere provided in this Section 1.4, the Borrowers jointly and severally agree to protect, indemnify, pay and save the Lenders and the Agent harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which any Lender or the Agent (other than any Lender in its capacity as Letter of Credit Issuer) may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit or the provision of any Credit Support or enhancement in connection therewith, other than to the extent solely as a result of such Person's gross negligence or willful misconduct. The Borrowers' obligations under this Section shall survive payment of all other Obligations. (2) Assumption of Risk by the Borrowers. As among the Borrowers, the Lenders, and the Agent, the Borrowers assume all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Lenders and the Agent shall not be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; (H) any consequences arising from causes beyond the control of the Lenders or the Agent, including any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority or (I) subject to Section 1.4(f)(4), the Letter of Credit Issuer's honor of a draw for which the draw or any certificate fails to comply in any respect with the terms of the Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any rights or powers of the Agent or any Lender under this Section 1.4(f). (3) Exoneration. Without limiting the foregoing, no action or omission whatsoever by Agent or any Lender (excluding any Lender in its capacity as a Letter of Credit Issuer) under or in connection with any Letter of Credit or Credit Support, if taken or omitted in the absence of gross negligence or willful misconduct on the part of such Person, shall result in any liability of Agent or any Lender to any Borrower, or relieve any Borrower of any of its obligations hereunder to any such Person. (4) Rights Against Letter of Credit Issuer. Nothing contained in this Agreement is intended to limit any Borrower's (i) rights, if any, with respect to any Letter of Credit Issuer which arise as a result of the letter of credit application and related documents executed by and between such Borrower and such Letter of Credit Issuer or (ii) claims for direct (as opposed to special, indirect, consequential or punitive) damages, if any, suffered by such Borrower that are caused by (A) such Letter of Credit Issuer's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of such Letter of Credit, or (B) such Letter of Credit Issuer's willful failure to pay under any Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of such Letter of Credit. (5) Indemnification by Lenders. To the extent not reimbursed by the Borrowers and without limiting the obligations of the Borrowers hereunder, the Lenders agree to indemnify the Letter of Credit Issuer ratably in accordance with their respective Pro Rata Shares, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees) or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Letter of Credit Issuer in any way relating to or arising out of any Letter of Credit or the transactions contemplated thereby or any action taken or omitted by the Letter of Credit Issuer under any Letter of Credit or any Loan Document in connection therewith; provided that no Lender shall be liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand for its Pro Rata Share of any costs or expenses payable by any Borrower to the Letter of Credit Issuer, to the extent that the Letter of Credit Issuer is not promptly reimbursed for such costs and expenses by the Borrowers. The agreement contained in this Section shall survive payment in full of all other Obligations. (6) Account Party. Each Borrower hereby authorizes and directs any Letter of Credit Issuer to name such Borrower as the "Account Party" therein and to deliver to the Agent all instruments, documents and other writings and property received by the Letter of Credit Issuer pursuant to the Letter of Credit, and to accept and rely upon the Agent's instructions and agreements with respect to all matters arising in connection with the Letter of Credit or the application therefor. (g) Supporting Letter of Credit; Cash Collateral. If, notwithstanding the provisions of Section 1.4(b) and Section 10.1, any Letter of Credit or Credit Support is outstanding upon the termination of this Agreement, then upon such termination the Borrowers shall, with respect to each Letter of Credit or Credit Support then outstanding, at the election of the Borrower Representative either (i) deposit with the Agent, for the ratable benefit of the Agent and the Lenders, a standby letter of credit (a "Supporting Letter of Credit") in form and substance reasonably satisfactory to the Agent, issued by an issuer reasonably satisfactory to the Agent or (ii) deposit immediately available funds into a cash collateral account with the Agent and under the sole dominion and control of the Agent (the "Cash Collateral"), for the ratable benefit of the Agent and the Lenders, in either case in an amount equal to the greatest amount for which such Letter of Credit or such Credit Support may be drawn plus any fees and expenses associated with such Letter of Credit or such Credit Support. The Agent shall be entitled to make draws under such Supporting Letter of Credit, or to indefeasibly apply such Cash Collateral, in amounts necessary to reimburse the Agent and the Lenders for payments to be made by the Agent and the Lenders under such Letter of Credit or Credit Support and any fees and expenses associated with such Letter of Credit or Credit Support. Such Supporting Letter of Credit or Cash Collateral shall be held by the Agent, for the ratable benefit of the Agent and the Lenders, as security for, and to provide for the payment of, the aggregate undrawn amount of such Letters of Credit or such Credit Support remaining outstanding. After such Letters of Credit and such Credit Supports shall have expired or otherwise have been fully drawn upon and all reimbursement obligations with respect thereto shall have been paid in full, the balance, if any, of such Cash Collateral and/or all remaining outstanding Supporting Letters of Credit, if any, shall be returned to the Borrower Representative or as otherwise required by law. 1.5 Bank Products. Any Borrower may request and the Bank may, in its sole and absolute discretion, arrange for any Borrower to obtain from the Bank or the Bank's Affiliates Bank Products although no Borrower is required to do so. If Bank Products are provided by an Affiliate of the Bank, the Borrowers jointly and severally agree to indemnify and hold the Bank and the Lenders harmless from any and all costs and obligations now or hereafter incurred by the Bank or any of the Lenders which arise from any indemnity given by the Bank to its Affiliates related to such Bank Products; provided, however, nothing contained herein is intended to limit any Borrower's rights, with respect to the Bank or its Affiliates, if any, which arise as a result of the execution of documents by and between such Borrower and the Bank which relate to Bank Products. The agreement contained in this Section shall survive termination of this Agreement. The Borrowers acknowledge and agree that the obtaining of Bank Products from the Bank or the Bank's Affiliates (a) is in the sole and absolute discretion of the Bank or the Bank's Affiliates, and (b) is subject to all rules and regulations of the Bank or the Bank's Affiliates. 1.6 Joint and Several Liability of Borrowers. Each Borrower acknowledges and agrees that all Obligations (including without limitation the Borrowers' Obligations in respect of the Loans and in respect of any Letter of Credit or Credit Support) shall be the joint and several obligations of the Borrowers, regardless of whether such Borrower actually receives Loans or other extensions of credit hereunder or the amounts of such Loans received or the manner in which the Agent and/or any Lender accounts for such Loans or other extensions of credit on its books and records. ARTICLE 2 INTEREST AND FEES 2.1 Interest. -------- (a) Interest Rates. All outstanding Loans shall bear interest on the unpaid principal amount thereof (including, to the extent permitted by law, on interest thereon not paid when due) from the date made until paid in full in cash at a rate determined by reference to the Base Rate or the LIBOR Rate plus the Applicable Margins as set forth below, but not to exceed the Maximum Rate. If at any time Loans are outstanding with respect to which the Borrower Representative has not delivered to the Agent a notice specifying the basis for determining the interest rate applicable thereto in accordance herewith, those Loans shall bear interest at a rate determined by reference to the Base Rate until notice to the contrary has been given to the Agent in accordance with this Agreement and such notice has become effective. Except as otherwise provided herein, the outstanding Loans shall bear interest as follows: (i) For all Base Rate Loans at a fluctuating per annum rate equal to the Base Rate plus the Applicable Margin; and (ii) For all LIBOR Rate Loans at a per annum rate equal to the LIBOR Rate plus the Applicable Margin. Each change in the Base Rate shall be reflected in the interest rate applicable to Base Rate Loans as of the effective date of such change. All interest charges shall be computed on the basis of a year of 360 days and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). The Borrowers shall pay to the Agent, for the ratable benefit of Lenders, interest accrued on all Base Rate Loans in arrears on the first day of each month hereafter and on the Termination Date. The Borrowers shall pay to the Agent, for the ratable benefit of Lenders, interest on all LIBOR Rate Loans in arrears on each LIBOR Interest Payment Date. (b) Default Rate. If any Event of Default occurs and is continuing and the Agent or the Required Lenders in their discretion so elect, then, while any such Event of Default is continuing, the outstanding principal balance of all Loans (including, to the maximum extent permitted by law, accrued and unpaid interest thereon) shall bear interest at the Default Rate applicable to such Loans. 2.2 Continuation and Conversion Elections. ------------------------------------- (a) The Borrower Representative may: (i) elect, as of any Business Day, to convert any Base Rate Loans or any part thereof (in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof) into LIBOR Rate Loans; or (ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR Rate Loans having Interest Periods expiring on such day or any part thereof (in an amount not less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof); provided, that if at any time the aggregate amount of LIBOR Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $5,000,000, such LIBOR Rate Loans shall automatically convert into Base Rate Loans; provided further that if the Notice of Continuation/Conversion shall fail to specify the duration of the Interest Period, such Interest Period shall be one month. (b) The Borrower Representative shall deliver a notice of continuation/conversion ("Notice of Continuation/Conversion") to the Agent not later than 12:00 noon (Chicago, Illinois time) at least three (3) Business Days in advance of the Continuation/Conversion Date, if the Loans are to be converted into or continued as LIBOR Rate Loans and specifying: (i) the proposed Continuation/Conversion Date; (ii) the aggregate amount of Loans to be converted or continued; (iii) the type of Loans resulting from the proposed conversion or continuation; and (iv) the duration of the requested Interest Period, provided, however, the Borrower Representative may not select an Interest Period that ends after the Stated Termination Date. (c) If upon the expiration of any Interest Period applicable to LIBOR Rate Loans, the Borrower Representative has failed to select timely a new Interest Period to be applicable to LIBOR Rate Loans or if any Event of Default then exists, the Borrower Representative shall be deemed to have elected to convert such LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Lender of its receipt of a Notice of Continuation/Conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) There may not be more than nine (9) different Interest Periods with respect to LIBOR Rate Loans in effect hereunder at any time. 2.3 Maximum Interest Rate. In no event shall any interest rate provided for hereunder exceed the maximum rate legally chargeable by any Lender under applicable law for such Lender with respect to loans of the type provided for hereunder (the "Maximum Rate"). If, in any month, any interest rate, absent such limitation, would have exceeded the Maximum Rate, then the interest rate for that month shall be the Maximum Rate, and, if in future months, that interest rate would otherwise be less than the Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate. In the event that, upon payment in full of the Obligations, the total amount of interest paid or accrued under the terms of this Agreement is less than the total amount of interest which would, but for this Section 2.3, have been paid or accrued if the interest rate otherwise set forth in this Agreement had at all times been in effect, then the Borrowers shall, to the extent permitted by applicable law, pay the Agent, for the account of the Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of interest which would have been charged if the Maximum Rate had, at all times, been in effect or (ii) the amount of interest which would have accrued had the interest rate otherwise set forth in this Agreement, at all times, been in effect over (b) the amount of interest actually paid or accrued under this Agreement. If a court of competent jurisdiction determines that the Agent and/or any Lender has received interest and other charges hereunder in excess of the Maximum Rate, such excess shall be deemed received on account of, and shall automatically be applied to reduce, the Obligations other than interest, in the inverse order of maturity, and if there are no Obligations outstanding, the Agent and/or such Lender shall refund to the Borrower Representative, on behalf of the Borrowers, such excess. 2.4 Facility Fee; Syndication Fee; Administration Fee. The Borrowers jointly and severally agree to pay the Agent, for the Agent's sole account, on the Closing Date: (a) a facility fee (the "Facility Fee") in the amount $2,500,000; (b) a syndication fee (the "Syndication Fee") in the amount of $2,500,000; and (c) an administration fee (the "Administration Fee") in the amount of $200,000. The Agent shall apply the commitment fee in the amount of $1,000,000 previously paid by the Borrowers to the Agent pursuant to the commitment letter dated October 4, 2000 among the Agent and the Borrowers (the "Commitment Letter") against the Facility Fee referred to above. 2.5 Unused Line Fee. On the first Business Day of each month (or, if later, on the first Business Day following notification by the Agent to the Borrower Representative of the amount owing hereunder on such date) and on the Termination Date, the Borrowers jointly and severally agree to pay to the Agent, for the account of the Lenders, in accordance with their respective Pro Rata Shares, an unused line fee (the "Unused Line Fee") equal to three-eighths of one percent (.375%) per annum times the amount by which the Maximum Revolver Amount exceeded the sum of the average daily outstanding principal amount of Revolving Loans and the average daily undrawn face amount of outstanding Letters of Credit during the immediately preceding month or shorter period if calculated on the Termination Date. The Unused Line Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed. All principal payments received by the Agent shall be deemed to be credited to the Borrowers' Loan Account immediately upon receipt for purposes of calculating the Unused Line Fee pursuant to this Section 2.5. 2.6 Letter of Credit Fee. With respect to any month during which a Letter of Credit is outstanding, the Borrowers jointly and severally agree to pay to the Agent, for the account of the Lenders, in accordance with their respective Pro Rata Shares, for Letters of Credit, a fee (the "Letter of Credit Fee") equal to the Applicable L/C Margin per annum from time to time in effect multiplied by the average daily maximum aggregate amount from time to time available to be drawn under all outstanding Letters of Credit during such month, and to the Letter of Credit Issuer, all out-of-pocket costs, fees and expenses incurred by the Letter of Credit Issuer in connection with the application for, processing of, issuance of, or amendment to any Letter of Credit, which costs, fees and expenses shall include a "fronting fee" of one-quarter of one percent (0.25%) per annum of the average daily maximum aggregate amount from time to time available to be drawn under all outstanding standby Letters of Credit during such month, payable to the Letter of Credit Issuer. The Letter of Credit Fee shall be payable monthly in arrears on the first Business Day of each month following any month in which a Letter of Credit is outstanding (or, if later, on the first Business Day following notification by the Agent to the Borrower Representative of the amount owing hereunder on such date) and on the Termination Date. The Letter of Credit Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed. ARTICLE 3 PAYMENTS AND PREPAYMENTS 3.1 Revolving Loans. The Borrowers shall repay the outstanding principal balance of the Revolving Loans, plus all accrued but unpaid interest thereon, on the Termination Date. The Borrowers may prepay Revolving Loans in whole or in part at any time, and reborrow subject to the terms of this Agreement. In addition, and without limiting the generality of the foregoing, upon demand the Borrowers shall pay to the Agent, for account of the Lenders, the amount, without duplication, by which the Aggregate Revolver Outstandings exceeds the lesser of the Borrowing Base or the Maximum Revolver Amount. 3.2 Termination of Facility; Reductions in Revolving Loan Commitments. The Borrower Representative may terminate this Agreement upon at least five (5) Business Days' notice to the Agent and the Lenders and to the Committee, upon (a) the payment in full of all outstanding Revolving Loans, together with accrued and unpaid interest thereon, and the cancellation and return of all outstanding Letters of Credit (or the delivery of Supporting Letters of Credit or Cash Collateral in respect thereof in accordance with Section 1.4(g)), (b) the payment in full in cash of all reimbursable expenses and other Obligations, and (c) with respect to any LIBOR Rate Loans prepaid in connection with such termination prior to the expiration date of the Interest Period applicable thereto, the payment of the amounts described in Section 4.4. The Agent and the Lenders shall be entitled to assume (without any investigation) that any notice required to be delivered hereunder by the Borrower to the Committee has been so delivered. In addition, after the first anniversary of the Closing Date, the Borrower Representative may, from time to time, permanently reduce (but not terminate) the Revolving Loan Commitments (which will result in a corresponding reduction in the Maximum Revolver Amount) upon at least five (5) Business Days notice to the Agent and the Lenders and to the Committee; provided that (a) any such reduction shall be in a minimum amount of $50,000,000 and integral multiples of $50,000,000 in excess of such amount, (b) the Revolving Loan Commitments (and the Maximum Revolver Amount) shall not be reduced to an amount less than $300,000,000 and (c) after giving effect to any such reduction (and the corresponding reduction in the Maximum Revolver Amount), Availability shall be greater than zero. The Agent and the Lenders shall be entitled to assume (without any investigation) that any notice required to be delivered hereunder by the Borrower to the Committee has been so delivered. 3.3 [Intentionally omitted.] ---------------------- 3.4 [Intentionally omitted.] ---------------------- 3.5 LIBOR Rate Loan Prepayments. In connection with any prepayment of LIBOR Rate Loans, if any LIBOR Rate Loans are prepaid prior to the expiration date of the Interest Period applicable thereto, the Borrowers shall pay to the Lenders the amounts described in Section 4.4. 3.6 Payments by the Borrowers. ------------------------- (a) All payments to be made by the Borrowers shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Borrowers shall be made to the Agent for the account of the Lenders, at the account designated by the Agent and shall be made in Dollars and in immediately available funds, no later than 12:00 noon (Chicago, Illinois time) on the date specified herein. Any payment received by the Agent after such time shall be deemed (for purposes of calculating interest only) to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period", whenever any payment is due on a day other than a Business Day, such payment shall be due on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 3.7 Payments as Revolving Loans. At the election of the Agent, all payments of principal, interest, reimbursement obligations in connection with Letters of Credit and Credit Support for Letters of Credit, fees, premiums, reimbursable expenses and other sums payable hereunder which are not made on or before 12:00 noon (Chicago, Illinois time) on the due date specified herein, may be paid from the proceeds of Revolving Loans made hereunder. The Borrowers hereby irrevocably authorize the Agent to charge the Loan Account for the purpose of paying all amounts from time to time due hereunder which are not paid on or before 12:00 noon (Chicago time) on the due date specified herein and agrees that all such amounts charged shall constitute Revolving Loans (including Non-Ratable Loans). 3.8 Apportionment, Application and Reversal of Payments. Principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Loans to which such payments relate held by each Lender) and payments of the fees shall, as applicable, be apportioned ratably among the Lenders, except for fees payable solely to Agent and the Letter of Credit Issuer and except as provided in Section 11.1(b). All payments shall be remitted to the Agent and all such payments not relating to principal or interest of specific Loans, or not constituting payment of specific fees, shall be applied, ratably, subject to the provisions of this Agreement, first, to pay any fees, indemnities or expense reimbursements including any such amounts relating to Bank Products then due to the Agent from the Borrowers; second, to pay any fees or expense reimbursements then due to the Lenders from the Borrowers; third, to pay interest due in respect of all Revolving Loans, including Non-Ratable Loans; fourth, to pay or prepay principal of the Non-Ratable Loans; fifth, to pay or prepay principal of the Revolving Loans (other than Non-Ratable Loans) and unpaid reimbursement obligations in respect of Letters of Credit; sixth, to cash collateralize outstanding Letters of Credit; and seventh, to the payment of any other Obligation including any amounts relating to Bank Products due to the Bank or any Affiliate of the Bank by any Borrower. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower Representative, or unless an Event of Default has occurred and is continuing, neither the Agent nor any Lender shall apply any payments which it receives to any LIBOR Rate Loan, except (a) on the expiration date of the Interest Period applicable to any such LIBOR Rate Loan, or (b) in the event, and only to the extent, that there are no outstanding Base Rate Loans and, in any event, the Borrowers shall pay LIBOR breakage losses in accordance with Section 4.4. 3.9 Indemnity for Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Agent or such Lender and the Borrowers shall be liable to pay to the Agent and the Lenders, and hereby do indemnify the Agent and the Lenders and hold the Agent and the Lenders harmless for the amount of such payment or proceeds surrendered. The provisions of this Section 3.9 shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or any Lender in reliance upon such payment or application of proceeds, and any such contrary action so taken shall be without prejudice to the Agent's and the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment or application of proceeds having become final and irrevocable. The provisions of this Section 3.9 shall survive the termination of this Agreement. 3.10 Agent's and Lenders' Books and Records; Monthly Statements. The Agent shall record the principal amount of the Loans owing to each Lender, the undrawn face amount of all outstanding Letters of Credit and the aggregate amount of unpaid reimbursement obligations outstanding with respect to the Letters of Credit from time to time on its books. In addition, each Lender may note the date and amount of each payment or prepayment of principal of such Lender's Loans in its books and records. Failure by Agent or any Lender to make such notation shall not affect the obligations of the Borrowers with respect to the Loans or the Letters of Credit. The Borrowers agree that the Agent's and each Lender's books and records showing the Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute rebuttably presumptive proof thereof, irrespective of whether any Obligation is also evidenced by a promissory note or other instrument. The Agent will provide to the Borrower Representative a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Such statement shall be deemed correct, accurate, and binding on the Borrowers and an account stated (except for corrections of errors discovered by the Agent), unless the Borrower Representative notifies the Agent in writing to the contrary within thirty (30) days after such statement is rendered. In the event a timely written notice of objections is given by the Borrower Representative, only the items to which exception is expressly made will be considered to be disputed by the Borrower Representative. ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY 4.1 Taxes. ----- (a) Any and all payments by each Borrower to each Lender or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Borrowers shall pay all Other Taxes. (b) The Borrowers jointly and severally agree to indemnify and hold harmless each Lender and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by any Lender or the Agent in respect to any sum payable hereunder and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date such Lender or the Agent makes written demand therefor to the Borrower Representative. (c) If any Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, then (provided the Borrowers shall not be required to pay such Taxes if such obligation to withhold or pay Taxes results from, or would not have occurred but for the failure of such Lender to deliver the forms described in Section 12.10 in the manner and at the times specified in such Section unless Lender is legally not able to deliver such forms) then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings of such Taxes or Other Taxes (including deductions and withholdings applicable to additional sums payable under this Section) such Lender or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) such Borrower shall make such deductions and withholdings; (iii) such Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) such Borrower shall also pay to each Lender or the Agent for the account of such Lender, at the time interest is paid, all additional amounts which the respective Lender specifies as reasonably necessary to preserve the after-tax yield such Lender would have received if such Taxes or Other Taxes had not been imposed. (d) At the Agent's request, within 30 days after the date of any payment by any Borrower of Taxes or Other Taxes, the Borrower Representative shall furnish the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment reasonably satisfactory to the Agent. (e) If any Borrower is required to pay additional amounts to any Lender or the Agent pursuant to this Section 4.1, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its lending office so as to eliminate any such additional payment by such Borrower which may thereafter accrue, if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. (f) If a Lender shall become aware (without any duty to investigate) that it may be entitled to claim a refund in respect of any Taxes or Other Taxes as to which it has been fully indemnified by any of the Borrowers pursuant to this Section 4.1, such Lender (i) shall promptly notify the Borrower Representative of the possibility of claiming such refund and (ii) shall, after receipt of a request by the Borrower Representative, apply for such refund. If a Lender is required to apply for a refund of Taxes or Other Taxes pursuant to the preceding sentence, the Borrowers shall reimburse the Lender for its expenses incurred in respect of such claim for refund. If any Lender receives a refund in respect of any Taxes or Other Taxes as to which it has been fully indemnified by any of the Borrowers pursuant to this Section 4.1, it shall promptly notify the Borrower Representative of such refund and pay such refund to the Borrower Representative (to the extent of amounts that have been fully paid by any of the Borrowers under this Section 4.1 with respect to such refund and had not previously been reimbursed), net of all out-of-pocket expenses of such Lender and without interest (other than the interest, if any, included in such refund net of any Taxes payable with respect to receipt of such refund). This Section shall apply only (i) if the Lender determines that it can apply and pay over such refund without prejudice to the retention of the refund and (ii) such Lender has determined that such refund will leave such Lender after such payment in a position no worse then it would have been if the Borrower had not been required to make such deduction or withholding. The Lender shall not be obligated to disclose to the Borrower any information regarding its tax affairs or computations, and nothing in this Section 4.1(f) shall interfere with the right of the Lender to arrange its tax affairs as it deems appropriate or impose an obligation on such Lender to obtain any refund if, in its sole opinion, to do so would (x) impose undue hardships, burdens or expenditures on it or (y) increase its exposure to taxation by the jurisdiction in question. (g) Limitations. Notwithstanding anything to the contrary contained herein, unless an assignment to a new Lender had been made at the request of the Borrowers or such an assignment to a new Lender occurred while an Event of Default was continuing; no Borrower shall be required to pay any additional amount in respect of the withholding of United States Federal income taxes pursuant to this Section 4.1 to any Lender except to the extent such withholding is a result of a change of law enacted after the date such Person becomes or became a Lender. 4.2 Illegality. ---------- (a) If any Lender determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable lending office to make LIBOR Rate Loans, then, on notice thereof by that Lender to the Borrower Representative through the Agent, any obligation of that Lender to make LIBOR Rate Loans shall be suspended until that Lender notifies the Agent and the Borrower Representative that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any LIBOR Rate Loan, the Borrowers shall, upon the Borrower Representative's receipt of notice of such fact and demand from such Lender (with a copy to the Agent), be deemed to have automatically converted such LIBOR Rate Loans to such Lender then outstanding into Base Rate Loans, either on the last day of the Interest Period thereof, if that Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if that Lender may not lawfully continue to maintain such LIBOR Rate Loans. 4.3 Increased Costs and Reduction of Return. --------------------------------------- (a) If any Lender determines that due to either (i) the introduction of or any change in the interpretation of any law or regulation adopted after the date hereof or (ii) the compliance by that Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) adopted after the date hereof, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable for, and shall from time to time, within fifteen (15) days following written demand therefor by such Lender to the Borrower Representative (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. (b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation after the date hereof, (ii) any change in any Capital Adequacy Regulation after the date hereof, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof after the date hereof, or (iv) compliance by such Lender or any corporation or other entity controlling such Lender with any Capital Adequacy Regulation adopted after the date hereof, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation or other entity controlling such Lender (excluding any reserve that is reflected in the LIBOR Rate) and (taking into consideration such Lender's or such corporation's or other entity's policies with respect to capital adequacy) determines that the amount of such capital is increased as a consequence of its Commitments, loans, credits or obligations under this Agreement, then, within fifteen (15) days following written demand therefor by such Lender to the Borrower Representative through the Agent, the Borrowers shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender for such increase. 4.4 Funding Losses. The Borrowers shall reimburse each Lender and hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of: (a) the failure of the Borrowers to make on a timely basis any payment of principal of any LIBOR Rate Loan; (b) the failure of the Borrowers to borrow a LIBOR Rate Loan, continue a LIBOR Rate Loan or convert a Loan into a LIBOR Rate Loan after the Borrower Representative has given (or is deemed to have given) a Notice of Borrowing or a Notice of Continuation/Conversion; or (c) the prepayment or other payment (including after acceleration thereof) of any LIBOR Rate Loans on a day that is not the last day of the relevant Interest Period; including without limitation any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. At the election of any Lender, and without limiting the generality of the foregoing, but without duplication, such compensation on account of losses may include an amount equal to the excess of (i) the interest that would have been received from the Borrowers under this Agreement on any amounts to be reemployed during an Interest Period or its remaining portion over (ii) the interest component of the return that such Lender determines it could have obtained had it placed such amount on deposit in the interbank market for the relevant currency selected by it for a period equal to such Interest Period, or term, or any remaining portion thereof. 4.5 Inability to Determine Rates. If, prior to the first day of any Interest Period, the Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Loan, the Agent will promptly so notify the Borrower Representative and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Borrower Representative may revoke any Notice of Borrowing or Notice of Continuation/Conversion then submitted by it. If the Borrower Representative does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by the Borrower Representative, in the amount specified in the applicable notice submitted by the Borrower Representative, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR Rate Loans. 4.6 Certificates of Agent. If any Lender claims reimbursement or compensation under this Article 4, Agent shall determine the amount thereof and shall promptly deliver to the Borrower Representative (with a copy to the affected Lender) a certificate setting forth in reasonable detail the computation of any amount payable to the affected Lender, and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error. 4.7 Survival. The agreements and obligations of the Borrowers in this Article 4 shall be joint and several and shall survive the payment of all other Obligations. 4.8 Affected Lenders. Within 15 days after receipt by the Borrower Representative of written notice and demand from any Lender (an "Affected Lender") demanding payment of additional amounts or increased costs as provided in Sections 4.1 or 4.3, or exercising its rights under Section 4.2, the Borrower Representative may, at its option, notify the Agent and such Affected Lender of its intention to replace the Affected Lender. So long as no Event of Default has occurred and is continuing, the Borrower, with the consent of the Agent, may obtain, at the Borrowers' expense, a replacement Lender ("Replacement Lender") for the Affected Lender, which Replacement Lender shall be reasonably satisfactory to the Agent. If the Borrower obtains a Replacement Lender within 90 days following notice of its intention to do so, the Affected Lender shall sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and fees with respect thereto through the date of such sale; provided, that the Borrowers shall have reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. Notwithstanding the foregoing, the Borrower Representative shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or additional amounts, or the exercise of its rights under Section 4.2, within 15 days following its receipt of the Borrower Representative's notice of intention to replace such Affected Lender. Furthermore, if the Borrower Representative gives a notice of intention to replace and does not so replace such Affected Lender within 90 days thereafter, the Borrower Representative's rights under this Section 4.8 shall terminate and the Borrowers shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 4.1 and 4.3. ARTICLE 5 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES 5.1 Books and Records. The Borrowers shall, and shall cause their respective Subsidiaries to, maintain, at all times, a system of accounting and keep such correct and complete books, records and accounts as may be required or necessary to permit the preparation of Financial Statements in accordance with GAAP. 5.2 Financial Information. The Borrowers shall promptly furnish to each Lender, all such financial information as the Agent shall reasonably request. Without limiting the foregoing, the Borrowers will furnish to the Agent, in sufficient copies for distribution by the Agent to each Lender, the following: (a) As soon as available, but in any event not later than one hundred (100) days after the close of each Fiscal Year, consolidated audited balance sheets, and income statements, cash flow statements and changes in stockholders' equity for the Company and its consolidated Subsidiaries for such Fiscal Year, and the accompanying notes thereto, setting forth in each case in comparative form figures for the previous Fiscal Year, all in reasonable detail, fairly presenting in all material respects the financial position and the results of operations of the Company and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year then ended, and prepared in accordance with GAAP. Such statements shall be examined in accordance with generally accepted auditing standards by Arthur Andersen LLP or other independent certified public accountants selected by the Company and reasonably satisfactory to the Agent, and accompanied by a report of such accountants on such statements, which report shall be unqualified as to scope of audit. The Company, simultaneously with retaining such independent public accountants to conduct such annual audit, shall send a letter to such accountants, with a copy to the Agent and the Lenders, notifying such accountants that one of the primary purposes for retaining such accountants' services and having audited financial statements prepared by them is for use by the Agent and the Lenders. (b) As soon as available, but in any event not later than thirty (30) days after the end of each month, the monthly financial information required to be provided by the Borrowers to the Bankruptcy Court. The Borrower Representative, on behalf of the Borrowers, shall certify by a certificate signed by a Responsible Officer that all such statements are fairly stated in all material respects, subject to normal year-end adjustments. (c) As soon as available, but in any event not later than fifty-five (55) days after the end of each of the first three fiscal quarters of each Fiscal Year, consolidated unaudited balance sheets of the Company and its consolidated Subsidiaries as at the end of such fiscal quarter, and consolidated unaudited income statements and cash flow statements for the Company and its consolidated Subsidiaries for such fiscal quarter and for the period from the beginning of the Fiscal Year to the end of such fiscal quarter, all in reasonable detail, fairly presenting in all material respects the financial position and results of operations of the Company and its consolidated Subsidiaries as at the date thereof and for such periods, and, in each case, in comparable form, figures for the corresponding period in the prior Fiscal Year, and prepared in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments) applied consistently with the audited Financial Statements required to be delivered pursuant to Section 5.2(a). The Borrower Representative, on behalf of the Borrowers, shall certify by a certificate signed by its chief financial officer that all such statements have been prepared in accordance with GAAP (except for the absence of footnotes and subject to normal year-end adjustments) and present fairly in all material respects the financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the results of operations of the Company and its consolidated Subsidiaries for the periods then ended, subject to normal year-end adjustments. (d) With each of the audited annual Financial Statements delivered pursuant to Section 5.2(a), a certificate of the independent certified public accountants that examined such statement to the effect that they have reviewed and are familiar with this Agreement and that, in examining such Financial Statements, they did not become aware of any fact or condition which then constituted a Default or Event of Default with respect to the financial covenant set forth in Section 7.21, except for those, if any, described in reasonable detail in such certificate. (e) With each of the annual audited Financial Statements delivered pursuant to Section 5.2(a), and with each of the quarterly unaudited Financial Statements delivered pursuant to Section 5.2(c), (1) a certificate of a Responsible Officer setting forth in reasonable detail the calculations required to establish that the Borrowers were in compliance with the covenant set forth in Section 7.21 during the period covered in such Financial Statements and as at the end thereof and (2) a copy of management's discussion and analysis of such Financial Statements contained in the Company's Form 10-K Annual Report or Form 10-Q Quarterly Report filed with the Securities and Exchange Commission with respect to such Fiscal Year or fiscal quarter, as applicable. With each of the monthly Financial Statements delivered pursuant to Section 5.2(b), and with each of the quarterly unaudited Financial Statements delivered pursuant to Section 5.2(c), a certificate of a Responsible Officer stating that, except as explained in reasonable detail in such certificate, no Default or Event of Default then exists or existed during the period covered by the Financial Statements for such month or fiscal quarter, as applicable. If such certificate discloses that a Default or Event of Default existed or exists, such certificate shall set forth what action the Borrowers have taken or propose to take with respect thereto. (f) Not less than thirty (30) days after the beginning of each Fiscal Year, an annual projected budget (to include projected consolidated balance sheets, income statements and cash flow statements) for the Company and its consolidated Subsidiaries as at the end of and for each month of such Fiscal Year. (g) Promptly after filing with the PBGC and the IRS, a copy of each annual report or other filing filed with respect to each Pension Plan of any Borrower. (h) Promptly upon the filing thereof, copies of all reports, if any, filed by the Company or any of its consolidated Subsidiaries with the Securities and Exchange Commission under the Exchange Act, and all reports, notices, or statements sent by the Company or any of its consolidated Subsidiaries to the holders of any equity interests of the Company. (i) Promptly after any Borrower's receipt thereof, a copy of all management letters prepared for any Borrower by any independent certified public accountants of any Borrower. (j) Promptly after transmittal thereof, copies of any and all proxy statements, financial statements, and reports which the Company makes available to its shareholders. (k) (i) On the date hereof, a Borrowing Base Certificate as of September 30, 2000 (but giving effect to the repayment in full of the accounts receivable securitization facility of certain of the Borrowers with Alpine Securitization Corp., which has been repaid in full and terminated prior to the Closing Date) and (ii) thereafter, within fifteen (15) Business Days after the end of each month, a Borrowing Base Certificate as of the last day of such month. (l) The following information at the following times (in form reasonably satisfactory to the Agent): (i) together with each Borrowing Base Certificate delivered after the date hereof pursuant to Section 5.2(k), (1) a schedule summarizing the Borrowers' Accounts created, credits given, cash collected and other adjustments to Accounts since the last such schedule, (2) summary agings of the Borrowers' Accounts, together with a reconciliation to the corresponding Borrowing Base and to the Borrowers' general ledgers, (3) a report of contra-accounts (or, if requested by the Agent, a summary aging of the Borrowers' accounts payable), (4) Consolidation Ledgers of Inventory by category and location, together with a reconciliation to the corresponding Borrowing Base and to the Borrowers' general ledgers; (ii) upon request by the Agent, a statement of the balance of each of the intercompany Accounts; (iii) such other reports as to the Accounts and Inventory of the Borrowers as the Agent shall reasonably request from time to time; and (iv) with the delivery of each of the foregoing, a certificate of the Borrower Representative executed by a Responsible Officer certifying as to the accuracy and completeness of the foregoing. (m) Such additional information as the Agent and/or any Lender may from time to time reasonably request regarding the financial and business affairs of the Company or any Subsidiary. 5.3 Notices to the Lenders. Promptly upon a Responsible Officer becoming aware thereof, the Borrowers shall notify the Agent and the Lenders in writing of the following matters: (a) any Default or Event of Default; (b) the commencement by the holder of any capital stock of any Other Subsidiary or the holder of any Debt of any Other Subsidiary in a face amount in excess of $50,000,000 of any enforcement action because of an asserted default or non-compliance; (c) any pending or threatened action, suit, or proceeding, by any Person, or any pending or threatened investigation by a Governmental Authority, which would reasonably be expected to have a Material Adverse Effect; or the rendering of any judgment against one or more of the Borrowers in any action, suit or proceeding awarding damages in excess of $2,000,000; (d) any pending strike, work stoppage, unfair labor practice claim, or other labor dispute affecting any Borrower or any Other Subsidiary in a manner which would reasonably be expected to have a Material Adverse Effect; (e) receipt of any notice of any violation of any law, statute, regulation, or ordinance of a Governmental Authority affecting any Borrower or any Other Subsidiary which would reasonably be expected to have a Material Adverse Effect; (f) any notice of any violation by any Borrower or any Other Subsidiary of any Environmental Law which would reasonably be expected to have a Material Adverse Effect or that any Governmental Authority has asserted in writing that any Borrower or any Other Subsidiary is not in compliance with any Environmental Law or is investigating any Borrower's or such Other Subsidiary's compliance therewith which noncompliance would reasonably be expected to have a Material Adverse Effect; (g) any written notice that any Borrower or any Other Subsidiary is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant or that any Borrower or any Other Subsidiary is subject to investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to the Release or threatened Release of any Contaminant which, in either case, is reasonably likely to have a Material Adverse Effect; (h) any written notice of the imposition of any Environmental Lien against any property of any Borrower or, if reasonably likely to have a Material Adverse Effect, any Other Subsidiary; (i) an ERISA Event or a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred with respect to a Pension Plan, and, when known, any action taken or threatened by the IRS, the DOL or the PBGC with respect thereto, which would reasonably be expected to have a Material Adverse Affect; (j) in the event that such filing reflects a significant change with respect to the matters covered thereby, within three (3) Business Days after the filing thereof with the PBGC, the DOL or the IRS, as applicable, copies of the following: (i) each annual report (form 5500 series), including Schedule B thereto, filed with the PBGC, the DOL or the IRS with respect to each Pension Plan, (ii) a copy of each funding waiver request filed with the PBGC, the DOL or the IRS with respect to any Pension Plan and all communications received by any Borrower or any ERISA Affiliate from the PBGC, the DOL or the IRS with respect to such request, and (iii) a copy of each other filing or notice filed with the PBGC, the DOL or the IRS, with respect to each Pension Plan by any Borrower or any ERISA Affiliate; (k) copies of the following: (i) any notices of the PBGC's intention to terminate a Plan or to have a trustee appointed to administer such Plan; (ii) any determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Code; or (iii) any notice from a Multi-employer Plan regarding the imposition of withdrawal liability; (l) (i) any changes in the benefits of any existing Plan which increase any Borrower's annual normal or prior service costs with respect thereto by an amount in excess of $5,000,000, or the establishment of any new Pension Plan or the commencement of contributions to any Pension Plan to which any Borrower or any ERISA Affiliate was not previously contributing; or (ii) any failure by any Borrower or any ERISA Affiliate to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment; or (m) (i) a Multi-employer Plan has been or will be terminated; (ii) the administrator or plan sponsor of a Multi-employer Plan intends to terminate a Multi-employer Plan; or (iii) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan. Each notice given under this Section shall describe the subject matter thereof in reasonable detail, and shall set forth the action that any Borrower, any Other Subsidiary, or any ERISA Affiliate, as applicable, has taken or proposes to take with respect thereto. ARTICLE 6 GENERAL WARRANTIES AND REPRESENTATIONS Each Borrower jointly and severally warrants and represents to the Agent and the Lenders that except as hereafter disclosed to and accepted by the Agent and the Required Lenders in writing: 6.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents. Subject to the entry by the Bankruptcy Court of the Final Order, (a) each Borrower has the power and authority to execute, deliver and perform this Agreement and the other Loan Documents to which it is a party and to incur the Obligations, (b) each Borrower has taken all necessary action to authorize its execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party; (c) this Agreement and the other Loan Documents to which it is a party have been duly executed and delivered by each Borrower, and constitute the legal, valid and binding obligations of such Borrower, enforceable against it in accordance with their respective terms and the terms of the Final Order, and (d) each Borrower's execution, delivery, and performance of this Agreement and the other Loan Documents to which it is a party do not and will not (i) result in the imposition of any Lien upon the property of such Borrower, by reason of the terms of (1) any contract, mortgage, lease, agreement, indenture, or instrument to which such Borrower is a party or which is binding upon it (including any of the foregoing entered into after the Filing Date), (2) any Requirement of Law applicable to such Borrower, or (3) the certificate or articles of incorporation or by-laws or the limited liability company or limited partnership agreement of such Borrower or (ii) conflict with, or constitute a violation of (1) any contract, mortgage, lease, agreement, indenture, or instrument to which such Borrower is a party or which is binding upon it and that was entered into after the Filing Date, except where such conflict, violation or breach would not reasonably be expected to have a Material Adverse Effect, (2) any Requirement of Law applicable to such Borrower, except where such conflict, violation or breach would not reasonably be expected to have a Material Adverse Effect or (3) the certificate or articles of incorporation or by-laws or the limited liability company or limited partnership agreement of such Borrower. 6.2 Borrowers' Organization and Qualification of Borrowers. Each Borrower (a) is duly organized or incorporated and validly existing in good standing under the laws of the state of its organization or incorporation, (b) is qualified to do business and is in good standing in the jurisdictions set forth on Schedule 6.2 applicable to such Borrower which are the only jurisdictions in which the failure to so qualify or be in good standing would reasonably be expected to have a Material Adverse Effect and (c) has all requisite power and authority to conduct its business and to own its property, except where the failure to have such power and authority would not reasonably be expected to have a Material Adverse Effect. Schedule 6.4 is a correct and complete list of the name and relationship to the Company of each of the Borrowers which is a Subsidiary. 6.3 [Intentionally Omitted.] ---------------------- 6.4 Other Subsidiaries and Affiliates. As of the Closing Date, Schedule 6.4 is a correct and complete list of the name and relationship to the Company of each of the Other Subsidiaries and other Affiliates. Each Other Subsidiary is (a) duly incorporated or organized and validly existing in good standing under the laws of its state of incorporation or organization set forth on Schedule 6.4, except where the failure to be validly existing would not reasonably be expected to have a Material Adverse Effect and (b) qualified to do business and in good standing in each jurisdiction in which the failure to so qualify or be in good standing would reasonably be expected to have a Material Adverse Effect and (c) has all requisite power and authority to conduct its business and own its property, except where the failure to have such power and authority would not reasonably be expected to have a Material Adverse Effect. 6.5 Financial Statements and Projections. ------------------------------------ (a) The Borrower Representative has delivered to the Agent and the Lenders the audited balance sheet and related statements of income, retained earnings, cash flows, and changes in stockholders equity for the Company and its consolidated Subsidiaries as of December 31, 1999 and for the Fiscal Year then ended, accompanied by the report thereon of the Company's independent certified public accountants, Arthur Andersen LLP. The Borrower Representative has also delivered to the Agent and the Lenders the unaudited balance sheet and related statements of income and cash flows for the Company and its consolidated Subsidiaries as of September 30, 2000. Such financial statements are attached hereto as Exhibit C. All such financial statements have been prepared in accordance with GAAP (except for the absence of footnotes in the case of the foregoing unaudited financial statements) and present accurately and fairly in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of operations of the Company and its consolidated Subsidiaries for the periods then ended, subject to normal year-end adjustments. (b) The Latest Projections when submitted to the Lenders as required herein represent the Borrowers' good faith estimate of the future financial performance of the Company and its consolidated Subsidiaries for the periods set forth therein. The Latest Projections have been prepared on the basis of the assumptions set forth therein, which Borrowers believe are fair and reasonable in light of current and reasonably foreseeable business conditions at the time submitted to the Lenders, it being understood that nothing contained in this Section 6.5(b) shall constitute a representation or warranty of the future financial performance or results of operations of the Company or any of its Subsidiaries. 6.6 [Intentionally omitted.] --------------------- 6.7 Debt. As of the Closing Date, no Borrower has any Debt except (a) the Obligations, and (b) Debt described on Schedule 6.7. 6.8 [Intentionally omitted.] --------------------- 6.9 Title to Property; Liens. Each Borrower has good title in fee simple to all material Real Estate owned by such Borrower, and valid leasehold interests in all material Real Estate leased by such Borrower, and each Borrower has good title to all of its other material property (including the assets reflected on the latest Financial Statements delivered to the Agent and the Lenders, except as disposed of in the ordinary course of business since the date thereof or as otherwise permitted under this Agreement), free of all Liens except Liens permitted under Section 7.17. 6.10 Proprietary Rights. To the best of each Borrower's knowledge, none of the Proprietary Rights of any Borrower or any Other Subsidiary infringes on or conflicts with any other Person's property, and no other Person's property infringes on or conflicts with the Proprietary Rights of any Borrower or any Other Subsidiary, in any case where such infringement or conflict would reasonably be expected to have a Material Adverse Effect. 6.11 [Intentionally Omitted.] --------------------- 6.12 Litigation. There is no pending, or to the best of any Borrower's knowledge threatened, action, suit, proceeding, or counterclaim against the Company or any of its consolidated Subsidiaries before any Governmental Authority or arbitrator or panels of arbitrators (collectively, "Litigation"), which would reasonably be expected to have a Material Adverse Effect. Schedule 6.12 sets forth, as of the date hereof, (a) a summary of all material pending, and to the knowledge of the Borrowers, threatened, Litigation against any Borrower that involves any material risk of a Material Adverse Effect and (b) a schedule of all outstanding and unpaid judgments against the Borrowers. 6.13 [Intentionally omitted.] --------------------- 6.14 Environmental Laws. Without limiting the generality of Section 6.15, in the ordinary course of its business the Company conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up, remediation or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Company has reasonably concluded that Environmental Laws would not reasonably be expected to have a Material Adverse Effect. 6.15 No Violation of Law. No Borrower nor any Other Subsidiary is in violation of any law, statute, regulation, ordinance, judgment, order, or decree applicable to it which violation would reasonably be expected to have a Material Adverse Effect. 6.16 No Default. No Borrower nor any Other Subsidiary is in default with respect to any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which such Borrower or such Other Subsidiary is a party or by which it is bound, which default would reasonably be expected to have a Material Adverse Effect. 6.17 ERISA Compliance. Except as specifically disclosed in Schedule 6.17 and except to the extent that any of the following would not reasonably be expected to have a Material Adverse Effect: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best of any Borrower's knowledge, nothing has occurred which would cause the loss of such qualification. Each Borrower and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best of the Borrowers' knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or would reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction (as defined in Section 406 of ERISA and 4975 of the Code) or violation of the fiduciary responsibility rules under ERISA with respect to any Plan which has resulted or would reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan; and (v) no Borrower nor any ERISA Affiliate has engaged in a transaction that would be subject to Section 4069 or 4212(c) of ERISA. 6.18 Taxes. Each Borrower and each Other Subsidiary have filed all federal and other tax returns and reports required to be filed, and have paid all federal and other taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable other than (a) in the case of the Borrowers, such taxes, assessments, fees and other governmental charges (i) the payment of which has been stayed as a result of the Borrowers' status as debtors-in-possession in the Bankruptcy Cases or by an order of the Bankruptcy Court, (ii) that are not yet delinquent or (iii) that are being contested in good faith and for which adequate reserves have been established by the Borrowers in accordance with GAAP and (b) in the case of the Other Subsidiaries, such taxes, assessments fees and other charges the nonpayment of which would not reasonably be expected to have a Material Adverse Effect. 6.19 Regulated Entities. No Borrower and no Person controlling any Borrower, is an "Investment Company" within the meaning of the Investment Company Act of 1940. No Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code or law, or any other federal or state statute or regulation limiting its ability to incur indebtedness. 6.20 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for working capital and other general corporate purposes. No Borrower nor any Other Subsidiary is engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. No part of the proceeds of any Borrowing will be used in violation of Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time and in no event shall Margin Stock constitute 25% or more of the assets of the Company and its consolidated Subsidiaries. 6.21 Copyrights, Patents, Trademarks and Licenses, etc. Each Borrower and each Other Subsidiary owns or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, licenses, rights of way, authorizations and other rights that are reasonably necessary for the operation of its businesses, without conflict with the rights of any other Person, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. To the best of the Borrowers' knowledge, no slogan or other advertising device, product, process, method, substance, part or other material now employed, by any Borrower or any Other Subsidiary infringes upon any rights held by any other Person, except for such claims and infringements that would not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Borrowers, threatened, which, in either case, would reasonably be expected to have a Material Adverse Effect. 6.22 Full Disclosure. All data, certificates, reports, statements, documents and other written information (excluding any projections or other forward-looking information) furnished to the Agent or any Lender pursuant to any provision of this Agreement or any other Loan Document or in connection with or pursuant to any amendment or modification of, or waiver under, this Agreement or any other Loan Document, shall, at the time the same are so furnished, but in the case of information dated as of a prior date, as of such date, (x) in the case of any such prepared in the ordinary course of business, be complete and correct in the light of the purpose prepared, and (y) in the case of any such requested by the Agent or any Lender, be complete and correct in all material respects to the extent necessary to give the Agent or such Lender true and accurate knowledge of the subject matter thereof, and the furnishing of the same to the Agent or any Lender shall constitute a representation and warranty by the applicable Borrower made on the date the same are furnished to the Agent or such Lender to the effect specified in clause (x) or (y), as applicable. The foregoing shall not be in limitation of any other representation or warranty of the Borrowers contained herein or in any other Loan Document. 6.23 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Borrower of this Agreement or any other Loan Document, except the Bankruptcy Court and notices to creditors required by the Bankruptcy Code. 6.24 Subsidiary Borrowers. As of the Closing Date, the Subsidiaries that are Borrowers constitute all of the Subsidiaries of the Company incorporated or organized under the laws of any state in the United States of America ("Domestic Subsidiaries"), other than those Domestic Subsidiaries listed on Schedule 6.24 hereto. ARTICLE 7 AFFIRMATIVE AND NEGATIVE COVENANTS Each Borrower jointly and severally covenants to the Agent and each Lender that so long as any of the Obligations remain outstanding or this Agreement is in effect: 7.1 Taxes and Other Obligations. Subject to the Bankruptcy Code, each Borrower shall, and the Company shall cause Other Subsidiary to, (a) file when due (subject to any applicable grace periods) all tax returns and other reports which it is required to file; (b) pay, or provide for the payment, when due (subject to any applicable grace periods), of all taxes, fees, assessments and other governmental charges against it or upon its property arising after the Petition Date, and make all required withholding and other tax deposits, and establish adequate reserves for the payment of all such items; and (c) pay when due all Debt owed by it (in the case of any Borrower, arising after the Petition Date) and all claims of materialmen, mechanics, carriers, warehousemen, landlords, processors and other like Persons (in the case of any Borrower, arising after the Petition Date), and all other indebtedness owed by it (in the case of any Borrower, arising after the Petition Date) and perform and discharge in a timely manner all other obligations undertaken by it (in the case of any Borrower, arising after the Petition Date); provided, however, no Borrower need pay any of the foregoing (i) it is contesting in good faith by appropriate proceedings diligently pursued, (ii) as to which such Borrower or such Other Subsidiary, as the case may be, has established proper reserves as required under GAAP, and (iii) the nonpayment of which does not result in the imposition of a Lien (other than a Permitted Lien); provided, further, that no Other Subsidiary need pay any of the foregoing where failure to pay such obligation would not reasonably be expected to have a Material Adverse Effect. 7.2 Legal Existence and Good Standing. Except as permitted under Section 7.8, each Borrower shall, and the Company shall cause each Other Subsidiary to, maintain its legal existence and its qualification and good standing in all jurisdictions in which the failure to maintain such existence and qualification or good standing would reasonably be expected to have a Material Adverse Effect. 7.3 Compliance with Law and Agreements; Maintenance of Licenses. Each Borrower shall comply, and the Company shall cause each Other Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act and all Environmental Laws), except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. Each Borrower shall, and the Company shall cause each Other Subsidiary to, obtain and maintain all licenses, permits, franchises, and governmental authorizations necessary to own its property and to conduct its business as conducted on the Closing Date, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. No Borrower shall modify, amend or alter its certificate or articles of incorporation, or its limited liability company operating agreement or limited partnership agreement, as applicable, other than in a manner which does not adversely affect the rights of the Lenders or the Agent in any material respect. 7.4 Maintenance of Property; Inspection of Property. ----------------------------------------------- (a) Each Borrower shall, and the Company shall cause each Other Subsidiary to, maintain all of its property necessary and useful in the conduct of its business, in good operating condition and repair, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. (b) Each Borrower, shall, permit representatives and independent contractors of the Agent (at the expense of the Borrowers not to exceed four (4) times per year unless an Event of Default has occurred and is continuing) to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make abstracts therefrom or copies (to the extent reasonably required by the Agent) and to discuss its affairs, finances and accounts with its officers and independent public accountants, at such reasonable times during normal business hours and as soon as may be reasonably desired, upon reasonable advance notice to the Borrower Representative. The Borrower Representative may elect to have officers or other management employees accompany the Agent on such inspections and/or be present for such discussions. 7.5 Insurance. Each Borrower shall maintain, and the Company shall cause each Other Subsidiary to maintain, with financially sound and reputable insurers having a rating of at least A+ or better by Best Rating Guide, insurance against such risks and in such amounts as are customary for Persons engaged in the same or similar business or as may be required by applicable law or, in the case of the Borrowers, as may reasonably requested by the Required Lenders. 7.6 Environmental Laws. Each Borrower shall, and the Company shall cause each Other Subsidiary to, conduct its business in compliance in all material respects with all Environmental Laws applicable to it, including those relating to the generation, handling, use, storage, and disposal of any Contaminant, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. Each Borrower shall, and the Company shall cause each Other Subsidiary to, take prompt and appropriate action to respond to any non-compliance with Environmental Laws, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. 7.7 Compliance with ERISA. Except as required under the Bankruptcy Code or an order of the Bankruptcy Court, or except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, each Borrower shall, and the Company shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; (c) make all required contributions to any Plan subject to Section 412 of the Code; (d) not engage in a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) or violation of the fiduciary responsibility rules with respect to any Plan; and (e) not engage in a transaction that would be subject to Section 4069 or 4212(c) of ERISA. 7.8 Mergers, Consolidations or Sales. No Borrower shall, nor shall the Company cause or permit any Other Subsidiary to, enter into any transaction of merger, reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or any part of its property, or wind up, liquidate or dissolve, or agree to do any of the foregoing (or, in the case of any Borrower, apply to the Bankruptcy Court for authority to do so without the Agent's prior written consent, provided that any application consented to by the Agent shall be abandoned and withdrawn at the request of the Agent or if the consent of the Lenders required hereunder to the taking of the action(s) to which such application relates is not obtained), except (i) for sales of Inventory in the ordinary course of its business, (ii) for sales or other dispositions of property in the ordinary course of business that are surplus, worn out, obsolete or no longer useable by any Borrower or Other Subsidiary, (iii) for any merger or consolidation of any Borrower with any other Borrower or of any Other Subsidiary with any Other Subsidiary or other Person (so long as such merger or consolidation of any Other Subsidiary with such other Person would not constitute a Restricted Investment), (iv) for any transfer, sale, assignment, lease or other disposition of all or any part of its assets (upon voluntary liquidation or otherwise) by any Borrower to any other Borrower or by any Other Subsidiary to any Other Subsidiary; (v) the sale or compromise of past due accounts receivable in connection with the collection thereof in the ordinary course of business; (vi) leases or subleases (or assignments of leases or subleases) of fixed assets or licenses or sublicenses (or assignments of licenses or sublicenses) of intangibles, in either case in the ordinary course of business; (vii) dispositions of Cash Equivalents (and, in the case of the Fibreboard Settlement Trust, dispositions of Investments by the Fibreboard Settlement Trust) in the ordinary course of business at fair market value and on commercially reasonable terms; (viii) the making of Investments which are not Restricted Investments, if making such Investments would otherwise be deemed a sale or other disposition subject to this Section 7.8, and (ix) sales of Accounts (or of undivided interests therein) by Other Subsidiaries pursuant to factoring arrangements entered into by such Other Subsidiaries, provided that the aggregate outstanding Accounts (or undivided interests therein) subject to such arrangements shall not exceed $35,000,000 at any time; (x) sales or other dispositions of any asset not otherwise permitted under this Section 7.8 having a book value at the time of disposition that represents a percentage of the consolidated assets of the Company and its consolidated Subsidiaries at such time that, when added together with all of the like percentages at the respective times of disposition represented by the book values of all other assets disposed of by the Company and its Subsidiaries since the Closing Date does not exceed 10%, except that any asset leased by the Company or any such Subsidiary shall cease to be deemed to have been disposed of for the purposes of this Section at such time, if any, as such asset shall cease to be subject to such lease and shall again be owned by the Company or any such Subsidiary free of any leasehold interest or other Lien, except a Lien permitted under Section 7.17; provided that any sale or other disposition permitted under this clause (x) shall not include any Accounts or Inventory of any Borrower unless (1) no Default or Event of Default has occurred and is continuing or would result therefrom, (2) such sale or other disposition is of a business unit of such Borrower, (3) prior to such sale or other disposition, an updated Borrowing Base Certificate is delivered by the Borrower Representative to the Agent giving effect to such sale or other disposition and (4) either (A) after giving effect to such sale or disposition, either Availability is at least $150,000,000 or Borrowing Base Availability is at least $250,000,000 or (B) in the case of any sale or disposition which does not satisfy the requirements of Clause (A), the aggregate book value of all Accounts and Inventory included in any such sale or disposition, or series of related sales and dispositions, does not exceed $10,000,000, provided, that the aggregate book value of all Accounts and Inventory included in sales and other dispositions following the Closing Date and permitted under this clause (B) shall not exceed $50,000,000. 7.9 Distributions; Capital Change; Restricted Investments. No Borrower shall (i) directly or indirectly declare or make, or incur any liability to make, any Distribution, except (A) Distributions to any other Borrower and (B) the acquisitions of shares of the Company's stock pursuant to any compensation or benefit plan approved by the Bankruptcy Court, (ii) make any change in its capital structure which would have a Material Adverse Effect or (iii) make any Restricted Investment. 7.10 [Intentionally Omitted]. --------------------- 7.11 Guaranties. No Borrower shall, nor shall the Company cause or permit any Other Subsidiary to, make, issue, or become liable on (or, in the case of any Borrower, apply to the Bankruptcy Court for authority to make, issue or become liable on without the Agent's prior written consent, provided that any application consented to by the Agent shall be abandoned and withdrawn at the request of the Agent or if the consent of the Lenders required hereunder to the taking of the action(s) to which such application relates is not obtained) any Guaranty, except (a) Guaranties of the Obligations in favor of the Agent; (b) Guaranties outstanding on the date hereof and listed on Schedule 6.7 and including, in the case of the Other Subsidiaries, renewals. extensions and refinancings of such Guaranties to the extent of the amount of such Guaranties as of the date hereof; (c) Guaranties by any Other Subsidiary arising in the ordinary course of business; (d) unsecured Guaranties by any Borrower of Debt or other obligations of any Borrower other than Guaranties of Debt or other obligations of any other Borrower existing on the Filing Date; (e) unsecured Guaranties by any Borrower of Debt or other obligations of any Other Subsidiary incurred in the ordinary course of business of such Other Subsidiary; provided, that the aggregate amount of Debt or other obligations guarantied shall not exceed at any time outstanding $50,000,000; (f) unsecured Guaranties by any Borrower of (1) obligations of Affiliated Entities to manufacture and deliver goods in the ordinary course of business and (2) obligations of Affiliated Entities that are product warranties given in the ordinary course of business with respect to such goods, or are in the nature of, and not exceeding in general scope, product warranties that would otherwise be given in the ordinary course of business with respect to such goods; provided, that the aggregate amount of obligations guarantied pursuant to this clause (f) shall not exceed $25,000,000; (g) Guaranties by any Other Subsidiary of Debt or other obligations of any Affiliated Entity; and (h) additional Guaranties (which, in the case of any Borrower shall be unsecured and shall exclude guaranties of Debt or other obligations of the Borrowers existing on the Filing Date) not exceeding (1) in the case of the Borrowers, together with, without duplication, the Debt of the Borrowers permitted under Section 7.12(i)(1), $150,000,000 in aggregate principal amount at any time outstanding and (2) in the case of the Other Subsidiaries, together with, without duplication, the Debt of the Other Subsidiaries permitted under Section 7.12(i)(2), $75,000,000 in the aggregate principal amount at any time outstanding. 7.12 Debt. No Borrower shall, nor shall the Company cause or permit any Other Subsidiary to, incur or maintain any Debt (or, in the case of any Borrower, apply to the Bankruptcy Court for authority to do so without the Agent's prior written consent; provided that any application consented to by the Agent shall be abandoned and withdrawn at the request of the Agent or if the consent of the Lenders required hereunder to the taking of the action(s) to which such application relates is not obtained), other than: (a) the Obligations; (b) Debt existing on the Closing Date and described on Schedule 6.7 and including, in the case of Debt of the Other Subsidiaries, renewals, extensions and refinancings thereof to the extent of the principal amount of such Debt as of the date hereof; (c) Capital Leases of Equipment and purchase money secured Debt incurred following the Closing Date to purchase Equipment provided that (i) in the case of the Borrowers, Liens securing the same attach only to the Equipment acquired by the incurrence of such Debt, and (ii) the aggregate amount of such Debt (including Capital Leases) outstanding does not exceed $25,000,000 at any time in the case of the Borrowers, and $10,000,000 at any time in the case of the Other Subsidiaries; (d) Permitted Intercompany Debt; (e) Debt consisting of Guaranties which are permitted by Section 7.11; (f) Debt arising pursuant to Hedging Agreements entered into in the ordinary course of business; (g) Debt of any entity existing at the time such entity is acquired by a Borrower or any Other Subsidiary provided that such Debt shall not have been incurred in contemplation of such acquisition and no Borrower shall guaranty or otherwise assume such Debt; (h) Debt of Owens Corning (India) Limited, an India company, in an aggregate principal amount at any time not exceeding $80,000,000; and (i) other Debt (which, in the case of any Borrower, shall be unsecured) not exceeding (1) in the case of the Borrowers, together with, without duplication, Guaranties by the Borrowers permitted under Section 7.11(h)(l), $150,000,000 in aggregate principal amount at any time outstanding and (2) in the case of the Other Subsidiaries, together with, without duplication, Guaranties by the Other Subsidiaries permitted by Section 7.11(h)(2), $75,000,000 in the aggregate principal amount at any time outstanding. The aggregate amount of lease payments under synthetic leases entered into following the Closing Date shall not exceed (a) $25,000,000 in the case of synthetic leases entered into by the Borrowers and (b) $20,000,000 in the case of synthetic leases entered into by the Other Subsidiaries. 7.13 Prepayment. No Borrower shall voluntarily prepay any Debt (or apply to the Bankruptcy Court for authority to do so without the Agent's prior written consent, provided that any application consented to by the Agent shall be abandoned and withdrawn at the request of the Agent or if the consent of the Lenders required hereunder to the taking of the action(s) to which such application relates is not obtained), except (i) any Borrower may prepay the Obligations in accordance with the terms of this Agreement, (ii) any Borrower may prepay Debt of such Borrower to any other Borrower, (iii) any Borrower may prepay Debt permitted hereunder: (a) from the proceeds of new Debt (other than the Obligations) incurred to refinance such Debt and permitted hereunder to be incurred, (b) under Capital Leases for property no longer used by the Borrowers in connection with the settlement, termination or assignment of such Capital Lease, (c) secured by assets in connection with any sale or other disposition of such assets permitted hereunder to the extent such prepayment is financed with the proceeds of such sale or disposition, or (d) consisting of Capital Leases as long as such Capital Leases are paid in full in connection with any such prepayment and such prepayment is made in connection with the sale of the property subject to such Capital Lease, and (iv) the Company may prepay up to $10,000,000 in prepetition indebtedness with respect to precious metals synthetic leases between the Company, as lessee, and Gerald Metals, Inc., as lessor, in connection with the termination of all or a portion of the lessor's interest in the precious metals subject to such leases. 7.14 Transactions with Affiliates. Except as set forth on Schedule 7.14 and except as set forth below, no Borrower shall sell, transfer, distribute, or pay any money or property, including, but not limited to, any fees or expenses of any nature (including, but not limited to, any fees or expenses for management services), to any Affiliate, or lend or advance money or property to any Affiliate, or invest in (by capital contribution or otherwise) or purchase or repurchase any stock or indebtedness, or any property, of any Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or other obligations of any Affiliate, unless such transaction is (a) otherwise permitted under this Agreement or (b) entered into in the ordinary course of business and upon terms no less favorable to such Borrower than would be obtained in a comparable arm's-length transaction with a third party who is not an Affiliate. 7.15 Investment Banking and Finder's Fees. The Borrowers shall defend and indemnify the Agent and the Lenders against and hold them harmless from all claims of any Person that any Borrower is obligated to pay to such Person for any investment banking or similar or related fee, underwriter's fee, finder's fee or broker's fee in connection with this Agreement, and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Agent and/or any Lender in connection therewith. 7.16 Business Conducted. No Borrower shall, nor shall any Borrower cause or permit any Other Subsidiary to, engage directly or indirectly in any line of business other than the businesses in which the Company and its Subsidiaries are engaged on the Closing Date and businesses related or similar thereto or entered into in connection therewith. 7.17 Liens. No Borrower shall create, incur, assume, or permit to exist any Lien on any property now owned or hereafter acquired by any of them, except (a) Permitted Liens, (b) Liens, if any, in effect as of the Closing Date and described in Schedule 6.7 securing Debt described in Schedule 6.7 and (c) Liens securing Capital Leases and purchase money Debt permitted in Section 7.12(c). 7.18 [Intentionally Omitted.] --------------------- 7.19 [Intentionally Omitted.] 7.20 Fiscal Year. The Borrowers shall not change their Fiscal Year. ----------- 7.21 Consolidated EBITDA. The Company and its consolidated Subsidiaries shall have Consolidated EBITDA of not less than the following amounts measured as of the last day of each fiscal quarter for the following respective periods: Period Consolidated EBITDA ------ ------------------- October 1, 2000 through December 31, 2000 $ 90,000,000 October 1, 2000 through March 31, 2001 $170,000,000 October 1, 2000 through June 30, 2001 $270,000,000 October 1, 2000 through September 30, 2001 $385,000,000 Fiscal Year ending December 31, 2001 $400,000,000 Trailing four fiscal quarters ending on March 31, 2002 $410,000,000 and on the last day of each fiscal quarter thereafter
7.22 [Intentionally Omitted.] --------------------- 7.23 Use of Proceeds. No Borrower shall, nor shall the Company cause or permit any Other Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of any Borrower or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act or for any purpose other than working capital and other general corporate purposes. 7.24 Further Assurances. Each Borrower shall execute and deliver, or cause to be executed and delivered, to the Agent and/or the Lenders such documents and agreements, and shall take or cause to be taken such actions, as the Agent or any Lender may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents. 7.25 Section 364(c)(1) Superpriority Administrative Claim. (a) (a) Effective on and after the date of the entry by the Bankruptcy Court of the Final Order, notwithstanding any term to the contrary herein, in accordance with section 364(c)(1) and the Bankruptcy Code, the Obligations shall constitute claims (the "Superpriority Administrative Claims") with priority in payment from the Borrowers' assets, whether now existing or hereafter acquired, over any and all unsecured pre-petition claims, all post-petition claims and all administrative expenses of the kinds specified in, or arising or ordered under any sections of the Bankruptcy Code, including, without limitation, sections 503(b), 105, 326, 328, 330, 331, 506(c), 507(a), 507(b), 546(c), 726 and 1112 of the Bankruptcy Code, whether or not such claims or expenses may become secured by a judgment lien or other non-consensual lien, levy or attachment, and the Superpriority Administrative Claims shall at all times be senior to the rights of the Borrowers, any Chapter 11 trustee, any Chapter 7 trustee, or any other creditor (including, without limitation, post-petition vendors and other post-petition creditors) in the Bankruptcy Cases or any subsequent proceedings under the Bankruptcy Code, including, without limitation, any chapter 7 cases if any of the Borrowers' cases are converted to cases under chapter 7 of the Bankruptcy Code, subject only to the Carve-Out (as defined below), valid and unvoidable liens or security interests to the extent and in the amounts existing as of the commencement of the Bankruptcy Cases and Liens permitted under Section 7.17 hereof. No cost or expense of administration under sections 105, 364(c)(1), 503(b), 506(c), 507(b) of the Bankruptcy Code, any other section of the Bankruptcy Code, or pursuant to any order of the Bankruptcy Court other than the Final Order (whether entered prior to, on, or after the date of the Final Order), shall be senior to, equal to, or pari passu with, the Superpriority Administrative Claim of the Lenders arising out of the Obligations, whether or not such claims or expenses may become secured by a judgment lien or other non-consensual lien, levy or attachment (subject only to the Carve-Out). As long as no unwaived Event of Default has occurred (each a "Carve-Out Event"), the Borrowers shall be permitted to pay allowed unpaid professional fees and disbursements as the same may be due and payable, and such payments shall not reduce the Carve-Out. (b) The Superpriority Administrative Claim referred to in clause (a) above shall be subject only to (1) prior to the occurrence of a Carve-Out Event, the payment of allowed unpaid professional fees and disbursements incurred by the Borrowers and statutory committees appointed in the Bankruptcy Cases, (2) following the occurrence and during the pendency of a Carve-Out Event, the payment of allowed and unpaid professional fees and disbursements incurred after the occurrence and during the pendency of a Carve-Out Event by the Borrowers and statutory committees appointed in the Bankruptcy Cases in an aggregate amount not in excess of $10,000,000, (3) the payment of fees pursuant to 28 U.S.C. ss.1930 and fees payable to the clerk of the Bankruptcy Court and any agent thereof (the amount under this clause(3), together with the amounts under clauses (1) and (2),collectively the "Carve-Out") and (4) valid and unavoidable allowed liens or security interests to the extent and in the amounts existing as of the commencement of the Bankruptcy Cases and Liens permitted under Section 7.17. 7.26 Borrowers' Accounts. ------------------- (a) The Borrowers hereby jointly and severally represent and warrant to the Agent and the Lenders, with respect to the Accounts owned by each Borrower, that, except as otherwise disclosed to the Agent: (i) each existing Account of such Borrower represents, and each future Account will represent, a bona fide sale or lease and delivery of goods by such Borrower or rendition of services by such Borrower; (ii) each existing Account of such Borrower is, and each future Account will be, for a liquidated amount payable by the Account Debtor thereon on the terms set forth in the invoice therefor or in the schedule thereof delivered to the Agent; (iii) no payment will be received with respect to any Account, and no credit, discount, or extension, or agreement therefor will be granted on any Account, except as reported to the Agent and the Lenders in accordance with this Agreement; (iv) each copy of an invoice delivered to the Agent by any Borrower will be a genuine copy of the original invoice sent to the Account Debtor named therein; and (v) all goods described in any invoice representing a sale of goods will have been delivered to the Account Debtor and all services of the applicable Borrower described in each invoice will have been performed. (b) No Borrower shall re-date any invoice or sale or make sales on extended dating beyond that which is customary in such Borrower's business or extend or modify any Account owned by any Borrower. If any Borrower becomes aware of any matter adversely affecting the collectibility of any Account owned by any Borrower or the Account Debtor therefor involving an amount greater than $2,000,000, including information regarding the Account Debtor's creditworthiness, the Borrower Representative will promptly so advise the Agent. (c) The Borrower Representative shall notify the Agent promptly of all disputes and claims in excess of $2,000,000 with any Account Debtor of any Borrower, and the Borrower Representative agrees to settle, contest, or adjust such dispute or claim at no expense to the Agent or any Lender. (d) If an Account Debtor of any Borrower returns any Inventory to such Borrower, then the applicable Borrower shall promptly determine the reason for such return and shall issue a credit memorandum to the Account Debtor in the appropriate amount. Whenever any Inventory of any Borrower is returned, the related Account shall be deemed ineligible to the extent of the amount owing by the Account Debtor with respect to such returned Inventory. 7.27 Inventory; Records. ------------------ The Borrowers jointly and severally represent and warrant to the Agent and the Lenders and agree with the Agent and the Lenders that, except as otherwise disclosed to the Agent all of the Inventory owned by each Borrower is and will be held for sale or lease, or to be furnished in connection with the rendition of services, in the ordinary course of the applicable Borrower's business, and is and will be fit for such purposes. Each Borrower will keep its Inventory in good and marketable condition, except for damaged or defective goods arising in the ordinary course of such Borrower's business. The Borrowers agree that all Inventory produced by the Borrowers in the United States of America will be produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations, and orders thereunder. ARTICLE 8 CONDITIONS OF LENDING 8.1 Conditions Precedent to Making of Initial Loans. The effectiveness of this Agreement on the Closing Date is subject to the following conditions precedent having been satisfied in a manner reasonably satisfactory to the Agent and each Lender on the Closing Date: (a) This Agreement and the other Loan Documents shall have been executed by each party thereto, the Borrowers shall have performed and complied with all covenants, agreements and conditions contained herein and the other Loan Documents which are required to be performed or complied with by the Borrowers before or on such Closing Date and the Borrowers shall have delivered to the Agent the documents, certificates and requirements listed on the closing checklist delivered to the Borrowers by the Agent. (b) All representations and warranties made hereunder and in the other Loan Documents shall be true and correct in all material respects as if made on such date. (c) No Default or Event of Default shall have occurred and be continuing after giving effect to the Loans to be made and the Letters of Credit to be issued on the Closing Date. (d) The Borrowers shall have paid all reasonable fees and expenses of the Agent and the Attorney Costs incurred in connection with any of the Loan Documents and the transactions contemplated thereby to the extent invoiced. (e) The Agent shall have received certificates of insurance, in form, scope, and substance, reasonably satisfactory to the Agent, evidencing all insurance coverage as required by this Agreement. (f) The Agent shall have had an opportunity, if it so chooses, to examine the books of account and other records and files of the Borrowers and to make copies thereof, and to conduct a pre-closing audit which shall include, without limitation, verification of Inventory, Accounts, and the Borrowing Base, and the results of such examination and audit shall have been satisfactory to the Agent and the Lenders in all respects. (g) All proceedings taken in connection with the execution of this Agreement, the Revolving Loan Notes (if any), all other Loan Documents and all documents and papers relating thereto shall be reasonably satisfactory in form, scope, and substance to the Agent and the Lenders. (h) The Agent shall have received the results of UCC-1 and other Lien searches requested by the Agent against the Borrowers (in each case dated as of a date reasonably satisfactory to the Agent), which searches shall reflect the absence of Liens on the assets (including Inventory and Accounts) of the Borrowers, other than Liens that are satisfactory to the Agent or for which termination statements and releases reasonably satisfactory to the Agent have been tendered. (i) At the time of the making of the initial Loans or at the time of the issuance of the initial Letters of Credit, whichever first occurs, the Agent and the Lenders shall have received a certified copy (or such other evidence reasonably satisfactory to Agent and its counsel) of an order of the Bankruptcy Court substantially in the form of Exhibit F (the "Final Order"), which (i) as entered, shall be acceptable in form and substance to the Agent, approving the Loan Documents and granting the Superpriority Administrative Claim status described in Section 7.25 with the priority described therein, (ii) shall have been entered upon an application of the Borrowers reasonably satisfactory in form and substance to the Agent and its counsel, (iii) shall be in full force and effect and no Borrower shall have breached the terms thereof, and (iv) shall not have been stayed, reversed, rescinded, modified, vacated or amended in any respect. (j) The Bankruptcy Cases shall have been commenced by the Borrowers, and the Borrowers shall each be a debtor and debtor-in-possession. (k) All orders entered in the Bankruptcy Cases on or prior to the date the Final Order is entered shall be in form and substance reasonably satisfactory to the Agent and its counsel. The acceptance by the Borrowers of any Loans made or Letters of Credit issued on the Closing Date shall be deemed to be a representation and warranty made by the Borrowers to the effect that all of the conditions precedent to the making of such Loans or the issuance of such Letters of Credit have been satisfied, with the same effect as delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Borrower Representative, dated the Closing Date, to such effect. Execution and delivery to the Agent by a Lender of a counterpart of this Agreement shall be deemed confirmation by such Lender that (i) all conditions precedent in this Section 8.1 have been fulfilled to the satisfaction of such Lender, (ii) the decision of such Lender to execute and deliver to the Agent an executed counterpart of this Agreement was made by such Lender independently and without reliance on the Agent or any other Lender as to the satisfaction of any condition precedent set forth in this Section 8.1, and (iii) all documents sent to such Lender for approval, consent, or satisfaction were acceptable to such Lender. 8.2 Conditions Precedent to Each Loan. The obligation of the Lenders to make each Loan, including the initial Revolving Loans on the Closing Date, and the obligation of the Agent to cause the Letter of Credit Issuer to issue any Letter of Credit shall be subject to the further conditions precedent that on and as of the date of any such extension of credit (provided, however, that such conditions precedent are not conditions to each Lender participating in or reimbursing the Bank or the Agent for such Lenders' Pro Rata Share of any Non-Ratable Loan made in accordance with the provisions of Section 1.2(h) or for any drawing under a Letter of Credit or payment under a Credit Support): (a) the following statements shall be true, and the acceptance by the Borrowers of any extension of credit shall be deemed to be a statement to the effect set forth in clauses (i) and (ii), with the same effect as the delivery to the Agent and the Lenders of a certificate signed by a Responsible Officer of the Borrower Representative, dated the date of such extension of credit, stating that: (i) The representations and warranties contained in this Agreement and the other Loan Documents are correct in all material respects on and as of the date of such extension of credit as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent the Agent and the Lenders have been notified in writing by the Borrower Representative that any representation or warranty is not correct and the Required Lenders have explicitly waived in writing compliance with such representation or warranty; and (ii) No event has occurred and is continuing, or would result from such extension of credit, which constitutes a Default or an Event of Default; and (iii) No event has occurred and is continuing, or would result from such extension of credit, which would reasonably be expected to have a Material Adverse Effect. (b) Subject to the second sentence of Section 1.2(a)(i), no such Borrowing shall exceed Availability. (c) No order shall have been entered or sought by any Borrower in any of the Bankruptcy Cases, (i) for the appointment of a trustee or receiver, (ii) to convert any Bankruptcy Case from a proceeding under chapter 11 of the Bankruptcy Code to a proceeding under chapter 7 of the Bankruptcy Code, or (iii) to dismiss any Bankruptcy Case. (i) The Final Order shall be in full force and effect and shall not have been violated or breached by any Borrower, stayed, reversed, rescinded, modified, vacated or amended in any respect without the consent of the Required Lenders. (d) None of the Bankruptcy Cases shall have been dismissed or converted to chapter 7 of the Bankruptcy Code, no Borrower shall have filed an application for an order dismissing its or any other Borrower's Bankruptcy Case or converting its or any other Borrower's Bankruptcy Case to a case under chapter 7 of the Bankruptcy Code, and no trustee under chapter 7 or chapter 11 of the Bankruptcy Code shall have been appointed in any of the Bankruptcy Cases. ARTICLE 9 DEFAULT; REMEDIES 9.1 Events of Default. It shall constitute an event of default ("Event of Default") if any one or more of the following shall occur for any reason: (a) (i) any failure by any Borrower to pay the principal of any of the Loans or to pay any reimbursement obligations relating to Letters of Credit or Credit Supports when due, whether upon demand or otherwise, or (ii) any failure by any Borrower to pay any interest or premium on any of the Loans or any fees or other Obligations or other amount owing hereunder within three (3) Business Days of the applicable due date, whether upon demand or otherwise; (b) any representation or warranty made or deemed made by any Borrower in this Agreement or in any of the other Loan Documents, any Financial Statement, or any certificate furnished by any Borrower or any Other Subsidiary at any time to the Agent or any Lender pursuant to any Loan Document shall prove to be untrue in any material respect as of the date on which made, deemed made, or furnished; (c) (i) any default shall occur in the observance or performance of any of the covenants and agreements contained in Section 7.2 (insofar as such Section relates to any Borrower) or Sections 7.8 through 7.25 (other than Section 7.24); (ii) any default shall occur in the observance or performance of any of the covenants and agreements contained in Sections 5.2(k) or 5.3(a) and such default shall continue for three (3) Business Days or more; (iii) any default shall occur in the observance or performance of any of the covenants and agreements contained in any of Sections 5.2(a), 5.2(b), 5.2(c), 7.26 or 7.27 for fifteen (15) Business Days or more; or (iv) any default shall occur in the observance or performance of any of the other covenants or agreements contained in any other Section of this Agreement or any other Loan Document, or any agreement entered into at any time to which any Borrower and the Agent or any Lender are party in respect of any Bank Products, and such default shall continue for thirty (30) days after the earlier of (1) the date upon which written notice of such default is given to the Borrower Representative by the Agent and (2) the date upon which a Responsible Officer becomes aware of such default; (d) any Borrower shall file a certificate of dissolution under applicable state law or shall be liquidated, dissolved or wound-up or shall commence any action or proceeding for dissolution, winding-up or liquidation, or shall take any corporate action in furtherance thereof; (e) all or any material part of the property of the Borrowers, taken as a whole, shall be nationalized, expropriated or condemned, seized or otherwise appropriated, or custody or control of such property or of any Borrower shall be assumed by any Governmental Authority or any court of competent jurisdiction at the instance of any Governmental Authority, except where contested in good faith by proper proceedings diligently pursued where a stay of enforcement is in effect; (f) Any Loan Document shall be terminated (other than in accordance with its terms), revoked or declared void or invalid or unenforceable or the validity or enforceability thereof shall be challenged by any Borrower; (g) any loss, theft, damage or destruction of any property of any Borrower or any Other Subsidiary occurs, or any Litigation is commenced against any Borrower (or any change in the facts and circumstances of such Litigation occurs), which would reasonably be expected to cause a Material Adverse Effect and is not adequately covered by insurance; (h) there is filed against any Borrower or any Other Subsidiary action, suit or proceeding under any federal or state racketeering statute (including the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit or proceeding (i) is not dismissed or stayed within one hundred twenty (120) days, and (ii) would reasonably be expected to result in a Material Adverse Effect; (i) (i) an ERISA Event shall occur with respect to a Pension Plan or Multi-employer Plan which has resulted or would reasonably be expected to have a Material Adverse Effect; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds an amount that would reasonably be expected to have a Material Adverse Effect; or (iii) any Borrower or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multi-employer Plan in an aggregate amount that would reasonably be expected to have a Material Adverse Effect; (j) there occurs a Change of Control; (k) any of the Bankruptcy Cases shall be dismissed or converted to a case under chapter 7 of the Bankruptcy Code, or any Borrower shall file an application for an order dismissing any of the Bankruptcy Cases or converting any of the Bankruptcy Cases to a case under chapter 7 of the Bankruptcy Code; a trustee under chapter 7 or chapter 11 of the Bankruptcy Code shall be appointed in any of the Bankruptcy Cases; or an application shall be filed by any Borrower for the approval of any other Superpriority Administrative Claim (other than the Carve-Out) in any Bankruptcy Case which is pari passu with or senior to the claims of the Agent and the Lenders against the Borrowers, or there shall arise any such pari passu or senior Superpriority Administrative Claim, or the Final Order shall be stayed, modified, amended, reversed, rescinded or vacated without the written consent of Agent; (l) the Bankruptcy Court shall enter an order or orders granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code to the holder or holders of any security interest to permit foreclosure (or the granting of a deed in lieu of foreclosure or the like) in any assets of any Borrower; or an order shall be entered by the Bankruptcy Court granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code or from the injunction and stay set forth in the Final Order to permit the creation, perfection or enforcement of any judgment, lien, levy or attachment based on any judgment, whether or not such judgment arises from or gives rise to a pre-petition or post-petition claim; or an order shall be entered by the Bankruptcy Court that is not stayed pending appeal otherwise granting relief from the automatic stay to any creditor of any Borrower (other than the Agent and the Lenders in their capacities as such) with respect to any claim; provided, however, that it shall not be an Event of Default if relief from the automatic stay is lifted solely for the purpose of (i) allowing such creditor to determine the liquidated amount of its claim against any Borrower; (ii) seeking payment from a source other than any of the Borrowers or any of their assets (iii) allowing the Company to prepay up to $10,000,000 of prepetition indebtedness with respect to precious metals synthetic leases between the Company, as lessee, and Gerald Metals, Inc., as lessor, in connection with the Company's termination of all or a portion of the lessor's interest in the precious metals subject to such lease; or (iv) allowing the foregoing actions to be taken by the holders of pre-petition claims in an aggregate amount not exceeding $10,000,000 with respect to all such holders. (m) an order of the Bankruptcy Court shall be entered in any of the Bankruptcy Cases appointing an examiner with enlarged powers relating to the operation of any Borrower's business under Section 1106(b) of the Bankruptcy Code or any Borrower shall file an application for such an order; (n) an order by the Bankruptcy Court shall be entered confirming a Reorganization Plan in any of the Bankruptcy Cases which does not require a provision for termination of the Commitments and indefeasible payment in full in cash of all Obligations of the Borrowers hereunder and under the other Loan Documents (including the cancellation and return of all Letters of Credit or the delivery of Supporting Letters of Credit or Cash Collateral with respect to such Letters of Credit in accordance with Section 1.4(g)) on or before the effective date of such Reorganization Plan; (o) an order by the Bankruptcy Court shall be entered, or the Borrowers shall file an application for an order, dismissing any of the Bankruptcy Cases which does not require a provision for termination of the Commitments and indefeasible payment in full in cash of all Obligations of the Borrowers hereunder and under the other Loan Documents (including the cancellation and return of all Letters of Credit or the delivery of Supporting Letters of Credit or Cash Collateral with respect to such Letters of Credit in accordance with Section 1.4(g)) prior to any such dismissal; (p) an order by the Bankruptcy Court shall be entered in or with respect to any of the Bankruptcy Cases or any Borrower shall file an application for an order with respect to any Bankruptcy Case, in each case without the express prior written consent of Agent, (i) to revoke, reverse, stay, rescind, modify, vacate, supplement or amend the Final Order, (ii) to permit any administrative expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have an administrative priority as to any Borrower equal or superior to the priority of the claims of the Agent and the Lenders in respect of the Obligations (other than the Carve-Out), or (iii) to grant or permit the grant of a Lien on the property of any Borrower (other than Liens permitted under Section 7.17); (q) an application for any of the orders described above shall be made by a Person other than a Borrower and such application is not contested by the applicable Borrower in good faith and the relief requested is granted in an order that is not stayed pending appeal; or (r) any Borrower shall violate or fail to comply with the Final Order. 9.2 Remedies. -------- (a) If a Default or an Event of Default exists, the Agent may, in its discretion, and shall, at the direction of the Required Lenders, without further order of or application to the Bankruptcy Court as permitted by the Final Order, do one or more of the following at any time or times and in any order, without notice to or demand on any Borrower: (i) reduce the Maximum Revolver Amount, or the advance rates against Eligible Accounts and/or Eligible Inventory used in computing the Borrowing Base, or reduce one or more of the other elements used in computing the Borrowing Base; (ii) restrict the amount of or refuse to make Revolving Loans; and (iii) restrict or refuse to provide Letters of Credit or Credit Support. If an Event of Default exists, the Agent shall, at the direction of the Required Lenders, do one or more of the following, in addition to the actions described in the preceding sentence, at any time or times and in any order, without notice to or demand on any Borrower: (A) terminate the Commitments and this Agreement; (B) declare any or all Obligations to be immediately due and payable; provided, however, that upon the occurrence of any Event of Default described in Sections 9.1(k), (l), (m), (n), (o), (p) or (q), the Commitments shall automatically and immediately expire and all Obligations shall automatically become immediately due and payable without notice or demand of any kind; (C) require the Borrowers to cash collateralize all outstanding Letters of Credit; and (D) pursue its other rights and remedies under the Loan Documents and applicable laws. (b) If an Event of Default has occurred and is continuing, the Agent shall have for the benefit of the Lenders, in addition to all other rights of the Agent and the Lenders, the rights and remedies of a creditor under applicable bankruptcy and non-bankruptcy law. (c) If an Event of Default occurs, the Borrowers hereby waive all rights to notice and hearing prior to the exercise by the Agent of the Agent's rights without judicial process to attach or levy upon property without notice or hearing. (d) If an Event of Default has occurred and is continuing, and subject to any notice requirements set forth in the Final Order, all stays and injunctions, including the automatic stay pursuant to Bankruptcy Code section 362, shall be vacated and terminated by the Final Order and this Agreement to the extent necessary to permit the Agent and the Lenders full exercise of all of their rights and remedies, including, without limitation, all of their rights and remedies with respect to the Borrowers' property. With respect to the Agent's and Lenders' exercise of their rights and remedies, the Borrowers agree and warrant as follows: (i) the Borrowers waive, release, and shall be enjoined from attempting to contest, delay, or otherwise dispute the exercise by the Agent and the Lenders of their rights and remedies before the Bankruptcy Court or otherwise; except only as expressly stated in subparagraph (ii) of this paragraph; and (ii) when any Agent or Lender seeks to enforce its rights and remedies based on an Event of Default, and if any Borrower disputes that an Event of Default has occurred, the Borrowers will be entitled to file an emergency motion with the Bankruptcy Court disputing whether an Event of Default has occurred. Unless otherwise agreed in writing by Agent, any such motion shall be heard within two (2) Business Days after it is filed. At the hearing on the emergency motion, the only issue that will be heard by the Bankruptcy Court will be whether an Event of Default has occurred and has not been cured, and, unless the Bankruptcy Court issues an order in connection with such hearing finding that no Event of Default has occurred and is continuing, the Agent and the Lenders will be entitled to continue to exercise all of their rights and remedies without the necessity of any further notice or order. Furthermore, nothing herein shall be construed to impose or reimpose any stay or injunction of any kind against the Agent or the Lenders. ARTICLE 10 TERM AND TERMINATION 10.1 Term and Termination. The term of this Agreement shall end on the Stated Termination Date unless sooner terminated in accordance with the terms hereof. The Agent upon direction from the Required Lenders may terminate this Agreement without notice upon the occurrence and during the continuance of an Event of Default. Upon the effective date of termination of this Agreement for any reason whatsoever, all Obligations (including all unpaid principal, accrued and unpaid interest and any early termination or prepayment fees or penalties) shall become immediately due and payable and the Borrowers shall immediately arrange for the cancellation and return of Letters of Credit then outstanding (or the delivery of Supporting Letters of Credit or Cash Collateral in accordance with Section 14(g). Notwithstanding the termination of this Agreement, until all Obligations are indefeasibly paid and performed in full in cash, each Borrower shall remain bound by the terms of this Agreement and shall not be relieved of any of its Obligations hereunder or under any other Loan Document, and the Agent and the Lenders shall retain all their rights and remedies hereunder. ARTICLE 11 AMENDMENTS; WAIVERs; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS 11.1 Amendments and Waivers. ---------------------- (a) No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent at the written request of the Required Lenders) and each Borrower (or the Borrower Representative) and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and each Borrower (or the Borrower Representative) and acknowledged by the Agent, do any of the following: (i) increase or extend the Commitment of any Lender; (ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (iii) reduce the principal of, or the rate of interest specified herein on, any Loan, or any fees payable hereunder or under any other Loan Document; (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Lenders or any of them to take any action hereunder; (v) increase any of the percentages set forth in the definition of the Borrowing Base; (vi) amend this Section or any provision of this Agreement providing for consent or other action by all Lenders; (vii) change the definitions of "Majority Lenders" or "Required Lenders"; or (viii) increase the Maximum Revolver Amount, the Maximum Inventory Loan Amount, and Letter of Credit Subfacility; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by the Agent, affect the rights or duties of the Agent under this Agreement or any other Loan Document and provided further, that Schedule 1.1 hereto (Commitments) may be amended from time to time by the Agent alone to reflect assignments of Commitments in accordance herewith. (b) If any fees are paid to the Lenders as consideration for amendments, waivers or consents with respect to this Agreement, at Agent's election, such fees may be paid only to those Lenders that agree to such amendments, waivers or consents within the time specified for submission thereof. (c) If, in connection with any proposed amendment, waiver or consent (a "Proposed Change"): (i) requiring the consent of all Lenders, the consent of Required Lenders is obtained, but the consent of other Lenders is not obtained (any such Lender whose consent is not obtained as described in this clause (i) and in clause (ii) below being referred to as a "Non-Consenting Lender"), or (ii) requiring the consent of Required Lenders, the consent of Majority Lenders is obtained, then, so long as the Agent is not a Non-Consenting Lender, at the Borrower Representative's request, the Agent or an Eligible Assignee shall have the right (but not the obligation) with the Agent's approval, to purchase from the Non-Consenting Lenders, and the Non-Consenting Lenders agree that they shall sell, all the Non-Consenting Lenders' Commitments for an amount equal to the principal balances thereof and all accrued and unpaid interest and fees with respect thereto through the date of sale pursuant to Assignment and Acceptance Agreement(s), without premium or discount. 11.2 Assignments; Participations. --------------------------- (a) Any Lender may, with the written consent of the Agent (which consent shall not be unreasonably withheld or delayed) and the consent of the Borrower Representative (which consent shall not be unreasonably withheld or delayed and which consent shall not be required so long as an Event of Default has occurred and is continuing), assign and delegate to one or more Eligible Assignees (provided that no consent of the Agent or the Borrower Representative shall be required in connection with any assignment and delegation by a Lender to an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Lender hereunder, in a minimum amount of $10,000,000 (provided that, unless an assignor Lender has assigned and delegated all of its Loans and Commitments, no such assignment and/or delegation shall be permitted unless, after giving effect thereto, such assignor Lender retains a Commitment in a minimum amount of $10,000,000; provided, however, that the Borrowers and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower Representative and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Borrower Representative and the Agent an Assignment and Acceptance in the form of Exhibit H ("Assignment and Acceptance") duly executed by such Lender and its Assignee, together with any note or notes subject to such assignment, and such Assignment and Acceptance shall have been acknowledged by the Agent and, if required hereunder, the Borrower; and (iii) the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500. Borrowers agree to promptly execute and deliver new promissory notes and replacement promissory notes as reasonably requested by the Agent to evidence assignments of the Loans and Commitments in accordance herewith. (b) From and after the date that the Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations, including, but not limited to, the obligation to participate in Letters of Credit and Credit Support have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers, including the discretionary rights and incidental power, as are reasonably incidental thereto; and (vi) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon satisfaction of the requirements of Section 11.2(a), this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time sell to one or more commercial banks or other financial institutions (a "Participant") participating interests in any Loans, the Commitment of that Lender and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Borrowers and the Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent and subject to the same limitation as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (f) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. ARTICLE 12 THE AGENT 12.1 Appointment and Authorization. Each Lender hereby designates and appoints Bank as its Agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. The Agent agrees to act as such on the express conditions contained in this Article 12. The provisions of this Article 12 are solely for the benefit of the Agent and the Lenders and none of the Borrowers shall have any rights as a third party beneficiary of any of the provisions contained herein. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Except as expressly otherwise provided in this Agreement, the Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which the Agent is expressly entitled to take or assert under this Agreement and the other Loan Documents, including (a) the determination of the applicability of ineligibility criteria with respect to the calculation of the Borrowing Base and (b) the exercise of remedies pursuant to Section 9.2, and any action so taken or not taken shall be deemed consented to by the Lenders. 12.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 12.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Borrower or any Other Subsidiary or Affiliate of any Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Borrower or any Other Subsidiaries or Affiliates. 12.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrowers), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders (or all Lenders if so required by Section 11.1) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 12.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, unless the Agent shall have received written notice from a Lender or the Borrower Representative referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." The Agent will notify the Lenders of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 12.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrowers and their Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers and their Affiliates, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Borrower which may come into the possession of any of the Agent-Related Persons. 12.7 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrowers and without limiting the obligation of the Borrowers to do so), in accordance with its Pro Rata Share, from and against any and all Indemnified Liabilities as such term is defined in Section 13.11; provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its Pro Rata Share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 12.8 Agent in Individual Capacity. The Bank and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with any Borrower and its Affiliates as though the Bank were not the Agent hereunder and without notice to or consent of the Lenders. The Bank or its Affiliates may receive information regarding any Borrower, its Affiliates and Account Debtors (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliates) and acknowledge that the Agent and the Bank shall be under no obligation to provide such information to them. With respect to its Loans, the Bank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" include the Bank in its individual capacity. 12.9 Successor Agent. The Agent may resign as Agent upon at least 30 days' prior notice to the Lenders and the Borrower Representative, such resignation to be effective upon the acceptance of a successor agent to its appointment as Agent. In the event the Bank sells all of its Commitment and Revolving Loans as part of a sale, transfer or other disposition by the Bank of substantially all of its loan portfolio, the Bank shall resign as Agent and such purchaser or transferee shall become the successor Agent hereunder. Subject to the foregoing, if the Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be reasonably satisfactory to the Borrower Representative so long as no Event of Default shall have occurred and be continuing. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and the Borrower Representative, a successor agent from among the Lenders, which successor agent shall be reasonably satisfactory to the Borrower Representative so long as no Event of Default shall have occurred and be continuing; provided that if no successor agent shall have been appointed within the 30 Business Day period following delivery of the Agent's notice of resignation, such resignation shall become effective and the Required Lenders shall thereafter perform all of the duties of the Agent until such time, if any , as the Required Lenders appoint a successor agent as provided above. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 12 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 12.10 Withholding Tax. --------------- (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender may claim exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Lender may claim an exemption from, or a reduction of, withholding tax under a United States of America tax treaty, properly completed IRS Forms W-8BEN and W-8ECI before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender may claim that interest paid under this Agreement is exempt from United States of America withholding tax because it is effectively connected with a United States of America trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States of America as a condition to exemption from, or reduction of, United States of America withholding tax. If such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception (a) a statement of the Lender that it is not a (i) a "bank" as described in Section 881(c)(3)(A) of the Code, (ii) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the Code) or (iii) a controlled foreign corporation described in Section 881(c)(3)(C) of the Code and (b) a properly completed Form W-8BEN. Such Lender agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States of America tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Borrowers to such Lender. To the extent of such percentage amount, the Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender claiming exemption from United States of America withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations owing to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Lender is entitled to a reduction in the applicable withholding tax, the Agent shall withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States of America or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. (f) Each Person that shall become an Assignee or Participant of a Lender shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this Section 12.10 to the extent applicable to such Assignee or Participant. 12.11 [Intentionally Omitted.] --------------------- 12.12 Restrictions on Actions by Lenders; Sharing of Payments. ------------------------------------------------------- (a) Each of the Lenders agrees that it shall not, without the express consent of all Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the request of all Lenders, set off against the Obligations, any amounts owing by such Lender to any Borrower or any accounts of any Borrower now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by the Agent, take or cause to be taken any action to enforce its rights under this Agreement or against any Borrower. (b) If at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any payments with respect to the Obligations of any Borrower to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such payments received by such Lender from the Agent pursuant to the terms of this Agreement, or (ii) payments from the Agent in excess of such Lender's Pro Rata Share of all such distributions by the Agent, such Lender shall promptly (1) turn the same over to the Agent, in kind, and with such endorsements as may be required to negotiate the same to the Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 12.13 [Intentionally Omitted] --------------------- 12.14 Payments by Agent to Lenders. All payments to be made by the Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds to each Lender pursuant to wire transfer instructions delivered in writing to the Agent on or prior to the Closing Date (or if such Lender is an Assignee, on the applicable Assignment and Acceptance), or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to the Agent. Concurrently with each such payment, the Agent shall identify whether such payment (or any portion thereof) represents principal, premium or interest on the Revolving Loans or other amounts payable hereunder. Unless the Agent receives notice from the Borrower Representative prior to the date on which any payment is due to the Lenders that the Borrowers will not make such payment in full as and when required, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers have not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 12.15 Settlement. ---------- (a) (i) Each Lender's funded portion of the Revolving Loans is intended by the Lenders to be equal at all times to such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such agreement, the Agent, the Bank, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans, the Non-Ratable Loans shall take place on a periodic basis in accordance with the following provisions: (ii) The Agent shall request settlement ("Settlement") with the Lenders on at least a weekly basis, or on a more frequent basis at Agent's election, (A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan, and (B) with respect to collections received, in each case, by notifying the Lenders of such requested Settlement by telecopy, telephone or other similar form of transmission, of such requested Settlement, no later than 12:00 noon (Chicago, Illinois time) on the date of such requested Settlement (the "Settlement Date"). Each Lender (other than the Bank, in the case of Non-Ratable Loans) shall transfer the amount of such Lender's Pro Rata Share of the outstanding principal amount of the Non-Ratable Loans with respect to each Settlement to the Agent, to Agent's account, not later than 2:00 p.m. (Chicago, Illinois time), on the Settlement Date applicable thereto. Settlements may occur during the continuation of a Default or an Event of Default and whether or not the applicable conditions precedent set forth in Article 8 have then been satisfied. Such amounts made available to the Agent shall be applied against the amounts of the applicable Non-Ratable Loan and, together with the portion of such Non-Ratable Loan representing the Bank's Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders. If any such amount is not transferred to the Agent by any Lender on the Settlement Date applicable thereto, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after the Settlement Date and thereafter at the Interest Rate then applicable to the Revolving Loans on behalf of the Bank, with respect to each outstanding Non-Ratable Loan. (iii) Notwithstanding the foregoing, not more than one (1) Business Day after demand is made by the Agent (whether before or after the occurrence of a Default or an Event of Default and regardless of whether the Agent has requested a Settlement with respect to a Non-Ratable Loan), each other Lender (A) shall irrevocably and unconditionally purchase and receive from the Bank or the Agent, as applicable, without recourse or warranty, an undivided interest and participation in such Non-Ratable Loan equal to such Lender's Pro Rata Share of such Non-Ratable Loan and (B) if Settlement has not previously occurred with respect to such Non-Ratable Loans, upon demand by Bank or Agent, as applicable, shall pay to Bank or Agent, as applicable, as the purchase price of such participation an amount equal to one hundred percent (100%) of such Lender's Pro Rata Share of such Non-Ratable Loans. If such amount is not in fact made available to the Agent by any Lender, the Agent shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter at the Interest Rate then applicable to Base Rate Revolving Loans. (iv) From and after the date, if any, on which any Lender purchases an undivided interest and participation in any Non-Ratable Loan pursuant to clause (iii) above, the Agent shall promptly distribute to such Lender, such Lender's Pro Rata Share of all payments of principal and interest and all other proceeds received by the Agent in respect of such Non-Ratable Loan. (v) Between Settlement Dates, the Agent, may pay over to the Bank any payments received by the Agent, which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans, for application to the Bank's Revolving Loans including Non-Ratable Loans. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to the Bank's Revolving Loans (other than to Non-Ratable Loans in which such Lender has not yet funded its purchase of a participation pursuant to clause (iii) above), as provided for in the previous sentence, the Bank shall pay to the Agent for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans. During the period between Settlement Dates, the Bank with respect to Non-Ratable Loans, and each Lender with respect to the Revolving Loans other than Non-Ratable Loans, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the actual average daily amount of funds employed by the Bank, the Agent and the other Lenders. (b) Lenders' Failure to Perform. All Revolving Loans (other than Non-Ratable Loans) shall be made by the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Revolving Loans hereunder, (ii) no failure by any Lender to perform its obligation to make any Revolving Loans hereunder shall excuse any other Lender from its obligation to make any Revolving Loans hereunder, and (iii) the obligations of each Lender hereunder shall be several, not joint and several. (c) Defaulting Lenders. Unless the Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to the Agent that Lender's Pro Rata Share of a Borrowing, the Agent may assume that each Lender has made such amount available to the Agent in immediately available funds on the Funding Date. Furthermore, the Agent may, in reliance upon such assumption, make available to the Borrowers on such date a corresponding amount. If any Lender has not transferred its full Pro Rata Share to the Agent in immediately available funds and the Agent has transferred corresponding amount to the Borrowers, on the Business Day following such Funding Date that Lender shall make such amount available to the Agent, together with interest at the Federal Funds Rate for that day. A notice by the Agent submitted to any Lender with respect to amounts owing shall be conclusive, absent manifest error. If each Lender's full Pro Rata Share is transferred to the Agent as required, the amount transferred to the Agent shall constitute that Lender's Revolving Loan for all purposes of this Agreement. If that amount is not transferred to the Agent on the Business Day following the Funding Date, the Agent will notify the Borrower Representative of such failure to fund and, upon demand by the Agent, the Borrowers shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the Interest Rate applicable at the time to the Revolving Loans comprising that particular Borrowing. The failure of any Lender to make any Revolving Loan on any Funding Date (any such Lender, prior to the cure of such failure, being hereinafter referred to as a "Defaulting Lender") shall not relieve any other Lender of its obligation hereunder to make a Revolving Loan on that Funding Date. No Lender shall be responsible for any other Lender's failure to advance such other Lenders' Pro Rata Share of any Borrowing. (d) Retention of Defaulting Lender's Payments. The Agent shall not be obligated to transfer to a Defaulting Lender any payments made by the Borrowers to the Agent for the Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid to or retained by the Agent. In its discretion, the Agent may loan the Borrowers the amount of all such payments received or retained by it for the account of such Defaulting Lender. Any amounts so loaned to the Borrowers shall bear interest at the rate applicable to Base Rate Revolving Loans and for all other purposes of this Agreement shall be treated as if they were Revolving Loans, provided, however, that for purposes of voting or consenting to matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund its Pro Rata Share of any Borrowing (A) such Defaulting Lender shall not be entitled to any portion of the Unused Line Fee and (B) the Unused Line Fee shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing and shall be allocated among such performing Lenders ratably based upon their relative Commitments. This Section shall remain effective with respect to such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement. The terms of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by the Borrowers of their duties and obligations hereunder. (e) Removal of Defaulting Lender. At the Borrower Representative's request, the Agent or an Eligible Assignee reasonably acceptable to the Agent and the Borrower Representative shall have the right (but not the obligation) to purchase from any Defaulting Lender, and each Defaulting Lender shall, upon such request, sell and assign to the Agent or such Eligible Assignee, all of the Defaulting Lender's outstanding Commitments hereunder. Such sale shall be consummated promptly after the Agent has arranged for a purchase by the Agent or an Eligible Assignee pursuant to an Assignment and Acceptance, and at a price equal to the outstanding principal balance of the Defaulting Lender's Loans, plus accrued and unpaid interest and fees, without premium or discount. 12.16 Letters of Credit; Intra-Lender Issues. -------------------------------------- (a) Notice of Letter of Credit Balance. On each Settlement Date the Agent shall notify each Lender of the issuance of all Letters of Credit since the prior Settlement Date. (b) Participations in Letters of Credit. ----------------------------------- (i) Purchase of Participations. Immediately upon issuance of any Letter of Credit in accordance with Section 1.4(d), each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation equal to such Lender's Pro Rata Share of the face amount of such Letter of Credit or the Credit Support provided through the Agent to the Letter of Credit Issuer, if not the Bank, in connection with the issuance of such Letter of Credit (including all obligations of the Borrowers with respect thereto, and any security therefor or guaranty pertaining thereto). (ii) Sharing of Reimbursement Obligation Payments. Whenever the Agent receives a payment from the Borrowers on account of reimbursement obligations in respect of a Letter of Credit or Credit Support as to which the Agent has previously received for the account of the Letter of Credit Issuer thereof payment from a Lender, the Agent shall promptly pay to such Lender such Lender's Pro Rata Share of such payment from the Borrowers. Each such payment shall be made by the Agent on the next Settlement Date. (iii) Documentation. Upon the request of any Lender, the Agent shall furnish to such Lender copies of any Letter of Credit, Credit Support for any Letter of Credit, reimbursement agreements executed in connection therewith, applications for any Letter of Credit, and such other documentation as may reasonably be requested by such Lender. (iv) Obligations Irrevocable. The obligations of each Lender to make payments to the Agent with respect to any Letter of Credit or with respect to their participation therein or with respect to any Credit Support for any Letter of Credit or with respect to the Revolving Loans made as a result of a drawing under a Letter of Credit and the joint and several obligations of the Borrowers to make payments to the Agent, for the account of the Lenders, shall be irrevocable and shall not be subject to any qualification or exception whatsoever , including any of the following circumstances: (1) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (2) the existence of any claim, setoff, defense or other right which any Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender, the Agent, the issuer of such Letter of Credit, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between any Borrower or any other Person and the beneficiary named in any Letter of Credit); (3) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (4) the occurrence of any Default or Event of Default; or (5) the failure of the Borrowers to satisfy the applicable conditions precedent set forth in Article 8. (c) Recovery or Avoidance of Payments; Refund of Payments In Error. In the event any payment by or on behalf of any Borrower received by the Agent with respect to any Letter of Credit or Credit Support provided for any Letter of Credit and distributed by the Agent to the Lenders on account of their respective participations therein is thereafter set aside, avoided or recovered from the Agent in connection with any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the Agent their respective Pro Rata Shares of such amount set aside, avoided or recovered, together with interest at the rate required to be paid by the Agent upon the amount required to be repaid by it. Unless the Agent receives notice from the Borrower Representative prior to the date on which any payment is due to the Lenders that the Borrowers will not make such payment in full as and when required, the Agent may assume that the Borrowers have made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrowers have not made such payment in full to the Agent, each Lender shall repay to the Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. 12.17 Concerning the Related Loan Documents. Each Lender authorizes and directs the Agent to enter into the other Loan Documents, for the ratable benefit and obligation of the Agent and the Lenders. Each Lender agrees that any action taken by the Agent, Majority Lenders or Required Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents, and the exercise by the Agent, the Majority Lenders, or the Required Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 12.18 Field Audit and Examination Reports; Disclaimer by Lenders. By signing this Agreement, each Lender: (a) is deemed to have requested that the Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by the Agent; (b) expressly agrees and acknowledges that neither the Bank nor the Agent (i) makes any representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the Agent or the Bank or other party performing any audit or examination will inspect only specific information regarding the Borrowers and will rely significantly upon the Borrowers' books and records, as well as on representations of the Borrower's personnel; (d) agrees to keep all Reports confidential and strictly for its internal use, and not to distribute except, subject to Section 13.17(b), to its participants, or use any Report in any other manner; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold the Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to the Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of the Borrowers; and (ii) to pay and protect, and indemnify, defend and hold the Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including Attorney Costs) incurred by the Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. 12.19 Relation Among Lenders. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agent) authorized to act for, any other Lender. ARTICLE 13 MISCELLANEOUS 13.1 No Waivers; Cumulative Remedies. No failure by the Agent or any Lender to exercise any right, remedy, or option under this Agreement or any present or future supplement thereto, or in any other agreement between or among the Borrowers and the Agent and/or any Lender, or delay by the Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by the Agent or the Lenders on any occasion shall affect or diminish the Agent's and each Lender's rights thereafter to require strict performance by the Borrowers of any provision of this Agreement. The Agent's and each Lender's rights under this Agreement will be cumulative and not exclusive of any other right or remedy which the Agent or any Lender may have. 13.2 Severability. The illegality or unenforceability of any provision of this Agreement or any Loan Document or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 13.3 Governing Law; Choice of Forum; Service of Process. -------------------------------------------------- (a) IN THE EVENT OF A CONFLICT BETWEEN THE TERMS OF THIS AGREEMENT AND THE FINAL ORDER, THE FINAL ORDER SHALL CONTROL. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES OF AMERICA LOCATED IN COOK COUNTY, ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST ANY BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER COMPETENT JURISDICTION NECESSARY OR APPROPRIATE IN ORDER TO EXERCISE ANY RIGHTS OR REMEDIES, AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS. (c) EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY FACSIMILE OR BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER REPRESENTATIVE AT ITS ADDRESS SET FORTH IN SECTION 13.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF RECEIPT OR FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS POSTAGE PREPAID. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW. 13.4 WAIVER OF JURY TRIAL. THE BORROWERS, THE LENDERS AND THE AGENT EACH IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWERS, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 13.5 Survival of Representations and Warranties. All of the Borrowers' representations and warranties contained in this Agreement shall survive the execution, delivery, and acceptance thereof by the parties, notwithstanding any investigation by the Agent or the Lenders or their respective agents. 13.6 [Intentionally Omitted.] --------------------- 13.7 Fees and Expenses. The Borrowers, jointly and severally, agree to pay to the Agent, for its benefit, on demand, all reasonable costs and out-of-pocket expenses that Agent pays or incurs in connection with the negotiation, preparation, syndication, consummation, administration, enforcement, and termination of this Agreement or any of the other Loan Documents, including: (a) Attorney Costs; (b) reasonable costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in connection with the Loan Documents and the transactions contemplated thereby; (c) reasonable costs and expenses of lien and title searches; (d) sums paid or incurred to pay any amount or take any action required of the Borrowers under the Loan Documents that any Borrower fails to pay or take; (e) reasonable costs of inspections, and verifications of the Borrowers' properties and assets, including travel, lodging, and meals for inspections of the Borrowers' properties and assets and the Borrowers' operations by the Agent plus the Agent's then customary charge for field examinations and audits and the preparation of reports thereof (such charge is currently $750 per day (or portion thereof) for each agent or employee of the Agent with respect to each field examination or audit); (f) reasonable costs and out-of-pocket expenses of forwarding loan proceeds and collecting checks and other items of payment; and (g) reasonable costs and expenses (including Attorneys' Costs) paid or incurred to obtain payment of the Obligations and otherwise enforce the provisions of the Loan Documents, or to defend any claims made or threatened against the Agent or any Lender arising out of the transactions contemplated hereby (including preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by the Borrowers. All of the foregoing costs and expenses shall be payable on the third Business Day following notification by the Agent to the Borrower of the amount thereof and may be charged to the Borrowers' Loan Account as Revolving Loans as described in Section 3.7 if not paid on or before 12:00 noon (Chicago, Illinois time) on such date. 13.8 Notices. Except as otherwise provided herein, all notices, demands and requests that any party is required or elects to give to any other shall be in writing, or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, but not limited to, delivery by overnight mail and courier service, (b) four (4) days after it shall have been mailed by United States mail, first class, certified or registered, with postage prepaid, or (c) in the case of notice by such a telecommunications device, when properly transmitted, in each case addressed to the party to be notified as follows: If to the Agent or to the Bank: Bank of America, N.A. 231 South LaSalle Street Chicago, Illinois 60697 Attention: Business Credit-Account Executive Telecopy No.: (312) 974-8760 with copies to: Latham & Watkins 233 South Wacker Drive 5800 Sears Tower Chicago, Illinois 60606 Attention: David S. Heller and James W. Doran Telecopy No.: (312) 993-9767 If to any Borrower, to the Borrower Representative: Owens Corning Owens Corning World Headquarters One Owens Corning Parkway Toledo, Ohio 43659 Attention: Treasurer Telecopy No.: (419) 248-1720 or to such other address as each party may designate for itself by like notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall not adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 13.9 Waiver of Notices. Unless otherwise expressly provided herein, the Borrowers waive presentment, and notice of demand or dishonor and protest as to any instrument, notice of intent to accelerate the Obligations and notice of acceleration of the Obligations, as well as any and all other notices to which any Borrower might otherwise be entitled. No notice to or demand on the Borrowers which the Agent or any Lender may elect to give shall entitle the Borrowers to any or further notice or demand in the same, similar or other circumstances. 13.10 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective representatives, successors, and assigns of the parties hereto; provided, however, that no interest herein may be assigned by any Borrower without prior written consent of the Agent and each Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if such Persons so agree, inure to any party acquiring any interest in the Obligations or any part thereof in accordance with the terms of Section 11.2. 13.11 Indemnity of the Agent and the Lenders by the Borrowers. ------------------------------------------------------- (a) The Borrowers, jointly and severally, agree to defend, indemnify and hold the Agent-Related Persons, and each Lender and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Lender) be imposed on or incurred by any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement, any other Loan Document, or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that no Borrower shall have any obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. (b) The Borrowers, jointly and severally, agree to indemnify, defend and hold harmless the Agent and the Lenders from any loss or liability imposed upon or incurred by any such Person directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance relating to any Borrower's operations, business or property. This indemnity will apply whether the hazardous substance is on, under or about any Borrower's property or operations or property leased to any Borrower. The indemnity includes but is not limited to Attorneys Costs. The indemnity extends to the Agent and the Lenders, their parents, affiliates, Subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. "Hazardous substances" means any substance, material or waste that is or becomes designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or regulation under any federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including petroleum or natural gas. This indemnity will survive repayment of all other Obligations. 13.12 Limitation of Liability. NO CLAIM MAY BE MADE BY ANY BORROWER, ANY LENDER OR OTHER PERSON AGAINST THE AGENT, ANY LENDER, OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND ANY BORROWER AND EACH LENDER HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. 13.13 Final Agreement. This Agreement and the other Loan Documents are intended by the Borrowers, the Agent and the Lenders to be the final, complete, and exclusive expression of the agreement between them. This Agreement supersedes any and all prior oral or written agreements relating to the subject matter hereof. 13.14 Counterparts. This Agreement may be executed in any number of counterparts, and by the Agent, each Lender and each Borrower in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 13.15 Captions. The captions contained in this Agreement are for convenience of reference only, are without substantive meaning and should not be construed to modify, enlarge, or restrict any provision. 13.16 Right of Setoff. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, each Lender is authorized at any time and from time to time, without prior notice to any Borrower, any such notice being waived by the Borrowers to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of any Borrower against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Borrower Representative and the Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF ANY BORROWER HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS. 13.17 Confidentiality. --------------- (a) The Borrowers hereby consent that the Agent and each Lender may issue and disseminate to the public general information describing the credit accommodation entered into pursuant to this Agreement, including the names and addresses of the Borrowers and a general description of the Borrowers' business and may use the Borrowers' names in advertising and other promotional material. (b) Each of the Agent and each Lender severally agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to the Agent or such Lender by or on behalf of the Borrowers, under this Agreement or any other Loan Document, except to the extent that such information (i) was or becomes generally available to the public other than as a result of disclosure by the Agent or such Lender or by a Person to whom the Agent or such Lender has delivered such information, or (ii) was or becomes available on a nonconfidential basis from a source other than the Borrowers, provided that such source is not bound by a confidentiality agreement with, or duty of confidentiality owing to, the Borrowers known to the Agent or such Lender; provided, however, that the Agent and any Lender may disclose such information (1) at the request or pursuant to any requirement of any Governmental Authority to which the Agent or such Lender is subject or in connection with an examination of the Agent or such Lender by any such Governmental Authority; (2) pursuant to subpoena or other court process; (3) when required to do so in accordance with the provisions of any applicable Requirement of Law; (4) to the extent reasonably required in connection with any litigation or proceeding (including, but not limited to, any bankruptcy proceeding) to which the Agent, any Lender or their respective Affiliates may be party; (5) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (6) to the Agent's or such Lender's independent auditors, accountants, attorneys and other professional advisors, each of whom shall also be bound by the confidentiality obligations set forth herein; (7) to any prospective Participant or Assignee under any Assignment and Acceptance, actual or potential, provided that such prospective Participant or Assignee agrees in writing to keep such information confidential to the same extent required of the Agent and the Lenders hereunder; (8) as expressly permitted under the terms of any other document or agreement regarding confidentiality to which any Borrower is party or is deemed party with the Agent or such Lender, and (9) to its Affiliates who have a need to know such information (as determined by the Agent or such Lender in good faith), each of whom shall also be bound by the confidentiality obligations set forth herein. 13.18 Conflicts with Other Loan Documents. Unless otherwise expressly provided in this Agreement (or in another Loan Document by specific reference to the applicable provision contained in this Agreement), if any provision contained in this Agreement conflicts with any provision of any other Loan Document, the provision contained in this Agreement shall govern and control. IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. BORROWERS: OWENS CORNING By: Title: CDC CORPORATION By: Title: ENGINEERED YARNS AMERICA, INC. By: Title: FALCON FOAM CORPORATION By: Title: INTEGREX By: Title: FIBREBOARD CORPORATION By: Title: INTEGREX VENTURES LLC By: Title: EXTERIOR SYSTEMS, INC. By: Title: INTEGREX PROFESSIONAL SERVICES LLC By: Title: INTEGREX SUPPLY CHAIN SOLUTIONS LLC By: Title: INTEGREX TESTING SYSTEMS LLC By: Title: HOMEXPERTS LLC By: Title: OWENS-CORNING FIBERGLASS TECHNOLOGY INC. By: Title: OWENS CORNING HT, INC. By: Title: OWENS-CORNING OVERSEAS HOLDINGS, INC. By: Title: OWENS CORNING REMODELING SYSTEMS, LLC By: Title: SOLTECH, INC. By: Title: AGENT: Bank of America, N.A., as the Agent By: Joseph R. Lehrer Title: Senior Vice President "LENDERS" Bank of America, N.A., as a Lender By: Joseph R. Lehrer Title: Senior Vice President
ANNEX A to Credit Agreement Definitions Capitalized terms used in the Loan Documents shall have the following respective meanings (unless otherwise defined therein), and all section references in the following definitions shall refer to sections of the Agreement: "Accounts" means, with respect to any Person, all of such Person's now owned or hereafter acquired or arising accounts, as defined in the UCC, including any rights to payment for the sale or lease of goods or rendition of services, whether or not they have been earned by performance. "Account Debtor" means each Person obligated in any way on or in connection with an Account. "ACH Transactions" means any cash management or related services including the automatic clearing house transfer of funds by the Bank for the account of any Borrower pursuant to agreement or overdrafts. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or which owns, directly or indirectly, ten percent (10%) or more of the outstanding equity interest of such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "Affiliated Entity" means a Subsidiary, an Affiliate, or a Person that uses technology supplied by, or whose operations are supervised by, the Company or its Subsidiaries or Affiliates. "Administration Fee" has the meaning specified in Section 2.4. "Agent" means the Bank, solely in its capacity as agent for the Lenders, and any successor agent. "Agent-Related Persons" means the Agent, together with its Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of the Agent and such Affiliates. "Aggregate Revolver Outstandings" means, at any date of determination: the sum of (a) the unpaid principal balance of Revolving Loans, (b) the aggregate amount of Pending Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn face amount of all outstanding Letters of Credit, and (d) the aggregate amount of any unpaid reimbursement obligations in respect of Letters of Credit. "Agreement" means the Credit Agreement to which this Annex A is attached, as from time to time amended, modified or restated. "Applicable L/C Margin" means the Applicable Margin with respect to LIBOR Rate Loans as from time to time in effect, plus, during the continuance of an Event of Default, if the Agent or the Required Lenders in their discretion so elect, 2% per annum. "Applicable Margin" means (i) with respect to Base Rate Loans and all other Obligations (other than LIBOR Rate Loans), 0%; and (ii) with respect to LIBOR Rate Loans, .75%. The Applicable Margins with respect to LIBOR Rate Loans shall be adjusted (up or down) prospectively on the first day of each calendar month, commencing December 1, 2000, based upon the Average Daily Outstanding Exposure during the immediately preceding calendar month, as calculated by the Agent. Adjustments in Applicable Margins shall be determined by reference to the following grid: - ------------------------------------------------ ---------------------------------- Average Daily Level of Outstanding Exposure Applicable Margins: - ------------------------------------------------ ---------------------------------- - ------------------------------------------------ ---------------------------------- >$300,000,000 2.00% - ------------------------------------------------ ---------------------------------- - ------------------------------------------------ ---------------------------------- >$200,000,000, but < $300,000,000 1.50% - - ------------------------------------------------ ---------------------------------- - ------------------------------------------------ ---------------------------------- >$100,000,000, but < $200,000,000 1.00% - - ------------------------------------------------ ---------------------------------- - ------------------------------------------------ ---------------------------------- < $100,000,000 .75% - - - ------------------------------------------------ ----------------------------------
"Assignee" has the meaning specified in Section 11.2(a). "Assignment and Acceptance" has the meaning specified in Section 11.2(a). "Attorney Costs" means and includes all reasonable fees, expenses and disbursements of any law firm or other counsel engaged by the Agent, excluding allocated costs and expenses of internal legal services of the Agent. "Availability" means, at any time (a) the lesser of (i) the Maximum Revolver Amount or (ii) the Borrowing Base as reflected in the most recent Borrowing Base Certificate delivered to the Agent pursuant to this Agreement (as such amount may be reduced by Reserves established by the Agent following the date of such Borrowing Base Certificate) minus (b) the Aggregate Revolver Outstandings. "Average Daily Outstanding Exposure" means, for any period, an amount equal to the average daily Aggregate Revolver Outstandings (excluding any Pending Revolving Loans) during such period. "Bank" means Bank of America, N.A., a national banking association, or any successor entity thereto. "Bank Products" means any one or more of the following types of services or facilities extended to any Borrower by the Bank or any affiliate of the Bank in reliance on the Bank's agreement to indemnify such affiliate: (i) credit cards; (ii) ACH Transactions; (iii) cash management, including controlled disbursement services; and (iv) Hedge Agreements. "Bank Product Reserves" means all reserves which the Agent from time to time establishes in its reasonable discretion for the Bank Products then provided or outstanding. "Bankruptcy Case" has the meaning specified in the recitals to this Agreement. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.ss. 101 et seq.). "Bankruptcy Court" means the United States Bankruptcy Court for the District of Delaware, or any other court having jurisdiction over the Bankruptcy Cases from time to time, including, without limitation, the United States District Court for the District of Delaware if and to the extent it withdraws the reference with respect to the Bankruptcy Cases, any part thereof, or any matter or proceeding therein. "Base Rate" means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Bank in Charlotte, North Carolina as its "prime rate" (the "prime rate" being a rate set by the Bank based upon various factors including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate). Any change in the prime rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. Each Interest Rate based upon the Base Rate shall be adjusted simultaneously with any change in the Base Rate. "Base Rate Loans" means the Base Rate Revolving Loans. --------------- "Base Rate Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the Base Rate. "Borrower" and "Borrowers" have the meanings set forth in the Preamble to the Agreement. "Borrower Representative" has the meaning set forth in Section 1.2(c). "Borrowing" means a borrowing hereunder consisting of Revolving Loans made on the same day by the Lenders to the Borrowers or by Bank in the case of a Borrowing funded by Non-Ratable Loans or by the Agent in the case of a Borrowing consisting of an Agent Advance, or the issuance of Letters of Credit hereunder. "Borrowing Base" means, at any time, an amount equal to (a) the sum of (A) up to eighty-five percent (85%) of the Net Amount of Eligible Accounts; plus (B) up to sixty percent (60%) of the value of Eligible Inventory; minus (b) Reserves from time to time established by the Agent in its reasonable credit judgment; provided that the aggregate Revolving Loans advanced against Eligible Inventory shall not exceed the Maximum Inventory Loan Amount. "Borrowing Base Availability" means, at any time, an amount calculated in the manner set forth in the definition of "Availability", but without taking into account the limitation on Availability imposed by the Maximum Revolver Amount. "Borrowing Base Certificate" means a certificate by a Responsible Officer of the Borrower Representative, substantially in the form of Exhibit B (or another form reasonably acceptable to the Agent) setting forth the calculation of the Borrowing Base, including a calculation of each component thereof, all in such detail as shall be reasonably satisfactory to the Agent. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by the Borrower Representative and certified to the Agent; provided, that the Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation to the extent that such calculation is not in accordance with this Agreement. "Business Day" means (a) any day that is not a Saturday, Sunday, or a day on which banks in Chicago, Illinois, Charlotte, North Carolina or Toledo, Ohio are required or permitted to be closed, and (b) with respect to all notices, determinations, fundings and payments in connection with the LIBOR Rate or LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) above and that is also a day on which trading in Dollars is carried on by and between banks in the London interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capital Lease" means, with respect to any Person, any lease of property by such Person which, in accordance with GAAP, should be reflected as a capital lease on the balance sheet of the such Person. "Carve-Out" has the meaning specified in Section 7.25. "Carve-Out Event" has the meaning specified in Section 7.25. "Cash Equivalents" means (a) direct obligations of, or obligations guaranteed by, the United States of America or any agency thereof, (b) commercial paper issued in the United States of America and rated at least A-1 or P-1 by at least one nationally recognized rating organization, (c) certificates of deposit issued by or eurodollar deposits made with any Lender, any Affiliate of any Lender, or any bank or trust company which has (or the parent of which has) capital, surplus and undivided profits aggregating at least $100,000,000 (or the equivalent amount in another currency), (d) drafts accepted by any bank or trust company referred to in clause (c) above or any other negotiable instrument guaranteed or endorsed with full recourse by any such bank or trust company, (e) repurchase agreements with respect to any of the foregoing types of securities described in clauses (a) and (b) above, (f) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clause (a) through (e) above, (g) obligations the return with respect to which is excluded from gross income under Section 103 of the Code, with a maturity of not more than six months or with the right of the holder to put such obligations for purchase at par upon not more than seven days' notice and which are rated at least A-1 or P-1 by at least one nationally recognized rating organization, (h) (A) tax free money market funds that invest solely in the securities described in clause (g) above or (B) money market preferred municipal bond fund which have a term of not more than seven days and which are rated at least AAA or the equivalent thereof by Standard & Poor's Ratings Group or at least Aaa or the equivalent thereof by Moody's Investors Service, Inc., and (i) any other securities reasonably acceptable to the Agent which are rated at least A-1 or P-1 by at least one nationally recognized rating organization, or which are of an equivalent credit quality in the reasonable judgment of the Agent, provided that (i) each such obligation, certificate of deposit, draft, investment, security and instrument (including those subject to repurchase agreements) matures within one year after it is acquired and (ii) each item of such commercial paper (including those subject to repurchase agreements) matures within six months after it is acquired by the Borrower or any Other Subsidiary. "Change of Control" means any of the following: (a) any Person or group of Persons (within the meaning of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 50.1% or more of the issued and outstanding shares of capital stock of the Company having the right to vote for the election of directors of the Company under ordinary circumstances; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of the Company (together with any new directors whose election by the board of directors of the Company or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; (c) the Company ceases to own and control, directly or indirectly, all of the economic and voting rights associated with all of the outstanding capital stock of each other Borrower other than Integrex; and (e) the Company ceases to own and control all of the economic and voting rights associated with at least 96% of the outstanding capital stock of Integrex. "Closing Date" means the date of the Agreement. "Code" means the Internal Revenue Code of 1986. "Committee" means, collectively, the official committee of unsecured creditors appointed in the Bankruptcy Cases and the official committee of asbestos claimants appointed in the Bankruptcy Cases. "Commitment" or "Revolving Loan Commitment" means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on Schedule 1.1 attached to the Agreement or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 11.2, as such Commitment may be adjusted from time to time in accordance with the provisions of Section 11.2, and "Commitments" means, collectively, the aggregate amount of the commitments of all of the Lenders. "Company" has the meaning set forth in the Preamble to this Agreement. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period, plus (i) any amount deducted (or in the case of extraordinary gains, minus any amount added) in the computation of Consolidated Net Income for such period for (A) depreciation and amortization expense, (B) provisions for all federal, state and local income and franchise taxes, (C) consolidated interest expense, (D) any extraordinary gains or losses, (E) amortization of transaction costs incurred with respect to the merger and recapitalization of the Company effected pursuant to the Plan of Recapitalization and Agreement of Merger dated as of August 28, 1986 between Owens-Corning Recap Corp. and the Company, (F) additions to reserves with respect to actions, suits or proceedings against the Company or any Subsidiary with respect to claims arising out of the use of or exposure to asbestos products, (G) any non-cash expenses, non-cash losses or other non-cash charges resulting from the impairment or write-down in the valuation of any assets, (H) any non-recurring charge, reorganization cost or restructuring charge, (I) expenses arising from claims in the Reorganization Cases for allowed professional fees and disbursements, the expenses of members of any statutory committees appointed in the Reorganization Cases, trustee fees and fees payable to the Clerk of the Bankruptcy Court, (J) expenses, losses and other charges in respect of employee retention bonuses and other payments approved by the Bankruptcy Court, (K) non-cash-losses or gains arising from the freezing or termination of any plan or other employee benefit or welfare plan and (L) losses or gains arising from asset dispositions, minus (ii) any amount added in the computation of Consolidated Net Income for such period for reductions in the reserves referred to in clause (i)(F), plus (iii) to the extent deducted in the computation of Consolidated Net Income for such period, the amount of any restructuring or other reserves (other than reserves for uncollectible accounts receivable and other reserves created in the ordinary course of business) established by the Company and its consolidated Subsidiaries, minus (iv) to the extent added in the computation of Consolidated Net Income for such period, the amount of any reductions in the reserves referred to in the preceding clause (iii). "Consolidated Net Income" means, for any period, the amount of consolidated net income (or net loss) of the Company and the consolidated Subsidiaries for such period (taken as a cumulative whole). "Continuation/Conversion Date" means the date on which a Loan is converted into or continued as a LIBOR Rate Loan. "Credit Support" has the meaning specified in Section 1.4(a). "Debt" means, without duplication, all liabilities, obligations and indebtedness of any Borrower or any Other Subsidiary to any Person, of any kind or nature, now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise, consisting of indebtedness for borrowed money or the deferred purchase price of property, excluding trade payables, but including (a) all Obligations; (b) all obligations and liabilities of any Person secured by any Lien on any Borrower's or any Other Subsidiary's property, even though such Borrower or Other Subsidiary shall not have assumed or become liable for the payment thereof; provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of any Borrower or any Other Subsidiary prepared in accordance with GAAP; (c) all obligations or liabilities created or arising under any Capital Lease or conditional sale or other title retention agreement with respect to property used or acquired by any Borrower or any Other Subsidiary, even if the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; provided, however, that all such obligations and liabilities which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of any Borrower or any Other Subsidiary prepared in accordance with GAAP; and (d) all obligations and liabilities under Guaranties. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured, waived, or otherwise remedied during such time) constitute an Event of Default. "Default Rate" means a fluctuating per annum interest rate at all times equal to the sum of (a) the otherwise applicable Interest Rate plus (b) two percent (2%) per annum. Each Default Rate shall be adjusted simultaneously with any change in the applicable Interest Rate. "Defaulting Lender" has the meaning specified in Section 12.15(c). "Designated Account" has the meaning specified in Section 1.2(c). "Distribution" means, in respect of any corporation: (a) the payment or making of any dividend or other distribution of property in respect of capital stock (or any options or warrants for, or other rights with respect to, such stock) of such corporation, other than dividends or distributions in capital stock (or any options or warrants for such stock) of the same class; or (b) the redemption or other acquisition by such corporation of any capital stock (or any options or warrants for such stock) of such corporation. "DOL" means the United States Department of Labor or any successor department or agency. "Dollar" and "$" means dollars in the lawful currency of the United States. Unless otherwise specified, all payments under the Agreement shall be made in Dollars. "Eligible Accounts" means all Accounts owned by the Borrowers except for any Account: (a) with respect to which more than 90 days have elapsed since the date of the original invoice therefor or which is more than 60 days past due; (b) with respect to which any of the representations, warranties, covenants, and agreements contained in Section 7.26 are incorrect or have been breached; (c) with respect to which Account, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; (d) which represents a progress billing (as hereinafter defined) or as to which the applicable Borrower has extended the time for payment without the consent of the Agent; for the purposes hereof, "progress billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon the applicable Borrower's completion of any further performance under the contract or agreement; (e) with respect to which any one or more of the following events has occurred to the Account Debtor on such Account: the filing by or against the Account Debtor of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the benefit of creditors; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Bankruptcy Code; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the Account Debtor; the sale, assignment, or transfer of all or any material part of the assets of the Account Debtor (to the extent the Borrowers have actual knowledge thereof); the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the business of the Account Debtor as a going concern (to the extent the Borrowers have actual knowledge thereof); (f) if fifty percent (50%) or more of the aggregate Dollar amount of outstanding Accounts owed at such time by the Account Debtor thereon is classified as ineligible under clause (a) above; (g) owed by an Account Debtor which: (i) does not maintain a principal place of business in the United States of America or Canada (other than the Province of Newfoundland); or (ii) is not organized under the laws of the United States of America or Canada or any state or province thereof (unless otherwise notified by the Agent, the Borrowers may rely on "bill to" and "ship to" instructions from Account Debtors in determining which Accounts are ineligible pursuant to the criteria in this clause (ii) and clause (i) above); or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; except to the extent that such Account is secured or payable by a letter of credit reasonably satisfactory to the Agent in its discretion; (h) owed by an Account Debtor which is an Affiliate or employee of the Company or any of its Subsidiaries; (i) that is subject to any Lien whatsoever (other than Permitted Liens imposed by operation of law provided that such Permitted Liens are, at the election of the Agent, subject to Reserves) or which is not subject to the Superpriority Administrative Claim in favor of the Agent for the benefit of the Lenders; (j) owed by an Account Debtor to which any Borrower or any of its Subsidiaries, is indebted in any way, or which is subject to any right of setoff or recoupment by the Account Debtor, unless the Account Debtor has entered into an agreement acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon has disputed liability or made any claim with respect to any other Account due from such Account Debtor; but in each such case only to the extent of such indebtedness, setoff, recoupment, dispute, or claim; (k) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, or other repurchase or return basis (except with respect to an Account in connection with which the Account Debtor is entitled to return Inventory solely on the basis of the quality of such Inventory); (l) which is evidenced by a promissory note or other instrument or by chattel paper; (m) with respect to which the Account Debtor is located in any state requiring the filing of a Notice of Business Activities Report or similar report in order to permit the applicable Borrower to seek judicial enforcement in such State of payment of such Account, unless such Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year; (n) which arises out of a sale not made in the ordinary course of the applicable Borrower's business; or (o) with respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by the applicable Borrower, and, if applicable, accepted by the Account Debtor, or the Account Debtor has revoked its acceptance of such goods or services. If any Account at any time ceases to be an Eligible Account, then such Account shall promptly be excluded from the calculation of Eligible Accounts. "Eligible Assignee" means (a) a commercial bank, commercial finance company or other asset based lender, having total assets in excess of $1,000,000,000; (b) any Lender listed on the signature page of this Agreement; (c) any Affiliate of any Lender; and (d) if an Event of Default has occurred and is continuing, any other Person reasonably acceptable to the Agent that is not a direct competitor of the Company or any of its consolidated Subsidiaries; "Eligible Inventory" means all Inventory owned by the Borrowers, valued at the lower of cost (on a first-in, first-out basis) or market, except any Inventory: (a) that is not owned by one of the Borrowers; (b) that is subject to any Lien whatsoever (other than Permitted Liens imposed by operation of law provided that such Permitted Liens are, at the Agent's election, subject to Reserves) or that is not subject to the Superpriority Administrative Claim in favor of the Agent for the benefit of the Lenders; (c) that does not consist of finished goods or raw materials (other than de minimus amounts of work-in-process that are not separately accounted for by the Borrowers due to the de minimus nature thereof); (d) that consists of work-in-process (other than de minimus amounts of work-in-process that are not separately accounted for by the Borrowers due to the de minimus nature thereof), samples, prototypes, supplies not constituting raw materials, or packing and shipping materials; (e) that is not in good condition, is unmerchantable, or does not meet all standards imposed by any Governmental Authority, having regulatory authority over such goods, their use or sale; (f) that is not currently either usable or salable, at prices approximating at least cost, in the normal course of the Borrower's business, or that is slow moving or stale; (g) that is obsolete or returned or repossessed or used goods taken in trade; (h) that is located outside the United States of America (or that is in-transit from vendors or suppliers); (i) that is not reflected in the details of the Borrowers' general ledger reports; or (j) that is Inventory acquired or accepted by any Borrower on a consignment or approval basis or that is placed on consignment. Unless otherwise notified by the Agent, the Borrowers may, in lieu of excluding individual items of Inventory which would be deemed ineligible under the criteria set forth in clauses (e), (f) and (g) above, reduce the aggregate value of Eligible Inventory included in the Borrowing Base by a reserve in the estimated amount thereof. If any Inventory at any time ceases to be Eligible Inventory, such Inventory shall promptly be excluded from the calculation of Eligible Inventory. "Environmental Laws" means any and all Applicable Laws (as defined below) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or safety or the environment, as now or may at any time hereafter be in effect, including, without limitation, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendment and Reauthorization Act of 1986, the Emergency Planning and Community Right to Know Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substances Control Act, and the Endangered Species Act, together, in each case, with each amendment, supplement or other modification thereto, the regulations adopted and publications promulgated thereunder and all substitutions therefor. For purposes hereof, "Applicable Law" means all applicable provisions of all (a) constitutions, statutes, treaties, rules, regulations and orders of governmental bodies, (b) authorizations, consents, approvals, licenses or exemptions of, registrations and filings with, reports and notices to, all governmental units, and (c) orders, decisions, judgments and decrees of all courts and arbitrators. "Equipment" means, with respect to any Person, all of such Person's now owned and hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and other tangible personal property (except Inventory), including embedded software, motor vehicles with respect to which a certificate of title has been issued, aircraft, dies, tools, jigs, and office equipment, as well as all of such types of property leased by such Person and all of such Person's rights and interests with respect thereto under such leases (including, without limitation, options to purchase); together with all present and future additions and accessions thereto, replacements therefor, component and auxiliary parts and supplies used or to be used in connection therewith, and all substitutes for any of the foregoing, and all manuals, drawings, instructions, warranties and rights with respect thereto; wherever any of the foregoing is located. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with any Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan, (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer Plan is in reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multi-employer Plan, (e) the occurrence of an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multi-employer Plan, or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate. "Event of Default" has the meaning specified in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "Facility Fee" has the meaning specified in Section 2.4. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Bank on such day on such transactions as determined by the Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Fee Budget" means the amount set forth for professional fees and disbursements expected to be incurred by the Borrowers and statutory committees in the Bankruptcy Cases as set forth in the Projections. "Fibreboard Settlement Trust" means the Fibreboard Settlement Trust established under the Trust Agreement dated December 30, 1996. "Filing Date" has the meaning set forth in the recitals hereto. "Final Order" has the meaning specified in Section 8.2. "Financial Statements" means, according to the context in which it is used, the financial statements referred to in Sections 5.2 or 6.5. "Fiscal Year" means the Borrowers' fiscal year for financial accounting purposes. The current Fiscal Year of the Borrowers will end on December 31, 2000. "Funding Date" means the date on which a Borrowing occurs. "GAAP" means generally accepted accounting principles and practices set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are in effect from time to time in the United States. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any court and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness, dividend or other obligations of any other Person (the "guaranteed obligations"), or assure or in effect assure the holder of the guaranteed obligations against loss in respect thereof, including any such obligations incurred through an agreement, contingent or otherwise: (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet condition; or (c) to lease property or to purchase any debt or equity securities or other property or services. The amount of any Guaranty of any guaranteeing Person shall be deemed to be the lower of (i) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty is made and (ii) the maximum amount for which such guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Guaranty, unless such primary obligation and the maximum amount for which such guaranteeing Person may be liable are not stated or determinable, in which case the amount of such Guaranty shall be such guaranteeing Person's maximum reasonably anticipated liability in respect thereof as determined by such guaranteeing Person in good faith. "Hedge Agreement" means any and all transactions, agreements or documents now existing or hereafter entered into, which provides for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging any Person's exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "Indemnification Liabilities" has the meaning set forth in Section 13.11. "Indemnified Person" has the meaning set forth in Section 13.11. "Interest Period" means, as to any LIBOR Rate Loan, the period commencing on the Funding Date of such Loan or on the Continuation/Conversion Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Borrower Representative in its Notice of Borrowing, in the form attached hereto as Exhibit D, or Notice of Continuation/Conversion, in the form attached hereto as Exhibit E, provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period shall extend beyond the Stated Termination Date. "Interest Rate" means each or any of the interest rates, including the Default Rate, set forth in Section 2.1. "Inventory" means, with respect to any Persons all of such Person's now owned and hereafter acquired inventory, goods and merchandise, wherever located, to be furnished under any contract of service or held for sale or lease, all returned goods, raw materials, work-in-process, finished goods (including embedded software), other materials and supplies of any kind, nature or description which are used or consumed in such Person's business or used in connection with the packing, shipping, advertising, selling or finishing of such goods, merchandise, and all documents of title or other documents representing them. "Investments" has the meaning given such term in the definition of "Restricted Investments". "IRS" means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under the Code. "Jackson Equipment" means (a) the new manufacturing equipment acquired by the Jackson Industrial Development Board or other Persons that are not Affiliates of the Company for use on the Jackson Real Estate prior to the date hereof and (b) associated leasehold improvements made by the Jackson Industrial Development Board or other Persons that are not Affiliates of the Company on the Jackson Real Estate. "Jackson Real Estate" means the approximately 200 acres of land in Jackson, Tennessee and the buildings thereon transferred by the Company to the Jackson Industrial Development Board pursuant to the Jackson transaction prior to the date hereof. "Jackson Transaction" means the transactions consummated prior to the date hereof pursuant to which (i) the Company transferred the Jackson Real Estate to the Jackson Industrial Development Board ("JIDB") and such property was leased back to the Company, and (ii) JIDB or other Persons that are not Affiliates of the Company leased the Jackson Equipment to the Company. "Latest Projections" means: (a) on the Closing Date, the Projections; and (b) thereafter, the projections most recently received by the Agent pursuant to Section 5.2(f). "Lender" and "Lenders" have the meanings specified in the introductory paragraph hereof and shall include the Bank to the extent of any Non-Ratable Loan outstanding; provided that no such Non-Ratable Loan shall be taken into account in determining any Lender's Pro Rata Share. "Letter of Credit" has the meaning specified in Section 1.4(a). "Letter of Credit Fee" has the meaning specified in Section 2.6. "Letter of Credit Issuer" means the Bank, any affiliate of the Bank or any other financial institution that issues any Letter of Credit pursuant to this Agreement. "Letter of Credit Subfacility" means $300,000,000. "LIBOR Interest Payment Date" means, with respect to a LIBOR Rate Loan, the Termination Date and the last day of each Interest Period applicable to such Loan or, with respect to each Interest Period of greater than three months in duration, the last day of the third month of such Interest Period and the last day of such Interest Period. "LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate Loans, the rate of interest per annum determined pursuant to the following formula: LIBOR Rate = Offshore Base Rate --------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Offshore Base Rate" means the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. If for any reason none of the foregoing rates is available, the Offshore Base Rate shall be, for any Interest Period, the rate per annum determined by Agent as the rate of interest at which dollar deposits in the approximate amount of the LIBOR Rate Loan comprising part of such Borrowing would be offered by the Bank's London Branch to major banks in the offshore dollar market at their request at or about 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; and "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day applicable to member banks under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The LIBOR Rate for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "LIBOR Rate Loans" means the LIBOR Revolving Loans. "LIBOR Revolving Loan" means a Revolving Loan during any period in which it bears interest based on the LIBOR Rate. "Lien" means: (a) any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including a security interest, charge, claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; (b) to the extent not included under clause (a), any reservation, exception, encroachment, easement, right-of-way, covenant, condition, restriction, lease or other title exception or encumbrance affecting property; and (c) any contingent or other agreement to provide any of the foregoing. "Loan Account" means the loan account of the Borrowers, which account shall be maintained by the Agent. "Loan Documents" means this Agreement, the Revolving Loan Notes, the Final Order, and any other agreements, instruments, and documents heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise relating to the Obligations or any other aspect of the transactions contemplated by this Agreement. "Loans" means, collectively, all loans and advances provided for in Article 1. "Majority Lenders" means at any date of determination Lenders whose Pro Rata Shares aggregate more than 50% as such percentage is determined under the definition of Pro Rata Share set forth herein. "Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the Federal Reserve Board. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) of the Borrowers taken as a whole; (b) a material impairment of the Borrowers' ability, taken as a whole, to pay any of the Loans or any of the other Obligations in accordance with the terms of this Agreement or any other Loan Document; (c) a material adverse effect upon the Agent's or any Lender's rights and remedies under this Agreement or any other Loan Agreement; or (d) a material impairment of the validity, extent or priority of the Superpriority Administrative Claim of the Agent and the Lenders in respect of the Obligations. For purposes hereof, the filing of the Bankruptcy Cases on the Filing Date and the existence of pre-petition claims and of defaults under such pre-petition claims shall not be deemed to constitute a Material Adverse Effect. "Maximum Inventory Loan Amount" means $300,000,000. ----------------------------- "Maximum Revolver Amount" means $500,000,000, as such amount may be reduced from time to time in accordance with the provisions of Section 3.2. "Multi-employer Plan" means a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by any Borrower or any ERISA Affiliate. "Net Amount of Eligible Accounts" means, at any time, the gross amount of Eligible Accounts less sales, excise or similar taxes, and less returns, discounts, claims, credits, allowances, accrued rebates, offsets, deductions, counterclaims, disputes and other defenses of any nature at any time issued, owing, granted, outstanding, available or claimed. "Non-Ratable Loan" and "Non-Ratable Loans" have the meanings specified in Section 1.2(h). "Notes" means Revolving Loan Notes. ----- "Notice of Borrowing" has the meaning specified in Section 1.2(b). "Notice of Continuation/Conversion" has the meaning specified in Section 2.2(b). "Obligations" means all present and future loans, advances, liabilities, obligations, covenants, duties, and debts owing by any Borrower to the Agent and/or any Lender, arising under or pursuant to this Agreement or any of the other Loan Documents, whether or not evidenced by any note, or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, as principal or guarantor, and including all principal, interest, charges, expenses, fees, attorneys' fees, filing fees and any other sums chargeable to any Borrower hereunder or under any of the other Loan Documents. "Obligations" includes, without limitation, (a) all debts, liabilities, and obligations now or hereafter arising from or in connection with the Letters of Credit and (b) all debts, liabilities and obligations now or hereafter arising from or in connection with Bank Products. "Other Subsidiary" means any Subsidiary of the Company consolidated for purposes of the Financial Statements other than those Subsidiaries which are Borrowers. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" means any Person who shall have been granted the right by any Lender to participate in the financing provided by such Lender under this Agreement in accordance with Section 11.2(e), and who shall have entered into a participation agreement in form and substance satisfactory to such Lender. "PBGC" means the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof. "Pending Revolving Loans" means, at any time, the aggregate principal amount of all Revolving Loans requested in any Notice of Borrowing received by the Agent which have not yet been advanced. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which any Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multi-employer Plan has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Intercompany Debt" means (a) unsecured Debt of any Borrower to any other Borrower, (b) unsecured Debt of any Borrower to any Other Subsidiary that is subordinated to the Obligations hereunder in an aggregate outstanding principal amount at any time outstanding not to exceed $25,000,000 for all such Debt; (c) Debt of any Other Subsidiary to any Borrower in an aggregate outstanding principal amount at any time not to exceed $50,000,000 for all such Debt and (d) Debt of any Other Subsidiary to any Other Subsidiary. "Permitted Liens" means, as to any Borrower: --------------- (a) Liens for taxes, assessments and other governmental charges not delinquent or statutory Liens for taxes in an amount (not to exceed $25,000,000 in the aggregate for the Borrowers) provided that the payment of such taxes which are claimed to be due and payable is being contested in good faith and by appropriate proceedings diligently pursued and as to which adequate financial reserves have been established on the applicable Borrower's books and records and a stay of enforcement of any such Lien is in effect; (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of Debt) or to secure (or obtain letters of credit to secure) indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of Debt) or to secure statutory obligations (other than liens arising under ERISA or Environmental Liens), leases, purchase, construction or sales contracts and similar obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (c) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons, provided that if any such Lien arises from the nonpayment of such claims or demand when due, (1) the payment of such claims or demands is being contested in good faith and by appropriate proceedings diligently pursued and adequate financial reserves have been established on the applicable Borrower's books and records and a stay of enforcement of any such Lien is in effect and (2) the nonpayment of such claims or demands would not reasonably be expected to have a Material Adverse Effect; (d) Liens constituting encumbrances in the nature of reservations, exceptions, encroachments, easements, rights of way, covenants running with the land, and other similar title exceptions or encumbrances affecting any Real Estate; provided that they do not in the aggregate materially detract from the value of the Real Estate or materially interfere with its use in the ordinary conduct of such Borrower's business; (e) Liens that arise from judgments and attachments in connection with court proceedings notwithstanding the terms of the Final Order; provided, that if the amount of indebtedness secured by all such Liens equals or exceeds $1,000,000 at any time outstanding in the aggregate for the Borrowers, the execution or other enforcement of such Liens is not unstayed for more than 30 days and such Liens would not result in an Event of Default; provided, further, that, after giving effect to the imposition of such Liens and to Reserves established by the Agent with respect to the indebtedness secured by such Liens, the sum of Borrowing Base Availability plus all unrestricted cash and Cash Equivalents of the Borrowers shall be equal to or greater than $150,000,000; (f) Liens constituting a lease or sublease granted by any Borrower to others in the ordinary course of business; (g) Liens on any asset leased by any Borrower constituting the interest of the lessor of such asset or secured by the interest of the lessor of such asset; (h) Liens created pursuant to an application or reimbursement agreement pertaining to a commercial letter of credit that encumbers only the goods, or documents of title covering the goods, that were sold or shipped in the transaction for which such letter of credit was issued; (i) Liens in favor of the United States of America, or any agency, department or other instrumentality thereof, to secure progress, advance or other payments pursuant to any contract or provision of any statute; (j) Liens on any asset constituting the unsecured interest of the holder of a purchase option on such property so long as the disposition of such property pursuant to such purchase option would not violate Section 7.8; (k) Liens existing on any asset (other than Accounts or Inventory or proceeds thereof) prior to the acquisition thereof by any Borrower but only if such Lien was not created in contemplation thereof and so long as the obligation secured by such Lien is not in default and such Lien is and will remain confined to the asset subject to it at the time such asset is acquired and to fixed improvements thereafter erected on such asset if constituting real property; (l) Liens constituting a renewal, extension or replacement of a Lien constituting a Lien permitted under clause 7.17(b) or clause (k) above, but only, in the case of each such renewal, extension or replacement Lien, to the extent that the principal amount of indebtedness secured by such Lien does not exceed the principal amount of such indebtedness so secured at the time of the extension, renewal or replacement, and that such renewal, extension or replacement Lien is limited to all or part of the asset that was subject to the Lien extended, renewed or replaced and to fixed improvements then or thereafter erected on any such asset constituting real property; (m) Liens on the Jackson Real Estate and the Jackson Equipment arising pursuant to the Jackson Transaction; and (n) Any other Lien so long as the amount of indebtedness secured by such Lien and all other Liens not otherwise permitted hereunder does not exceed $20,000,000 at any time outstanding in the aggregate for the Borrowers. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority, or any other entity. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which any Borrower sponsors or maintains or to which any Borrower makes, is making, or is obligated to make contributions and includes any Pension Plan. "Projections" means the financial projections dated October 2, 2000 of the Company and its consolidated Subsidiaries for the period from October 1, 2000 through December 31, 2002 and delivered to the Agent prior to the Closing Date. "Proprietary Rights" means, with respect to any Person, all of such Person's now owned and hereafter arising or acquired: licenses, franchises, permits, patents, patent rights, copyrights, works which are the subject matter of copyrights, trademarks, service marks, trade names, trade styles, patent, trademark and service mark applications, and all licenses and rights related to any of the foregoing, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing. "Pro Rata Share" means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender's Commitment and the denominator of which is the sum of the amounts of all of the Lenders' Commitments, or if no Commitments are outstanding, a fraction (expressed as a percentage), the numerator of which is the amount of Obligations owed to such Lender and the denominator of which is the aggregate amount of the Obligations owed to the Lenders, in each case giving effect to a Lender's participation in Non-Ratable Loans and Agent Advances. "Real Estate" means, with respect to any Person, all of such Person's now or hereafter owned or leased estates in real property, including, without limitation, all fees, leaseholds and future interests, together with all of such Person's now or hereafter owned or leased interests in the improvements thereon, the fixtures attached thereto and the easements appurtenant thereto. "Release" means a release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into the indoor or outdoor environment or into or out of any Real Estate or other property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Real Estate or other property. "Reportable Event" means, any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Required Lenders" means at any time Lenders whose Pro Rata Shares aggregate more than 66-2/3% as such percentage is determined under the definition of Pro Rata Share set forth herein. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Reserves" means reserves that limit the availability of credit hereunder, consisting of reserves against Availability, Eligible Accounts or Eligible Inventory, established by Agent from time to time in the Agent's reasonable credit judgment. Without limiting the generality of the foregoing, the following Reserves shall be deemed to be a reasonable exercise of Agent's credit judgment: (a) Bank Product Reserves, (b) reserves for indebtedness and other obligations secured by Liens against Accounts or Inventory of any Borrower (except to the extent such indebtedness and other obligations are secured by Letters of Credit), (d) Inventory shrinkage, (e) the Carve-Out (less any paid portion thereof) plus any accrued and unpaid professional fees incurred by the Borrowers and statutory committees prior to a Carve-Out Event, (g) customs charges, and (h) dilution. "Responsible Officer" means any of the following officers of the Borrower Representative: the chief executive officer, the president, the chief financial officer, the treasurer or the assistant treasurer, or, in each case, any other officer having substantially the same authority and responsibility. "Restricted Investment" means, as to any Borrower, any acquisition of property by such Person in exchange for cash or other property, whether in the form of an acquisition of stock, debt, or other indebtedness or obligation, or the purchase or acquisition of any other property, or a loan, advance, capital contribution, or subscription, including in connection with the organization, creation or acquisition of any Subsidiary (each an "Investment"), except the following: (a) acquisitions of Equipment and other capital assets in the ordinary course of business of such Person; (b) acquisitions of Inventory in the ordinary course of business of such Person; (c) acquisitions of current assets acquired in the ordinary course of business of such Person; (d) Investments in Cash Equivalents; (e) Investments by any Borrower in any other Borrower, (f) extensions of trade credit and prepaid expenses made in the ordinary course of business, (g) (i) loans to officers of any Borrower in the ordinary course of business, (ii) loans and advances to employees of any Borrower for travel, entertainment and relocation expenses in the ordinary course of business and (iii) loans by any Borrower to employees in connection with management incentive plans, provided that the aggregate outstanding principal amount of all such loans and advances made pursuant to this clause (g) shall not exceed $5,000,000 at any time; (h) Investments outstanding on the Closing Date and listed on Schedule A-1, (i) Investments not otherwise permitted hereunder by any Borrower in any Other Subsidiary, provided that after giving effect to such Investments, the aggregate then outstanding amount of all such Investments made pursuant to this clause (i) subsequent to the Closing Date shall not exceed $50,000,000, provided, further, that the conversion of any Debt owed to any Borrower by any Other Subsidiary into equity of such Other Subsidiary shall not constitute an additional Investment in such Other Subsidiary by any Borrower for purposes of the limitation contained in the immediately proceeding provision, (j) Investments received in connection with the collection of Accounts in the ordinary course of business, (k) Investments received as consideration in connection with any asset sale or other disposition of assets permitted hereunder, (l) loans and advances to suppliers in the ordinary course of business consistent with past practice but in any event not in excess of an outstanding principal amount of $20,000,000 at any time, (m) Investments made by the Fibreboard Settlement Trust in accordance with the terms of the Fibreboard Settlement Trust, (n) other Investments not otherwise permitted hereunder constituting proceeds of sales or other dispositions of assets permitted under clauses (ii) and (x) of Section 7.8, provided that, after giving effect thereto, the aggregate amount of all such Investments made at any time after the Closing Date by all Borrowers under this clause (n) shall not exceed $60,000,000 and (o) other Investments not otherwise permitted hereunder made by any Borrower, provided that, after giving effect thereto, the aggregate amount of all such Investments made at any time after the Closing Date by all Borrowers under this clause (o) shall not exceed $40,000,000. "Revolving Loans" has the meaning specified in Section 1.2 and includes each Non-Ratable Loan. "Revolving Loan Note" and "Revolving Loan Notes" have the meanings specified in Section 1.2(a)(ii). "Settlement" and "Settlement Date" have the meanings specified in Section 12.15(a)(ii). "Stated Termination Date" means November 15, 2002. ----------------------- "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than fifty percent (50%) of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Superpriority Administrative Claim" has the meaning specified in Section 7.25 "Supporting Obligations" means all supporting obligations as such term is defined in the UCC. "Syndication Fee" has the meaning specified in Section 2.4. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, such taxes (including income, capital or franchise taxes) as are imposed on or measured by the Agent's or each Lender's net income or capital in any jurisdiction (whether federal, state, local or foreign and including any political subdivision thereof) under the laws of which such Lender or the Agent, as the case may be, is organized or maintains a lending office, branch, affiliate or other connection (other than such connection arising from the Agent or such Lender having executed, delivered or reformed its obligations or received payment under, or taken any action to enforce, this Agreement). "Termination Date" means the earliest to occur of (i) the Stated Termination Date, (ii) the date the Total Facility is terminated either by the Borrower pursuant to Section 3.2 or by the Required Lenders pursuant to Section 9.2, and (iii) the date this Agreement is otherwise terminated for any reason whatsoever pursuant to the terms of this Agreement. "Total Facility" has the meaning specified in Section 1.1. "UCC" means the Uniform Commercial Code, as in effect from time to time, of the State of Illinois or of any other state the laws of which are required as a result thereof to be applied in connection with the issue of perfection of security interests. "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current market value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412(c) of the Code for the applicable plan year plus any contributions for the applicable plan year. "Unused Letter of Credit Subfacility" means an amount equal to $300,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit plus, without duplication, (b) the aggregate unpaid reimbursement obligations with respect to all Letters of Credit. "Unused Line Fee" has the meaning specified in Section 2.5. Accounting Terms. Any accounting term used in the Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the Financial Statements. If any change in generally accepted accounting principles subsequent to the date of this Agreement is material to either any Borrower or the Lenders for the purpose of determining the Borrowers' compliance with any covenant contained in this Agreement, then (A) such change shall not, without the consent of the Required Lenders, if such change makes such covenant less restrictive, or the Borrower Representative, if such change makes such covenant more restrictive, be effective for the calculation of such covenant unless and until an amendment pursuant to clause (B) below with respect to such change and such covenant becomes effective, and (B) the Borrowers and the Agent and the Lenders agree to enter into negotiations, at the request of the Borrowers or the Representative Lenders, in order to amend such covenant so as equitably to reflect such change with the desired result that the criteria for evaluating the consolidated financial condition of the Company and its consolidated Subsidiaries shall be the same after such change as before such change. Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof," "herein," "hereunder" and similar words refer to the Agreement as a whole and not to any particular provision of this Agreement; and Subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding" and the word "through" means "to and including." (iv) The word "or" is not exclusive. (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of the Agreement and other Loan Documents are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) The Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) For purposes of Section 9.1, a breach of a financial covenant contained in Sections 7.21 shall be deemed to have occurred as of any date of determination thereof by the Agent or as of the last day of any specified measuring period, regardless of when the Financial Statements reflecting such breach are delivered to the Agent. (h) The Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Borrowers and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders or the Agent merely because of the Agent's or Lenders' involvement in their preparation. (i) Each reference to any statute shall include all regulations promulgated thereunder and shall mean such statute as amended and all statutes intended to replace or supersede the specified statute. EXHIBIT A FORM OF REVOLVING LOAN NOTE EXHIBIT B FORM OF BORROWING BASE CERTIFICATE EXHIBIT C FINANCIAL STATEMENTS EXHIBIT D NOTICE OF BORROWING Date: ______________, 200_ To: Bank of America, N.A. as Agent for the Lenders who are parties to the Post-Petition Credit Agreement dated as of December __, 2000 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Owens Corning and certain of its Subsidiaries thereto, as Borrowers, certain Lenders which are signatories thereto and Bank of America, N.A., as Agent Ladies and Gentlemen: The undersigned, Owens Corning (the "Borrower Representative"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is , 200 . ----------------------- -- 2. The aggregate amount of the proposed Borrowing is $ . --------------------- 3. The Borrowing is to be comprised of $ of Base Rate and $ of ------------ -------------- LIBOR Rate Loans. 4. The duration of the Interest Period for the LIBOR Rate Loans, if any, included in the Borrowing shall be _____ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) The representations and warranties of the Borrowers contained in the Credit Agreement and the other Loan Documents are correct in all material respects on and as of such date as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent the Agent and the Lenders have been notified in writing by the Borrower Representative that any representation or warranty is not correct and the Required Lenders have explicitly waived in writing compliance with such representation or warranty; (b) No Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing; and (c) The proposed Borrowing will not cause the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount available for drawing under all outstanding Letters of Credit, to exceed the Borrowing Base, as reflected in the most recent Borrowing Base Certificate delivered to the Agent pursuant to the Credit Agreement (as such amount may be reduced by Reserves established by the Agent following the date of such Borrowing Base Certificate), or the combined Commitments of the Lenders. OWENS CORNING By: ----------------------------------------- Title: -----------------------------------------
EXHIBIT E NOTICE OF CONTINUATION/CONVERSION Date: , 200_ ---------------- To: Bank of America, N.A. as Agent for the Lenders to the Post-Petition Credit Agreement dated as of December __, 2000 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") ----------------- among Owens Corning and certain of its Subsidiaries which are signatories thereto, as Borrowers, certain Lenders which are signatories thereto and Bank of America, N.A., as Agent Ladies and Gentlemen: The undersigned, Owens Corning (the "Borrower Representative"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably of the [conversion] [continuation] of the Loans specified herein, that: 1. The Continuation/Conversion Date is , 200 . ------------ - 2. The aggregate amount of the Loans to be [converted] [continued] is $ . 3. The Loans are to be [converted into] [continued as] [LIBOR Rate] [Base Rate] Loans. 4. The duration of the Interest Period for the LIBOR Rate Loans included in the [conversion] [continuation] shall be months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed Continuation/Conversion Date, before and after giving effect thereto and to the application of the proceeds therefrom: (a) The representations and warranties of the Borrowers contained in the Credit Agreement and the other Loan Documents are correct in all material respects on and as of such date as though made on and as of such date, other than any such representation or warranty which relates to a specified prior date and except to the extent the Agent and the Lenders have been notified in writing by the Borrower Representative that any representation or warranty is not correct and the Required Lenders have explicitly waived in writing compliance with such representation or warranty; (b) Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation]; and (c) The proposed conversion-continuation will not cause the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount available for drawing under all outstanding Letters of Credit to exceed the Borrowing Base, as reflected in the most recent Borrowing Base Certificate delivered to the Agent pursuant to the Credit Agreement (as such amount may be reduced by Reserves established by the Agent following the date of such Borrowing Base Certificate), or the combined Commitments of the Lenders. OWENS CORNING By: ----------------------------------------- Title: -----------------------------------------
EXHIBIT H [FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of ____________________, 200_ is made between ______________________________ (the "Assignor") and __________________________ (the "Assignee"). RECITALS WHEREAS, the Assignor is party to that certain Post-Petition Credit Agreement dated as of October __, 2000 (as amended, amended and restated, modified, supplemented or renewed, the "Credit Agreement") among Owens Corning, a Delaware corporation (the "Company"), and certain Subsidiaries of the Company which are signatory thereto (together with the Company, each a "Borrower" and collectively "Borrowers"), the several financial institutions from time to time party thereto (including the Assignor, the "Lenders"), and Bank of America, N. A., as agent for the Lenders (the "Agent"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans (the "Committed Loans") to the Borrowers in an aggregate amount not to exceed $__________ (the "Commitment"); WHEREAS, the Assignor has made Committed Loans in the aggregate principal amount of $__________ to the Borrowers; WHEREAS, [the Assignor has acquired a participation in its pro rata share of the Lenders' liabilities under Letters of Credit in an aggregate principal amount of $____________ (the "L/C Obligations")] [no Letters of Credit are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, together with a corresponding portion of each of its outstanding Committed Loans and L/C Obligations, in an amount equal to $__________ (the "Assigned Amount") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. ------------------------- (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "Assignee's Percentage Share") of (A) the Commitment, the Committed Loans and the L/C Obligations of the Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Lender under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Sections __ and __ of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________. 2. Payments. -------- (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee's Pro Rata Share of the principal amount of all Committed Loans. (b) The Assignee further agrees to pay to the Agent a processing fee in the amount specified in Section 11.2(a) of the Credit Agreement. 3. Reallocation of Payments. ------------------------ Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment, and Committed Loans and L/C Obligations shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. --------------------------- The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements of the Company and its Subsidiaries, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. ----------------------- (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 200_ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; [(ii) the consent of the Agent [and the Borrower Representative] required for an effective assignment of the Assigned Amount by the Assignor to the Assignee shall have been duly obtained and shall be in full force and effect as of the Effective Date;] (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; [(iv) the Assignee shall have complied with Section 11.2 of the Credit Agreement (if applicable);] (v) the processing fee referred to in Section 2(b) hereof and in Section 11.2(a) of the Credit Agreement shall have been paid to the Agent; and (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Borrower and the Agent for acknowledgment by the Agent [and the Borrower], a Notice of Assignment in the form attached hereto as Schedule 1. 6. [Agent. [INCLUDE ONLY IF ASSIGNOR IS AGENT] ----- (a) The Assignee hereby appoints and authorizes the Assignor to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the Lenders pursuant to the terms of the Credit Agreement. (b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] 7. Withholding Tax. --------------- The Assignee (a) represents and warrants to the Lender, the Agent and the Borrowers that under applicable law and treaties no tax will be required to be withheld by the Lender with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Agent and the Borrowers prior to the time that the Agent or Borrowers is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form W-8ECI or U.S. Internal Revenue Service Form W-8BEN (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms W-8ECI or W-8BEN upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. ------------------------------ (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Borrowers, or the performance or observance by the Borrowers, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; [and (iv) it is an Eligible Assignee.] 9. Further Assurances. ------------------ The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Borrowers or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. ------------- (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in [ ] over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such [ ] State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: Title: Address: [ASSIGNEE] By: Title: Address: SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE NOTICE OF ASSIGNMENT AND ACCEPTANCE _______________, 200_ Bank of America, N.A. 231 South LaSalle Street Chicago, Illinois 60697 Attn: ------------------------------- Re: [Name and Address of Borrower] Ladies and Gentlemen: We refer to the Credit Agreement dated as of _________, 200_ (as amended, amended and restated, modified, supplemented or renewed from time to time the "Credit Agreement") among ______________________ (the "Borrower"), the Lenders referred to therein and Bank of America, N. A., as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by __________________ (the "Assignor") to _______________ (the "Assignee") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including the right, title and interest of the Assignor in and to the Commitments of the Assignor, all outstanding Loans made by the Assignor and the Assignor's participation in the Letters of Credit pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and Acceptance"). We understand and agree that the Assignor's Commitment, as of , 200 , is $ ___________, the aggregate amount of its outstanding Loans is $_____________, and its participation in L/C Obligations is $_____________. 2. The Assignee agrees that, upon receiving the consent of the Agent and, if applicable, the Borrower to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Lender originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name: ---------------------------- Address: ---------------------------------- Attention: ---------------------------------- Telephone: (___) ------------------------ Telecopier: (___) ----------------------- Telex (Answerback): --------------------- (B) Payment Instructions: Account No.: ---------------------------- At: ---------------------------- Reference: ---------------------------- Attention: ---------------------------- 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By: - ------------------------------------------ Title: - ------------------------------------------ [NAME OF ASSIGNEE] By: - ------------------------------------------ Title: - ------------------------------------------ ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: Bank of America, N. A. as Agent By: ----------------------------------------- Title: ----------------------------------------- SCHEDULE 1.1 COMMITMENTS Revolving Loan Pro Rata Share Lender Commitment (3 decimals) ------ Bank of America, N.A. $500,000,000 100% EX-4 3 0003.txt Exhibit (4) LICENSE AGREEMENT AGREEMENT ("Agreement") made as of this 1st day of October, 1991 by and between OWENS-CORNING FIBERGLAS TECHNOLOGY INC. (hereinafter caller "Lecensor") a corporation duly organized and existing under the laws of the State of Illinois, United States of America, with its principal offices at 7800 West 59th Street, Summit, Illinois 60501 and OWENS-CORNING FIBERGLAS CORPORATION (hereinafter called "Licensee"), a corporation duly organized and existing under the laws of the State of Delaware, United States of America with its principal offices at Fiberglas Tower, Toledo, Ohio, 43659, U.S.A. In consideration of mutual promises made herein, and of the mutual benefits to be derived herein, the parties hereto agree as follows: ARTICLE I Definitions As used herein the term: A. "Affiliate" means any company or entity in which Licensor or Licensee owns or controls, directly or indirectly, more than one percent (1%) of the total voting power of all classes of stock entitled to vote. B. "Effective Date" shall mean as described in Article IV below. C. "Licensor Intellectual Property" means Licensor Patents, Licensor Know-How, Licensor Service Marks, Licensor Trademarks, Licensor Trade Names. D. "Licensor Know-How" means all Licensor's most current technical knowledge and data, processes, techniques, drawings and designs, unpatented inventions, operating manuals, manufacturing and quality control procedures, trade secrets, plans, accumulated experience, plant and tool design, installation instructions, raw material specifications, advertising procedures, sales promotion literature, and other know-how of any kind which is in general commercial use by Licensor as of the Effective Date of this Agreement or becomes suitable for general commercial use during the term of this Agreement and which is necessary for the design, manufacture, application, sale or marketing of Products. E. "Licensor Patents" means all Letters Patent owned or controlled by Licensor, issued or issuing on applications for Letters Patent covering any invention claimed or disclosed in an application which is filed in any country and which invention covers, or is usable in, the manufacture of Products. Licensor Patents shall include reissues of extensions of any such patents. The Licensor Patents referred in this definition, as of the Effective Date of this Agreement, are listed on Schedule A attached hereto. Licensor Patents issued or issuing during the term of this Agreement shall automatically be deemed to be added to Schedule A. F. "Licensor Service Marks, Licensor Trade Names and Licensor Trademarks" means all Service Marks, Licensor Trade Names and Licensor Trademarks owned or controlled by Licensor. The Licensor Service Marks, Licensor Trade Names, and Licensor Trademarks, as of the Effective Date of this Agreement, are listed on Schedule B attached hereto. Licensor Service Marks, Licensor Trade Names and Licensor Trademarks obtained during the term of this Agreement shall automatically be deemed to be added to Schedule B. G. "Net Sales" shall be the gross invoice price of Products sold or otherwise disposed of by Licensee in normal, bona fide, commercial transactions, or, in the case of internal sales, the arm's length value of such Products sold, without any deduction other than freight; sales, excise or use taxes; bona fide trade and cash discounts normally allowed to independent jobbers, dealers or other purchasers; but only insofar as such freight, taxes and/or discounts are paid or allowed to customers by Licensee, but such term does not include export or other special packaging for shipping purposes invoiced separately to customers. H. "Products" means any metal siding and vinyl siding products manufactured or sold with the aid of Licensor Intellectual Property. I. "Subsidiary" means any company or entity in which Licensor or Licensee owns or controls, directly or indirectly, more than fifty percent (50%) or the total voting power of all classes of stock entitled to vote. ARTICLE II License By Licensor To Licensee A. Licensor hereby grants to Licensee an exclusive license to make, use and sell Products under the Licensor Patents throughout the world, and to use throughout the world, in connection therewith, the Licensor Know-How, Licensor Service Marks, Licensor Trade Names and Licensor Trademarks described in Article I above. B. The foregoing license shall include the right to grant sublicenses. ARTICLE III Research and Development A. In order to enhance its ability to obtain future sublicenses and in consideration of reduced royalty rates from Licensor, Licensee hereby agrees to continue, at its own expense, its research and development activities, both at its Technical Center in Granville, Ohio, and at its various plants and other locations, as a contractor to Licensor. Ownership of all rights associated with technology developed thereunder, whether patentable or not, shall vest immediately and solely in Licensor, and Licensee shall have no rights therein except as provided by this License Agreement. In addition, Licensee shall continue to develop, at its own expense, new Trademarks, Trade Names and Service Marks, and such shall also vest immediately and solely in Licensor. B. In further consideration of reduced royalty rates from Licensor, Licensee agrees to employ or retain qualified personnel, at its own expense, to provide administrative and other support for the research and development activities described immediately above during the term of this Agreement. Such personnel may include, but not be limited to, patent counsel, marketing and development personnel, advertising personnel, and others. Specifically, but not exclusively, Licensee shall establish, protect and maintain all Licensor Intellectual Property during the term of this Agreement. ARTICLE IV Effective Date This Agreement shall be effective as of October 1, 1991. ARTICLE V Royalties A. Commencing on the Effective Date and continuing for a period of twenty (20) years thereafter, Licensee shall pay to Licensor royalties on Net Sales in the amounts set forth on Schedule C attached hereto; provided, however, that either Licensor or Licensee may, on each anniversary of this Agreement, request an independent study to determine current arm's length royalty rates. The cost of such study shall be divided equally between Licensor and Licensee and, upon completion of such study, the royalty rates in Schedule C shall be adjusted effective as of the anniversary date on which the study was requested. B. Where Products contain more than one type of Licensor technology, royalties shall be paid on the component Product(s) separately, applying the relevant royalty rate to each component Product and to the finished Product, respectively. By way of example, where roofing Products contain fiberglass reinforcements, Licensee shall pay a reinforcements royalty on the arm's-length value of the reinforcements which are contained in the finished Product and a roofing royalty on the revenues generated by actual sales of the finished Products. C. For the purpose of calculating Net Sales, Products shall be considered sold: 1. if sold on open account, when delivered to the purchaser or to a common carrier and consigned to the purchaser. 2. if paid in advance of delivery, when paid for; 3. if sold on consignment, when paid for by the consignee or when released from consignment, whichever shall first occur; or 4. if sold internally, when delivered to the Licensee division responsible for manufacturing the finished Product. Royalties shall be computed for each calendar quarter and shall be payable thirty (30) days after the end of each calendar quarter by electronic funds transfer to a bank account to be designated by Licensor from time to time. D. Whenever royalties have been paid by Licensee on Products sold and such Products are lost or damaged in transit, or are not accepted and paid for by a purchaser, or are returned or an allowance or credit is given for them because of their condition of defective quality, or because of shortages, or because of inability to collect after one year from the sale to a purchaser (recoveries thereafter to be regarded as new sales), then, unless Licensee is reimbursed therefor by insurance or other source of recovery, the royalties paid on such Products shall be charged back or deducted from further payments to be made but only to the extent pro rata that such Products are not paid for or used or Licensee is not otherwise reimbursed therefor. E. Licensee shall keep true and accurate records and books of accounts containing all data reasonably required for the computation and verification of royalties to be paid as herein provided, which records and books shall at all reasonable times during business hours be available for inspection and copying by Licensor or Licensor's independent auditor. Any inspection hereunder shall be upon reasonable notice to Licensee. Licensee shall provide Licensor within twenty (20) days after the end of each calendar quarter with a statement of its Net Sales by product for the calendar quarter. ARTICLE VI Payments A. All Licensee payments to Licensor under this Agreement shall be made by electronic funds transfer to a bank account to be designated by Licensor from time to time, United States dollars. B. The unpaid balance of amounts payable under this Agreement shall bear interest at the prime rate charged by major commercial banks in the United States for the period commencing on the date such amount becomes payable and ending on the date such balance is paid in full. C. Licensee shall bear all taxes, duties and other governmental charges in any jurisdiction or agency or authority thereof relating to or arising under this Agreement, including, without limitation, any stamp or documentary taxes, value added taxes, turnover, sales or use taxes, excise or income taxes, including income taxes imposed on Licensor, and withholding taxes on royalties and other payments payable to Licensor hereunder. ARTICLE VII Certain Representations and Warranties of Licensor A. Licensor makes no representation or warranty of any nature, and none shall be implied, (i) as to the validity or scope of the Licensor Patents, (ii) that either (x) the practice of the inventions claimed in the Licensor Patents, (y) the use of Licensor Know-How, or (z) anything made, used or sold or otherwise disposed of under the license granted by the Licensor to Licensee in this Agreement, will not infringe any patent or other right of any third party, or (iii) as to the usefulness, utility or fitness for any particular or intended purpose, whether of Licensee or any customer of Licensee, of any Licensor Patent or Licensor Know-How, or any Product produced therewith, including, without limitation, the ability of Licensee to adapt any of the Licensor Patents or Licensor Know-How to its needs, whether or not known to Licensor, or to manufacture, use or sell Products using the Licensor Patents and Licensor Know-How. B. Licensor makes no representation or warranty of any nature, and none shall be implied, as to the validity or scope of any other Licensor Intellectual Property. ARTICLE VIII Ownership and Protection of Licensor Intellectual Property A. The Licensor Intellectual Property licensed by Licensor to Licensee under this Agreement shall be and remain the property of Licensor, and Licensee acknowledges and agrees that Licensor is and shall at all times continue to be the owner thereof. Licensor may impose such conditions with respect thereto as Licensor may deem reasonably necessary to preserve the confidential nature of any Intellectual Property to which restrictions of subparagraph B of this Article VIII apply. B. Except as expressly permitted by this Agreement, Licensee shall retain all Intellectual Property licensed to it in strict confidence as trade secrets of Licensor and shall not disclose, or permit any employee or agent of Licensee to disclose, any such Intellectual Property to any person, firm or corporation without the prior written approval of Licensor, provided that such disclosure may be made to any employee of Licensee who has a reasonable need for access thereto for the purposes of installing, operating and maintaining the Intellectual Property licensed under this Agreement so long as Licensee imposes identical obligations on such employee to maintain the confidentiality of such Intellectual Property. Licensee shall exercise all necessary precautions to safeguard the secrecy of Intellectual Property licensed to it and to prevent the unauthorized disclosure or use thereof. Licensee shall consult with Licensor as to the procedures established by Licensee for this purpose that Licensee then has in effect. Licensee shall be liable to Licensor for any disclosures or uses of Intellectual Property, directly or indirectly, by any employee of Licensee or other person or entity not authorized by Licensor in advance. The obligations of confidentiality of Licensee under this subparagraph B shall not apply to Intellectual Property, which (i) has become public knowledge through no breach of this Agreement, or (ii) has been made available to Licensee by third parties without any breach of confidence on their part. C. Upon the termination of this Agreement pursuant to Article XI hereof, all rights and privileges of Licensee hereunder shall terminate and revert to Licensor. D. It is the specific intent of the parties hereto that nothing contained herein shall in any way endanger any right of Licensor in and to any Licensor Intellectual Property licensed by Licensor to Licensee hereunder and should any provision or provisions of this Agreement be interpreted by a court or tribunal or other governmental authority so as to endanger such right or rights, whether or not such interpretation is made at the instance of Licensee or another, then, at the option of Licensor, such provision or provisions shall be deemed deleted from this Agreement or this Agreement shall be immediately terminated in respect of all or any of the Licensor Intellectual Property so interpreted to be endangered. E. Licensee shall, at its own expense, use its best efforts to discover any infringements, misappropriations or other unauthorized uses of the Intellectual Property licensed to it hereunder and shall promptly notify Licensor in writing of any such infringement, misappropriation or other unauthorized use. Licensee shall, on behalf of Licensor, have the obligation to bring, at its own expenses, any appropriate action to prevent or terminate any such infringement, misappropriation or other unauthorized use. If any such action is brought, Licensee, after consultation with Licensor, shall have full control over the prosecution and settlement or compromise of such action and shall assume all the expenses in respect of such action. Licensor shall fully cooperate with and assist Licensee in any such action. Licensee shall not take any action in protection of the rights of or in furtherance of the interest of Licensor without Licensor's authorization. F. Licensee shall, at its own expense, take such other actions as are appropriate to preserve the value of the Intellectual Property. ARTICLE IX Claims A. Except as specifically set forth herein, Licensor and its Affiliates shall have no liability to Licensee or any Affiliates of Licensee, and Licensee releases Licensor and the Affiliates of Licensor from any and all liability to Licensee or any Affiliate of Licensee, and Licensee waives any right against Licensor or the Affiliates of Licensor for contribution or indemnity arising from any liability to Licensee or any Affiliate of Licensee, in connection with the manufacture, distribution, sale or use of Products by Licensee, or any customer of Licensee, with the aid of the Licensor Intellectual Property. Licensee is not an agent or partner of, or joint venturer with Licensor under this Agreement. Licensee shall have no right, power or authority to accept summons or legal process for Licensor or the Affiliates of Licensor. B. Licensee shall indemnify and hold harmless Licensor and the Affiliates of Licensor from and against all loss, expense (including attorneys' fees and disbursements), damage or liability to Licensor or any Affiliate of Licensor arising out of (i) the manufacture, distribution, sale or use of Products by, or for, Licensee; and (ii) any representation made or warranty given by Licensee with respect to any Product, except in those cases where Licensor has expressly authorized Licensee to make such representation or warranty. C. Licensee shall have sole control over, and shall assume all expenses with respect to, the defense, settlement, adjustment or compromise of any claim as to which this Article IX requires it to indemnify Licensor, provided, however, that (i) Licensee shall acknowledge its obligation to indemnify and hold harmless Licensor and the Affiliates of Licensor from and against any loss, expense (including attorney's fees and disbursements), damage or liability to Licensor or the Affiliates of Licensor arising from (x) such claim, and (y) any claim against Licensor or any Affiliate of Licensor arising from the facts and circumstances that gave rise to such claim, (ii) Licensor may, if it so desires, employ counsel at its own expense to assist in the handling of such claim, and (iii) Licensee shall obtain the prior approval of Licensor before entering into any settlement, adjustment or compromise of such claim or ceasing to defend against such claim, if pursuant thereto or as a result thereof there would be imposed upon Licensor injunctive relief or money damages in an amount which Licensee would or could not pay in full, or if any such settlement, adjustment or compromise does not include as a condition thereof an absolute and unconditional release of Licensor and its Affiliates from all further liability in connection with such claim. ARTICLE X Further Assurances A. Each party hereto shall promptly execute and deliver all such other agreements, certificates instruments or documents and do and perform or cause to be done and performed all such further acts and things as may be reasonably requested by the other party hereto in order to carry out the intent and purposes of this Agreement and the consummation of the transactions contemplated hereby. B. Anything in this Agreement to the contrary notwithstanding, no licenses, implied or otherwise, are granted to any party other than those granted to the parties hereto pursuant to Article II hereof, and other than such licenses granted to such parties, no license is granted or undertaken to be granted, and no act of manufacture, use or sale shall be construed as, or result in, a grant of any license to either party hereto or any third party, expressly or by inplication, estoppel, or otherwise, under or with respect to any letters patent or know-how now or hereafter owned or controlled by either party. ARTICLE XI Term A. This Agreement shall become effective pursuant to Article IV hereof, and unless sooner terminated pursuant to the terms hereof, shall continue in effect for twenty (20) years thereafter. The expiration or prior termination of this Agreement for any reason shall not entitle Licensee to indemnity payments, termination charges or damages of any nature whatsoever due to, or incurred by, Licensee, including, without limitation, damages based on Licensee's reliance, presumed in law or otherwise, on the further continuance of this Agreement, or based on any goodwill, presumed in law or otherwise, created by Licensee with respect to the Products manufactured, distributed or sold by Licensee hereunder. B. This Agreement and all rights hereunder may be terminated by Licensor and without limiting the liability of Licensee hereunder forthwith upon written notice to Licensee in the event that: 1. There shall be a cessation of operations by Licensee or the institution by or against Licensee of any proceeding (whether voluntary or judicially ordered) in bankruptcy or of or for dissolution, liquidation, winding up, reorganization, arrangement or the appointment of a receiver, trustee or judicial administrator (or the equivalent thereof in France) or any other proceeding under any law for the relief of debtors; 2. Licensee shall make an assignment for the benefit of, or composition or arrangement with, creditors or admit in writing its inability to pay its debts as they become due or fail to clear any check or note when presented for payment; 3. Licensee shall have failed to pay any amount due and payable to Licensor hereunder or shall have breached a material obligation hereunder, or shall otherwise have committed a default hereunder and Licensee shall not have remedied such default (and given written notice to Licensor specifying in detail the specific steps taken to effect the remedy) within 30 days after receipt of notice of such default from Licensor; 4. Licensee shall have discontinued its business or its business shall be expropriated or nationalized, or there shall be a material change in the ownership, management or control of Licensee or a material portion of its assets; or 5. Licensee shall purport to assign its rights and obligations hereunder in violation of Article XII hereof. Licensee will notify Licensor as soon as it learns of any information that would, in the reasonable judgement of Licensee, lead Licensee to determine that a material change in the ownership, management or control of Licensee or of such assets, as described in subsection 4 of this subparagraph B, would be likely. C. If Licensor elects to terminate this Agreement pursuant to subparagraph B of this Article XI, Licensee shall cease to manufacture, use, sell or distribute any Products hereunder, or to enter into any sublicenses for the use of Licensor Intellectual Property. The failure of Licensor to terminate the Agreement for any of the reasons specified in subparagraph B of this Article XI shall not in any way be deemed a waiver of Licensor's rights in respect thereof or otherwise limit its right to enforce the obligations of Licensee hereunder. ARTICLE XII Amendment and Assignment A. This Agreement may not be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. B. This Agreement shall be binding upon the respective permitted successors and assigns of Licensor and Licensee. This Agreement shall not be assignable by either party without the prior written consent of the other party, provided that either party may assign this Agreement to another entity controlling, controlled by or under common control with the assigning party, provided further that Licensee's assignee is not a glass fiber producer and is not controlled, or owned, wholly or partially, directly or indirectly, by a glass fiber producer. ARTICLE XIII Survival of Certain Rights and Obligations The expiration or prior termination of this Agreement for any reason shall not terminate, limit, or in any way affect, Licensor's rights or Licensee's obligations under Article III and VI (with respect to payments due and owing to Licensor thereunder), Article VIII, Article IX and Article XII of this Agreement. ARTICLE XIV Miscellaneous A. This Agreement shall be governed by the laws of the State of Illinois of the United States of America. B. All notices and other communications given under this Agreement shall be in writing and shall be deemed to have been given when hand delivered or telexed, telecopied or cabled and confirmed by first-class registered or certified mail, postage prepaid, on the date telexed, telecopied or cabled, and addressed as follows: Licensor: Owens-Corning Fiberglas Technology, Inc. 7800 West 59th Street Summit, Illinois 60501 Attention: The Secretary Licensee: Owens-Corning Fiberglas Corporation Fiberglas Tower Toledo, Ohio 43659 U.S.A. Attention: The Secretary Telex No. 286494 Facsimile No. 419/248-1723
or, in either case, at such other address as may be substituted therefor by proper notice hereunder. C. The terms and conditions herein constitute the entire agreement between the parties, and supersede any and all previous agreements, with respect to the subject matter hereof. No agreement or understanding varying or extending this Agreement shall be binding unless in writing and signed by a duly authorized officer or representative of each party and in which writing express reference is made to this Agreement. D. Any provision of this Agreement which is prohibited, unenforceable or invalid in any jurisdiction shall, as to such jurisdiction, be ineffective only to the minimum extent of such prohibition, unenforceability or invalidity without affecting the remaining provisions hereof. With respect to the release from liability and indemnification of Licensor and the Affiliates of Licensor by Licensee under Article IX of this Agreement, to the extent such provisions are prohibited, unenforceable or invalid, this Agreement shall be deemed to have been amended to modify such provision or to include a provision or provisions which permit the broadcast release and the maximum indemnification permitted by applicable law under the circumstances or, at the option of Licensor, this Agreement shall be immediately terminated. No such prohibition, unenforceability or invalidity in any jurisdiction shall invalidate or render unenforceable such provision in any other jurisdiction. E. The failure of either party hereto to enforce, or the delay by either party in enforcing, any of its rights under this Agreement shall not be deemed a continuing waiver or a modification thereof and either party may, within the time provided by applicable law, commence apprpriate legal action to enforce any or all of such rights. F. The section headings of this Agreement are for convenience of reference only and shall not in any way modify, interpret or construe the intentions of the parties. G. This Agreement may be executed in several counterparts, all of which shall constitute one and the same instrument. H. If either of the parties is prevented from performing the Agreement by cases of Force Majeure, including, but not restricted to, war, serious fire, strike, labor dispute, flood, typhoon, earthquake, embargo, or other substantially serious events beyond the control of either party, or as agreed upon between the two parties, the time for performance of the Agreement shall be extended by a period equal to the effect of such cases, and the obligations and rights of both parties under this Agreement shall be postponed by a period equal to the effect of such cases, provided that the default rate os interest provided in Article VII, subparagraph B, shall not be postponed or extended. The prevented party shall notify the other party within the shortest possible time of the occurrence of the Force Majeure. Should the effect of a Force Majeure continue more than one hundred and twenty (120) consecutive days, both parties shall settle the further performance of the Agreement through friendly negotiations as soon as possible. If either party believes that such negotiation is impracticable or determines that negotiation does not make any progress, it may refer the matter to arbitration. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate by their duly authorized and empowered officers and representatives as of the day and year first above written. OWENS-CORNING FIBERGLAS TECHNOLOGY INC. By: Attest: OWENS-CORNING FIBERGLAS TECHNOLOGY INC. By: Attest: SCHEDULE C Royalty Rates Insulation Products 6% Roofing Products 1/2% Industrial Materials Products 6% Tank or Pipe Products 2% AMENDMENT TO LICENSE AGREEMENT This amendment is entered by and between Owens-Corning Fiberglas Technology, Inc. 7734 West 59th Street, Summit, Illinois 60501 (LICENSOR) and Owens-Corning Fiberglas Corporation, Fiberglas Tower, Toledo, Ohio 43659 (LICENSEE). WHEREAS, LICENSOR and LICENSEE have entered a License Agreement dated October 1, 1991; WHEREAS, LICENSOR and LICENSEE desire to amend the aforesaid License Agreement such amendment being effective to October 1, 1991; NOW THEREFORE, in consideration of the mutual covenants hereinafter provided, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows: Article II of the Agreement is hereby amended to include the following paragraph: C. (i) Licensee warrants that all Products and Services bearing the Licensed Marks shall be of a nature that will be consistent with the high standards of quality and excellence established over the years with respect to the Licensed Marks. Licensee shall comply with any quality standards that Licensor may set from time to time with regard to the Products and/or Services. (ii) Upon written request by Licensor, Licensee shall furnish to Licensor a reasonable number of representative samples of the Products to permit Licensor to determine that such Products meet the quality standards set forth herein. Licensor shall have the right to inspect Licensee's places of business to assure compliance with the quality standards established by Licensor. If so notified in writing by Licensor, Licensee shall not offer or provide any Products whose nature or quality does not comply with the quality standards established by Licensor. (iii) Licensee shall comply with such standards as Licensor may establish from time to time with respect to the style, appearance and manner of use of the Licensed Marks. Upon the request of Licensor, copies or accurate reproductions of all materials displaying the Licensed Marks such as labels, advertising and promotional materials, letterhead, business cards, signs and the like, shall be provide to Licensor for review as to form and content. Licensee shall cease or modify in accordance with Licensor's instructions any use of the Licensed Marks that Licensor deems not be in compliance with its standards. (iv) In the event Licensor determines that the quality of the products being distributed by Licensee do not meet the quality standards, Licensor shall so notify Licensee in writing and Licensee shall correct such quality. In the event Licensee fails to correct such quality, Licensor may terminate the License Agreement upon written notice. (v) Licensor expressly reserves the right from time to time to modify or change the Licensed Marks. The Licensed Marks, as so modified or changed, shall for all purposes be deemed to be the Licensed Marks referred to in this Agreement. Any and all such modifications or changes in said Licensed marks developed or adopted by Licensor shall be the sole and absolute property of Licensor, and Licensor shall have the exclusive right to register such modified or changed marks in the United States. Licensee may propose changes to the Licensed Marks for adoption and approval by Licensor. The Agreement shall remain in full force and effect except as expressly modified by this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed this 8th day of December 1993. OWENS-CORNING FIBERGLAS TECHNOLOGY, INC. By /s/ Clyde M. Leff Clyde M. Leff Secretary OWENS-CORNING FIBERGLAS CORPORATION By /s/ Rodney A. Nowland Rodney A. Nowland Assistant Secretary EX-4 4 0004.txt Exhibit (4) STANDSTILL AGREEMENT STANDSTILL AGREEMENT dated as of January 30, 2001 (this "Agreement") between Owens Corning ("Owens Corning") and Owens-Corning Fiberglass Technology Inc. ("OC Technology"). PRELIMINARY STATEMENTS: (1) Owens Corning and OC Technology entered into a certain License Agreement, dated as of October 1, 1991 (as subsequently amended, the "License Agreement"). (2) On October 5, 2000 (the "Petition Date"), Owens Corning, OC Technology and certain of their affiliates (collectively with Owens Corning and OC Technology, the "Debtors") each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware (the "Court"). The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. (3) In connection with certain agreements reached with Owens Corning's and OC Technology's pre-petition lenders, Owens Corning and OC Technology, among others, agreed to certain restrictions (the "Restrictions") on cash transfers and other transactions among the Debtors and other affiliates during the Debtors' chapter 11 cases (the "Cases"). (4) In connection with the Restrictions, Owens Corning and OC Technology now wish to agree that during the Standstill Period (defined below) (i) in lieu of Owens Corning making cash royalty payments due after the Petition Date to OC Technology under the License Agreement, such obligations will accrue as administrative claims under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and (ii) OC Technology will not exercise any remedies against Owens Corning under the License Agreement for such non-payments during the Standstill Period in consideration of the undertakings set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. Agreement to Standstill. ----------------------- (a) During the period (the "Standstill Period") from the date hereof until the date of confirmation of a plan or plans of reorganization in the Cases, (i) Owens Corning shall not be required to make cash royalty payments (the "Deferred Payments") due after the Petition Date to OC Technology at the times specified under the License Agreement and such Deferred Payments shall accrue as administrative claims under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and (ii) OC Technology will not exercise any enforcement right or remedy under the License Agreement against Owens Corning. (b) Nothing set forth in this Agreement shall constitute a waiver of the rights of OC Technology with respect to any claim against Owens Corning arising under the License Agreement. SECTION 2. Bankruptcy Court Approval. Owens Corning and OC Technology hereby agree to use reasonable best efforts to obtain Court approval of this Agreement. SECTION 3. Termination of Standstill Agreement. Each of OC Technology and Owens Corning shall have the right to terminate the Standstill Period upon (i) the giving of 30 days' notice to the other party; or (ii) upon the entry of an order dismissing the Case of Owens Corning or OC Technology or converting such Case to a case under chapter 7 of the Bankruptcy Code. SECTION 4. Amendments and Waivers. No amendment or waiver of any provision of this Agreement, and no consent with respect to any departure by any party hereto therefrom, shall be effective unless the same is in writing and signed by each party hereto, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5. Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns. SECTION 6. Notices. All notices, demands, requests, instructions or other communications to be given under this Agreement by any party to this Agreement to any other party to this Agreement shall be in writing and shall be duly given (i) upon receipt if personally delivered, (ii) when sent if confirmed by telecopier, or (iii) upon receipt following deposit with an overnight courier to the respective addresses set forth below: If to Owens Corning, to: Owens Corning Owens Corning World Headquarters One Owens Corning Parkway Toledo, Ohio 43659 Attn: General Counsel Telecopier No.: (419) 248-1720 If to OC Technology, to: Owens-Corning Fiberglass Technology Inc. Owens Corning World Headquarters One Owens Corning Parkway Toledo, Ohio 43659 Attn: Secretary Telecopier No.: (419) 248-1720 SECTION 12. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective, duly authorized officers, as of the date first above written. OWENS CORNING By: /s/ Glen H. Hiner Name: Glen H. Hiner Title: Chief Executive Officer OWENS-CORNING FIBERGLASS TECHNOLOGY INC. By: /s/ Rodney A. Nowland Name: Rodney A. Nowland Title: Assistant Secretary EX-4 5 0005.txt Exhibit (4) LICENSE AGREEMENT AGREEMENT ("Agreement") made as of this_27th__day of__April_, __1999__, by and between OWENS-CORNING FIBERGLAS TECHNOLOGY INC. ("Licensor"), a corporation duly organized and existing under the laws of the State of Illinois, United States of America, with its principal offices at 7734 West 59th Street, Summit, Illinois 60501 and AMERIMARK BUILDING PRODUCTS, INC. ("Licensee"), a corporation duly organized and existing under the laws of the State of Delaware, United States of America, with its principal offices at 3101 Poplarwood Drive, Suite 200, Raleigh, North Carolina 27604. In consideration of mutual promises made herein, and of the mutual benefits to be derived herein, the parties hereto agree as follows: ARTICLE I Definitions As used herein the term: A. "Affiliate" means any company or entity in which Licensor or Licensee owns or controls, directly or indirectly, more than one percent (1%) of the total voting power of all classes of stock entitled to vote. B. "Effective Date" shall mean the date set forth in Article IV below. C. "Licensor Intellectual Property" means Licensor Patents, Licensor Know- How, Licensor Service Marks, Licensor Trademarks, Licensor Trade Names. D. "Licensor Know-How" means all Licensor's most current technical knowledge and data, processes, techniques, drawings and designs, unpatented inventions, operating manuals, manufacturing and quality control procedures, trade secrets, plans, accumulated experience, plant and tool design, installation instructions, raw material specifications, advertising procedures, sales promotion literature, and other know-how of any kind which is in general commercial use by Licensor as of the Effective Date of this Agreement or becomes suitable for general commercial use during the term of this Agreement and which is necessary for the design, manufacture, application, sale or marketing of Products. E. "Licensor Patents" means all Letters Patent owned or controlled by Licensor, issued or issuing on applications for Letters Patent covering any invention claimed or disclosed in an application which is filed in any country and which invention covers, or is usable in, the manufacture of Products. Licensor Patents shall include reissues of extensions of any such patents. Licensor Patents as of the Effective Date of this Agreement are listed on Schedule A attached hereto. Licensor Patents issued or issuing during the term of this Agreement shall automatically be deemed to be added to Schedule A. F. "Licensor Service Marks, Licensor Trade Names and Licensor Trademarks" means all service marks, trade names and trademarks owned or controlled by Licensor used in connection with the sales of the Products. The Licensor Service Marks, Licensor Trade Names, and Licensor Trademarks, as of the Effective Date of this Agreement, are listed on Schedule B attached hereto. Licensor Service Marks, Licensor Trade Names and Licensor Trademarks obtained during the term of this Agreement shall automatically be deemed to be added to Schedule B. G. "Net Sales" shall be the gross invoice price of Products sold or otherwise disposed of by Licensee in normal, bona fide, commercial transactions, or, in the case of internal sales, the arm's length value of such Products sold, without any deduction other than freight; sales, excise or use taxes; bona fide trade and cash discounts normally allowed to independent jobbers, dealers or other purchasers; but only insofar as such freight, taxes and/or discounts are paid or allowed to customers by Licensee, but such term does not include export or other special packaging for shipping purposes invoiced separately to customers. H. "Products" means any metal siding and vinyl siding products manufactured or sold with the aid of Licensor Intellectual Property. I. "Subsidiary" means any company or entity in which Licensor or Licensee owns or controls, directly or indirectly, more than fifty percent (50%) or the total voting power of all classes of stock entitled to vote. ARTICLE II License By Licensor To Licensee A. Licensor hereby grants to Licensee an exclusive license to make, use and sell Products under the Licensor Patents throughout the world, and to use throughout the world, in connection therewith, the Licensor Know-How, Licensor Service Marks, Licensor Trade Names and Licensor Trademarks described in Article I above. B. The foregoing license shall include the right to grant sublicenses. C. (i) Licensee warrants that all Products bearing Licensor Service Marks, Licensor Trade Names and Licensor Trademarks (collectively "Licensed Marks") shall be of a nature that will be consistent with the high standards of quality and excellence established by Licensor. Licensee shall comply with any quality standards that Licensor may set from time to time with regard to the Products. (ii) Upon written request by Licensor, Licensee shall furnish to Licensor a reasonable number of representative samples of the Products to permit Licensor to determine that such Products meet Licensor's quality standards. Licensor shall have the right to inspect Licensee's places of business to assure compliance with the quality standards established by Licensor. If so notified in writing by Licensor, Licensee shall not offer or provide any Products whose nature or quality does not comply with the quality standards established by Licensor. (iii) Licensee shall comply with such standards as Licensor may establish from time to time with respect to the style, appearance and manner of use of the Licensed Marks. Upon the request of Licensor, copies or accurate reproductions of all materials displaying the Licensed Marks such as labels, advertising and promotional materials, letterhead, business cards, signs and the like, shall be provided to Licensor for review as to form and content. Licensee shall cease or modify in accordance with Licensor's instructions any use of the Licensed Marks that Licensor deems not to be in compliance with its standards. (iv) In the event Licensor determines that the quality of the Products distributed by Licensee does not meet Licensor's quality standards, Licensor shall so notify Licensee in writing and Licensee shall promptly correct the quality of such Products. In the event Licensee fails to promptly correct the quality of the products. Licensor may terminate this Agreement upon written notice. (v) Licensor expressly reserves the right from time to time to modify or change the Licensed Marks. The Licensed Marks, as so modified or changed, shall for all purposes be deemed to be the Licensed Marks referred to in this Agreement. Any and all such modifications or changes in said Licensed Marks developed or adopted by Licensor shall be the sole and absolute property of Licensor, and Licensor shall have the exclusive right to register such modified or changed marks in the United States and throughout the world. Licensee may propose changes to the Licensed Marks for adoption and approval by Licensor. ARTICLE III Research and Development A. In order to enhance its ability to obtain future sublicenses and in consideration of reduced royalty rates from Licensor, Licensee hereby agrees to continue, at its own expense, its research and development activities, at its various plants and other locations, as a contractor to Licensor. Ownership of all rights associated with technology developed thereunder, whether patentable or not, shall vest immediately and solely in Licensor, and Licensee shall have no rights therein except as provided by this License Agreement. In addition, Licensee shall continue to develop, at its own expense, new trademarks, trade names and service marks, and such shall also vest immediately and solely in Licensor. B. In further consideration of reduced royalty rates from Licensor, Licensee agrees to employ or retain qualified personnel, at its own expense, to provide administrative and other support for the research and development activities described immediately above during the term of this Agreement. Such personnel may include, but not be limited to, patent counsel, marketing and development personnel, advertising personnel, and others. Specifically, but not exclusively, Licensee shall assist Licensor with establishing, protecting and maintaining all Licensor Intellectual Property during the term of this Agreement. ARTICLE IV Effective Date This Agreement shall be effective nunc pro tunc as of October 1, 1997. ARTICLE V Royalties A. Commencing on the Effective Date and continuing for a period of twenty (20) years thereafter, Licensee shall pay to Licensor royalties on Net Sales in the amounts set forth on Schedule C attached hereto; provided, however, that either Licensor or Licensee may, on each anniversary of this Agreement, request an independent study to determine current arm's length royalty rates. The cost of such study shall be divided equally between Licensor and Licensee and, upon completion of such study, the royalty rates in Schedule C shall be adjusted effective as of the anniversary date on which the study was requested. B. Where Products contain more than one type of Licensor Intellectual Property, royalties shall be paid on the component Product(s) separately, applying the relevant royalty rate to each component Product and to the finished Product, respectively. C. For the purpose of calculating Net Sales, Products shall be considered sold: 1. if sold on open account, when delivered to the purchaser or to a common carrier and consigned to the purchaser. 2. if paid in advance of delivery, when paid for; 3. if sold on consignment, when paid for by the consignee or when released from consignment, whichever shall first occur; or 4. if sold internally, when delivered to the Licensee division responsible for manufacturing the finished Product. Royalties shall be computed for each calendar quarter and shall be payable thirty (30) days after the end of each calendar quarter by electronic funds transfer to a bank account to be designated by Licensor from time to time. D. Whenever royalties have been paid by Licensee on Products sold and such Products are lost or damaged in transit, or are not accepted and paid for by a purchaser, or are returned or an allowance or credit is given for them because of their condition of defective quality, or because of shortages, or because of inability to collect after one year from the sale to a purchaser (recoveries thereafter to be regarded as new sales), then, unless Licensee is reimbursed therefor by insurance or other source of recovery, the royalties paid on such Products shall be charged back or deducted from further payments to be made but only to the extent pro rata that such Products are not paid for or used or Licensee is not otherwise reimbursed therefor. E. Licensee shall keep true and accurate records and books of accounts containing all data reasonably required for the computation and verification of royalties to be paid as herein provided, which records and books shall at all reasonable times during business hours be available for inspection and copying by Licensor or Licensor's independent auditor. Any inspection hereunder shall be upon reasonable notice to Licensee. Licensee shall provide Licensor within twenty (20) days after the end of each calendar quarter with a statement of its Net Sales by product for the calendar quarter. ARTICLE VI Payments A. All Licensee payments to Licensor under this Agreement shall be made by electronic funds transfer to a bank account to be designated by Licensor from time to time, United States dollars. B. The unpaid balance of amounts payable under this Agreement shall bear interest at the prime rate charged by major commercial banks in the United States for the period commencing on the date such amount becomes payable and ending on the date such balance is paid in full. C. Licensee shall bear all taxes, duties and other governmental charges in any jurisdiction or agency or authority thereof relating to or arising under this Agreement, including, without limitation, any stamp or documentary taxes, value added taxes, turnover, sales or use taxes, excise or income taxes, including income taxes imposed on Licensor, and withholding taxes on royalties and other payments payable to Licensor hereunder. ARTICLE VII Certain Representations and Warranties of Licensor A. Licensor makes no representation or warranty of any nature, and none shall be implied, (i) as to the validity or scope of the Licensor Patents, (ii) that either (x) the practice of the inventions claimed in the Licensor Patents, (y) the use of Licensor Know-How, or (z) anything made, used or sold or otherwise disposed of under the license granted by the Licensor to Licensee in this Agreement, will not infringe any patent or other right of any third party, or (iii) as to the usefulness, utility or fitness for any particular or intended purpose, whether of Licensee or any customer of Licensee, of any Licensor Patent or Licensor Know-How, or any Product produced therewith, including, without limitation, the ability of Licensee to adapt any of the Licensor Patents or Licensor Know-How to its needs, whether or not known to Licensor, or to manufacture, use or sell Products using the Licensor Patents and Licensor Know-How. B. Licensor makes no representation or warranty of any nature, and none shall be implied, as to the validity or scope of any other Licensor Intellectual Property. ARTICLE VIII Ownership and Protection of Licensor Intellectual Property A. The Licensor Intellectual Property Licensed by Licensor to Licensee under this Agreement shall be and remain the property of Licensor, and Licensee acknowledges and agrees that Licensor is and shall at all times continue to be the owner thereof. Licensor may impose such conditions with respect thereto as Licensor may deem reasonably necessary to preserve the confidential nature of any Licensor Intellectual Property to which restrictions of subparagraph B of this Article VIII apply. B. Except as expressly permitted by this Agreement, Licensee shall retain all Licensor Intellectual Property licensed to it in strict confidence as trade secrets of Licensor and shall not disclose, or permit any employee or agent of Licensee to disclose, any such Licensor Intellectual Property to any person, firm or corporation without the prior written approval of Licensor, provided that such disclosure may be made to any employee of Licensee who has a reasonable need for access thereto for the purposes of installing, operating and maintaining the Licensor Intellectual Property Licensed under this Agreement so long as Licensee imposes identical obligations on such employee to maintain the confidentiality of such Licensor Intellectual Property. Licensee shall exercise all necessary precautions to safeguard the secrecy of Licensor Intellectual Property licensed to it and to prevent the unauthorized disclosure or use thereof. Licensee shall consult with Licensor as to the procedures established by Licensee for this purpose that Licensee then has in effect. Licensee shall be liable to Licensor for any disclosures or uses of Licensor Intellectual Property, directly or indirectly, by any employee of Licensee or other person or entity not authorized by Licensor in advance. The obligations of confidentiality of Licensee under this subparagraph B shall not apply to Licensor Intellectual Property, which (i) has become public knowledge through no breach of this Agreement, or (ii) has been made - -- available to Licensee by third parties without any breach of confidence on their part. C. Upon the termination of this Agreement pursuant to Article XI hereof, all rights and privileges of Licensee hereunder shall terminate and revert to Licensor. D. It is the specific intent of the parties hereto that nothing contained herein shall in any way endanger any right of Licensor in and to any Licensor Intellectual Property licensed by Licensor to Licensee hereunder and should any provision or provisions of this Agreement be interpreted by a court or tribunal or other governmental authority so as to endanger such right or rights, whether or not such interpretation is made at the instance of Licensee or another, then, at the option of Licensor, such provision or provisions shall be deemed deleted from this Agreement or this Agreement shall be immediately terminated in respect of all or any of the Licensor Intellectual Property so interpreted to be endangered. E. Licensee shall, at its own expense, use its best efforts to discover any infringements, misappropriations or other unauthorized uses of the Licensor Intellectual Property licensed to it hereunder and shall promptly notify Licensor in writing of any such infringement, misappropriation or other unauthorized use. Licensee shall, on behalf of Licensor, have the obligation to bring, at its own expenses, any appropriate action to prevent or terminate any such infringement, misappropriation or other unauthorized use. If any such action is brought, Licensee, after consultation with Licensor, shall have full control over the prosecution and settlement or compromise of such action and shall assume all the expenses in respect of such action. Licensor shall fully cooperate with and assist Licensee in any such action. Licensee shall not take any action in protection of the rights of or in furtherance of the interest of Licensor without Licensor's authorization. F. Licensee shall, at its own expense, take such other actions as are appropriate to preserve the value of the Licensor Intellectual Property. ARTICLE IX Claims A. Except as specifically set forth herein, Licensor and its Affiliates shall have no liability to Licensee or any Affiliates of Licensee, and Licensee releases Licensor and the Affiliates of Licensor from any and all liability to Licensee or any Affiliate of Licensee, and Licensee waives any right against Licensor or the Affiliates of Licensor for contribution or indemnity arising from any liability to Licensee or any Affiliate of Licensee, in connection with the manufacture, distribution, sale or use of Products by Licensee, or any customer of Licensee, with the aid of the Licensor Intellectual Property. Licensee is not an agent or partner of, or joint venturer with Licensor under this Agreement. Licensee shall have no right, power or authority to accept summons or legal process for Licensor or the Affiliates of Licensor. B. Licensee shall indemnify and hold harmless Licensor and the Affiliates of Licensor from and against all loss, expense (including attorneys' fees and disbursements), damage or liability to Licensor or any Affiliate of Licensor arising out of (i) the manufacture, distribution, sale or use of Products by, or for, Licensee; and (ii) any representation made or warranty given by Licensee with respect to any Product, except in those cases where Licensor has expressly authorized Licensee to make such representation or warranty. C. Licensee shall have sole control over, and shall assume all expenses with respect to, the defense, settlement, adjustment or compromise of any claim as to which this Article IX requires it to indemnify Licensor, provided, however, that (i) Licensee shall acknowledge its obligation to indemnify and hold harmless Licensor and the Affiliates of Licensor from and against any loss, expense (including attorney's fees and disbursements), damage or liability to Licensor or the Affiliates of Licensor arising from (x) such claim, and (y) any claim against Licensor or any Affiliate of Licensor arising from the facts and circumstances that gave rise to such claim, (ii) Licensor may, if it so desires, employ counsel at its own expense to assist in the handling of such claim, and (iii) Licensee shall obtain the prior approval of Licensor before entering into any settlement, adjustment or compromise of such claim or ceasing to defend against such claim, if pursuant thereto or as a result thereof there would be imposed upon Licensor injunctive relief or money damages in an amount which Licensee would or could not pay in full, or if any such settlement, adjustment or compromise does not include as a condition thereof an absolute and unconditional release of Licensor and its Affiliates from all further liability in connection with such claim. ARTICLE X Further Assurances A. Each party hereto shall promptly execute and deliver all such other agreements, certificates instruments or documents and do and perform or cause to be done and performed all such further acts and things as may be reasonably requested by the other party hereto in order to carry out the intent and purposes of this Agreement and the consummation of the transactions contemplated hereby. B. Anything in this Agreement to the contrary notwithstanding, no licenses, implied or otherwise, are granted to any party other than those granted to the parties hereto pursuant to Article II hereof, and other than such licenses granted to such parties, no license is granted or undertaken to be granted, and no act of manufacture, use or sale shall be construed as, or result in, a grant of any license to either party hereto or any third party, expressly or by implication, estoppel, or otherwise, under or with respect to any letters patent or know-how now or hereafter owned or controlled by either party. ARTICLE XI Term A. This Agreement shall become effective pursuant to Article IV hereof, and unless sooner terminated pursuant to the terms hereof, shall continue in effect for twenty (20) years thereafter. The expiration or prior termination of this Agreement for any reason shall not entitle Licensee to indemnity payments, termination charges or damages of any nature whatsoever due to, or incurred by, Licensee, including, without limitation, damages based on Licensee's reliance, presumed in law or otherwise, on the further continuance of this Agreement, or based on any goodwill, presumed in law or otherwise, created by Licensee with respect to the Products manufactured, distributed or sold by Licensee hereunder. B. This Agreement and all rights hereunder may be terminated by Licensor and without limiting the liability of Licensee hereunder forthwith upon written notice to Licensee in the event that: 1. There shall be a cessation of operations by Licensee or the institution by or against Licensee of any proceeding (whether voluntary or judicially ordered) in bankruptcy or of or for dissolution, liquidation, winding up, reorganization, arrangement or the appointment of a receiver, trustee or judicial administrator (or the equivalent thereof) or any other proceeding under any law for the relief of debtors; 2. Licensee shall make an assignment for the benefit of, or composition or arrangement with, creditors or admit in writing its inability to pay its debts as they become due or fail to clear any check or note when presented for payment; 3. Licensee shall have failed to pay any amount due and payable to Licensor hereunder or shall have breached a material obligation hereunder, or shall otherwise have committed a default hereunder and Licensee shall not have remedied such default (and given written notice to Licensor specifying in detail the specific steps taken to effect the remedy) within 30 days after receipt of notice of such default from Licensor; 4. Licensee shall have discontinued its business or its business shall be expropriated or nationalized, or there shall be a material change in the ownership, management or control of Licensee or a material portion of its assets; or 5. Licensee shall purport to assign its rights and obligations hereunder in violation of Article XII hereof. Licensee will notify Licensor as soon as it learns of any information that would, in the reasonable judgement of Licensee, lead Licensee to determine that a material change in the ownership, management or control of Licensee or of such assets, as described in subsection 4 of this subparagraph B, would be likely. C. If Licensor elects to terminate this Agreement pursuant to subparagraph B of this Article XI, Licensee shall cease to manufacture, use, sell or distribute any Products hereunder, or to enter into any sublicenses for the use of Licensor Intellectual Property. The failure of Licensor to terminate the Agreement for any of the reasons specified in subparagraph B of this Article XI shall not in any way be deemed a waiver of Licensor's rights in respect thereof or otherwise limit its right to enforce the obligations of Licensee hereunder. ARTICLE XII Amendment and Assignment A. This Agreement may not be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. B. This Agreement shall be binding upon the respective permitted successors and assigns of Licensor and Licensee. This Agreement shall not be assignable by either party without the prior written consent of the other party, provided that either party may assign this Agreement to another entity controlling, controlled by or under common control with the assigning party. ARTICLE XIII Survival of Certain Rights and Obligations The expiration or prior termination of this Agreement for any reason shall not terminate, limit, or in any way affect, Licensor's rights or Licensee's obligations under Article III and VI (with respect to payments due and owing to Licensor thereunder), Article VIII, Article IX and Article XII of this Agreement. ARTICLE XIV Miscellaneous A. This Agreement shall be governed by the laws of the State of Illinois of the United States of America. B. All notices and other communications given under this Agreement shall be in writing and shall be deemed to have been given when (i) hand delivered or (ii) telecopied and confirmed by first-class registered or certified mail, postage prepaid, on the date telecopied and addressed as follows: Licensor: Owens-Corning Fiberglas Technology, Inc. 7734 West 59th Street Summit, Illinois 60501 Attention: The Vice President Facsimile No.: 708/563-9096 Licensee: AmeriMark Building Products, Inc. 3101 Poplarwood Drive, Suite 200 Raleigh, North Carolina 27604 Attention: The President and Chief Executive Officer Facsimile No.: 919/850-3430
or, in either case, at such other address as may be substituted therefor by proper notice hereunder. C. The terms and conditions herein constitute the entire agreement between the parties, and supersede any and all previous agreements, with respect to the subject matter hereof. No agreement or understanding varying or extending this Agreement shall be binding unless in writing and signed by a duly authorized officer or representative of each party and in which writing express reference is made to this Agreement. D. Any provision of this Agreement which is prohibited, unenforceable or invalid in any jurisdiction shall, as to such jurisdiction, be ineffective only to the minimum extent of such prohibition, unenforceability or invalidity without affecting the remaining provisions hereof. With respect to the release from liability and indemnification of Licensor and the Affiliates of Licensor by Licensee under Article IX of this Agreement, to the extent such provisions are prohibited, unenforceable or invalid, this Agreement shall be deemed to have been amended to modify such provision or to include a provision or provisions which permit the broadcast release and the maximum indemnification permitted by applicable law under the circumstances or, at the option of Licensor, this Agreement shall be immediately terminated. No such prohibition, unenforceability or invalidity in any jurisdiction shall invalidate or render unenforceable such provision in any other jurisdiction. E. The failure of either party hereto to enforce, or the delay by either party in enforcing, any of its rights under this Agreement shall not be deemed a continuing waiver or a modification thereof and either party may, within the time provided by applicable law, commence appropriate legal action to enforce any or all of such rights. F. The section headings of this Agreement are for convenience of reference only and shall not in any way modify, interpret or construe the intentions of the parties. G. This Agreement may be executed in several counterparts, all of which shall constitute one and the same instrument. H. If either of the parties is prevented from performing the Agreement by cases of Force Majeure, including, but not restricted to, war, serious fire, strike, labor dispute, flood, typhoon, earthquake, embargo, or other substantially serious events beyond the control of either party, or as agreed upon between the two parties, the time for performance of the Agreement shall be extended by a period equal to the effect of such cases, and the obligations and rights of both parties under this Agreement shall be postponed by a period equal to the effect of such cases, provided that the default rate of interest provided in Article VII, subparagraph B, shall not be postponed or extended. The prevented party shall notify the other party within the shortest possible time of the occurrence of the Force Majeure. Should the effect of a Force Majeure continue more than one hundred and twenty (120) consecutive days, both parties shall settle the further performance of the Agreement through friendly negotiations as soon as possible. If either party believes that such negotiation is impracticable or determines that negotiation does not make any progress, it may refer the matter to arbitration. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate by their duly authorized and empowered officers and representatives as of the day and year first above written. OWENS-CORNING FIBERGLAS TECHNOLOGY INC. By: Michael R. Franzen Title: Vice President Attest: AMERIMARK BUILDING PRODUCTS, INC. By: John W. Christy Title: Assistant Secretary Attest: SCHEDULE C Royalty Rates Vinyl siding and metal siding products 1/2 of 1% EX-4 6 0006.txt Exhibit (4) STANDSTILL AGREEMENT STANDSTILL AGREEMENT dated as of January 30, 2001 (this "Agreement") between Exterior Systems, Inc., successor in interest to Amerimark Building Products, Inc. ("Exterior Systems") and Owens-Corning Fiberglas Technology Inc. ("OC Technology"). PRELIMINARY STATEMENTS: (1) Exterior Systems and OC Technology entered into a certain License Agreement, dated as of April 27, 1999 (the "License Agreement"). (2) On October 5, 2000 (the "Petition Date"), OC Technology, Exterior Systems and certain of their affiliates (collectively with Exterior Systems and OC Technology, the "Debtors") each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware (the "Court"). The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. (3) Exterior Systems and OC Technology, among others, have agreed to certain restrictions (the "Restrictions") on cash transfers and other transactions among the Debtors and other affiliates during the Debtors' chapter 11 cases (the "Cases"). (4) In connection with the Restrictions, Exterior Systems and OC Technology now wish to agree that during the Standstill Period (defined below) (i) in lieu of Exterior Systems making cash royalty payments due after the Petition Date to OC Technology under the License Agreement, such obligations will accrue as administrative claims under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and (ii) OC Technology will not exercise any remedies against Exterior Systems under the License Agreement for such non-payments during the Standstill Period in consideration of the undertakings set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: SECTION 1. Agreement to Standstill. ----------------------- (a) During the period (the "Standstill Period") from the date hereof until the date of confirmation of a plan or plans of reorganization in the Cases, (i) Exterior Systems shall not be required to make cash royalty payments (the "Deferred Payments") due after the Petition Date to OC Technology at the times specified under the License Agreement and such Deferred Payments shall accrue as administrative claims under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and (ii) OC Technology will not exercise any enforcement right or remedy under the License Agreement against Exterior Systems. (b) Nothing set forth in this Agreement shall constitute a waiver of the rights of OC Technology with respect to any claim against Exterior Systems arising under the License Agreement. SECTION 2. Bankruptcy Court Approval. Exterior Systems and OC Technology hereby agree to use reasonable best efforts to obtain Court approval of this Agreement. SECTION 3. Termination of Standstill Agreement. Each of OC Technology and Exterior Systems shall have the right to terminate the Standstill Period upon (i) the giving of 30 days' notice to the other party; or (ii) upon the entry of an order dismissing the Case of Exterior Systems or OC Technology or converting such Case to a case under chapter 7 of the Bankruptcy Code. SECTION 4. Amendments and Waivers. No amendment or waiver of any provision of this Agreement, and no consent with respect to any departure by any party hereto therefrom, shall be effective unless the same is in writing and signed by each party hereto, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5. Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns. SECTION 6. Notices. All notices, demands, requests, instructions or other communications to be given under this Agreement by any party to this Agreement to any other party to this Agreement shall be in writing and shall be duly given (i) upon receipt if personally delivered, (ii) when sent if confirmed by telecopier, or (iii) upon receipt following deposit with an overnight courier to the respective addresses set forth below: If to Exterior Systems, to: Exterior Systems, Inc. Owens Corning World Headquarters One Owens Corning Parkway Toledo, Ohio 43659 Attn: General Counsel Telecopier: (419) 248-1720 If to OC Technology, to: Owens-Corning Fiberglas Technology, Inc. Owens Corning World Headquarters One Owens Corning Parkway Toledo, Ohio 43659 Attn: Secretary Telecopier: (419) 248-1720 SECTION 12. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 13. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective, duly authorized officers, as of the date first above written. EXTERIOR SYSTEMS, INC. By: /s/ William F. Dent Name: William F. Dent Title: Vice President OWENS-CORNING FIBERGLAS TECHNOLOGY, INC. By: /s/ Rodney A. Nowland Name: Rodney A. Nowland Title: Assistant Secretary EX-10 7 0007.txt Exhibit (10) KEY MANAGEMENT SEVERANCE AGREEMENT This Severance Agreement (the "Agreement") is made as of November 24, 1998 by and between OWENS CORNING, a Delaware corporation (the "company"), and Michael H. Thaman, an officer of the Company ("Executive"). WHEREAS the Company and Executive have previously entered into a Severance Agreement dated as of April 4, 1997 (the "Prior Agreement") providing for certain benefits to be conferred upon Executive under specified circumstances in the event that Executive's employment is terminated by the Company on the terms and conditions set forth therein, and: WHEREAS the Compensation committee of the Board of Directors of the Company (the "Committee") has approved a new severance agreement to provide Executive with certain additional protections and to conform the terms of such agreement to the current policy of the Company regarding an officer's entitlement to pay, benefits and privileges on the termination of his employment; NOW THEREFORE, the parties hereto agree as follows: 1. Termination Absent a Change of Control. --------------------------------------- a) If, prior to a Change of Control (as defined in Paragraph 7(c) below), (i) the Company terminates Executive's employment for any reason other than Permanent Total Disability or Cause (as defined in paragraphs 7(e) and 7(b) (1)&(2), respectively, below), or (ii) Executive voluntarily terminates his employment under circumstances involving a Constructive Termination (as defined in paragraph 7(d), below), Executive will be entitled to the following compensation, provided that Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Base salary earned and as yet unpaid through the effective date of termination; and 2) Two years' Base Pay (as defined in paragraph 7(a) below); and 3) Two times Executive's Separation Incentive payment (as defined in paragraph 7(f) below); and 4) Incentive pay as yet unpaid from the prior fiscal year and Incentive Pay for the fiscal year of termination, prorated for the period of Executive's actual employment prior to termination; and 5) The greater of (i) Executive's vested Cash Balance Pension Benefit or (ii) an amount equal to Executive's vested Pension Benefit under the Company's Salaried Employees' (Final Average) Retirement Plan plus a pension supplement calculated as though Executive had been credited with three additional years of service under the Plan and had Executive been three years older at the date of termination. b) If, prior to a Change of control, the Company terminates Executive's employment for Cause (as defined in paragraph 7(b)(3), below), Executive will only be entitled to base salary earned and as yet unpaid through the effective date of termination and Executive's vested Cash Balance Pension Benefit or vested Final Average Plan Pension Benefit, whichever is greater, UNLESS, (i) the Company exercises its discretion to award Executive (in addition to the aforementioned base salary and vested pension amounts) some portion of the following compensation, based on effort expended and results obtained to date and (ii) Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Up to but no more than Twelve months' Base pay (as defined in paragraph 7(a) below); and 2) Up to but no more than one times Executive's Separation Incentive Payment (as defined in paragraph 7(f) below); and 3) Up to but no more than the amount of Incentive Pay as yet unpaid from the prior fiscal year. c) The compensation payable under paragraph 1(a) or 1(b), above, shall be paid as soon as practicable after Executive signs, returns and does not revoke the requisite Release and Non-Competition Agreement. d) In the event of a termination of Executive's employment under the circumstances described in paragraph 1(a) above: 1) All stock options previously awarded to Executive shall, to the extent not already vested, immediately vest, and shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All shares of restricted stock previously awarded to Executive shall, to the extent not already vested, immediately vest and be payable. 3) All outstanding but unearned performance shares shall be forfeited. 4) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued through the date of termination under any non-qualified deferred compensation plan or arrangement shall immediately vest and be payable, to the extent permissible under the terms of such plan or arrangement. e) In the event of a termination of Executive's employment under the circumstances described in paragraph 1(b) above: 1) All stock options previously awarded to Executive which are exercisable on the date of termination shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All unvested shares of restricted stock and all outstanding but unearned performance shares previously awarded to Executive shall be forfeited. 3) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued and vested through the date of termination under any non-qualified deferred compensation plan or arrangement shall be payable, to the extent permissible under the terms of such plan or arrangement. f) If Executive's employment ends under circumstances described in paragraph 1(a) above as a result of the sale by the Company of a business unit, division or facility, payments will be made under this paragraph 1 only if Executive is not offered a substantially equivalent position with the Company or with the new owner of the business (without regard to whether Executive accepts such a position). If Executive receives and accepts a suitable offer from the new owner of the business and is subsequently terminated within one year of the closing date of the sale under circumstances that would result in payment of benefits under this paragraph 1(a), Executive will be treated as though he had been terminated by the Company and receive the payments provided for in this Agreement, less any amounts or benefits provided by the new owner in connection with Executive's termination. 2. Termination On or After a Change of Control. -------------------------------------------- a) If, within a two-year period after a Change of Control, (i) the Company (or any successor) terminates Executive's employment for any reason other than Permanent Total Disability or Cause (as defined in paragraphs 7(e) and 7(b)(1)&(2), respectively, below), or (ii) Executive voluntarily terminates his employment under circumstances involving a Constructive Termination, Executive will be entitled to the following compensation, provided that Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Base salary earned and as yet unpaid through the effective date of termination; and 2) Two year's Base Pay; and 3) Two times Executive's Separation Incentive Payment; and 4) Incentive Pay as yet unpaid from the prior fiscal year and Target Level Incentive Pay (as defined in paragraph 7(h) below) for the fiscal year of termination, prorated for the period of Executive's actual employment prior to termination; and 5) The greater of (i) Executive's vested Cash Balance Pension Benefit or (ii) an amount equal to Executive's vested Pension Benefit under the Company's Salaried Employees' (Final Average) Retirement Plan plus a pension supplement calculated as though Executive had been credited with three additional years of service under that Plan and had Executive been three years older at the date of termination. b) If, within a two-year period after a Change of Control, the Company (or any successor) terminates Executive's employment for Cause (as defined in paragraph 7(b)(3), below), Executive will only be entitled to base salary earned and as yet unpaid through the effective date of termination and Executive's vested Cash Balance Pension Benefit or vested Final Average Plan Pension Benefit, whichever is greater, UNLESS, (i) the Company exercises its discretion to award Executive (in addition to the aforementioned base salary and vested pension amounts) some portion of the following compensation, based on effort expended and results obtained to date and (ii) Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Up to but no more than Twelve months' Base Pay (as defined in paragraph 7(a) below); and 2) Up to but no more than one times Executive's Separation Incentive Payment (as defined in paragraph 7(f) below); and 3) Up to but no more than the amount of Incentive pay as yet unpaid from the prior fiscal year. c) The compensation payable under paragraphs 2(a) or 2(b), above, will be paid as soon as practicable after Executive signs, returns and does not revoke the requisite Release and Non-Competition Agreement. d) In the event of a termination of Executive's employment under the circumstances described in paragraph 2(a) above: 1) All stock options previously awarded to Executive shall, to the extent not already vested, immediately vest, and shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All shares of restricted stock previously awarded to Executive shall, to the extent not already vested, immediately vest and be payable. 3) All outstanding but unearned performance shares shall be forfeited. 4) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued through the date of termination under any non-qualified deferred compensation plan or arrangement shall immediately vest and be payable, to the extent permissible under the terms of such plan or arrangement. e) In the event of a termination on Executive's employment under the circumstances described in paragraph 2(b) above: 1) All stock options previously awarded to Executive which are exercisable on the date of termination shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All unvested shares of restricted stock and all outstanding but unearned performance shares previously awarded to Executive shall be forfeited. 3) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued and vested through the date of termination under any non-qualified deferred compensation plan or arrangement shall be payable, to the extent permissible under the terms of such plan or arrangement. f) The Compensation Committee of the Board of Directors, in its sole discretion, may determine that no Change of Control or Potential Change of Control shall be deemed to have occurred with respect to any Executive who, in connection with a Change of Control or Potential Change of Control, acts in a capacity other than in their capacity as an employee of the Corporation, its subsidiaries or affiliates or otherwise fails to act in the Company's best interests with respect to said Change of Control. 3. Termination For Other Reasons. If Executive voluntarily terminates his employment (including by reason of retirement) other than as provided in paragraph 1(a) or 2(a) above, or if Executive's employment is terminated due to death or Permanent Total Disability, Executive shall not be entitled to any benefits under this Agreement, but shall be entitled to any other benefits to which he is otherwise entitled under the terms of any employee benefit plans or arrangements of the Company. 4. Continuation of Insurance Benefits. In the event Executive's employment terminates under the circumstances described in paragraph 1(a) or 2(a) of this Agreement, the Company will continue Executive's participation and coverage for a period of two years (the "Severance Period") from Executive's last day of employment with the Company under all the Company's life, medical and dental plans ("Insurance Benefits"), in which Executive is participating immediately prior to such employment termination, subject to the Company's right to modify the terms of the plans or arrangements providing these benefits. If Executive is employed by another entity during the Severance Period, the Company will be a secondary obligor only with respect to medical and dental Insurance Benefits and life insurance coverage shall immediately cease. 5. Non-Duplication of Benefits. Any compensation or benefits payable under the terms of this Agreement will be offset and not augmented by other compensation or benefits of the same or similar type payable under any existing plan or agreement of the Company or any other arrangement between Executive and the Company covering the Executive (including, but not limited to, any Company severance policy and the Company's Annual Incentive Plan). It is intended that this Agreement not duplicate benefits Executive is entitled to under the company's regular severance policy, any related policies, or any other contracts, agreements or arrangements between Executive and the Company. 6) Term. This Agreement shall be effective from the date hereof throughout Executive's term of employment as an officer of the Company, but shall expire and be of no effect immediately after the second anniversary of a Change of Control. 7) Certain Defined Terms. As used herein, the following terms shall have the following meanings: a) "Base Pay" shall mean the greater of the annual salary paid to Executive as of the date of termination of his employment or the date of the Change of Control, as the case may be, notwithstanding any pay reduction that may be related to a Constructive Termination. b) "Cause" shall mean: 1) conviction of any felony or failure to contest prosecution for a felony; or 2) willful misconduct or dishonesty which is directly and materially harmful to the business or reputation of the Company; or 3) willful or continued failure to substantially perform his duties as an executive of the Company, other than as a result of total or partial incapacity due to physical or mental illness (abuse of alcohol, drugs or controlled substances not being considered a physical or mental illness for purposes of this paragraph), unless within three to six months after written notice has been provided to Executive by the Company, Executive cures such willful or continued failure to perform. c) "Change of Control" shall mean: 1) the holders of the voting securities of the Company shall have approved a merger or consolidation of the Company with any other entity, unless the proposed merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, where such merger or consolidation is, in fact, consummated; 2) a plan of complete liquidation of the Company shall have been adopted or the holders of voting securities of the Company shall have approved an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets; 3) any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act") shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 15% or more of the combined voting power of the Company's then outstanding shares; 4) during any period of two consecutive years, members who at the beginning of such period constituted the Board shall have ceased for any reason to constitute a majority thereof, unless the election, or nomination for election by the Company's stockholders, of each director shall have been approved by the vote of at least two-thirds of the directors then still in office and who were directors at the beginning of such period (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest); or 5) the occurrence of any other change of control of a nature that would be required to be reported in accordance with Form 8-K pursuant to Sections 13 or 15(d) of the 1934 Act or in the Company's proxy statement in accordance with Schedule 14A of Regulation 14A promulgated under the 1934 Act, or in any successor forms or regulations to the same effect. d) A "Constructive Termination" shall be deemed to have occurred only if: 1) prior to a Change of Control: Executive's Base Pay is reduced without his written consent; or 2) on or within a two-year period after a Change of Control: (A) Executive's Base Pay or annual incentive pay opportunity is reduced without his written consent; (B) Executive is required by the Company without his written consent to relocate to a new place of business that is more than fifty miles from Executive's place of business prior to the Change of Control (or the Company mandates a substantial increase in the amount of required business travel); or (C) there is a material adverse change in Executive's duties or responsibilities in comparison to the duties or responsibilities which Executive had prior to the Change of Control. e) "Permanent Total Disability" shall be deemed to have occurred if, at the end of any month Executive then is, and has been, for eighteen (18) consecutive calendar months then ending, unable to perform his duties in the normal and regular manner due to mental or physical illness or injury. Any determination of such inability to perform shall be made by the Company in good faith. f) "Separation Incentive Payment" shall be the greater of (i) Executive's average payments under the Company's normal, annual Corporate Incentive Plan (CIP) for the three years immediately preceding the year of termination (or annualized for such shorter period as Executive may have been employed by the Company), or (ii) one-half of Executive's average participating salary under such Plan for the three years immediately preceding the year of termination (or annualized for such shorter period as Executive may have been employed by the Company). g) "Participation Salary" is the product of Executive's total base salary paid during any given incentive year, multiplied by Executive's incentive pay percentage, at maximum funding. h) "Target Level Incentive" shall be the greater of (i) one-half of Executive's participating salary under the Company's Annual Incentive Plan for the year of termination, or (ii) the payment Executive would have received under such Plan for the year of termination based on projected corporate performance for such year as determined by the Committee in its sole discretion at the time of the Change of Control. 8. Outplacement Assistance. The Company will arrange outplacement assistance for Executive, to be provided by a mutually agreed-upon firm engaged in said business. Such assistance shall continue for up to one year following Executive's termination or until such time as suitable employment is attained whichever is sooner. Outplacement costs incurred in this connection will be borne by the Company, but will not include costs of travel to/from the outplacement firm or in connection with job interviews, etc. For up to six months following Executive's termination, the Company will also make available reasonable office space and administrative and communication services for Executive's use in seeking suitable employment. In no event will the Company pay Executive in lieu of outplacement assistance. 9. Confidentiality. Consistent with Executive's preexisting legal and contractual obligations and in exchange for the consideration provided by the Company in this Agreement and for Executive's continued employment and exposure to confidential information at the Company, Executive agrees to hold in strict confidence and not disclose to any other person any confidential or proprietary information of the Company, including, without limitation, trade secrets, formulas for Company product, production techniques or processes or methods and apparatus for producing any products of the Company, or other non-public information relating to the business, research and development, employees and/or customers of the Company and its subsidiaries and affiliates, except to the extent required by law, or with the written consent of the Company. Executive will, immediately on termination, deliver to the Company all files containing data, correspondence, books, notes, and other written, graphic or computer records under Executive's control relating to the Company or its subsidiaries or affiliates, regardless of the media in which they are embodied or contained. 10. Agreement Not to Compete. In exchange for the consideration provided by the Company in this Agreement as well as Executive's continued employment and exposure to confidential information at the Company, Executive agrees not to, directly or indirectly, for a period of two years following Executive's termination of employment, engage or participate in any business that is involved in research or development activities or in the manufacturing of any product which competes with any of the Company's products, except with the written consent of the Company. On termination, Executive agrees to execute a separate Release and Non-Competition Agreement in a form acceptable to the Company to memorialize this agreement and understands that the failure to do so will render Executive ineligible for any severance pay, benefits or privileges whatsoever. 11. Mutual Release and Indemnity. In the event of Executive's termination under circumstances described in paragraphs 1(a), 1(b), 2(a) or 2(b), the Company agrees to release and discharge executive from any claim it may then or thereafter have against Executive with respect to employment with the Company or any of its subsidiaries or affiliates (other than with regard to Executive's obligations under this Agreement), and agrees to indemnify Executive in accordance with its then current policies or practices for active employees for any claims made against Executive by third parties arising out of the proper performance of Executive's duties as an employee of the Company or any of its subsidiaries or affiliates. In exchange for the consideration provided by the Company in this Agreement, together with the Company's release and indemnity, Executive agrees to release and discharge the Company, and its subsidiaries, affiliates, officers, directors, employees and agents (the "Released Persons") from any claim that Executive may then or thereafter have against the Company or such Released Persons (excluding any claim for the compensation, benefits and privileges described herein) arising out of or in connection with Executive's employment or termination of employment by the Company or any of its subsidiaries or affiliates. On termination, Executive agrees to execute a separate Release and Non-Competition Agreement in a form acceptable to the Company to memorialize this agreement and understands that the failure to do so will render Executive ineligible for any severance pay, benefits or privileges whatsoever. 12. Severability. Whenever possible each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term, or the remaining provisions or terms of this Agreement. 13. Modification and Waiver of Breach. No waiver or modification of this Agreement shall be binding unless it is in writing, signed by the parties hereto. No waiver of a breach hereof shall be deemed to constitute a waiver of a further breach, whether of a similar or dissimilar nature. 14. Assignment. This Agreement shall be binding upon and inure to the benefit of any successors of the Company. As used herein, "successors" shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of the Company. 15. Notice. Any written notice to be given hereunder to Executive may be delivered to him personally or shall be deemed to have been given upon deposit thereof in the U.S. mail, certified mail, postage prepaid, addressed to Executive at the address as it shall appear on the records of the Company. 16. Construction of Agreement. This Agreement is made and entered into in the State of Ohio and shall be construed under the laws of Ohio. 17. Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to Executive's severance pay, benefits and privileges in the event of a termination of Executive's employment with the Company, superseding all negotiations, prior discussions and agreements, written or oral, concerning said severance arrangements. This Agreement may not be amended except in writing by the parties hereof. IN WITNESS WHEROF, the parties hereto have executed this Agreement as of the day and year first above written. OWENS CORNING, /s/ Glen H. Hiner Glen H. Hiner Chairman and CEO Agreed to and accepted: /s/ Michael H. Thaman Date: 6 December 1998 EX-11 8 0008.txt Exhibit (11) OWENS CORNING AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 Basic: - ----- 2000 1999 1998 ---- ---- ---- (In millions of dollars, except share data) Net income (loss) $ (478) $ 270 $ (705) ============ ======== ========= Basic weighted-average number of common shares outstanding (thousands) 54,816 54,083 53,579 ====== ====== ====== Basic per share amount $ (8.71) $ 4.98 $(13.16) ============ ======== ======== Diluted: - ------- Net income (loss) $ (478) $ 270 $ (705) ============ ======== ========= Weighted-average number of shares outstanding (thousands) 54,816 54,697 53,579 Weighted-average common equivalent shares (thousands): Deferred awards - 189 - Stock options using the average market price during the period - - - Shares from assumed conversion of preferred securities - 4,566 - ----------- ------- -------- Diluted weighted-average number of common shares outstanding and common equivalent shares (thousands) 54,816 59,452 53,579 ====== ====== ====== Diluted per share amount $ (8.71) $ 4.67 $(13.16) ============ ======== ========
EX-21 9 0009.txt Exhibit (21) State or Other Jurisdiction Under the Laws of Subsidiaries of Owens Corning (12/31/2000) Which Organized - ------------------------------------------ --------------- CDC Corporation Wisconsin Commercial Owens Corning Chile Limitada Chile Crown Manufacturing Inc. Canada Decillion, LLC Delaware Engineered Pipe Systems, Inc. Delaware Engineered Yarns America, Inc. Massachusetts Eric Company Delaware European Owens-Corning Fiberglas, S.A. Belgium Exterior Systems, Inc. Delaware Falcon Foam Corporation Delaware Fibreboard Corporation Delaware Flowtite AS Norway Flowtite Eksport AS Norway Flowtite Eksport Argentina AS Norway Flowtite Eksport Tuberias Norway Flowtite Offshore Services Ltd. Cyprus Flowtite Pipe & Tanks AS Norway Flowtite Technology AS Norway EPS Holding AS Norway Goodman Ventures, Inc. Delaware HOMExperts LLC Delaware IPM Inc. Delaware Integrex Delaware Integrex Professional Services LLC Delaware Integrex Supply Chain Solutions LLC Delaware Integrex Testing Systems LLC Delaware Integrex Ventures LLC Delaware Jefferson Holdings, Inc. Delaware LMP Impianti Srl Italy Norske EPS Botswana AS Norway OC (Belgium) Holdings, Inc. Delaware OC Celfortec Inc. Canada O.C. Funding B.V. The Netherlands OCW Acquisition Corporation Delaware Owens Corning (Anshan) Fiberglass Co., Ltd. China Owens Corning Argentina Sociedad de Responsabilidad Limitada Argentina Owens Corning Australia Pty Limited Australia Owens-Corning Britinvest Limited United Kingdom Owens Corning Building Materials Espana S.A. Spain Owens Corning Canada Inc. Canada Owens-Corning Capital Holdings I, Inc. Delaware Owens-Corning Capital Holdings II, Inc. Delaware Owens-Corning Capital L.L.C. Delaware Owens Corning Cayman (China) Holdings Cayman Islands Owens-Corning Cayman Limited Cayman Islands Owens Corning (China) Investment Company, Ltd. China
State or Other Jurisdiction Under the Laws of Subsidiaries of Owens Corning (12/31/2000) Which Organized - ------------------------------------------ ----------------- Owens Corning Composites Italia S.r.l. Italy Owens Corning Composites SPRL Belgium Owens Corning Espana SA Spain Owens-Corning Fiberglas A.S. Limitada Brazil Owens-Corning Fiberglas Deutschland GmbH Germany Owens-Corning Fiberglas Espana, S.A. Spain Owens-Corning Fiberglas France S.A. France Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom Owens-Corning Fiberglas Norway A/S Norway Owens-Corning Fiberglas S.A. Uruguay Owens-Corning Fiberglas Sweden Inc. Delaware Owens-Corning Fiberglas Technology Inc. Illinois Owens-Corning Fiberglas (U.K.) Pension Plan Ltd. United Kingdom Owens-Corning FSC, Inc. Barbados Owens-Corning Funding Corporation Delaware Owens-Corning (Guangzhou) Fiberglas Co., Ltd. China Owens-Corning Holdings Limited Cayman Islands Owens Corning HT, Inc. Delaware Owens Corning (Japan) Ltd. Japan Owens Corning Korea Korea Owens Corning Mexico, S.A. de C.V. Mexico Owens Corning NRO Inc. Canada Owens Corning NRO II Inc. Canada Owens-Corning Overseas Holdings, Inc. Delaware Owens-Corning Real Estate Corporation Ohio Owens Corning Remodeling Systems, LLC Delaware Owens Corning (Shanghai) Fiberglas Co., Ltd. China Owens Corning (Singapore) Pte Ltd. Singapore Owens Corning South Africa (Pty) Ltd South Africa Owens-Corning (Sweden) AB Sweden Owens-Corning Veil Netherlands B.V. The Netherlands Owens-Corning Veil U.K. Ltd. United Kingdom Owens Corning VF Holdings, Inc. Canada Procanpol SP. Z.O.O. Poland Quest Industries, LLC Delaware Scanglas Ltd. United Kingdom Soltech, Inc. Kentucky Trumbull Asphalt Co. of Delaware Delaware Vytec Corporation Ontario Willcorp, Inc. Delaware Wrexham A.R. Glass Ltd. United Kingdom
EX-23 10 0010.txt Exhibit (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 20, 2001, included in Owens Corning's annual report on Form 10-K for the year ended December 31, 2000, into Owens Corning's previously filed Registration Statements, File Nos. 33-9563, 33-9986, 33-9987, 33-18262, 33-20997, 33-27209, 33-31687, 33-48707, 33-57886, 33-60487, 333-09367, 333-24501, 333-47961, 333-48153, 333-76715, 333-76717, 333-76765, 333-40818 and 333-40824. ARTHUR ANDERSEN LLP Toledo, Ohio March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----