-----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, R3B0HDlkcAit4QuR6FF4YNAB5hNagKihWa+qskcUu3/gLEh6kvEME04NemQzH8g+ I2nuc+gg3Qy9CVEJXuSkPg== 0000950117-98-001753.txt : 19980923 0000950117-98-001753.hdr.sgml : 19980923 ACCESSION NUMBER: 0000950117-98-001753 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980922 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BRANDS CORP CENTRAL INDEX KEY: 0000797320 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 061171404 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10395 FILM NUMBER: 98712728 BUSINESS ADDRESS: STREET 1: 83 WOOSTER HEIGHTS RD BLDG 301 STREET 2: PO BOX 1911 CITY: DANBURY STATE: CT ZIP: 06813-1911 BUSINESS PHONE: 2037312300 MAIL ADDRESS: STREET 1: P.O. BOX 1911 CITY: DANBURY STATE: CT ZIP: 06813-1911 10-K405 1 FIRST BRANDS CORP. 10-K ________________________________________________________________________________ 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 JUNE 30, 1998 COMMISSION FILE NUMBER 1-10395 ------------------------ FIRST BRANDS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 06-1171404 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
83 WOOSTER HEIGHTS ROAD BUILDING 301, P.O. BOX 1911 DANBURY, CONNECTICUT 06813-1911 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (203) 731-2300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------- --------------------- Common Stock 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 September 1, 1998, the number of shares outstanding of the registrant's common stock was 39,045,100 (par value $.01), and the aggregate market value of the voting stock held by non-affiliates was $779,490,470. DOCUMENTS INCORPORATED BY REFERENCE Registrants Proxy Statement for the Annual Stockholders Meeting to be held October 23, 1998 is incorporated by reference for Part III ________________________________________________________________________________ TABLE OF CONTENTS
PAGE ---- PART I Item 1: Business....................................................................................... 1 Item 2: Properties..................................................................................... 4 Item 3: Legal Proceedings.............................................................................. 5 Item 4: Submission of Matters to a Vote of Security Holders............................................ 5 PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters.......................... 5 Item 6: Selected Financial Data........................................................................ 6 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 7 Item 8: Financial Statements and Supplementary Data.................................................... 11 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 11 PART III Item 10: Directors and Executive Officers of the Registrant............................................. 12 Item 11: Executive Compensation......................................................................... 14 Item 12: Security Ownership of Certain Beneficial Owners and Management................................. 14 Item 13: Certain Relationships and Related Transactions................................................. 14 PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 15 Signatures................................................................................................ 35
ITEM 1 -- BUSINESS First Brands Corporation ('First Brands' or 'the Company'), a Delaware corporation, was organized in March, 1986 to acquire the worldwide home and automotive products business of Union Carbide Corporation ('Union Carbide') in a leveraged buy out which was effective as of July 1, 1986. Subsequent to an initial and secondary stock offering, the Company became an publicly traded corporation on March 27, 1991. The Company is primarily engaged in the development, manufacture, marketing and sale of branded and private label consumer products for the household and automotive markets. The Company's products can be found in large merchandise and chain supermarkets and other retail outlets. The Company believes that the significant market positions occupied by its products are attributable to brand name recognition, a comprehensive offering of quality products, continued product innovation, strong emphasis on vendor support and aggressive advertising and promotion. PRODUCTS Household products include the most complete line of branded plastic wrap, bags and drinking straws which are sold under the GLAD and GLAD-LOCK brands along with the GLADWARE brand of plastic storage containers. In the Canadian market, plastic bags are also sold under the SURTEC brand, and in Australia and New Zealand, plastic wrap and bags as well as aluminum foils are also sold under the OSO brand. In the Australian and New Zealand market, the Company sells wiping cloths and scouring pads under the CHUX brand. On July 2, 1998, the Company entered into an agreement to purchase the HANDI-WIPES and WASH'N DRI brand cloths from the Colgate-Palmolive Company. This acquisition is expected to be completed during the first quarter of fiscal 1999. In the North American market, household products also include the STARTERLOGG and HEARTHLOGG brands of wood fire starters and fire logs. Cat litter products are sold in the U.S. and various countries under the SCOOP AWAY, EVER CLEAN, JONNY CAT and EVERFRESH brands. Automotive performance and appearance products are sold worldwide under the STP brand. A&M Products, Inc. ('A&M'), a wholly owned subsidiary, manufactures and markets SCOOP AWAY, EVER CLEAN and EVERFRESH cat litter, the leading brands of clumping cat litter in the United States. A&M also produces and markets the JONNY CAT brand of traditional cat litter along with other premium cat care products. In March, 1996 the Company purchased substantially all of the assets and assumed the liabilities of Forest Technology Corporation ('Forest Technology'). Forest Technology manufactures and markets STARTERLOGG, the leading brand of wood starter fire products, and HEARTHLOGG fire logs. Through its subsidiary, Himolene Incorporated ('Himolene'), the Company is a leading producer in the United States of high molecular weight, high density polyethylene plastic trash can liners for the institutional and industrial markets. In March 1997, the Company purchased, for approximately $160,000,000, the NationalPak business in Australia and New Zealand from National Foods Limited. NationalPak manufactures and markets consumer products such as plastic wrap and bags, cleaning cloths and aluminum foil under the GLAD, CHUX, OSO, MONO and ROTA brand names. The acquisition was funded by long-term borrowings in the United States, Canada, Australia and New Zealand. During the third quarter of fiscal 1998, the Company's New Zealand subsidiary acquired the XLO sponge brand in the New Zealand market. During fiscal 1998, the Company sold to local management a 4.4% interest in the Australian subsidiary and, during fiscal 1999, expects to finalize the sale to local management of a 1.6% interest in the New Zealand subsidiary. First Brands operates in foreign countries through subsidiaries in Australia, New Zealand, Canada, South Africa, Zimbabwe, the United Kingdom, Spain, Hong Kong, China, Mexico, Puerto Rico and the Philippines. In addition to its foreign operations, First Brands exports to over one hundred countries and its products are sold in twelve languages. Through its Hong Kong subsidiary, First Brands holds a 51% interest in a joint venture in China which is engaged in the manufacture and sale of both plastic wrap and bags and automotive products. The Company's South African business owns 76% of the outstanding stock of Sealapac (PVT) Ltd., a Zimbabwe manufacturer and marketer of plastic film products for consumers and the packaging industry. 1 On December 26, 1996 the Company sold its SIMONIZ wax and polish business to Syndet Products Incorporated. The impact of the divestiture did not have a material effect on the Company. The following represents the Company's sales by class of products: First Brands Corporation and Subsidiaries SALES BY CLASS OF PRODUCTS
1998 1997 1996 --------------------- --------------------- --------------------- (Dollars in thousands) Dollars Percent Dollars Percent Dollars Percent - --------------------------------------------------------------------------------------------------- Household Products $ 824,798 69% $ 747,939 67% $ 693,406 65% Automotive Products 206,392 17 212,467 19 213,900 19 Pet Products 172,480 14 156,858 14 149,186 14 Divested/Discontinued Products(1) -- -- 2,634 -- 16,530 2 - --------------------------------------------------------------------------------------------------- $1,203,670 100% $1,119,898 100% $1,073,022 100% ===================================================================================================
(1)Represents sales from the divested Simoniz business (December, 1996) and sales from the phased-out Contract Packaging business and associated operations which related to the divested Prestone business. MANUFACTURING AND DISTRIBUTION In general First Brands does not produce against a backlog of firm orders. Production is geared primarily to the level of incoming orders and to projections of future demand. Sufficient inventories of finished products, work-in-process and raw materials are maintained to meet delivery requirements of customers and First Brands production schedules. There is no significant seasonal fluctuation in sales of the Company's home, automotive, cat litter, institutional and industrial products. However, the majority of fire starter and fire log sales occur during the first half of the Company's fiscal year due to strong consumer demand during the fall and winter months. The Company's products are sold directly to retailers and to wholesalers and can be found in large mass merchandise stores and chain supermarkets as well as other retail outlets, including automotive supply stores, grocery stores and price clubs. While the Company's sales are not dependent upon a single customer, the top 25 customers account for approximately 45% of total sales, and sales to its largest customer, the Wal-Mart Stores and Sams Wholesale Club stores, are approximately 12% of total sales. In the United States, sales to food outlets, which account for approximately 64% of domestic sales of plastic wrap and bags as well as cat litter, are handled through a network of brokers; sales to mass merchandisers are handled by First Brands' direct sales force. Sales of automotive products are primarily handled through First Brands' direct sales force and sold to auto supply outlets and mass merchandisers. Himolene's sales to the institutional and industrial markets are handled by that subsidiary's direct sales force as well as through distributors. Sales of the Company's products in Canada are generally handled in the same manner as U.S. sales, while sales in the Australian and New Zealand markets are primarily handled by a direct sales force. Other international sales are handled primarily through distributors. The Company believes its manufacturing facilities employ state-of-the-art technology. The plastic wrap and bag manufacturing process employs advanced extrusion and conversion technologies. The Company's strategy is to update and expand its manufacturing facilities with internally developed technologies (some of which are patented) and state-of-the-art technology acquired from third-party sources. To maintain its leadership as a flexible, low cost producer, certain products sold by the Company, both domestically and internationally, are produced by outside packagers. Each of these 'contract packagers' adhere to strict quality control parameters and produce in accordance with production schedules established by the Company. Through improvements in existing process technologies and the acquisition of additional equipment the Company continually strives to enhance its production capacity and efficiency. RAW MATERIALS AND OTHER SUPPLIES The Company currently purchases a substantial portion of its plastic wrap and bags raw materials pursuant to a long-term polyethylene resin requirements contract with Union Carbide which runs through December 31, 1999. Union Carbide is the Company's largest single supplier and the Company believes that it is also Union Carbide's largest customer for polyethylene resin. The Company also has contracts for the purchase of certain raw materials, including polyethylene resin, from other suppliers, and also makes purchases on the open market. The pricing provisions in the Company's present supply contracts are designed to be responsive to market conditions and the cost of relevant raw materials. Although the Company believes that, based on industry estimates and projections, raw material costs will, over the long-term on average, remain relatively stable, it is unable to predict with any certainty its costs of raw materials on a month by month basis which may, because of market conditions, be materially higher or lower than those experienced in past periods. To the extent raw material costs are higher, the Company's margins on the relevant products could be adversely affected if it is unable to increase prices, effect offsetting cost savings, or reduce prices to meet competition. As a consequence, the Company may be adversely affected by changes in raw material markets. The Company from time 2 to time has the ability to fix its prices on raw materials either through agreements with suppliers, or through financial commodity-based contracts. The Company has entered into to various contracts which fix the price of approximately 37% of its domestic polyethylene resin requirements and has another contract covering approximately 20% of its domestic requirements is a financial collar. The Company believes that, if there were an industry-wide shortage of raw materials, it might enjoy a competitive advantage over certain of its competitors as a result of its assured source of supply for a substantial portion of its raw materials. Most of the raw materials used by First Brands' home and automotive businesses are petrochemical derivatives primarily produced from ethylene and refined oil which in turn is largely produced from natural gas in the United States and Canada. Historically, petrochemical and refined oil derivatives have been subject to price fluctuations due to various factors. There can be no assurances that future events will not precipitate price increases. The factors which will affect the cost of raw materials to the Company will generally affect competitors' raw material costs as well. However, because several of the Company's major competitors are units of vertically integrated enterprises or part of the much larger and financially stronger entities, with the ability to vary internal pricing arrangements in order to mitigate, adverse movements in raw material prices, they may enjoy a competitive advantage in their end product markets. Most other raw materials are generally available in the marketplace and First Brands believes that it has contracts and commitments, or a readily available source of supply, to meet its anticipated needs in all major product areas. EMPLOYEES First Brands currently employs approximately 4,800 persons worldwide, of which about 3,200 are in the United States. The Company's employees are not unionized with the exception of approximately 450 hourly workers at one domestic plastic wrap and bag plant who are represented by the United Paperworkers International Union ('UPI Union'), and approximately 625 international employees. The contract with the UPI Union runs through November, 1999. The Company has not experienced any significant interruptions or curtailments of operations due to labor disputes, and considers its labor relations to be satisfactory. COMPETITION First Brands operates in highly competitive markets where success is dependent upon brand recognition, product innovation and performance, and price. In several instances, the competitors are larger, more integrated companies with greater financial resources than First Brands. ENVIRONMENTAL MATTERS Certain of the Company's operations are subject to federal, state and local environmental laws and regulations which impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. During fiscal 1998, 1997 and 1996, First Brands made expenditures of approximately $1,646,000, $1,818,000, and $1,330,000, respectively, for environmental compliance at its facilities, and currently estimates that it will make expenditures for environmental compliance of approximately $1,800,000 in fiscal 1999. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations. RESEARCH AND DEVELOPMENT Through research and development, management is committed to developing process technologies and new products which are critical to the Company's objective of providing high quality, innovative consumer products at costs which the Company believes are equal to or less than those of its competitors. To achieve these objectives, the Company operates two research and development facilities, each outfitted with state-of-the-art machinery and equipment. The Company spent $4,778,000, $5,043,000, and $4,789,000 during fiscal 1998, 1997 and 1996, respectively, on research and development. Through the use of its high molecular weight, high density polyethylene technology, First Brands and Himolene produce stronger plastic bags with less raw material, resulting in a conservation of 3 resources and a reduction of materials that eventually go into landfills. The Company presently uses recycled plastic trimmings, post consumer recycled material and scrap in its GLAD and STP manufacturing facilities. Packaging for all GLAD products is made with paperboard containing reclaimed material. ITEM 2 -- PROPERTIES First Brands uses various owned or leased plants, technical facilities, warehouses, distribution centers and offices in the United States, Puerto Rico, Australia, New Zealand, Canada, South Africa, Zimbabwe, Hong Kong, China, Mexico, the United Kingdom, Spain and the Philippines. The Company's world headquarters is located in Danbury, Connecticut. First Brands believes current facilities, together with planned expenditures for normal maintenance, capacity and technological improvements, will provide adequate production capacity to meet expected demand for its products. Management believes that First Brands' properties and those of its subsidiaries are in good operating condition and are suitable for the purposes for which they are being used. Listed below are the principal manufacturing facilities operated by First Brands and its consolidated subsidiaries worldwide during fiscal 1998:
LOCATION CITY PRINCIPAL PRODUCTS -------- ----- ----------------- Domestic Arkansas Rogers Plastic wrap and bags California Bell Plastic bags California Taft Cat litter Georgia Cartersville Plastic wrap and bags Georgia Wrens Cat litter Illinois West Chicago Plastic bags Kansas Spring Hill Cat litter Mississippi Tupelo Plastic bags New Jersey Paulsboro Auto specialty products Ohio Akron Fire starters and fire logs Ohio Painesville Auto specialty products Vermont Rutland Plastic bags Virginia Amherst Plastic wrap and bags International Australia Padstow, NSW Plastic wrap and bags Canada Orangeville Plastic wrap and bags China Conghua Plastic wrap and bags and auto specialty products New Zealand Auckland Plastic wrap and bags Philippines Manila Auto specialty products South Africa Babelegi Plastic wrap and bags South Africa Cape Town Plastic film products Wales Rassau Auto specialty products Zimbabwe Harare Plastic film products
Domestically, the West Chicago, Illinois, Bell, California and Akron, Ohio plants are leased facilities, with terms which expire between 1999 and 2008. Internationally, the New Zealand, Philippine, South African, Welsh and Zimbabwian production facilities are leased from third parties, with lease terms expiring between 1999 and 2016. All other production plants are owned by the Company or its wholly-owned subsidiaries. First Brands maintains research and development facilities for its home products and litter businesses in Willowbrook, Illinois, and for its automotive products in Brookfield, Connecticut; both facilities are under lease with terms expiring in 2008 and 2012, respectively. In addition to the properties referenced above, First Brands maintains numerous domestic and international administrative and sales offices and warehouses. The majority of these premises are either leased under relatively short-term leases or owned. 4 ITEM 3 -- LEGAL PROCEEDINGS The Company is subject to various claims, and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. Management believes that the ultimate liability, if any, arising from these and other claims and contingencies is not likely to have a material adverse effect on the Company's annual results of operations or financial condition. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None PART II ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York, Philadelphia, Midwest and Pacific Stock Exchanges under the symbol 'FBR'. The following table sets forth the high and low sales price per share of the Common Stock during the fiscal periods indicated as reported by the NYSE and the dividend per share paid during such fiscal periods. The approximate number of holders of Common Stock of record as of June 30, 1998 was 622.
HIGH LOW DIVIDEND ---- ---- -------- Fiscal 1998 First Quarter................................................................. 28 1/2 20 1/4 .0800 Second Quarter................................................................ 28 1/2 23 3/8 .1000 Third Quarter................................................................. 28 3/8 23 .1000 Fourth Quarter................................................................ 28 22 7/8 .1000 Fiscal 1997 First Quarter................................................................. 27 1/2 21 .0625 Second Quarter................................................................ 29 3/8 26 .0800 Third Quarter................................................................. 28 3/8 23 1/2 .0800 Fourth Quarter................................................................ 26 5/8 20 1/8 .0800
The amount of cash dividends on common stock which may be paid by the Company is limited by the restrictions under its credit agreement. See Note 11 to the Company's Consolidated Financial Statements. 5 ITEM 6 -- SELECTED FINANCIAL DATA First Brands Corporation and Subsidiaries SELECTED FINANCIAL DATA The following table includes selected financial data for the five years ended June 30, 1998, that are derived from and more fully described in the Consolidated Financial Statements and Notes.
Years Ended(1) -------------------------------------------------------- June 30, June 30, June 30, June 30, June 30, (Dollars in millions, except per share amounts) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- Net sales ..................................................... $1,203.7 $1,119.9 $1,073.0 $1,036.5 $1,086.3 Operating expenses(2) ......................................... 1,067.0 981.3 928.8 901.2 935.5 Amortization and other depreciation ........................... 14.6 13.4 15.6 16.5 20.3 Restructuring expense(3) ...................................... 2.7 19.0 -- -- -- Interest expense and amortization of debt discount and expense. 29.6 20.4 17.5 18.8 22.4 Discount on sale of receivables(4) ............................ 4.6 4.0 4.0 4.0 4.3 Other income (expense), net(5) ................................ (0.5) 1.6 1.8 (21.2) (0.1) Income before extraordinary loss and cumulative effect of change in accounting principle(6) ......................... 52.3 50.8 65.1 43.2 60.1 Net income .................................................... $ 45.4 $ 50.2 $ 65.1 $ 38.7 $ 60.1 - -------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share(7) Income before extraordinary loss and cumulative change. $ 1.29 $ 1.22 $ 1.53 $ 1.01 $ 1.36 Net income ............................................ $ 1.12 $ 1.20 $ 1.53 $ 0.91 $ 1.36 Cash dividends per common share(7) ............................ $ 0.38 $ 0.30 $ 0.24 $ 0.19 $ 0.15 - -------------------------------------------------------------------------------------------------------------------------- Total assets .................................................. $1,060.2 $1,046.8 $ 860.9 $ 839.9 $ 814.0 Long-term debt (including current maturities) ................. $ 391.4 $ 383.3 $ 199.5 $ 167.2 $ 153.5 ==========================================================================================================================
(1) Fiscal 1997 results include the operations for the NationalPak (Australia and New Zealand) business since its acquisition in March, 1997. Results for fiscal 1996 reflect three months of operations for the Forest Technology business, which was acquired in March, 1996. Fiscal 1995 results include the operations of the acquired JONNY CAT and Multifoil (South Africa) businesses for twelve and two months, respectively. On August 26, 1994, the Company sold the Prestone antifreeze/coolant and car care business ("the Prestone business"), accordingly, results for fiscal 1995 include only eight weeks of operations for the Prestone business. (2) Operating expenses include that portion of depreciation expense associated with the production of inventory. (3) During fiscal 1997, the Company provided $19.0 million for a restructuring plan that was primarily comprised of the closing of a distribution and office facility and an early retirement program. During fiscal 1998, due to greater than anticipated participation in the early retirement program and revision of earlier estimates, the Company made an additional provision of $2.7 million to the restructuring plan (See Note 3 to the Company's Consolidated Financial Statements). (4) Reflects costs associated with the sale of a fractional ownership interest in the Company's accounts receivable (See Note 5 to the Company's Consolidated Financial Statements). (5) Other income (expense), net, for the year ended June 30, 1995 includes a $20.4 million charge relating to the write-off of assets and the costs associated with litigation proceedings and settlements pertaining to the Company's formerly operated mobile recycling business. Also included is the gain associated with the sale of the Prestone business and the loss on the disposal of the Company's automotive service centers (See Note 4 to the Company's Consolidated Financial Statements). (6) Income before extraordinary loss and cumulative effect of change in accounting principle excludes the charge associated with the immediate expensing of previously capitalized costs related to certain business process re-engineering activities, for the year ended June 30, 1998; and the premium and the write-off of unamortized issuance costs related to the repurchase of subordinated debt, for the years ended June 30, 1997 and 1995 (See Notes 2 and 11 to the Company's Consolidated Financial Statements). (7) All per share figures have been retroactively restated to reflect the two-for-one stock split that was effective February 5, 1996. 6 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the consolidated results of operations for the fiscal years ended June 30, 1998 and 1997 and the financial condition at June 30, 1998 should be read in conjunction with the Consolidated Financial Statements and Notes thereto of First Brands. FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997 The following table sets forth the components of income and expense for the two years ended June 30, 1998, on a dollar and percentage basis.
June 30, 1998 June 30, 1997 --------------------- --------------------- In Thousands Percent In Thousands Percent - ------------------------------------------------------------------------------------------------------------------------ Net sales ............................................................ $1,203,670 100.0% $1,119,898 100.0% Cost of goods sold ................................................... 775,870 64.5 713,203 63.7 - ------------------------------------------------------------------------------------------------------------------------ Gross profit ......................................................... 427,800 35.5 406,695 36.3 Selling, general and administrative expenses ......................... 291,156 24.2 268,086 23.9 Amortization and other depreciation .................................. 14,585 1.2 13,411 1.2 Restructuring expense ................................................ 2,700 0.2 19,000 1.7 Interest expense and amortization of debt discount and expenses ...... 29,604 2.5 20,383 1.8 Discount on sale of receivables ...................................... 4,561 0.4 3,992 0.4 Other income (expense), net .......................................... (500) (0.0) 1,575 0.1 - ------------------------------------------------------------------------------------------------------------------------ Income before provision for income taxes, extraordinary loss and cumulative effect of change in accounting principle ...... 84,694 7.0 83,398 7.4 Provision for income taxes ........................................... 32,364 2.7 32,533 2.9 - ------------------------------------------------------------------------------------------------------------------------ Income before extraordinary loss and cumulative effect of change in accounting principle ......................................... 52,330 4.3 50,865 4.5 Extraordinary loss relating to the repurchase of subordinated debt, net of taxes............................... -- -- (633) (0.0) Cumulative effect of change in accounting princile, net of taxes ..... (6,922) (0.6) -- -- - ------------------------------------------------------------------------------------------------------------------------ Net income ............................................................ $ 45,408 3.7% $ 50,232 4.5% ========================================================================================================================
Net sales for the fiscal year ended June 30, 1998 were $1,203,670,000, 7.5% above the prior year's sales of $1,119,898,000. Excluding the effect of acquisitions, divestitures and currency fluctuation, sales in fiscal 1998 were $1,110,673,000 compared to $1,086,253,000 last year, an increase of 2.2%. In the household products division, domestic sales increased 2%. Within the domestic group sales of plastic products, the largest category, grew 1%, primarily due to new products. Sales of fireplace products grew 21% to $27,000,000 due to increased distribution and market growth. Excluding the effect of the NationalPak acquisition, ("the Australian business") international sales of household products declined 2%, due to weak sales in Asia and South Africa and the effect of weak local currencies. Sales of automotive products in the domestic market remained essentially even with the prior year, reflecting the residual effects of inventory downsizing by a major customer and an unseasonably warm winter season, offset by share gains in most categories. Export sales of automotive products declined 13% due to weakening demand in Asian markets. The international subsidiaries reported a 3% rise in automotive sales, however, this gain was more than offset by the negative impact of fiscal 1998 exchange rates. Increased sales in the pet products group resulted from the new EVERFRESH brand product line and market growth. Cost of goods sold in fiscal 1998 was $775,870,000, a 9% increase compared to fiscal 1997's $713,203,000. The increased costs reflect higher sales volumes, primarily associated with a full year of the Company's Australian business and domestic GLADWARE and cat litter businesses as well as sales mix. Gross profit for the year was $427,800,000 (35.5% of sales), 105% of last year's $406,695,000 (36.3% of sales). The increase in gross profit dollars reflects the aforementioned increase in sales volumes, while the decrease in the gross margin percentage resulted from a less favorable product mix and lower margins 7 associated with the introduction costs of the new GLADWARE and EVERFRESH products. Selling, general, and administrative expense increased 9%, to $291,156,000 from last year's $268,086,000. Domestically, the Company increased its advertising and promotion spending to support the introduction of a wide range of new products. The higher advertising and promotion expense was partially offset by savings associated with the Company's restructuring program. Internationally, excluding increases associated with a full year of the Australian business, spending in the current year was ahead of the prior year to support product and market development initiatives. Amortization and other depreciation expense of $14,585,000 was 109% of last year's $13,411,000, with the higher expense due to the amortization of goodwill resulting from the acquisition of the Australian business. Interest expense for the year increased 45% to $29,604,000 from the prior year's $20,383,000, primarily because of borrowing costs associated with the acquisition of the Australian business and higher spending on capital assets resulting from the acquisition of previously leased assets. Interest expense also includes the amortization of various financing and legal costs that were incurred in the issuance of Company debt. The discount on sale of receivables reflects the costs associated with the sale of a fractional ownership interest, without recourse, in a defined pool of the Company's eligible trade accounts receivable. Restructuring expense in fiscal 1997, relates to the Company's $19,000,000 charge ($11,590,000 after taxes or $0.28 per diluted share) for initiatives aimed at streamlining certain operating and administrative functions, reducing costs and improving operating efficiencies. During fiscal 1998, an additional charge of $2,700,000 ($1,668,000 after taxes or $0.04 per diluted share) was recorded to reflect the greater-than-expected participation in the early retirement program along with revisions to earlier estimates, principally costs associated with employee. Substantially all restructuring liabilities have been paid or settled during fiscal 1998. Other expense, net for fiscal 1998 reflects the loss associated with the sale and/or disposal of equipment, various net foreign exchange losses and other miscellaneous costs, none of which are individually significant. These losses were partially offset by the gain associated with the sale of a portion of the Company's foreign exchange contracts. Other income, net in fiscal 1997, primarily reflects the gain associated with the early repayment of a long-term note receivable along with interest income from that note which was partially offset by foreign exchange losses and other non-recurring expenses. The Company's effective tax rate for fiscal 1998 was 38.2% compared to 39.0% in fiscal 1997, primarily reflecting higher research tax credits. The fiscal 1998 cumulative effect of change in accounting principle ($6,922,000 or $0.17 per diluted share) reflects the cost associated with the immediate expensing (in accordance with the Financial Accounting Standards Board Emerging Issues Task Force Issue No. 97-13) of previously capitalized costs related to certain business process re-engineering activities. The fiscal 1997 extraordinary loss ($633,000 or $0.02 per diluted share) resulted from the costs associated with the repurchase of the previously outstanding Senior Subordinated Notes. Inflation was not considered to be a significant factor in the Company's operations during fiscal 1998. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which expands annual financial statement disclosures about operating segments and establishes disclosure requirements concerning a company's products, customers and geographic areas. Selected information about operating segments is also required for interim financial reports issued to shareholders. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," which amends the disclosure requirements previously established by SFAS No. 87, 88 and 106. The new disclosure requirements are intended to standardize the reporting of pensions and other postretirment benefits. While SFAS No. 132 does not change the measurement or recognition requirements of those plans, it does require some new information from plan sponsors and allows for the elimination of other information which is no longer considered useful. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company plans to adopt each of the above pronouncements in its fiscal year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132 will have no impact on First Brands results of operations, cash flows or financial position, the Company is currently evaluating the appropriate format of disclosure for each pronouncement. 8 FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996 The following table sets forth the components of income and expense for the two years ended June 30, 1997, on a dollar and percentage basis.
June 30, 1997 June 30, 1996 --------------------- --------------------- In Thousands Percent In Thousands Percent - ------------------------------------------------------------------------------------------------------------------------ Net sales ............................................................ $1,119,898 100.0% $1,073,022 100.0% Cost of goods sold ................................................... 713,203 64.5 687,103 64.0 - ------------------------------------------------------------------------------------------------------------------------ Gross profit ......................................................... 406,695 36.3 385,919 36.0 Selling, general and administrative expenses ......................... 268,086 23.9 241,711 22.5 Amortization and other depreciation .................................. 13,411 1.2 15,607 1.5 Restructuring expense ................................................ 19,000 1.7 Interest expense and amortization of debt discount and expenses ...... 20,383 1.8 17,546 1.6 Discount on sale of receivables ...................................... 3,992 0.4 3,963 0.4 Other income (expense), net .......................................... 1,575 0.1 1,827 0.2 - ------------------------------------------------------------------------------------------------------------------------ Income before provision for income taxes and extraordinary loss ...... 83,398 7.4 108,919 10.2 Provision for income taxes ........................................... 32,533 2.9 43,819 4.1 - ------------------------------------------------------------------------------------------------------------------------ Income before extraordinary loss ..................................... 50,865 4.5 65,100 6.1 Extraordinary loss relating to the repurchase of subordinated debt, net of taxes ............................................... (633) (0.0) -- -- - ------------------------------------------------------------------------------------------------------------------------ Net income ........................................................... $ 50,232 4.5% $ 65,100 6.1% ========================================================================================================================
Net Sales for the fiscal year ended June 30, 1997 were $1,119,898,000, 4% above fiscal 1996's sales of $1,073,022,000. Excluding the effect of acquisitions and divestitures, sales for fiscal 1997 were slightly ahead of 1996. Sales in the household products business increased due to the first full year of sales from the firelog and fire starter business, strong export sales (primarily to Japan), higher international sales (resulting from the acquired Australian business) and a slight increase in domestic unit volumes and sales. Internationally, increased sales resulting from the aforementioned Australian acquisition were partially offset by lower Canadian sales as well as unfavorable exchange rates, primarily in South Africa. Sales of automotive products (excluding sales from the Company's discontinued contract packaging and other divested businesses) declined during fiscal 1997 due to a soft domestic retail market and an inventory reduction program instituted by the Company's largest customer. Pet product sales increased in both a dollar and quantity basis as a result of continued market share growth and product introductions. Cost of goods sold in fiscal 1997 was $713,203,000 compared to $687,103,000 in fiscal 1996. The 4% increase in costs primarily reflects higher volume sales and increased polyethylene costs. Gross profit for fiscal 1997 was $406,695,000 (36% of sales), 105% of 1996's $385,919,000 (36% of sales). Gross profit dollars increased during the year due to higher sales volumes, while the gross margin percentage was maintained between years as manufacturing efficiencies and product mix offset increased raw material costs. Selling, general, and administrative expense of $268,086,000 was 11% above fiscal 1996's $241,711,000. Increased spending in the domestic businesses reflected marketing initiatives aimed at supporting new product introductions and expanding distribution and line extensions. Internationally, excluding the acquisition of the Australian business, spending during fiscal 1997 was down slightly as marketing programs were cut back to offset lower sales. Overhead increases also reflected the Company's Australia and New Zealand businesses, as well as the first full year of operations of the fire starter and firelog business. Amortization and other depreciation expense of $13,478,000 in 1997 was 86% of 1996's $15,607,000. The lower expense for 1997 reflects the impact of assets that were fully amortized during fiscal 1996. Interest expense for fiscal 1997 was $20,383,000, 116% of 1996's $17,546,000, primarily due to borrowing costs associated with the acquisition of the Australian business and higher average borrowings during the year, which were partially offset by lower rates. Interest expense also includes the amortization of various financing and legal costs that were incurred in the issuance of 9 Company debt. The discount on sale of receivables reflects the costs associated with the sale of a fractional ownership interest, without recourse, in a defined pool of the Company's eligible trade accounts receivable. Restructuring expense in 1997 relates to the Company's $19,000,000 charge ($11,590,000 after taxes, or $0.28 per share) for initiatives aimed at streamlining certain operating and administrative functions, reducing costs and improving operating efficiencies. The charge is composed primarily of employee related costs, primarily an early retirement package, as well asset write-downs and disposals, mainly of a distribution facility and adjacent office center. Other income in 1997 primarily reflects the gain associated with the repayment of a long-term note receivable along with interest income from the note that was partially offset by foreign exchange losses and other one time non-operating expenses. In 1996, other income primarily reflected accrued interest that was reversed as a result of a tax audit settlement and interest income received on a long-term note receivable. The Company's effective tax rate for fiscal 1997 was 39.5% compared to 40.2% in fiscal 1996, reflecting higher favorable permanent tax differences and a lower blended state tax rate. The extraordinary loss of $633,000 or $0.02 per share resulted from the costs associated with the repurchase of the Company's previously outstanding $100,000,000 9 1/8% Senior Subordinated Notes. Inflation was not considered to be a significant factor in the Company's operations during fiscal 1997. Financial Condition At June 30, 1998 worldwide credit facilities in place aggregated $403,702,000 of which $110,652,000 was available but unused. Excluding acquisitions or stock repurchases, the Company expects to repay up to $40,000,000 on these credit facilities over the next twelve months by utilizing positive cash flow generated by its operations. The Company also has the option to sell up to $100,000,000 of fractional ownership interest, without recourse, in a defined pool of eligible accounts receivable. As of June 30, 1998, the entire $100,000,000 had been sold (See Note 5). As of June 30, 1998, the Company had long-term debt outstanding of $388,054,000. Principal payments due on long-term debt (including current maturities) total $217,752,000 for the five-year period beginning July 1, 1998. To balance its exposure to fluctuations in interest rates, foreign currencies and polyethylene resin pricing, the Company periodically enters into interest rate and foreign currency swaps and raw material contracts. At June 30, 1998 the Company was party to various interest swap agreements with a notional amount of approximately $127,000,000, which will mature over the next 5 years. The Company has entered into fixed price contracts (with various maturities through 2006), which covers about 37% of the Company's domestic resin requirements. There is also a "collar" contract which assures prices do not exceed a cap, as well as setting a floor, covering an additional 20% of the Company's domestic resin requirements. To reduce its foreign exchange risk, the Company periodically enters into foreign currency contracts that can limit the impact of exchange rate fluctuations resulting from anticipated inventory purchases and intercompany transactions. (See Note 10). Capital expenditures, including capitalized interest, were $44,480,000 during fiscal 1998 and $41,960,000 in fiscal 1997. The additions to property, plant and equipment relate to the Company's emphasis on continued enhancements in product quality, reductions in manufacturing costs, product development and technology improvements. During fiscal 1998 and 1997, the Company also acquired previously leased equipment totaling $44,208,000 and $22,320,000, respectively. The Company's fiscal 1999 plan reflects capital expenditures and associated capitalized interest of approximately $45,900,000 and fixed payments (interest, principal, receivable financing costs and lease payments) of approximately $44,000,000. The Company's debt agreements have restrictions on the Company's ability to incur certain indebtedness; however, based on its working capital requirements, the current availability under its credit facilities, and its ability to generate positive cash flows from operations, the Company does not believe that such limitations will have a material effect on the Company's long-term liquidity. The Company believes that it will have the funds necessary to meet all of its above described financing requirements and all other fixed obligations. Should the Company undertake strategic acquisitions, requiring funds in excess of its internally generated cash flow, it might be required to incur additional debt. Certain of the Company's operations are subject to federal, state and local environmental laws and regulations which impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations. Year 2000 Issue Over the past several years the Company has been dedicating significant resources, from both a financial and personnel basis, towards an upgrade of its U.S. and Canadian computer applications. These enhancements are intended to improve many business areas, such as customer service, inventory control, data interfacing between forecasting, production and sales and other logistic efficiencies. In addition to the aforementioned improvements, the implementation of these new systems is intended to address the Year 2000 issue. The 10 Year 2000 issue refers to the potential impact to various date-sensitive software and hardware which utilize two digits rather than four when defining the current year. In addressing the Year 2000 issue the Company has reviewed the potential impact to both its information systems and to any ancillary system which may be impacted. This review included, but was not limited to, an analysis of all significant systems or assets which may use microcontrollers. The Company is now in the final testing phase of its sales, costing and production modules and currently intends to implement these systems in the first and second quarters of calendar 1999. In addition to upgrading its own systems, the Company has contacted certain significant suppliers to determine their Year 2000 compliance profile. To date, the Company has not received any information which would indicate that the Year 2000 will result in any significant disruption from its suppliers. If any supplier should develop a Year 2000 problem, the Company believes that it is likely that there will be comparable items available from other vendors. The Company does not currently believe that the inability to adequately deal with the Year 2000 issue will impact any of its material third party relationships. All potential risks and uncertainties associated with the Year 2000 issue can not be fully and accurately quantified. Based on an analysis of First Brands systems implementation plan, the Company currently believes that any potential loss in revenue associated with the Year 2000 issue will not have a material impact to the ongoing operations of the Company. The Company's implementation plan has involved an expenditure of approximately $29,000,000 from a total budget of $33,000,000. It is unclear whether the Company can practicably develop a contingency plan should the system implementation plan fail to adequately deal with the Year 2000 issue. However, the Company currently believes that it will have the resources available to adequately test and modify, if necessary, its new information systems and other assets impacted by the Year 2000 issue between the first quarter of calendar 1999 and January 1, 2000. The Company's international subsidiaries, other than Canada which is covered in the U.S. program, have established their own plans for dealing with the Year 2000 issue, and have computer systems which are either fully compliant as of June 30, 1998 or are expected to be compliant by December 31, 1998. Such analysis was conducted in a manner similar to the methodology used by First Brands in the U.S. and Canada. Cautionary Statement for Purposes of the Private Securities Litigation Reform Act of 1995 Certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 are contained within this report, reflecting management's current estimate of future events. These forward-looking statements are based on many assumptions, primarily related to the Company's expected operating performance, and contain a number of risks and uncertainties including changes in consumer demand, changes in prices of raw materials, changes in distribution channels, competitive activities, fluctuations in foreign currency exchange rates, consumer acceptance of new product lines, the Company's ability to control internal costs, the successful development of new technologies, the successful integration of acquisitions into existing operations, increases in the cost of compliance with regulations, including environmental regulations, certain risks associated with operating in foreign countries, the implementation of strategic initiatives and general economic conditions. Accordingly, investors are cautioned that such forward-looking statements should not be relied upon as a prediction of actual results. ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and related documents of the Company are included in Part IV, Item 14 of this Report. ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 11 PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The principal executive officers and directors of the Company are as follows:
NAME AGE POSITION HELD WITH THE CORPORATION ---- --- ---------------------------------- William V. Stephenson(4, 5)................. 57 Chairman, Chief Executive Officer and Director Thomas H. Rowland(4)........................ 53 President, Chief Operating Officer and Director Donald A. DeSantis.......................... 48 Senior Vice President, Chief Financial Officer James S. Gracie............................. 39 Vice President, President of First Brands International, Inc. Mark E. Haglund............................. 47 Vice President, President of STP Products Inc. Patrick J. O'Brien.......................... 42 Vice President, President of Household Products Division Ronald F. Dainton........................... 59 Vice President, Human Resources Joseph B. Furey............................. 52 Vice President, Controller and Secretary Einar M. Rod................................ 46 Vice President and General Counsel Richard J. Mosback.......................... 45 Treasurer A. R. (Bud) McClellan....................... 44 Assistant Controller and Assistant Secretary Alfred E. Dudley(4*, 5)..................... 70 Director Robert F. Bernstock(a)(2, 3)................ 47 Director John C. Ferries(2, 3)....................... 60 Director James R. Maher(2, 3)........................ 48 Director James R. McManus(1, 5)...................... 64 Director Denis Newman(3*, 4)......................... 68 Director Ervin R. Shames(1*, 5)...................... 58 Director Robert G. Tobin(1, 2*)...................... 60 Director
- ------------ (a) Mr. Bernstock was elected to the Board of Directors during 1997, increasing the board membership to ten. Mr. Bernstock will stand for reelection at the Annual Meeting of Stockholders on October 23, 1998. * Denotes Chairman of Committee (1) Member, Compensation Committee (2) Member, Pension Committee (3) Member, Audit Committee (4) Member, Executive Committee (5) Member, Nominating Committee ------------------------ The Certificate of Incorporation provides for the classification of the Board of Directors into three classes of membership with terms expiring on different Annual Meeting dates. Approximately one-third of the members of the Board of Directors are nominated each year to serve as directors for a term of three years. Directors are elected at the Annual Meeting of Stockholders for the terms specified and continue in office until their respective successors have been elected and have qualified. The terms of office of Messrs. Bernstock, Newman and Shames expire at the Annual Meeting of Stockholders on October 23, 1998, the terms office of Messrs Dudley, McManus and Rowland expire at the Annual Meeting of Stockholders in October 1999, and the terms of office of Messrs, Ferries, Maher, Stephenson and Tobin expire at the Annual Meeting of Stockholders in October 2000. Executive officers and key employees are elected annually by, and serve at the pleasure of, the Board of Directors. There are no family relationships between any directors, executive officers or key employees of First Brands. 12 Mr. Stephenson was elected Chairman of the Board on January 1, 1997. On September 1, 1994, he was appointed Chief Executive Officer of the Company. He served as President from August 11, 1992 until he relinquished that title on August 7, 1998. From August, 1992 to September, 1994 he served as Chief Operating Officer. He was elected a Director of the Company on August 11, 1992. Mr. Rowland was elected President and Chief Operating Officer on August 7, 1998. He was elected Executive Vice President of the Company and served as President of the Home Products Division from August 11, 1992 to August 7, 1998. On November 1, 1996 he was elected a Director of the Company. Mr. DeSantis was elected Senior Vice President of the Company on November 5, 1993 and has been the Chief Financial Officer of the Company since June 19, 1986. He was re-elected as Treasurer on August 9, 1994 and held that position until he relinquished the title on October 24, 1997. Mr. Gracie was elected Vice President of the Company on August 6, 1997 and simultaneously appointed President of First Brands International, Inc. He is also Chief Executive Officer of First Brands (Canada) Corporation. He was Senior Vice President, First Brands International from May, 1996 until August, 1997. Prior to that he was CEO and President of First Brands (Canada) Corporation from November, 1994 to May, 1996. From March 1993 to October 1994, he was Vice President, Home Products in Canada. Mr. Haglund was elected Vice President of the Company on October 27, 1995. He was appointed President of STP Products, Incorporated on September 1, 1995, after serving as Senior Vice President and General Manager since August 1, 1994 and Vice President of Marketing since March, 1992. Mr. O'Brien was appointed President of the Household Products Division on August 7, 1998. He was elected Vice President of the Company on October 27, 1995. He was appointed President of A&M Products, Incorporated on September 1, 1995, after serving as Vice President and General Manager since May, 1992. Mr. Dainton was elected Vice President, Human Resources of the Company on May 24, 1989. Mr. Furey was elected Corporate Secretary on January 20, 1995 and Vice President of the Company on November 5, 1993. He has also served as Controller of the Company since June 19, 1986. From 1986 until 1995, Mr. Furey served as Assistant Secretary. Mr. Rod was elected Vice President of the Company effective June 1, 1997. He became General Counsel to the Company on May 20, 1996. Previously, he was an attorney with PepsiCo, Inc. a manufacturer and distributor of consumer products and provided legal counsel to PepsiCo's divisions, Pepsi-Cola North America and Pepsi-Cola International since prior to 1992. Mr. Mosback was elected Treasurer on October 24, 1997 after serving as Assistant Treasurer since January 20, 1995. He became Director of Finance and Internal Audits in 1993 and served in that capacity until January, 1995. Mr. McClellan was elected Assistant Secretary on January 26, 1996 and was elected Assistant Controller on January 20, 1995. He served as Director of Accounting from 1992 to 1995. Mr. Bernstock has been President and Chief Executive Officer of Vlasic Foods International (a food manufacturer and marketer) since March, 1998. Since July 1997, he served as Executive Vice President of the Campbell Soup Company, a food manufacturer and marketer, and President of its Specialty Food Division which was spun off in March 1998. He was appointed President -- U.S. Grocery Division and Senior Vice President of Campbell Soup Company in March, 1996. Mr. Bernstock served as President -- International Grocery Division from August 1994 to February 1996. He served as President -- International Soup Division from June, 1993 to July, 1994. He was elected a Director of the Company on October 16, 1997. Mr. Dudley was elected Chairman and Chief Executive Officer on June 19, 1986. He relinquished the title of Chief Executive Officer effective September 1, 1994 and the title of Chairman on January 1, 1997. He has been a Director of the Company since June 19, 1986. Mr. Ferries has been a consultant for the MacManus Group (a communications group consisting of nine companies) running their Mergers and Acquisitions program since January, 1998. In December, 13 1997, he retired from DMB&B, a MacManus advertising company, where he served as President -- Americas since September, 1993. He was elected a Director of the Company on June 5, 1997. Mr. Maher has been President of Mafco Holdings Inc., a diversified holding company, since July, 1998. Mr. Maher had been President and Chief Executive Officer of Mafco Consolidated Group, Inc., diversified manufacturer, now a wholly owned subsidiary of Mafco Holdings since July, 1995. He was Chairman of the Board from April, 1995 to April 1996 and was President and Chief Executive Officer from December, 1992 to April, 1995 of Laboratory Corporation of America, a health services company. He was elected a Director of the Company on May 26, 1988. Mr. McManus has been Chairman, Chief Executive Officer of Marketing Corporation of America, a marketing services firm, since prior to 1986. He also serves on the Board of Au Bon Pain, Inc. On February 1, 1994, Mr. McManus resigned as President and Chief Executive Officer of Business Express, Inc. a regional airline operating in the Northeastern United States. On January 22, 1996, a petition for Chapter IX Bankruptcy Protection was filed against Business Express in Federal Court in Manchester, New Hampshire by Saab Aircraft of America and two of its operating subsidiaries. He was elected a Director of the Company on November 18, 1986. Mr. Newman has been a Managing Director of MidMark Associates, Inc., a private investment firm since December, 1989. He also serves as a director of Clearview Cinema Group, Inc.. He was elected a Director of the Company on May 30, 1986. Mr. Shames has been Chairman of Select Comfort Corporation, a mattress manufacturer and retailer, since April, 1996 and was appointed Visiting Lecturer at the University of Virginia's Darden Graduate School of Business in September, 1996. He was a private investor and consultant from January, 1995 to April, 1996 and was President and Chief Executive Officer of Borden, Inc., a consumer products manufacturer, from December, 1993 to January, 1995. He was President and Chief Operating Officer of Borden, Inc. from July, 1993 until December, 1993. He was elected a Director of the Company on May 28, 1987. Mr. Tobin retired as Chairman of The Stop & Shop Supermarket Companies, Inc. and The Stop & Shop Supermarket Company, retail food, on July 31, 1998 when he became President and Chief Executive Officer of Ahold, Inc. Mr. Tobin served as Chairman, President and Chief Executive Officer of the aforementioned companies from January 1995 through December, 1997, relinquishing the title of President and Chief Executive Officer in December 1997. He was President and Chief Executive Officer of The Stop & Shop Supermarket Company from May, 1994 to January, 1995, and prior to this was President and Chief Operating Officer of The Stop & Shop Supermarket Companies, Inc. and The Stop & Shop Supermarket, since 1993. He was elected a Director of the Company on September 6, 1991. ITEM 11 -- EXECUTIVE COMPENSATION Incorporated by reference to the section entitled 'Executive Compensation' in the Company's Proxy Statement, dated September 22, 1998, for its 1998 Annual Meeting of Stockholders. ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the section entitled 'Beneficial Ownership of Voting Securities' in the Company's Proxy Statement, dated September 22, 1998, for its 1998 Annual Meeting of Stockholders. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 14 PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements
PAGE ---- Report of Management....................................................................16 Independent Auditors' Report............................................................16 Consolidated Statements of Income -- For the Years Ended June 30, 1998, 1997 and 1996.................................................................................17 Consolidated Balance Sheets -- June 30, 1998 and 1997...................................18 Consolidated Statements of Stockholders' Equity -- For the Years Ended June 30, 1998, 1997 and 1996........................................................................20 Consolidated Statements of Cash Flows -- For the Years Ended June 30, 1998, 1997 and 1996.................................................................................21 Notes to Consolidated Financial Statements..............................................22 (a) (2) Financial Statement Schedules Independent Auditors' Report On Schedules...............................................33 The following financial statement schedule of the Company as set forth below is filed with this Report on Form 10-K: Valuation and Qualifying Accounts (Schedule VIII) For the Years Ended June 30, 1998, 1997 and 1996........................................................................34
All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related Notes. (a) (3) Exhibits -- See Exhibit Index on Pages 36-37 for exhibits filed with the Annual Report on Form 10-K, as submitted with the Securities and Exchange Commission. (b) Reports on Form 8-K None. 15 First Brands Corporation and Subsidiaries Report of Management Management of First Brands Corporation is responsible for the financial and operating information contained in the Annual Report including the financial statements covered by the independent auditors' report. These statements were prepared in conformity with United States generally accepted accounting principles and include, where necessary, informed estimates and judgments. The Company maintains systems of accounting and internal control designed to provide reasonable assurance that assets are safeguarded against loss, and that transactions are executed and recorded properly so as to ensure that the financial records are reliable for preparing financial statements. Elements of these control systems are the establishment and communication of accounting and administrative policies and procedures, the selection and training of qualified personnel and continuous programs of internal audits. The Company's financial statements are reviewed by its Audit Committee, which is composed entirely of non-employee Directors. This Committee meets periodically with the independent auditors, management, and the corporate internal auditor to review the scope and results of the annual audit, interim reviews, internal controls, internal auditing, and financial reporting matters. The independent auditors and the corporate internal auditor have direct access to the Audit Committee. /s/ W. V. Stephenson /s/ D. A. DeSantis W. V. Stephenson D. A. DeSantis Chairman and Chief Senior Vice President and Executive Officer Chief Financial Officer August 6, 1998 Independent Auditors' Report The Board of Directors and Stockholders of First Brands Corporation: We have audited the accompanying consolidated balance sheets of First Brands Corporation and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Brands Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for business process re-engineering costs effective October 1, 1997. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP New York, New York August 6, 1998 16 First Brands Corporation and Subsidiaries Consolidated Statements of Income
Years Ended -------------------------------------------------- June 30, June 30, June 30, (Dollars in thousands, except per share data) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $1,203,670 $1,119,898 $1,073,022 Cost of goods sold 775,870 713,203 687,103 Selling, general and administrative expenses 291,156 268,086 241,711 Amortization and other depreciation 14,585 13,411 15,607 Restructuring expense (Note 3) 2,700 19,000 -- Interest expense and amortization of debt discount and expenses 29,604 20,383 17,546 Discount on sale of receivables (Note 5) 4,561 3,992 3,963 Other income (expense), net (500) 1,575 1,827 - ------------------------------------------------------------------------------------------------------------------------------------ Income before provision for income taxes, extraordinary loss and cumulative effect of change in accounting principle 84,694 83,398 108,919 Provision for income taxes (Note 14) 32,364 32,533 43,819 - ------------------------------------------------------------------------------------------------------------------------------------ Income before extraordinary loss and cumulative effect of change in accounting principle 52,330 50,865 65,100 Extraordinary loss relating to the repurchase of subordinated debt, net of taxes (Note 11) -- (633) -- Cumulative effect of change in accounting principle, net of taxes (Note 2) (6,922) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 45,408 $ 50,232 $ 65,100 ==================================================================================================================================== Per common share (Note 1): Basic: Income before extraordinary loss and cumulative effect of change in accounting principle $ 1.32 $ 1.25 $ 1.56 Extraordinary loss -- (0.02) -- Cumulative effect of change in accounting principle (0.17) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 1.15 $ 1.23 $ 1.56 ==================================================================================================================================== Diluted: Income before extraordinary loss and cumulative effect of change in accounting principle $ 1.29 $ 1.22 $ 1.53 Extraordinary loss -- (0.02) -- Cumulative effect of change in accounting principle (0.17) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 1.12 $ 1.20 $ 1.53 ==================================================================================================================================== Weighted average outstanding common shares (Note 1): Basic 39,615,855 40,771,610 41,661,624 Diluted 40,501,876 41,756,802 42,600,021 ====================================================================================================================================
See accompanying notes to the consolidated financial statements 17 First Brands Corporation and Subsidiaries Consolidated Balance Sheets
Years Ended --------------------------- June 30, June 30, (Dollars in thousands, except per share data) 1998 1997 - ----------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 12,029 $ 7,465 Accounts and notes receivable (net of allowances for doubtful accounts and discounts of $8,297 and $6,842) (Note 5) 118,326 134,554 Inventories (Note 1) 155,480 151,976 Deferred tax assets (Note 14) 11,827 15,992 Prepaid expenses 10,170 9,434 - ---------------------------------------------------------------------------------------- Total current assets 307,832 319,421 Property, plant and equipment (net of accumulated depreciation of $160,529 and $141,691) (Notes 1 and 6) 419,755 377,128 Patents, trademarks, proprietary technology and other intangibles (net of accumulated amortization of $204,916 and $192,631) (Notes 1 and 7) 284,849 310,095 Deferred charges and other assets (net of accumulated amortization of $52,687 and $52,029) 47,765 40,137 - ---------------------------------------------------------------------------------------- Total assets $1,060,201 $1,046,781 ========================================================================================
See accompanying notes to the consolidated financial statements. 18 First Brands Corporation and Subsidiaries Consolidated Balance Sheets (continued)
Years Ended --------------------------------- June 30, June 30, (Dollars in thousands, except per share data) 1998 1997 - ------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes Payable $ 4,562 $ 8,432 Current maturities of long-term debt (Note 11) 3,384 2,811 Accrued income and other taxes (Note 14) 8,253 7,373 Accounts payable 71,692 61,877 Accrued liabilities (Note 9) 92,919 106,084 - ------------------------------------------------------------------------------------------------- Total current liabilities 180,810 186,577 Long-term debt (Note 11) 388,054 380,467 Deferred tax liability (Note 14) 78,788 65,348 Other long-term obligations (Note 15) 26,401 20,473 Preferred stock, $1 par value, 10,000,000 shares authorized; none issued -- -- Common stock, $0.01 par value, 120,000,000 shares authorized; 43,553,846 shares issued at June 30, 1998 and 43,394,044 shares issued at June 30, 1997 435 434 Capital in excess of par value 134,166 130,994 Cumulative foreign currency translation adjustment (27,556) (12,455) Common stock in treasury, at cost; 4,407,000 shares at June 30, 1998 and 3,355,000 shares at June 30, 1997 (123,039) (96,837) Retained earnings 402,142 371,780 - ------------------------------------------------------------------------------------------------- Total stockholders' equity 386,148 393,916 - ------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,060,201 $1,046,781 =================================================================================================
See accompanying notes to the consolidated financial statements. 19 First Brands Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1998, 1997 and 1996 -------------------------------------------------------------------------------------- Cumulative Common Stock Capital Foreign ---------------------- In Excess Currency Shares Par of Par Translation Retained Treasury (Dollars in thousands) Outstanding Value Value Adjustment Earnings Stock Total - ----------------------------------------------------------------------------------------------------------------------------- Balance as of June 30, 1995 20,935,314 $221 $120,914 $(7,173) $278,649 $(40,433) $352,178 Cash dividends (Note 1) -- -- -- -- (9,903) -- (9,903) Exercise of stock options 199,196 2 4,470 -- -- -- 4,472 Tax benefit related to the exercise of employee stock options -- -- 1,256 -- -- -- 1,256 Net income -- -- -- -- 65,100 -- 65,100 Purchase of treasury stock (279,300) -- -- -- -- (12,130) (12,130) Foreign currency translation adjustment -- -- -- (2,148) -- -- (2,148) Two-for-one stock split 20,795,376 208 (208) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Balance as of June 30, 1996 41,650,586 $431 $126,432 $(9,321) $333,846 $(52,563) $398,825 Cash dividends (Note 1) -- -- -- -- (12,298) -- (12,298) Exercise of stock options 253,458 3 3,350 -- -- -- 3,353 Tax benefit related to the exercise of employee stock options -- -- 1,212 -- -- -- 1,212 Net income -- -- -- -- 50,232 -- 50,232 Purchase of treasury stock (1,865,000) -- -- -- -- (44,274) (44,274) Foreign currency translation adjustment -- -- (3,134) -- -- (3,134) - ----------------------------------------------------------------------------------------------------------------------------- Balance as of June 30, 1997 40,039,044 $434 $130,994 $(12,455) $371,780 $(96,837) $393,916 Cash dividends (Note 1) -- -- -- -- (15,046) -- (15,046) Exercise of stock options 159,802 1 2,101 -- -- -- 2,102 Tax benefit related to the exercise of employee stock options -- -- 1,071 -- -- -- 1,071 Net income -- -- -- -- 45,408 -- 45,408 Purchase of treasury stock (1,052,000) -- -- -- -- (26,202) (26,202) Foreign currency translation adjustment -- -- -- (15,101) -- -- (15,101) - ----------------------------------------------------------------------------------------------------------------------------- Balance as of June 30, 1998 39,146,846 $435 $134,166 $(27,556) $402,142 $(123,039) $386,148 ====================================================================================================================================
See accompanying notes to the consolidated financial statements. 20 First Brands Corporation and Subsidiaries Consolidated Statements of Cash Flows
Years Ended ----------------------------------------- June 30, June 30, June 30, (in thousands) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $45,408 $50,232 $65,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 44,427 41,448 38,282 Restructuring expense 2,700 19,000 -- Deferred income taxes 19,722 5,808 25,808 Amortization of gain on sale/leaseback -- (909) (1,580) Cumulative effect of change in accounting principle 6,922 -- -- Loss on repurchase of subordinated notes -- 633 -- Change in non-cash current assets and liabilities, net of effect of businesses acquired: (Increase) in accounts receivable (5,712) (25,674) (12,052) (Increase) decrease in inventories (8,239) 4,405 11,836 (Increase) in prepaid expenses (1,072) (3,942) (1,048) Increase (decrease) in accrued income and other taxes 5,712 4,306 (7,263) Increase (decrease) in accounts payable 12,207 (9,808) (10,937) (Decrease) in accrued liabilities (14,184) (14,700) (36,171) Other changes (4,053) (1,440) (3,687) - ---------------------------------------------------------------------------------------------------------------------------------- Total adjustments 58,430 19,127 3,188 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 103,838 69,359 68,288 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (44,480) (41,960) (42,293) Acquisition of leased assets (44,208) (22,320) (9,797) Acquisition of businesses, net of cash acquired -- (160,210) (32,255) Retirements of plant and equipment 8,218 1,109 1,072 Purchase and installation of software (13,514) (10,564) (5,518) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash (used) by investing activities (93,984) (233,945) (88,791) - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving credit facilities, net 18,899 135,143 35,000 (Decrease) increase in other borrowings, net (728) 4,149 (3,835) Increase in securitization of accounts receivable, net 15,000 15,000 10,000 Issuance of 7 1/4% senior subordinated notes, net of underwriting discount -- 149,025 -- Repurchase of 9 1/8% senior subordinated notes -- (100,000) -- Proceeds from settlement of Prestone note receivable -- 13,000 -- Proceeds from exercise of stock options 2,102 3,353 4,472 Purchase of common stock for treasury (26,202) (44,274) (12,130) Dividends paid (14,361) (11,671) (9,903) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (5,290) 163,725 23,604 - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 4,564 (861) 3,101 Cash and cash equivalents at beginning of year 7,465 8,326 5,225 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 12,029 $ 7,465 $ 8,326 ==================================================================================================================================
See accompanying notes to the consolidated financial statements. 21 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies First Brands Corporation and subsidiaries ("First Brands" or the "Company") engages in the development, manufacture, marketing and sale of consumer products sold under branded and private labels. Principal branded products include: GLAD and GLAD-LOCK (plastic wrap and bags); GLADWARE (plastic containers); STP (oil and fuel additives and other specialty automotive appearance products); SCOOP AWAY, EVER CLEAN, EVERFRESH and JOHNNY CAT (cat litters); and STARTERLOGG and HEARTHLOGG (wood fire starters and fire logs). Basis of Presentation The accompanying financial statements reflect the consolidated accounts of the Company for all periods presented. All material intercompany transactions and balances have been eliminated. To prepare financial statements in conformity with generally accepted accounting principles, management must make a number of assumptions and estimates which affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statement, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All information presented is for a fiscal year, unless otherwise noted. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for substantially all inventories in the United States. In general, the average cost or FIFO method is used by the international operations. Inventories were composed of the following as of June 30, 1998 and 1997:
(In thousands) 1998 1997 - ------------------------------------------------- Raw materials $ 34,160 $ 34,518 Work in process 5,485 5,795 Finished goods 115,835 111,663 - ------------------------------------------------- $155,480 $151,976 =================================================
Property, Plant and Equipment Property, plant and equipment are carried at cost. Expenditures for replacements are capitalized and the replaced assets are retired. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets for accounting purposes. The Company capitalizes interest on major fixed asset additions during construction. Interest capitalized totaled $2,297,000, $1,864,000 and $2,017,000 in 1998, 1997 and 1996, respectively. Patents, Trademarks, Proprietary Technology and Other Intangibles Patents, trademarks, proprietary technology and other intangibles are carried at cost less accumulated amortization which is calculated on a straight-line basis over the estimated useful lives of the assets, not to exceed 40 years. Deferred Charges and Other Assets Deferred charges and other assets include financing costs that are amortized over the terms of the respective financing agreements, as well as long-term notes receivable, purchased software, investments and assets relating to the securitization of accounts receivable. Research and Development Research and development expenditures are charged to expense as incurred. Expenditures were $4,778,000, $5,043,000 and $4,789,000 in 1998, 1997 and 1996, respectively. Income and Dividends per Share During fiscal 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaces primary and fully diluted earnings per share ("EPS") with basic and diluted EPS, and requires dual presentation of basic and diluted EPS on the face of the income statement for all companies with complex capital structures. Basic EPS represents the earnings available for each common share outstanding during the period. Diluted EPS reflects earnings available for each common share after the affect of all potentially dilutive common shares, such as options, warrants and convertible securities. The number of weighted average shares used to calculate diluted EPS differs slightly from those shares used to calculate basic EPS due to the effect of employee stock options. Cash dividends declared for fiscal 1998, 1997 and 1996 were $0.38, $0.30 and $0.24 per share, respectively. Statement of Cash Flows For purposes of the Statements of Cash Flows, the Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. 22 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Supplemental disclosure of cash flow information:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------- Cash paid during the year for: Interest $32,705 $18,821 $23,674 Income Taxes $16,378 $27,385 $34,380 ====================================================================
Interest payments during fiscal 1996 include $6,325,000 paid in settlement of an IRS audit. Revenue Recognition The Company recognizes revenue from product sales upon shipment to the customer. Risk Management The Company periodically enters into various hedging transactions to minimize the effect of fluctuations in currency exchange rates, raw material pricing and interest rates. The foreign currency forward contracts limit the Company's exposure to currency fluctuations associated with certain transactions, while raw material contracts stabilize a portion of the costs associated with the Company's resin purchases. Interest rate swaps allow the Company to better balance its interest rate exposure between fixed and floating interest rates. The Company does not hold or issue these financial instruments for trading purposes. Foreign Currency Translation The assets and liabilities of the international subsidiaries are translated to U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations are translated at the average monthly exchange rate. Resulting adjustments are recorded in a separate component of stockholders' equity as "Cumulative foreign currency translation adjustment." Reclassification Certain amounts for fiscal 1997 and 1996 have been reclassified to conform to the fiscal year 1998 classifications. 2. Accounting Change During the second quarter of fiscal 1998, the Company changed its accounting policy for costs associated with the business process re-engineering activities which relate to the Company's information system upgrade. In accordance with the Financial Accounting Standards Board ("FASB") Emerging Issues Task Force Issue No. 97-13, the Company is now expensing these process re-engineering costs. Prior to fiscal 1998, the Company capitalized these costs, intending to amortize them over a five to seven year period commencing with the implementation of the new information system. The cumulative effect of the accounting change principle resulted in a charge to earnings of $11,434,000 ($6,922,000 after taxes or $0.17 per diluted share). On a pro forma basis, the Company's reported net income for fiscal 1997 and 1996 would have been reduced by $5,069,000 ($0.12 per diluted share) and $1,022,000 ($0.02 per diluted share), respectively. 3. Restructuring In fiscal 1997, the Company recorded a $19,000,000 restructuring charge ($11,590,000 after taxes or $0.28 per diluted share), for initiatives aimed at streamlining certain operating and administrative functions, reducing costs and improving operating efficiencies. During fiscal 1998, an additional charge of $2,700,000 ($1,668,000 after taxes or $0.04 per diluted share), was recorded to reflect greater than anticipated participation in the early retirement program along with revisions to earlier estimates, principally costs associated with employees. The total charge of $21,700,000 was composed of a $10,000,000 charge for employee related costs, primarily an early retirement window package and related costs to obtain personnel reductions and $11,700,000 related to asset write-downs and disposals, mainly of a distribution facility and adjacent office center in East Hartford, Connecticut. Substantially all restructuring liabilities have been paid or settled during fiscal 1998. 4. Acquisitions and Divestitures Acquisitions During fiscal 1998, the Company's New Zealand subsidiary acquired, for approximately $750,000, the XLO sponge brand in the New Zealand market. In fiscal 1997, the Company's South African subsidiary acquired 76% of the outstanding stock of Sealapac (PVT) LTD., a Zimbabwe manufacturer and marketer for the consumer products and commercial markets. On March 14, 1997, the Company purchased, for approximately $160,000,000, the NationalPak business in Australia and New Zealand from National Foods Limited. NationalPak manufacturers and markets consumer products such as plastic wrap and bags, aluminum foil and wiping cloths under the GLAD, CHUX, OSO, MONO and ROTA brand names. The acquisition was funded by long-term borrowings in the United States, Canada, Australia and New Zealand (see Note 11). During fiscal 1998, the Company sold to local management a 4.4% interest in the Australian subsidiary. On March 19, 1996, the Company purchased, for approximately $32,000,000, the net assets of Forest Technology Incorporated, the manufacturer and marketer of the STARTERLOGG and HEARTHLOGG brand of wood fire starters and fire logs. All of the above business and brand acquisitions have been accounted for by the purchase method, and accord- 23 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) ingly, the results of operations of NationalPak, Forest Technology, Sealapac and XLO are included in the Company's Consolidated Statements of Income from the respective dates of acquisition. The excess of costs over net assets acquired for the NationalPak and Forest Technology acquisitions were $63,100,000 and $30,100,000, respectively, and are being amortized over a forty year period on a straight line basis. Divestitures During fiscal 1997, the Company sold its SIMONIZ wax and polish business. The gain associated with the sale of the SIMONIZ business is reflected in Other income (expense), net in the fiscal 1997 Consolidated Statement of Income. Early in fiscal 1995, First Brands sold the Prestone antifreeze/coolant and car care business to Prestone Products Corporation ("Prestone"). During fiscal 1997, Prestone repaid a $13,000,000 loan (which for financial reporting purposes was valued at $9,000,000 at the time of the divestiture), resulting in a gain of approximately $2,700,000 that is reflected in Other income (expense), net, in the Consolidated Statement of Income. 5. Accounts Receivable During fiscal 1998, the Company exercised its option to terminate a previous agreement to sell up to $100,000,000 in eligible trade accounts receivable. After terminating its previous agreement, the Company entered into a new three year agreement, with an automatic yearly renewal provision thereafter, for the sale of $100,000,000 in fractional ownership interest in a defined pool of eligible receivables. The new program increases the receivable pool which may be considered eligible, reduces the yearly service fees and provides for a lower discount rate. As of June 30, 1998 the entire $100,000,000 had been sold, reflecting a $15,000,000 increase over the prior year-end balance. The amounts sold are presented as reductions in accounts receivable on the accompanying Consolidated Balance Sheets. The costs associated with this program are reported as "Discount on sale of receivables." 6. Property, Plant and Equipment Property, plant and equipment as of June 30, 1998 and 1997 consisted of:
Useful (In thousands) 1998 1997 Lives - ------------------------------------------------------------------------- Land and Improvements $ 14,052 $ 18,713 -- Buildings 70,552 77,847 30-40 years Machinery and Equipment 479,060 404,019 13-15 years Other 16,620 18,240 3-5 years - ------------------------------------------------------------------------- 580,284 518,819 Less: Accumulated depreciation (160,529) (141,691) - ------------------------------------------------------------------------- $ 419,755 $ 377,128 =========================================================================
Depreciation expense was $31,009,000, $29,042,000 and $25,149,000 in fiscal 1998, 1997 and 1996, respectively. 7. Patents, Trademarks, Proprietary Technology and Other Intangibles The Company periodically reviews the carrying value of intangible assets to determine whether the carrying amount of an asset is recoverable. The primary indicators of recoverability are current or forecasted profitability of the related acquired business, measured as profit before interest and amortization of the related intangible assets compared to their carrying values. For the three-year periods ended June 30, 1998, 1997 and 1996 there were no material adjustments to the carrying values of intangible assets resulting from these evaluations. Patents, trademarks, proprietary technology and other intangibles as of June 30, 1998 and 1997 consisted of:
Useful (In thousands) 1998 1997 Lives - ------------------------------------------------------------------------- Trademarks $ 117,201 $ 116,866 40 years Patents, proprietary technology and other intangibles 163,371 162,658 10-17 years Excess of cost over net assets acquired 209,193 223,202 40 years - ------------------------------------------------------------------------- 489,765 502,726 Less: Accumulated amortization (204,916) (192,631) - ------------------------------------------------------------------------- $ 284,849 $ 310,095 =========================================================================
24 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. Notes Payable The Notes payable consisted of international subsidiaries' working capital borrowings with local banks totaling $4,562,000 and $8,432,000 at June 30, 1998 and 1997, respectively. The international credit facilities, which aggregate $17,456,000, are generally secured by the assets of the respective international subsidiary, with approximately $2,024,000 at one international subsidiary guaranteed by First Brands Corporation (U.S.). The Company also borrows against an unsecured domestic line of credit and at June 30, 1998 and 1997, the entire $15,000,000 available under this facility was unused. The average borrowings outstanding and average interest rates charged during fiscal 1998 and 1997 were $14,600,000 at 11.3% and $10,750,000 at 10.2%, respectively. 9. Accrued Liabilities Accrued liabilities as of June 30, 1998 and 1997 consisted of the following:
(In thousands) 1998 1997 - -------------------------------------------------------------------------------- Interest $ 5,764 $ 6,494 Employee benefits and wages 9,410 9,295 Marketing and sales programs 44,997 54,384 Raw material purchases 16,220 14,314 Other 16,528 21,597 - -------------------------------------------------------------------------------- $92,919 $106,084 ================================================================================
10. Financial Instruments The Company has entered into various interest rate swap agreements to transform a portion of its variable rate debt into fixed rate obligations. According to the provisions of these agreements, the Company will pay between 5.45% and 7.07% fixed interest for up to five years and will receive floating rate counter payments (5.64% at June 30, 1998). A majority of the swap agreements provide for a five year renewal at the counterparties discretion. The difference between interest paid and received is included as an adjustment to interest expense. The notional amount of the contracts is approximately $127,000,000. The fair value of each swap agreement may generate a gain or loss depending on the estimated amounts that the Company would pay to terminate the agreement based on the prevailing and anticipated interest rates at the reporting dates. To limit the impact of exchange rate fluctuations resulting from anticipated inventory purchases and intercompany transactions, the Company periodically enters into foreign currency contracts. Outstanding contracts totaled approximately $24,775,000 and $40,875,000 as of June 30, 1998 and 1997, respectively. Contracts outstanding as of June 30, 1998 will mature over the next ten years. The Company has entered into various contracts to partially stabilize the cost, at or below the market average over the last four years, of its polyethylene resin requirements. Fixed price contracts cover about 37% of the Company's domestic resin requirements and have various maturities through 2006. There is also a "collar" contract protecting a range of prices covering an additional 20% of the Company's domestic resin requirements. The Company considers the risks associated with its interest, currency and resin contracts to be relatively low because of the Company's policy to only enter into agreements with strong credit worthy counterparties. Gains and losses on the currency impact of cross border transactions and the effect of foreign currency contracts are recorded in Other income (expense), net in the Consolidated Statement of Income. During fiscal 1998 a net credit of $1,900,000 was recorded from these transactions and during fiscal 1997 the net loss was immaterial. Gains and losses on resin and interest contracts are recognized into earnings when the related transactions being hedged are completed. There were no significant gains or losses associated with these contracts in fiscal 1998 and 1997. Other financial instruments include cash and cash equivalents, accounts and notes receivable, notes payable, accounts payable and long-term debt. Because of the short-term nature of cash and cash equivalents, accounts and notes receivable, notes payable and accounts payable, their carrying value approximates fair value. A portion of the Company's long-term debt consists of variable rate instruments, therefore the carrying value approximates fair value. The fair value of the Company's long-term fixed rate debt approximates the carrying value as of June 30, 1998 and 1997. 25 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. Long-term Debt First Brands had the following long-term debt as of June 30, 1998 and 1997:
(In thousands) 1998 1997 - -------------------------------------------------------------------------------- Senior Debt(a): $300,000,000 Revolving Credit Facility, 5 year term expiring February 2002, interest at prime rate, LIBOR plus .275% or CD rate plus .4%; facility fee of .15% $190,000 $162,000 $59,354,000 Australian and New Zealand Credit Facility, 7 year term expiring March 2004, interest at local Bill Rate plus .7% 42,745 58,727 $9,575,000 Canadian Credit Facility, 5 year term expiring March 2002, interest at Canadian prime rate, LIBOR plus .425% or Canadian Bankers Acceptance plus .425% 3,424 8,619 Other 5,269 3,932 - -------------------------------------------------------------------------------- 241,438 233,278 Less current maturities (3,384) (2,811) - -------------------------------------------------------------------------------- Senior Debt 238,054 230,467 Subordinated Debt(b): 7 1/4% Senior Notes Due 2007 150,000 150,000 - -------------------------------------------------------------------------------- $388,054 $380,467 ================================================================================
(a) The Company's revolving credit facility is unsecured and requires no compensating balance, however it does have certain restrictive covenants, the most significant of which relates to the ratio of debt to equity, dividend payments and stock repurchases. The seven-year $59,354,000 Australian and New Zealand credit facility is composed of two parts; one of which was used to acquire the NationalPak business (see Note 4) and a second part that can be used for working capital needs. There are fixed periodic payments associated with the acquisition borrowing and the working capital borrowing can be drawn on and repaid at NationalPak's discretion. The facility is secured by the accounts receivable, inventory and fixed assets of NationalPak. The five-year $9,575,000 Canadian credit facility requires fixed periodic payments. The facility is secured by the accounts receivable, inventory and fixed assets of the Canadian business. (b) The $150,000,000, 7 1/4% Senior Notes (the "7 1/4% Notes") which were issued during fiscal 1997 will become due on March 1, 2007. Proceeds from the sale of the 7 1/4% Notes were used to redeem all of the Company's previously issued 9 1/8% Senior Subordinated Notes (the "9 1/8% Notes") and to reduce bank debt. The write-off of unamortized issuance costs and other expenses associated with the repurchase of the 9 1/8% Notes was recorded as an extraordinary charge on the Company's Consolidated Statement of Income. The 7 1/4% Note Indenture contains certain restrictive covenants and limitations the most significant of which relates to the Company's right to incur debt and to engage in certain sale and leaseback transactions. First Brands was in compliance with all the covenants of the senior and subordinated debt agreements at June 30, 1998. Principal payments due on long-term debt (including current maturities) will require the following future payments: $3,384,000 in fiscal 1999, $4,223,000 in fiscal 2000, $4,834,000 in fiscal 2001, $199,002,000 in fiscal 2002, $6,309,000 in fiscal 2003 and $173,686,000 thereafter. 12. Leases During fiscal 1998, the Company acquired all remaining domestic production equipment which had been previously leased. These assets were associated with sale and leaseback agreements and were classified as operating leases in accordance with SFAS No. 13 "Accounting for Leases." The Company leases various warehousing, production and office facilities under operating lease agreements. Lease terms generally range from one to fifteen years with options to renew. Lease commitments under non-cancelable operating leases extending for one year or more require the following future payments: $5,955,000 in 1999, $5,200,000 in 2000, $4,680,000 in 2001, $4,185,000 in 2002, $3,950,000 in 2003 and $13,785,000 thereafter. The total rental expense under operating leases was $10,338,000, $16,035,000 and $20,856,000 for the years ended June 30, 1998, 1997 and 1996, respectively. 13. Capital Stock First Brands has four stock option plans ("the plans") three of which are for certain key employees and one for non-employee directors. The plans' objectives are to establish a direct link between the financial interest of eligible employees and the performance of the Company and to attract and retain the most qualified personnel. Stock options are primarily performance-based and have terms that are not more than ten years from the date of grant. The exercise price for 26 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) stock options may not be less than the fair market value of the Common Stock on the date of grant and such options will vest over a period determined by the Compensation Committee of the Board of Directors. As of June 30, 1998, the total number of options available for grant are 2,017,652. Options granted to certain personnel contain restricted and limited stock appreciation rights ("LSAR's"). LSAR's may be granted in tandem with a stock option grant or at any time following the stock option grant and are only exercisable upon a change of control of the Company. LSAR's will exercise automatically following certain changes in control of the Company, and upon such exercise the grantee, in cancellation of the underlying stock options, will receive cash equal to the excess of the fair market value of each share of Common Stock subject to the limited stock appreciation right over the exercise price of the underlying stock option. LSAR's have been granted with respect to 1,288,000 shares. A summary of the options transactions for the years ended June 30, 1998, 1997 and 1996 follows:
1998 1997 1996 - -------------------------------------------------------------------------------- Options outstanding, beginning of fiscal year 3,257,472 2,943,822 2,613,380 Options granted-- per share $22.53-$28.25 20,000 573,000 669,000 Options exercised-- per share $9.50-$22.52 (159,802) (253,350) (328,558) Options canceled-- per share $16.38-$28.25 (26,500) (6,000) (10,000) - -------------------------------------------------------------------------------- Options outstanding, end of fiscal year 3,091,170 3,257,472 2,943,822 - -------------------------------------------------------------------------------- Exercisable at June 30 1,934,670 2,028,472 2,287,822 ================================================================================
The following tables set forth information regarding stock options outstanding and those options which are exercisable as of June 30, 1998:
OPTIONS Weighted Weighted OUTSTANDING Stock Average Average Range of Options Exercise Remaining Exercise Prices Outstanding Price Life - ----------------------------------------------------------------------------- $9.50-$12.66 699,170 $11.81 2.7 $14.66-$22.60 1,786,000 $18.03 6.2 $26.00-$28.25 606,000 $25.87 8.8 - ----------------------------------------------------------------------------- 3,091,170 $18.16 5.9 =============================================================================
OPTIONS Weighted EXERCISABLE Stock Average Range of Options Exercise Exercise Prices Exercisable Price - ------------------------------------------------------------------------------- $9.50-$12.66 699,170 $11.81 $14.66-$22.60 1,192,500 $15.79 $26.00-$28.25 43,000 $23.84 - ------------------------------------------------------------------------------- 1,934,670 $14.53 ===============================================================================
The Company adopted the disclosure-only provision of SFAS No. 123 "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for its time vested option plans. If the Company had elected to adopt the recognition provision of SFAS No. 123, income and per share amounts would be the following:
1998 1997 1996 - -------------------------------------------------------------------------------- Income before extraordinary loss and accounting change: As reported $52,330 $50,865 $65,100 Pro forma 51,744 50,265 64,461 Basic earnings per share: As reported $ 1.32 $ 1.25 $ 1.56 Pro forma 1.31 1.23 1.55 Diluted earnings per share: As reported $ 1.29 $ 1.22 $ 1.53 Pro forma 1.28 1.20 1.51 ================================================================================
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
1998 1997 1996 - ------------------------------------------------------------------------------- Dividend yield 1.5% 1.3% 1.3% Risk free interest rate 5.5% 5.3% 5.3% Expected volatility rate 42.6% 25.8% 21.9% Expected life 7.7 years 7.6 years 7.3 years ===============================================================================
14. Income Taxes The geographic components of earnings before income taxes, extraordinary loss and cumulative change in accounting principle are as follows:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- United States $74,951 $75,790 $100,236 International 9,743 7,608 8,683 - -------------------------------------------------------------------------------- $84,694 $83,398 $108,919 ================================================================================
27 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Total income taxes for the years ended June 30, 1998, 1997 and 1996 were allocated as follows:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- Income before extraordinary loss and cumulative change in accounting principle $32,364 $32,533 $43,819 Extraordinary loss -- (415) -- Cumulative change in accounting principle (4,512) -- -- Stockholders' equity, for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (1,071) (1,212) (1,256) - -------------------------------------------------------------------------------- $26,781 $30,906 $42,563 ================================================================================
Income tax expense attributable to income before extraordinary loss and cumulative change in accounting principle for the years ended June 30, 1998, 1997 and 1996 consists of the following:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- Current: Federal $ 6,765 $20,418 $11,640 State 1,071 3,539 2,566 Foreign 4,806 2,768 3,805 - ------------------------------------------------------------------------------- Total current 12,642 26,725 18,011 - ------------------------------------------------------------------------------- Deferred: Federal 17,037 4,638 20,916 State 3,355 1,028 5,275 Foreign (670) 142 (383) - ------------------------------------------------------------------------------- Total deferred 19,722 5,808 25,808 - ------------------------------------------------------------------------------- $32,364 $32,533 $43,819 ===============================================================================
The fiscal 1998 increase in deferred income tax expense and decrease in current income tax expense relate primarily to information system expenditures, restructuring charges and changes in various accruals. Income tax expense attributable to income before extraordinary loss differs from the amounts computed by applying the U.S. federal tax rate of 35 percent to pre-tax income before extraordinary loss as a result of the following:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Computed "expected" tax expense $29,643 $29,189 $38,122 Adjustments resulting from: Amortization of goodwill 788 703 440 State income taxes, net of federal income tax benefit 2,877 2,919 4,713 Foreign income tax in excess of statutory rate 726 238 478 Other, net (1,670) (516) 66 - -------------------------------------------------------------------------------- Actual tax expense $32,364 $32,533 $43,819 ================================================================================
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1998 and 1997 are presented below:
(In thousands) 1998 1997 - ------------------------------------------------------------------------------- Current deferred tax assets: Accounts receivable reserves $ 2,557 $ 2,969 Difference between book and tax basis of inventories 3,539 3,882 Accrued liabilities, not deductible until paid 5,731 9,141 - ------------------------------------------------------------------------------- Total current deferred tax assets 11,827 15,992 - ------------------------------------------------------------------------------- Long-term deferred tax assets: Pensions, other post employment benefits and deferred compensation 9,127 6,423 Intangible asset, not amortized for tax 7,344 7,374 - ------------------------------------------------------------------------------- Total long-term deferred tax assets 16,471 13,797 - ------------------------------------------------------------------------------- Long-term deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (82,472) (73,373) Deferred charges, principally purchase accounting and information systems (11,715) (4,110) Foreign subsidiaries (1,072) (1,662) - ------------------------------------------------------------------------------- Total long-term deferred tax liabilities (95,259) (79,145) - ------------------------------------------------------------------------------- Long-term deferred tax liability, net (78,788) (65,348) - ------------------------------------------------------------------------------- Net deferred tax liability $(66,961) $(49,356) ================================================================================
28 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Management of the Company has determined, based on the Company's history of operating earnings and its expected income, that operating income will more likely than not be sufficient to fully utilize these deferred tax assets as they mature. The Company has not provided for Federal income taxes on the undistributed income of its international subsidiaries because it is the Company's intention to reinvest such undistributed income. Cumulative undistributed earnings for which no U.S. tax has been provided were $51,403,000, $48,787,000 and $44,921,000 for the years ended June 30, 1998, 1997 and 1996 respectively. 15. Employee Benefits Retirement Plans In the U.S., First Brands maintains a non-contributory defined benefit retirement plan ("pension plan") for some employees and a defined contribution pre and post-tax savings plans ("savings plan") for all employees. The Company contributes to the savings plan account of each eligible employee. Any regular employee of First Brands or its domestic subsidiaries is eligible to participate in the amended savings plan. The Company matches 50% of employee contributions up to the lower of statutory limits or 3% of base pay. Savings plan expense for the years ended June 30, 1998, 1997 and 1996 totaled $2,442,000, $2,194,000 and $2,028,000, respectively. The Company also maintains a noncontributory profit sharing plan, to which it provides a profit sharing contribution to each eligible employee's account in the savings plan. The contribution is discretionary and is based on the Company's operating performance. The Company's profit sharing contributions are in the form of existing issued and outstanding shares of First Brands Common Stock. The costs associated with the profit sharing plan were approximately $423,000, $445,000 and $730,000 for the fiscal years ended June 30, 1998, 1997 and 1996, respectively. The pension plan for First Brands in the U.S., and certain of its international subsidiaries provides defined benefits that are based on years of credited service, highest average compensation (as defined) and the primary social security benefit. Beginning January 2000, in the U.S. the pension plan formula changes to a defined benefit plan based on years of credited service and career average compensation. Pension plan assets primarily consist of corporate equities, as well as corporate and government fixed income obligations. Contributions to the plan are based upon the projected unit credit actuarial cost funding method and are limited to amounts that are currently deductible for tax purposes. Prior service costs are amortized on a straight-line basis over the average remaining service period for active plan participants. The Company's U.S. early retirement program (see Note 3) resulted in a special actuarial termination charge of $1,400,000 for fiscal 1997. This charge was increased by an additional $28,000 during fiscal 1998 to reflect actual participation in the early retirement program. The Company's Canadian subsidiary terminated its defined pension plan and transferred all eligible employees to a new group registered retirement savings plan ("RRSP") which provides essentially the same benefits as the former plan. As a result of the plan termination, the Company recognized a $530,000 curtailment gain during fiscal 1997. Costs associated with the Canadian RRSP were approximately $250,000 for fiscal 1998. The following table sets forth the combined domestic and international plans' net pension cost, funded status and amounts recognized in the Company's Consolidated Financial Statements at June 30, 1998, 1997 and 1996:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- Net pension cost included the following components: Service cost-- benefits earned during the period $ 3,229 $ 3,275 $ 3,455 Interest cost on projected benefit obligations 6,307 6,177 4,984 Actual return on plan assets (6,724) (6,898) (6,838) Net amortization and deferral (797) (816) (81) Cost of Special termination benefit 28 1,400 -- Curtailment (gain) -- (530) -- - -------------------------------------------------------------------------------- $ 2,043 $ 2,608 $ 1,520 ================================================================================
29 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued)
(In thousands) 1998 1997 - -------------------------------------------------------------------------------- Reconciliation of funded status: Vested accumulated benefit obligation $ 74,250 $ 57,755 Non-vested accumulated benefit obligation 8,104 6,753 - -------------------------------------------------------------------------------- Accumulated benefit obligation 82,354 64,508 Additional liability based on projected compensation 14,793 18,251 - -------------------------------------------------------------------------------- Projected benefit obligation 97,147 82,759 Fair value of plan assets 89,489 80,375 - -------------------------------------------------------------------------------- Plan assets less than projected benefit obligation 7,658 2,384 Unrecognized prior service benefit 6,940 7,577 Unrecognized net (loss) (3,499) (407) - -------------------------------------------------------------------------------- Net pension liability recognized in the consolidated balance sheet 11,099 9,554 ================================================================================
To calculate the expense and liability associated with its pension plans, the Company utilizes the following assumptions:
1998 1997 1996 - ----------------------------------------------------------------------------- DOMESTIC Discount rate 7.0% 8.0% 8.0% Compensation increase rate 4.0% 4.5% 4.5% Expected long-term return on plan assets 9.5% 9.5% 9.5% INTERNATIONAL Discount rate 5.5% 6.0%-8.5% 8.5% Compensation increase rate 4.0% 4.0%-5.0% 5.0% Expected long-term return on plan assets 7.0% 7.5%-8.5% 8.5% - -----------------------------------------------------------------------------
In the U.S. federal law restricts the amount of benefits that can be paid from a qualified plan. First Brands maintains an unfunded non-qualified plan, the effect of which is to award retirement benefits to all employees on a uniform basis. Expenses associated with this plan were $485,000, $564,000, $297,000 during 1998, 1997 and 1996, respectively. Postretirement Benefits The Company provides certain medical and life insurance benefits for retirees and their dependents in the United States. Employees who have reached the age of 55, and have met the Company's minimum service requirements, become eligible for these benefits. The medical and life insurance benefits available are partially contributory in nature, and it is the Company's practice to fund these benefits as incurred. Retirees outside the United States are generally covered by locally sponsored government programs. Following is an analysis of postretirement benefit costs for fiscal 1998, 1997 and 1996:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Service cost $ 274 $ 370 $ 297 Interest cost 1,371 1,129 1,112 Unrecognized net (gain) -- (36) -- Amortization of prior service cost 92 92 -- Amortization of transition obligation 583 583 583 - -------------------------------------------------------------------------------- Net postretirement benefit cost 2,320 2,138 1,992 Cost of special termination benefit 183 1,600 -- - -------------------------------------------------------------------------------- $ 2,503 $ 3,738 $ 1,992 ================================================================================
During fiscal 1997, the Company announced an early retirement program (see Note 3) for which it recorded a special actuarial termination charge of $1,600,000. This charge was increased by an additional $183,000 during fiscal 1998 to reflect actual participation in the early retirement program. The Company's accumulated postretirement benefit obligation (the transition obligation) at June 30, 1998 and 1997 is composed of the following components:
(In thousands) 1998 1997 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 13,551 $ 7,926 Fully eligible active plan participants 1,033 3,011 Active plan participants not fully eligible 5,157 5,770 - -------------------------------------------------------------------------------- Total 19,741 16,707 Unrecognized transition obligation (8,798) (9,381) Unrecognized prior service cost (1,140) (1,232) Unrecognized gain (loss) (115) 2,202 - -------------------------------------------------------------------------------- Accrued unfunded postretirement benefit cost $ 9,688 $ 8,296 ================================================================================
The discount rate used in determining the accumulated postretirement benefit obligation was 7% and 8% for fiscal 1998 and 1997, respectively. The assumed health care cost trend rate used to measure the accumulated postretirement benefit obligation was 9.5% in 1998 and is expected to gradually decline .5% per year to an ultimate rate of 5% in fiscal year 2007. A 1% increase in the assumed health care cost trend rate for each year would increase the accumulated 30 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) postretirement benefit obligation as of June 30, 1998 by $670,000 and increase the service and interest cost for 1998 by $62,000. 16. Commitments, Contingencies and Related Parties Litigation The Company is subject to various claims and contingencies related to lawsuits, taxes, environmental and other matters arising out of the normal course of business. Management believes that the ultimate liability, if any, arising from these claims and contingencies is not likely to have a material adverse effect on the Company's annual results of operations or financial condition. Related Parties Beginning in January, 1997, Alfred E. Dudley, a Director and former Chairman of the Company, was retained as a consultant. For these services, he was paid a yearly consulting fee of $100,000 in fiscal 1998 and 1997. The Company has utilized the services of Lee Hill Incorporated, a marketing services company, of which James R. McManus, a Director of First Brands, was the owner. For fiscal 1998 the total fees paid to Lee Hill Incorporated were $118,000. During September 1997, Mr. McManus sold his interest in Lee Hill. The Company believes that each of the related party transactions described above were on terms as fair to the Company as could have been obtained from unaffiliated third parties. Other The Company is a party to a contract with Union Carbide that provides for the purchase of a substantial portion of the Company's primary raw material requirements for plastic wrap and bags through December 31, 1999. The pricing provisions in the Company's present supply contracts are designed to be responsive to market conditions of the relevant raw materials. 17. Geographic Segment Data The following is a summary of net sales, operating profit, and identifiable assets in the United States and internationally in 1998, 1997 and 1996:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------- Revenues: United States $ 972,638 $ 954,411 $ 932,183 International 231,032 165,487 140,839 - ------------------------------------------------------------------------------- $ 1,203,670 $ 1,119,898 $ 1,073,022 =============================================================================== Operating profit: United States $ 118,663 $ 130,032 $ 135,500 International 23,493 15,355 12,513 Less Corporate Expense (20,097) (20,189) (19,412) Restructuring Expense (2,700) (19,000) -- - -------------------------------------------------------------------------------- $ 119,359 $ 106,198 $ 128,601 ================================================================================ Identifiable assets: United States $ 876,092 $ 835,821 $ 775,447 International 184,109 210,960 85,433 - -------------------------------------------------------------------------------- $ 1,060,201 $ 1,046,781 $ 860,880 ================================================================================
Operating profit reflects net sales less cost of goods sold, selling, general and administrative expenses, amortization and other depreciation and restructuring expenses. Included in U.S. revenues are export sales totaling $36,780,000, $42,076,000 and $37,055,000 during the years ended June 30, 1998, 1997 and 1996, respectively. The Company does not believe that it is dependent on any single customer, however, net sales to its largest customer accounted for approximately 12% of total sales for the years ended June 30, 1998, 1997 and 1996. 18. Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of prior year financial statements is required. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which expands annual financial statement disclosures about operating segments and establishes disclosure requirements concerning a company's products, customers and geographic areas. Selected information about operating segments is also required for interim financial reports issued to shareholders. Financial statement disclosures for prior periods are required to be restated. In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," which amends the disclosure requirements previously established by SFAS No. 87, 88 and 106. The new disclosure requirements are intended to 31 First Brands Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) standardize the reporting of pensions and other postretirement benefits. While SFAS No. 132 does not change the measurement or recognition requirements of those plans, it does require some new information from plan sponsors and allows for the elimination of other information which is no longer considered useful. Restatement of disclosure for earlier periods is required, unless such information is not readily available. The Company plans to adopt each of the above pronouncements in its fiscal year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132 will have no impact on First Brands results of operations, cash flows or financial position, the Company is currently evaluating the appropriate format of disclosure for each pronouncement. 19. Subsequent Event On July 2, 1998, the Company entered into an agreement to acquire, for approximately $53,000,000, the HANDI WIPES and WASH 'N DRI brands from the Colgate-Palmolive Company. The acquisition, which will be accounted for as a purchase, is expected to be completed during the first quarter of fiscal 1999 and will be financed through borrowings from the Company's revolving credit facility. 20. Quarterly Financial Data (Unaudited) Year Ended June 30, 1998
Quarters Ended -------------------------------------------------------- (In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30, per share amounts) 1997 1997 1998 1998 - -------------------------------------------------------------------------------- Net sales $269,480 $309,282 $296,414 $328,494 Gross profit 86,285 112,288 105,436 123,791 Income before cumulative change(a) 12,173 13,307 16,038 10,812 Net income 12,173 6,385 16,038 10,812 Per common share: Basic Income before cumulative change(a) $0.30 $0.33 $0.41 $0.28 Net income $0.30 $0.16 $0.41 $0.28 - -------------------------------------------------------------------------------- Diluted Income before cumulative change(a) $0.30 $0.33 $0.40 $0.27 Net income $0.30 $0.16 $0.40 $0.27 ================================================================================
Year Ended June 30, 1997 Quarters Ended -------------------------------------------------------- (In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30, per share amounts) 1996 1996 1997 1997 - -------------------------------------------------------------------------------- Net sales $255,597 $279,952 $264,886 $319,463 Gross profit 88,189 101,719 96,122 120,182 Income before extraordinary loss(a) 18,007 15,351 16,054 1,453 Net income 18,007 15,351 15,421 1,453 Per common share: Basic Income before extraordinary loss(a) $0.44 $0.38 $0.40 $0.04 Net income $0.44 $0.38 $0.38 $0.04 - -------------------------------------------------------------------------------- Diluted Income before extraordinary loss(a) $0.43 $0.37 $0.39 $0.04 Net income $0.43 $0.37 $0.37 $0.04 ================================================================================
(a) The fourth quarter of fiscal 1997 and the second quarter of fiscal 1998, include a $19,000 and $2,700 charge for restructuring expenses, respectively. 32 INDEPENDENT AUDITORS' REPORT ON SCHEDULE The Board of Directors FIRST BRANDS CORPORATION: Under date of August 6, 1998, we reported on the consolidated balance sheets of First Brands Corporation and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1998 as referenced in the annual report on Form 10-K for the year 1998, which report refers to a change in the method of accounting for business process re-engineering cost. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14 of the annual report on Form 10-K for the year 1998. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP ............................... KPMG PEAT MARWICK LLP New York, New York August 6, 1998 33 SCHEDULE VIII FIRST BRANDS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COST AND AT END OF PERIOD EXPENSES DEDUCTIONS(a) OF PERIOD ---------- ---------- ------------- --------- (IN THOUSANDS) FOR THE YEAR ENDED JUNE 30, 1998 ------------------------------------------------------ Allowance for doubtful accounts and discounts................. $ 11,599 $ 41,517 $ (42,292) $10,824 ---------- ---------- ------------- --------- ---------- ---------- ------------- --------- FOR THE YEAR ENDED JUNE 30, 1997 ------------------------------------------------------ Allowance for doubtful accounts and discounts................. $ 9,552 $ 39,732 $ (37,685) $11,599 ---------- ---------- ------------- --------- ---------- ---------- ------------- --------- FOR THE YEAR ENDED JUNE 30, 1996 ------------------------------------------------------ Allowance for doubtful accounts and discounts................. $ 8,498 $ 36,590 $ (35,536) $ 9,552 ---------- ---------- ------------- --------- ---------- ---------- ------------- ---------
- ------------ (a) Deductions represent write-offs and discounts net of recoveries of amounts previously written off. 34 SIGNATURES Pursuant to the requirement 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. FIRST BRANDS CORPORATION By /s/ JOSEPH B. FUREY .................................. JOSEPH B. FUREY VICE PRESIDENT AND CONTROLLER August 5, 1998 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has also been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----- /S/ WILLIAM V. STEPHENSON Chairman, President, Chief Executive Officer August 5, 1998 ......................................... and Director (WILLIAM V. STEPHENSON) /S/ THOMAS H. ROWLAND Executive Vice President and Director August 5, 1998 ......................................... (THOMAS H. ROWLAND) /S/ DONALD A. DESANTIS Senior Vice President and Chief Financial August 5, 1998 ......................................... Officer (DONALD A. DESANTIS) /S/ ROBERT E. BERNSTOCK Director August 5, 1998 ......................................... (ROBERT E. BERNSTOCK) /S/ ALFRED E. DUDLEY Director August 5, 1998 ......................................... (ALFRED E. DUDLEY) /S/ JOHN C. FERRIES Director August 5, 1998 ......................................... (JOHN C. FERRIES) /S/ JAMES R. MAHER Director August 5, 1998 ......................................... (JAMES R. MAHER) /S/ JAMES R. MCMANUS Director August 5, 1998 ......................................... (JAMES R. MCMANUS) /S/ DENIS NEWMAN Director August 5, 1998 ......................................... (DENIS NEWMAN) /S/ ERVIN R. SHAMES Director August 5, 1998 ......................................... (ERVIN R. SHAMES) /S/ ROBERT G. TOBIN Director August 5, 1998 ......................................... (ROBERT G. TOBIN)
35 EXHIBIT INDEX
Exhibit Number Description of Exhibit - ------ ---------------------- 3.1 -- Restated Certificate of Incorporation of the Company, as amended to November 6, 1996. Incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed by the Company on February 3, 1997. 3.2 -- By-Laws of the Company, as amended to January 20, 1995. Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (Commission File No. 1-10395). 4.1 -- Indenture dated as of March 1, 1997 between the Company and The Bank of New York, relating to the 7.25% Senior Notes due 2007. Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed by the Company on April 24, 1997. 4.2 -- Purchase Agreement dated as of March 5, 1997 among the Company, Bear Stearns & Co. Inc., TD Securities (USA) Inc., Credit Lyonnais Securities (USA) Inc. and First Union Capital Markets Corp., relating to the 7.25% Senior Notes due 2007. Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 filed by the Company on April 24, 1997. 4.3 -- Registration Rights Agreement dated as of March 5, 1997 among the Company, Bear Stearns & Co. Inc., TD Securities (USA) Inc., Credit Lyonnais Securities (USA) Inc. and First Union Capital Markets Corp., relating to the 7.25% Senior Notes due 2007. Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 filed by the Company on April 24, 1997. 4.4 -- Rights Agreement, dated as of March 22, 1996, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, attached thereto as Exhibit A, the form of Rights Certificate attached thereto as Exhibit B and the Summary of Rights attached thereto as Exhibit C. Incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 8-A dated March 22, 1996. 10.1 -- Amended and Restated Credit Agreement, dated as of February 28, 1997, among the Company, The Chase Manhattan Bank, as Agent, and The Several Lenders Parties thereto. Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-4 filed by the Company on April 24, 1997. 10.2* -- Receivables Purchase Agreement, dated as of June 5, 1998, among the Company, First Brands Funding Inc., Market Street Funding Corporation and PNC Bank, National Association, relating to the Company's trade receivables-backed financing. 10.3* -- Purchase and Sale Agreement, dated as of June 5, 1998, among the Company, A & M Products Inc., Himolene Incorporated and First Brands Funding Inc., relating to the Company's trade receivables-backed financing. 10.4 -- Amended Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990 (Commission File No. 1-10395).
36 10.5 -- First Brands Corporation 1994 Performance Stock Option and Incentive Plan. Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Company on September 28, 1993 (Commission File No. 1-10395). 10.6 -- First Brands Corporation Non-Employee Directors Stock Option Plan. Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Company on September 26, 1995 (Commission File No. 1-10395). 10.7 -- First Brands Corporation Annual Incentive Plan. Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Company on September 26, 1995 (Commission File No. 1-10395). 10.8 -- First Brands Corporation 1998 Performance Stock Option and Incentive Plan. Incorporated by reference to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the Company on September 26, 1997 (Commission File No. 1-10395). 10.12 (a)-- Purchase and Sale Agreement, dated as of June 30, 1994, between the Company and Vestar/Freeze Holdings Corporation and Vestar Equity Partners, L.P., relating to the sale by the Company of its businesses of developing, manufacturing, marketing, selling and/or distributing automotive antifreeze, cooling system tools, cooling system chemicals for cleaning and sealing leaks in automotive cooling systems, ice-fighting products, PRESTONE brake fluid products, PRESTONE power steering fluid products, and PRESTONE transmission stop leak fluid products, and antifreeze recycling business. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed by the Company on September 12, 1994 (Commission File No. 1-10395). (b)-- Amendment No. 1 thereto, dated as of August 25, 1994. Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed by the Company on September 12, 1994 (Commission File No. 1-10395). 11* -- Computation of Net Income Per Common Share. 21* -- Subsidiaries of Registrant. 23* -- Consent of KPMG Peat Marwick. 27* -- EDGAR Financial Data Schedule.
- ----------- * Filed herewith 37 STATEMENT OF DIFFERENCES ------------------------ The section symbol shall be expressed as............................... 'SS' EX-10 2 EXHIBIT-10.2 EXHIBIT 10.2 - -------------------------------------------------------------------------------- RECEIVABLES PURCHASE AGREEMENT dated as of June 5, 1998 among FIRST BRANDS FUNDING INC. FIRST BRANDS CORPORATION MARKET STREET FUNDING CORPORATION and PNC BANK, NATIONAL ASSOCIATION - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES Section 1.1. Purchase Facility..................................................1 Section 1.2 Making Purchases...................................................1 Section 1.3 Purchased Interest Computation.....................................3 Section 1.4 Settlement Procedures..............................................3 Section 1.5 Fees...............................................................6 Section 1.6 Payments and Computations, Etc.....................................6 Section 1.7 Dividing or Combining Portions of the Capital of the Purchased Interest..................................7 Section 1.8 Increased Costs....................................................7 Section 1.9 Requirements of Law................................................8 Section 1.10 Inability to Determine Eurodollar Rate.............................9 ARTICLE II. REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1 Representations and Warranties; Covenants..........................9 Section 2.2 Termination Events.................................................9 ARTICLE III. INDEMNIFICATION Section 3.1 Indemnities by the Seller..........................................10 Section 3.2 Indemnities by the Servicer........................................11 ARTICLE IV. ADMINISTRATION AND COLLECTIONS Section 4.1 Appointment of the Servicer........................................12 Section 4.2 Duties of the Servicer.............................................13 Section 4.3 Lock-Box Arrangements..............................................14 Section 4.4 Enforcement Rights.................................................14 Section 4.5 Responsibilities of the Seller.....................................15 Section 4.6 Servicing Fee......................................................15
Receivables Purchase Agreement -i- ARTICLE V. MISCELLANEOUS Section 5.1 Amendments, Etc....................................................16 Section 5.2 Notices, Etc.......................................................16 Section 5.3 Assignability......................................................16 Section 5.4 Costs, Expenses and Taxes..........................................17 Section 5.5 No Proceedings; Limitation on Payments.............................17 Section 5.6 Confidentiality....................................................18 Section 5.7 GOVERNING LAW AND JURISDICTION.....................................18 Section 5.8 Execution in Counterparts..........................................19 Section 5.9 Survival of Termination............................................19 Section 5.10 WAIVER OF JURY TRIAL...............................................19 Section 5.11 Entire Agreement...................................................19 Section 5.12 Headings...........................................................19 Section 5.13 Issuer's Liabilities...............................................19 EXHIBIT I Definitions EXHIBIT II Conditions of Purchases EXHIBIT III Representations and Warranties EXHIBIT IV Covenants EXHIBIT V Termination Events SCHEDULE I Credit and Collection Policy SCHEDULE II Lock-box Banks and Lock-box Accounts SCHEDULE III Trade Names ANNEX A Form of Information Package ANNEX B Form of Purchase Notice
Receivables Purchase Agreement -ii- This RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is entered into as of June 5, 1998, among FIRST BRANDS FUNDING INC., a Delaware corporation, as seller (the "Seller"), FIRST BRANDS CORPORATION, a Delaware corporation ("First Brands"), as initial servicer (in such capacity, together with its successors and permitted assigns in such capacity, the "Servicer"), MARKET STREET FUNDING CORPORATION, a Delaware corporation (together with its successors and permitted assigns, the "Issuer"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC"), as administrator (in such capacity, together with its successors and assigns in such capacity, the "Administrator"). PRELIMINARY STATEMENTS. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I. References in the Exhibits hereto to "the Agreement" refer to this Agreement, as amended, supplemented or otherwise modified from time to time. The Seller desires to sell, transfer and assign an undivided variable percentage interest in a pool of receivables, and the Issuer desires to acquire such undivided variable percentage interest, as such percentage interest shall be adjusted from time to time based upon, in part, reinvestment payments that are made by the Issuer. In consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES Section 1.1. Purchase Facility. (a) On the terms and conditions hereinafter set forth, the Issuer hereby agrees to purchase, and make reinvestments of, undivided percentage ownership interests with regard to the Purchased Interest from the Seller from time to time from the date hereof to the Facility Termination Date. Under no circumstances shall the Issuer make any such purchase or reinvestment if, after giving effect to such purchase or reinvestment, the aggregate outstanding Capital of the Purchased Interest would exceed the Purchase Limit. (b) The Seller may, upon at least 60 days's written notice to the Administrator, terminate the purchase facility provided in this Section in whole or, upon at least 30 days's written notice to the Administrator, from time to time, irrevocably reduce in part the unused portion of the Purchase Limit; provided, that each partial reduction shall be in the amount of at least $10,000,000, or an integral multiple of $1,000,000 in excess thereof, and that, unless terminated in whole, the Purchase Limit shall in no event be reduced below $20,000,000. Section 1.2. Making Purchases. (a) Each purchase (but not reinvestment) of undivided percentage ownership interests with regard to the Purchased Interest hereunder shall be made upon the Seller's irrevocable written notice in the form of Annex B delivered to the Administrator in accordance with Section 5.2 (which notice must be received by the Administrator before 11:00 a.m., New York City time): (i) at least three Business Days before the requested purchase date, in the case of a purchase to be funded at the Alternate Rate and based upon the Eurodollar Rate, (ii) at least two Business Days before the requested purchase date, in the case of a purchase to be funded at the Alternate Rate and based upon the Base Rate, and (iii) at least one Business Day before the requested purchase date, in the case of a purchase to be funded at the CP Rate, which notice shall specify: (A) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000, being the Capital relating to the undivided percentage ownership interest then being purchased), (B) the date of such purchase (which shall be a Business Day), (C) the desired funding basis for such purchase (which shall be based upon the Eurodollar Rate, the Base Rate or the CP Rate) and (D) a pro forma calculation of the Purchased Interest after giving effect to the increase in Capital. If the Seller has requested that the purchase be funded at the CP Rate, the Administrator shall promptly thereafter notify the Seller whether the Issuer has exercised its discretion not to fund such purchase with the issuance of Notes because such purchase with the issuance of Notes would be economically inadvisable to the Issuer, the Administrator, the Seller or any other similarly situated Person, or otherwise not permitted, in which case the Seller shall be deemed to have not requested such purchase. (b) On the date of each purchase (but not reinvestment) of undivided percentage ownership interests with regard to the Purchased Interest hereunder, the Issuer shall, upon satisfaction of the applicable conditions set forth in Exhibit II, make available to the Seller in same day funds, at The Chase Manhattan Bank, account number 134-0-89290, ABA 021-000021, an amount equal to the Capital relating to the undivided percentage ownership interest then being purchased. (c) Effective on the date of each purchase pursuant to this Section and each reinvestment pursuant to Section 1.4, the Seller hereby sells and assigns to the Issuer an undivided percentage ownership interest in: (i) each Pool Receivable then existing, (ii) all Related Security with respect to such Pool Receivables and (iii) all Collections with respect to, and other proceeds of, Receivables Purchase Agreement -2- such Pool Receivables and Related Security. (d) To secure all of the Seller's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Seller hereby grants to the Issuer a security interest in all of the Seller's right, title and interest (including any undivided interest of the Seller) in, to and under all of the following, whether now or hereafter owned, existing or arising: (i) all Pool Receivables, (ii) all Related Security with respect to such Pool Receivables, (iii) all Collections with respect to such Pool Receivables, (iv) the Lock-Box Accounts and all amounts on deposit therein, and all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts and amounts on deposit therein, (v) all rights (but none of the obligations) of the Seller under the Sale Agreement, and (vi) all proceeds of, and all amounts received or receivable under any or all of, the foregoing (collectively, the "Pool Assets"). The Issuer shall have, with respect to the Pool Assets, and in addition to all the other rights and remedies available to the Issuer, all the rights and remedies of a secured party under any applicable UCC. Section 1.3. Purchased Interest Computation. The Purchased Interest shall be initially computed on the date of the initial purchase hereunder. Thereafter, until the Facility Termination Date, the Purchased Interest shall be automatically recomputed (or deemed to be recomputed) on each Business Day other than a Termination Day. The Purchased Interest as computed (or deemed recomputed) as of the day before the Facility Termination Date shall thereafter remain constant. The Purchased Interest shall become zero when the Capital thereof and Discount thereon shall have been paid in full, all the amounts owed by the Seller and the Servicer hereunder to the Issuer, the Administrator and any other Indemnified Party or Affected Person are paid in full, and the Servicer shall have received the accrued Servicing Fee thereon. Section 1.4. Settlement Procedures. (a) The collection of the Pool Receivables shall be administered by the Servicer in accordance with this Agreement. The Seller shall provide to the Servicer on a timely basis all information needed for such administration, including notice of the occurrence of any Termination Day and current computations of the Purchased Interest. (b) The Servicer shall, on each day on which Collections of Pool Receivables are received (or deemed received) by the Seller or the Servicer: Receivables Purchase Agreement -3- (i) set aside and hold in trust (and shall, at the request of the Administrator, segregate in a separate account approved by the Administrator) for the Issuer, out of the Issuer's Share of such Collections, first, an amount equal to the Discount accrued through such day for each Portion of Capital and not previously set aside, second, an amount equal to the fees set forth in the Fee Letter accrued and unpaid through such day, and third, to the extent funds are available therefor, an amount equal to the Issuer's Share of the Servicing Fee accrued through such day and not previously set aside, (ii) subject to Section 1.4(f), if such day is not a Termination Day, remit to the Seller, on behalf of the Issuer, the remainder of the Issuer's Share of such Collections; such remainder shall be automatically reinvested in Pool Receivables, and in the Related Security, Collections and other proceeds with respect thereto; provided, however, that if the Purchased Interest would exceed 100%, then the Servicer shall not reinvest, but shall set aside and hold in trust for the Issuer (and shall, at the request of the Administrator, segregate in a separate account approved by the Administrator) a portion of such Collections that, together with the other Collections set aside pursuant to this paragraph, shall equal the amount necessary to reduce the Purchased Interest to 100%, (iii) if such day is a Termination Day, set aside, segregate and hold in trust (and shall, at the request of the Administrator, segregate in a separate account approved by the Administrator) for the Issuer the entire remainder of the Issuer's Share of the Collections; provided, that if amounts are set aside and held in trust on any Termination Day of the type described in clause (a) of the definition of "Termination Day" and, thereafter, the conditions set forth in Section 2 of Exhibit II are satisfied or waived by the Administrator, such previously set aside amounts shall be reinvested in accordance with clause (ii) on the day of such subsequent satisfaction or waiver of conditions, and (iv) subject to the Issuer's security interest under Section 1.2(d), release to the Seller (subject to Section 1.4(f)) for its own account any Collections in excess of: (x) amounts required to be reinvested in accordance with clause (ii) or the proviso to clause (iii) plus (y) the amounts that are required to be set aside pursuant to clause (i), the proviso to clause (ii) and clause (iii) plus (z) the Seller's Share of the Servicing Fee accrued and unpaid through such day and all reasonable and appropriate out-of-pocket costs and expenses of the Servicer for servicing, collecting and administering the Pool Receivables. Receivables Purchase Agreement -4- (c) The Servicer shall deposit into the Administration Account (or such other account designated by the Administrator), on each Monthly Settlement Date Collections held for the Issuer pursuant to clause (b)(i) or (f) plus the amount of Collections then held for the Issuer pursuant to clauses (b)(ii) and (iii) of Section 1.4 provided, that if First Brands or an Affiliate thereof is the Servicer, such day is not a Termination Day and the Administrator has not notified First Brands (or such Affiliate) that such right is revoked, First Brands (or such Affiliate) may retain the portion of the Collections set aside pursuant to clause (b)(i) that represents the Issuer's Share of the Servicing Fee. On the last day of each Settlement Period, the Administrator will notify the Servicer by facsimile of the amount of Discount accrued with respect to each Portion of Capital during such Settlement Period or portion thereof. (d) Upon receipt of funds deposited into the Administration Account pursuant to clause (c), the Administrator shall cause such funds to be distributed as follows: (i) if such distribution occurs on a day that is not a Termination Day and the Purchased Interest does not exceed 100%, first to the Issuer in payment in full of all accrued Discount and fees (other than Servicing Fees) with respect to each Portion of Capital, and second, if the Servicer has set aside amounts in respect of the Servicing Fee pursuant to clause (b)(i) and has not retained such amounts pursuant to clause (c), to the Servicer (payable in arrears on each Monthly Settlement Date) in payment in full of the Issuer's Share of accrued Servicing Fees so set aside, and (ii) if such distribution occurs on a Termination Day or on a day when the Purchased Interest exceeds 100%, first to the Issuer in payment in full of all accrued Discount with respect to each Portion of Capital, second to the Issuer in payment in full of Capital (or, if such day is not a Termination Day, the amount necessary to reduce the Purchased Interest to 100%), third, if First Brands or an Affiliate thereof is not the Servicer, to the Servicer in payment in full of all accrued Servicing Fees, fourth, if the Capital and accrued Discount with respect to each Portion of Capital have been reduced to zero, and all accrued Servicing Fees payable to the Servicer (if other than First Brands or an Affiliate thereof) have been paid in full, to the Issuer, the Administrator and any other Indemnified Party or Affected Person in payment in full of any other amounts owed thereto by the Seller hereunder and, fifth, unless such amount has been retained by the Servicer pursuant to clause (c), then to the Servicer (if the Servicer is First Brands or an Affiliate thereof) in payment in full of the Issuer's Share of all accrued Servicing Fees. Receivables Purchase Agreement -5- After the Capital, Discount, fees payable pursuant to the Fee Letter and Servicing Fees with respect to the Purchased Interest, and any other amounts payable by the Seller and the Servicer to the Issuer, the Administrator or any other Indemnified Party or Affected Person hereunder, have been paid in full, all additional Collections with respect to the Purchased Interest shall be paid to the Seller for its own account. (e) For the purposes of this Section 1.4: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed goods or services, or any revision, cancellation, allowance, discount or other adjustment made by the Seller or any Affiliate of the Seller, or any setoff or dispute between the Seller or any Affiliate of the Seller and an Obligor, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment ("Deemed Collection"); (ii) if on any day any of the representations or warranties in Section 1(g) or (n) of Exhibit III is not true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in clause (i) or (ii), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; and (iv) if and to the extent the Administrator or the Issuer shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by it hereunder, such amount shall be deemed not to have been so received by the Administrator or the Issuer but rather to have been retained by the Seller and, accordingly, the Administrator or the Issuer, as the case may be, shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (f) If at any time the Seller shall wish to cause the reduction of Capital (but not to commence the liquidation, or reduction to zero, of the entire Capital of the Purchased Receivables Purchase Agreement -6- Interest), the Seller may do so as follows: (i) the Seller shall give the Administrator and the Servicer (A) at least two Business Days' prior written notice thereof for any reduction of Capital less than or equal to $20,000,000 and (B) at least ten Business Days' prior written notice thereof for any reduction of Capital greater than $20,000,000 (in each case such notice shall include the amount of such proposed reduction and the proposed date on which such reduction will commence); (ii) on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall cause Collections not to be reinvested until the amount thereof not so reinvested shall equal the desired amount of reduction; and (iii) the Servicer shall hold such Collections in trust for the Issuer, for payment to the Administrator on the next Monthly Settlement Date immediately following the current Settlement Period and Capital shall be deemed reduced in the amount to be paid to the Administrator only when in fact finally so paid; provided, that: (A) the amount of any such reduction shall be not less than $5,000,000 and shall be an integral multiple of $1,000,000, and the entire Capital of the Purchased Interest after giving effect to such reduction shall be not less than $20,000,000 and shall be in an integral multiple of $1,000,000 (unless Capital shall have been reduced to zero); and (B) the Seller shall choose a reduction amount, and the date of commencement thereof, so that to the extent practicable such reduction shall commence and conclude in the same Settlement Period. Section 1.5. Fees. The Seller shall pay to the Administrator certain fees in the amounts and on the dates set forth in a letter, dated the date hereof, among First Brands, the Seller and the Administrator (as such letter agreement may be amended, supplemented or otherwise modified from time to time, the "Fee Letter"). Section 1.6. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Servicer hereunder shall be made without reduction for offset or counterclaim and shall be paid or deposited no later than 2:00 p.m. (New York City time) on the day when due in same day funds Receivables Purchase Agreement -7- to the Administration Account. All amounts received after noon (New York City time) will be deemed to have been received on the next Business Day. (b) The Seller or the Servicer, as the case may be, shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller or the Servicer, as the case may be, when due hereunder, at an interest rate equal to 2.0% per annum above the Base Rate, payable on demand. (c) All computations of interest under clause (b) and all computations of Discount, fees and other amounts hereunder shall be made on the basis of a year of 360 (or 365 or 366, as applicable, with respect to Discount or other amounts calculated by reference to the Base Rate) days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next Business Day and such extension of time shall be included in the computation of such payment or deposit. Section 1.7. Dividing or Combining Portions of the Capital of the Purchased Interest. The Seller may, on the last day of any Settlement Period, pursuant to written notice delivered to the Administrator in accordance with Section 5.2: (a) at least three Business Days before such last day in the case of a Portion of Capital to be funded based upon the Eurodollar Rate and (b) at least two Business Days before such last day in all other cases, either: (i) divide the Capital of the Purchased Interest into two or more portions (each a "Portion of Capital"), which Portions of Capital may accrue Discount by reference to different rates, equal, in aggregate, to the Capital of the Purchased Interest; provided, that after giving effect to such division the amount of each such Portion of Capital shall be not less than $5,000,000 and shall be an integral multiple of $1,000,000, or (ii) combine any two or more Portions of Capital outstanding on such last day and having Settlement Periods ending on such last day into a single Portion of Capital equal to the aggregate of the Capital of such Portions of Capital. Section 1.8. Increased Costs. (a) If the Administrator, the Issuer, any Purchaser, any other Program Support Provider or any of their respective Affiliates (each an "Affected Person") reasonably determines that the existence of or compliance with: (i) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof, or (ii) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement, affects or would affect the amount of capital required or expected to be Receivables Purchase Agreement -8- maintained by such Affected Person, and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of (or otherwise to maintain the investment in) Pool Receivables related to this Agreement or any related liquidity facility, credit enhancement facility and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Administrator), the Seller shall promptly pay to the Administrator, for the account of such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either: (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Affected Person of agreeing to purchase or purchasing, or maintaining the ownership of, the Purchased Interest in respect of which Discount is computed by reference to the Eurodollar Rate, then, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person for such increased costs. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (c) If such increased costs affect the related Affected Person's portfolio of financing transactions, such Affected Person shall use reasonable averaging and attribution methods to allocate such increased costs to the transactions contemplated by this Agreement. Section 1.9. Requirements of Law. If any Affected Person reasonably determines that the existence of or compliance with: (a) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof, or (b) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement: (i) does or shall subject such Affected Person to any tax of any kind whatsoever with respect to this Agreement, Receivables Purchase Agreement -9- any increase in the Purchased Interest or in the amount of Capital relating thereto, or does or shall change the basis of taxation of payments to such Affected Person on account of Collections, Discount or any other amounts payable hereunder (excluding taxes imposed on the overall pre-tax net income of such Affected Person, and franchise taxes imposed on such Affected Person, by the jurisdiction under the laws of which such Affected Person is organized or a political subdivision thereof), (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Affected Person that are not otherwise included in the determination of the Eurodollar Rate or the Base Rate hereunder, or (iii) does or shall impose on such Affected Person any other condition, and the result of any of the foregoing is: (A) to increase the cost to such Affected Person of acting as Administrator, or of agreeing to purchase or purchasing or maintaining the ownership of undivided percentage ownership interests with regard to the Purchased Interest (or interests therein) or any Portion of Capital, or (B) to reduce any amount receivable hereunder (whether directly or indirectly), then, in any such case, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person additional amounts necessary to compensate such Affected Person for such additional cost or reduced amount receivable. All such amounts shall be payable as incurred. A certificate from such Affected Person to the Seller and the Administrator certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs or reduced amount receivable shall be conclusive and binding for all purposes, absent manifest error; provided, however, that no Affected Person shall be required to disclose any confidential or tax planning information in any such certificate. Section 1.10. Inability to Determine Eurodollar Rate. If the Administrator shall have determined before the first day of any Settlement Period (which determination shall be conclusive and binding upon the parties hereto), by reason of circumstances affecting the interbank Eurodollar market, either that: (a) dollar deposits in the relevant amounts and for the relevant Settlement Period are not available, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Settlement Period or (c) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost to the Issuer (as Receivables Purchase Agreement -10- conclusively determined by the Administrator) of maintaining any Portion of Capital during such Settlement Period, the Administrator shall promptly give telephonic notice of such determination, confirmed in writing, to the Seller before the first day of such Settlement Period. Upon delivery of such notice: (i) no Portion of Capital shall be funded thereafter at the Alternate Rate determined by reference to the Eurodollar Rate unless and until the Administrator shall have given notice to the Seller that the circumstances giving rise to such determination no longer exist, and (ii) with respect to any outstanding Portions of Capital then funded at the Alternate Rate determined by reference to the Eurodollar Rate, such Alternate Rate shall automatically be converted to the Alternate Rate determined by reference to the Base Rate at the respective last days of the then-current Settlement Periods relating to such Portions of Capital. ARTICLE II. REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1 Representations and Warranties; Covenants. Each of the Seller, First Brands and the Servicer hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, applicable to it set forth in Exhibits III and IV, respectively. Section 2.2. Termination Events. If any of the Termination Events set forth in Exhibit V shall occur, the Administrator may by notice to the Seller, declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred); provided, that automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (f) of Exhibit V, the Facility Termination Date shall occur. Upon any such declaration, occurrence or deemed occurrence of the Facility Termination Date, the Issuer and the Administrator shall have, in addition to the rights and remedies that they may have under this Agreement, all other rights and remedies provided after default under the Connecticut UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III. INDEMNIFICATION Section 3.1. Indemnities by the Seller. Without limiting any other rights that the Administrator, the Issuer, any Program Support Provider or any of their respective Affiliates, Receivables Purchase Agreement -11- employees, officers, directors, agents, counsel, successors, transferees or assigns (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, damages, expenses, costs, losses and liabilities (including Attorney Costs) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement (whether directly or indirectly), the use of proceeds of purchases or reinvestments, the ownership of the Purchased Interest, or any interest therein, or in respect of any Receivable, Related Security or Contract, excluding, however: (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or its officers, directors, agents or counsel, (b) recourse (except as otherwise specifically provided in this Agreement) for Receivables, or (c) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, and subject to the exclusions set forth in the preceding sentence, the Seller shall pay on demand (which demand shall be accompanied by documentation of the Indemnified Amounts, in reasonable detail) to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable, the failure of any information contained in an Information Package to be true and correct, or the failure of any other information provided to the Issuer or the Administrator with respect to Receivables or this Agreement to be true and correct, (ii) the failure of any representation, warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct as of the date made or deemed made in all respects when made, (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation, (iv) the failure to vest in the Issuer a valid and enforceable: (A) perfected undivided percentage ownership interest, to the extent of the Purchased Interest, in the Receivables Purchase Agreement -12- Receivables in, or purporting to be in, the Receivables Pool and the other Pool Assets, or (B) first priority perfected security interest in the Pool Assets, in each case, free and clear of any Adverse Claim, (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the other Pool Assets, whether at the time of any purchase or reinvestment or at any subsequent time, (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates), (vii) any failure of the Seller (or any of its Affiliates acting as the Servicer) to perform its duties or obligations in accordance with the provisions hereof or under the Contracts, (viii) any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services that are the subject of any Contract, (ix) the commingling of Collections at any time with other funds, (x) the use of proceeds of purchases or reinvestments, or (xi) any reduction in Capital as a result of the distribution of Collections pursuant to Section 1.4(d), if all or a portion of such distributions shall thereafter be rescinded or otherwise must be returned for any reason. Section 3.2. Indemnities by the Servicer. Without limiting any other rights that the Administrator, the Issuer or any other Receivables Purchase Agreement -13- Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts arising out of or resulting from (whether directly or indirectly): (a) the failure of any information contained in an Information Package to be true and correct, or the failure of any other information provided to the Issuer or the Administrator by, or on behalf of, the Servicer to be true and correct, (b) the failure of any representation, warranty or statement made or deemed made by the Servicer (or any of its officers) under or in connection with this Agreement to have been true and correct as of the date made or deemed made in all respects when made, (c) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, (d) any dispute, claim, offset or defense of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool resulting from or related to the collection activities with respect to such Receivable, or (e) any failure of the Servicer to perform its duties or obligations in accordance with the provisions hereof. ARTICLE IV. ADMINISTRATION AND COLLECTIONS Section 4.1. Appointment of the Servicer. (a) The servicing, administering and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as the Servicer in accordance with this Section. Until the Administrator gives notice to First Brands (in accordance with this Section) of the designation of a new Servicer, First Brands is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Upon the occurrence of a Termination Event, the Administrator may designate as Servicer any Person (including itself) to succeed First Brands or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. (b) Upon the designation of a successor Servicer as set forth in clause (a), First Brands agrees that it will terminate its activities as Servicer hereunder in a manner that the Administrator determines will facilitate the transition of the performance of such activities to the new Servicer, and First Brands shall cooperate with and assist such new Servicer. Such cooperation shall include access to and transfer of related records and use by the new Servicer of all licenses, hardware or software necessary or desirable to collect the Pool Receivables and the Related Security. (c) First Brands acknowledges that, in making their decision Receivables Purchase Agreement -14- to execute and deliver this Agreement, the Administrator and the Issuer have relied on First Brands' agreement to act as Servicer hereunder. Accordingly, First Brands agrees that it will not voluntarily resign as Servicer. (d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each a "Sub-Servicer"); provided, that, in each such delegation: (i) such Sub-Servicer shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain primarily liable for the performance of the duties and obligations so delegated, (iii) the Seller, the Administrator and the Issuer shall have the right to look solely to the Servicer for performance and (iv) the terms of any agreement with any Sub-Servicer shall provide that the Administrator may terminate such agreement upon the termination of the Servicer hereunder by giving notice of its desire to terminate such agreement to the Servicer (and the Servicer shall provide appropriate notice to each such Sub-Servicer); provided, however, that if any such delegation is to any Person other than an Originator, the Administrator shall have consented in writing in advance to such delegation. Section 4.2. Duties of the Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to administer and collect each Pool Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policies. The Servicer shall set aside for the accounts of the Seller and the Issuer the amount of the Collections to which each is entitled in accordance with Article I. The Servicer may, in accordance with the applicable Credit and Collection Policy, extend the maturity of any Pool Receivable (but not beyond 30 days) and extend the maturity or adjust the Outstanding Balance of any Defaulted Receivable as the Servicer may determine to be appropriate to maximize Collections thereof; provided, however, that: (i) such extension or adjustment shall not alter the status of such Pool Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the rights of the Issuer or the Administrator under this Agreement and (ii) if a Termination Event has occurred and First Brands or an Affiliate thereof is serving as the Servicer, First Brands or such Affiliate may make such extension or adjustment only upon the prior written approval of the Administrator. The Seller shall deliver to the Servicer and the Servicer shall hold for the benefit of the Seller and the Administrator (for the benefit of the Issuer and individually), in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to each Pool Receivable. Notwithstanding anything to the contrary contained herein, the Administrator may direct the Servicer Receivables Purchase Agreement -15- (whether the Servicer is First Brands or any other Person) to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security; provided, however, that no such direction may be given unless either: (A) a Termination Event has occurred or (B) the Administrator believes in good faith that failure to commence, settle or effect such legal action, foreclosure or repossession could adversely affect Receivables constituting a material portion of the Pool Receivables. (b) The Servicer shall, as soon as practicable following actual receipt of collected funds, turn over to the Seller the collections of any indebtedness that is not a Pool Receivable, less, if First Brands or an Affiliate thereof is not the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of such Servicer of servicing, collecting and administering such collections. The Servicer, if other than First Brands or an Affiliate thereof, shall, as soon as practicable upon demand, deliver to the Seller all records in its possession that evidence or relate to any indebtedness that is not a Pool Receivable, and copies of records in its possession that evidence or relate to any indebtedness that is a Pool Receivable. (c) The Servicer's obligations hereunder shall terminate on the later of: (i) the Facility Termination Date and (ii) the date on which all amounts required to be paid to the Issuer, the Administrator and any other Indemnified Party or Affected Person hereunder shall have been paid in full. After such termination, if First Brands or an Affiliate thereof was not the Servicer on the date of such termination, the Servicer shall promptly deliver to the Seller all books, records and related materials that the Seller previously provided to the Servicer, or that have been obtained by the Servicer, in connection with this Agreement. Section 4.3. Lock-Box Arrangements. Before the initial purchase hereunder, the Seller shall enter into Lock-Box Agreements with all of the Lock-Box Banks and deliver original counterparts thereof to the Administrator. Upon the occurrence of a Termination Event, the Administrator may at any time thereafter give notice to each Lock-Box Bank that the Administrator is exercising its rights under the Lock-Box Agreements to do any or all of the following: (a) to have the exclusive ownership and control of the Lock-Box Accounts transferred to the Administrator and to exercise exclusive dominion and control over the funds deposited therein, (b) to have the proceeds that are sent to the respective Lock-Box Accounts be redirected pursuant to the Administrator's instructions rather than deposited in the applicable Lock-Box Account, and (c) to take any or all other actions permitted under the applicable Lock-Box Agreement. The Receivables Purchase Agreement -16- Seller hereby agrees that if the Administrator at any time takes any action set forth in the preceding sentence, the Administrator shall have exclusive control of the proceeds (including Collections) of all Pool Receivables and the Seller hereby further agrees to take any other action that the Administrator may reasonably request to transfer such control. Any proceeds of Pool Receivables received by the Seller or the Servicer thereafter shall be sent immediately to the Administrator. The parties hereto hereby acknowledge that if at any time the Administrator takes control of any Lock-Box Account, the Administrator shall not have any rights to the funds therein in excess of the unpaid amounts due to the Administrator, the Issuer or any other Person hereunder and the Administrator shall distribute or cause to be distributed such funds in accordance with Section 4.2(b) and Article I (in each case as if such funds were held by the Servicer thereunder). Section 4.4. Enforcement Rights. (a) At any time following the occurrence of a Termination Event: (i) the Administrator may direct the Obligors that payment of all amounts payable under any Pool Receivable is to be made directly to the Administrator or its designee, (ii) the Administrator may instruct the Seller or the Servicer to give notice of the Issuer's interest in Pool Receivables to each Obligor, which notice shall direct that payments be made directly to the Administrator or its designee, and the Seller or the Servicer, as the case may be, shall give such notice at the expense of the Seller or the Servicer, as the case may be; provided, that if the Seller or the Servicer, as the case may be, fails to so notify each Obligor, the Administrator (at the Seller's or the Servicer's, as the case may be, expense) may so notify the Obligors, and (iii) the Administrator may request the Servicer to, and upon such request the Servicer shall: (A) assemble all of the records necessary or desirable to collect the Pool Receivables and the Related Security, and transfer or license to a successor Servicer the use of all software necessary or desirable to collect the Pool Receivables and the Related Security, and make the same available to the Administrator or its designee at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrator and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. Receivables Purchase Agreement -17- (b) The Seller hereby authorizes the Administrator, and irrevocably appoints the Administrator as its attorney-in-fact with full power of substitution and with full authority in the place and stead of the Seller, which appointment is coupled with an interest, to take any and all steps in the name of the Seller and on behalf of the Seller necessary or desirable, in the determination of the Administrator, after the occurrence of a Termination Event, to collect any and all amounts or portions thereof due under any and all Pool Assets, including endorsing the name of the Seller on checks and other instruments representing Collections and enforcing such Pool Assets. Notwithstanding anything to the contrary contained in this subsection, none of the powers conferred upon such attorney-in-fact pursuant to the preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. Section 4.5. Responsibilities of the Seller. (a) Anything herein to the contrary notwithstanding, the Seller shall: (i) perform all of its obligations, if any, under the Contracts related to the Pool Receivables to the same extent as if interests in such Pool Receivables had not been transferred hereunder, and the exercise by the Administrator or the Issuer of their respective rights hereunder shall not relieve the Seller from such obligations, and (ii) pay when due any taxes, including any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. The Administrator and the Issuer shall not have any obligation or liability with respect to any Pool Asset, nor shall either of them be obligated to perform any of the obligations of the Seller, First Brands or the Originators thereunder. (b) First Brands hereby irrevocably agrees that if at any time it shall cease to be the Servicer hereunder, it shall act (if the then-current Servicer so requests) as the data-processing agent of the Servicer and, in such capacity, First Brands shall conduct the data-processing functions of the administration of the Receivables and the Collections thereon in substantially the same way that First Brands conducted such data-processing functions while it acted as the Servicer. Section 4.6. Servicing Fee. (a) Subject to clause (b), the Servicer shall be paid a fee equal to 0.25% per annum (the "Servicing Fee Rate") of the daily average aggregate Outstanding Balance of the Pool Receivables. The Issuer's Share of such fee shall be paid through the distributions contemplated by Section 1.4(d), and the Seller's Share of such fee shall be paid by the Seller. (b) If the Servicer ceases to be First Brands or an Receivables Purchase Agreement -18- Affiliate thereof, the servicing fee shall be the greater of: (i) the amount calculated pursuant to clause (a) and (ii) an alternative amount specified by the successor Servicer not to exceed 110% of the aggregate reasonable costs and expenses incurred by such successor Servicer in connection with the performance of its obligations as Servicer. ARTICLE V. MISCELLANEOUS Section 5.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Transaction Document, or consent to any departure by the Seller or the Servicer therefrom, shall be effective unless in a writing signed by the Administrator, and, in the case of any amendment, by the other parties thereto; and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such material amendment shall be effective until both Moody's and Standard & Poor's have notified the Servicer and the Administrator in writing that such action will not result in a reduction or withdrawal of the rating of any Notes. No failure on the part of the Issuer or the Administrator to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 5.2. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be sent or delivered to each party hereto at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. Section 5.3. Assignability. (a) This Agreement and the Issuer's rights and obligations herein (including ownership of the Purchased Interest or an interest therein) shall be assignable, in whole or in part, by the Issuer and its successors and assigns with the prior written consent of the Seller; provided, however, that such consent shall not be unreasonably withheld; and provided further, that no such consent shall be required if the assignment is made to PNC, any Affiliate of PNC, any Purchaser or other Program Support Provider or any Person that is: (i) in the business of issuing Notes and (ii) associated Receivables Purchase Agreement -19- with or administered by PNC or any Affiliate of PNC. Each assignor may, in connection with the assignment, disclose to the applicable assignee (that shall have agreed to be bound by Section 5.6) any information relating to the Servicer, the Seller or the Pool Receivables furnished to such assignor by or on behalf of the Servicer, the Seller, the Issuer or the Administrator. The Administrator shall give prior written notice of any assignment of the Issuer's rights and obligations (including ownership of the Purchased interest to any Person other than a Program Support Provider). (b) The Issuer may at any time grant to one or more banks or other institutions (each a "Purchaser") party to the Liquidity Agreement, or to any other Program Support Provider, participating interests in the Purchased Interest. In the event of any such grant by the Issuer of a participating interest to a Purchaser or other Program Support Provider, the Issuer shall remain responsible for the performance of its obligations hereunder. The Seller agrees that each Purchaser or other Program Support Provider shall be entitled to the benefits of Sections 1.8 and 1.9. (c) This Agreement and the rights and obligations of the Administrator hereunder shall be assignable, in whole or in part, by the Administrator and its successors and assigns; provided, that, unless: (i) such assignment is to an Affiliate of PNC, (ii) it becomes unlawful for PNC to serve as the Administrator or (iii) a Termination Event exists, the Seller has consented to such assignment, which consent shall not be unreasonably withheld. (d) Except as provided in Section 4.1(d), none of the Seller, First Brands or the Servicer may assign its rights or delegate its obligations hereunder or any interest herein without the prior written consent of the Administrator. (e) Without limiting any other rights that may be available under applicable law, the rights of the Issuer may be enforced through it or by its agents. Section 5.4. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 3.1, the Seller agrees to pay on demand (which demand shall be accompanied by documentation thereof in reasonable detail) all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic internal audits by the Administrator of Pool Receivables) of this Agreement, the other Transaction Documents and the other documents and agreements to be delivered hereunder (and all reasonable costs and expenses in connection with any amendment, waiver or modification of any thereof), including: (i) Attorney Costs for Receivables Purchase Agreement -20- the Administrator, the Issuer and their respective Affiliates and agents with respect thereto and with respect to advising the Administrator, the Issuer and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and (ii) all reasonable costs and expenses (including Attorney Costs), if any, of the Administrator, the Issuer and their respective Affiliates and agents in connection with the enforcement of this Agreement and the other Transaction Documents. (b) In addition, the Seller shall pay on demand any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. Section 5.5. No Proceedings; Limitation on Payments. Each of the Seller, First Brands, the Servicer, the Administrator, each assignee of the Purchased Interest or any interest therein, and each Person that enters into a commitment to purchase the Purchased Interest or interests therein, hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note issued by the Issuer is paid in full. The provision of this Section 5.5 shall survive any termination of this Agreement. Section 5.6. Confidentiality. Unless otherwise required by applicable law, each of the Seller and the Servicer agrees to maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided, that this Agreement may be disclosed to: (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Administrator and (b) the Seller's legal counsel and auditors if they agree to hold it confidential. Unless otherwise required by applicable law, each of the Administrator and the Issuer agrees to maintain the confidentiality of non-public financial information regarding First Brands and its Subsidiaries and other non-public information marked as confidential by the Servicer or the Seller; provided, that such information may be disclosed to: (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to First Brands, (ii) legal counsel and auditors of the Issuer or the Administrator if they Receivables Purchase Agreement -21- agree to hold it confidential, (iii) the rating agencies rating the Notes to the extent such information relates to the Receivables Pool or the transactions contemplated by this Agreement, or if not so related, upon obtaining the prior consent of First Brands (such consent not to be unreasonably withheld), (iv) any Program Support Provider or potential Program Support Provider to the extent such information relates to the Receivables Pool or the transactions contemplated by this Agreement, or if not so related, upon obtaining the prior consent of First Brands (such consent not to be unreasonably withheld), (v) any placement agent placing the Notes and (vi) any regulatory authorities having jurisdiction over PNC, the Issuer, any Program Support Provider or any Purchaser. Section 5.7. GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF) (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT; AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH SERVICE MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CONNECTICUT LAW. Section 5.8. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 5.9. Survival of Termination. The provisions of Sections 1.8, 1.9, 3.1, 3.2, 5.4, 5.5, 5.6, 5.7, 5.10 and 5.13 shall survive any termination of this Agreement. Section 5.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. EACH OF THE Receivables Purchase Agreement -22- PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. Section 5.11. Entire Agreement. This Agreement and the other Transaction Documents embody the entire agreement and understanding between the parties hereto, and supersede all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof, except for any prior arrangements made with respect to the payment by the Issuer of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Seller, the Servicer and the Administrator. Section 5.12. Headings. The captions and headings of this Agreement and in any Exhibit, Schedule or Annex hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof. Section 5.13. Issuer's Liabilities. The obligations of the Issuer under the Transaction Documents are solely the corporate obligations of the Issuer. No recourse shall be had for any obligation or claim arising out of or based upon any Transaction Document against any stockholder, employee, officer, director or incorporator of the Issuer; provided, however, that this Section shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Receivables Purchase Agreement -23- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FIRST BRANDS FUNDING INC. By: /s/ Donald A. DeSantis ---------------------------------- Name: Donald A. DeSantis ---------------------------- Title: President ---------------------------- Address: First Brands Funding Inc. 83 Wooster Heights Road Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 FIRST BRANDS CORPORATION By: /s/ Einar M. Rod ---------------------------------- Name: Einar M. Rod ---------------------------- Title: Vice President ---------------------------- Address: First Brands Funding Inc. 83 Wooster Heights Road Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 Receivables Purchase Agreement -24- MARKET STREET FUNDING CORPORATION By: /s/ Juliana C. Johnson ------------------------------- Name: Juliana C. Johnson --------------------------- Title: Vice President --------------------------- Address: Market Street Funding Corporation c/o AMACAR Group, L.L.C. 6707-D Fairview Road Charlotte, North Carolina 28210 Attention: Douglas K. Johnson Telephone No.: (704) 365-0569 Facsimile No.: (704) 365-1362 With a copy to: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15220-2707 Attention: John Smathers Telephone No.: (412) 762-6440 Facsimile No.: (412) 762-9184 PNC BANK, NATIONAL ASSOCIATION, as Administrator By: /s/ John Smathers ------------------------------- Name: John Smathers ---------------------------- Title: Vice President ---------------------------- Address: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15220-2707 Attention: John Smathers Telephone No.: (412) 762-6440 Facsimile No.: (412) 762-9184 Receivables Purchase Agreement -25- EXHIBIT I DEFINITIONS As used in the Agreement (including its Exhibits, Schedules and Annexes), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). Unless otherwise indicated, all Section, Annex, Exhibit and Schedule references in this Exhibit are to Sections of and Annexes, Exhibits and Schedules to the Agreement. "A&M" means A&M Products Inc., a Texas corporation. "Administration Account" means the account (account number 1002422076) of the Administrator maintained at the office of PNC at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15220-2707, or such other account as may be so designated in writing by the Administrator to the Servicer. "Administrator" has the meaning set forth in the preamble to the Agreement. "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of preferential arrangement; it being understood that any thereof in favor of the Issuer or the Administrator (for the benefit of the Issuer) shall not constitute an Adverse Claim. "Affected Person" has the meaning set forth in Section 1.8 of the Agreement. "Affiliate" means, as to any Person: (a) any Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person, or (b) who is a director or officer: (i) of such Person or (ii) of any Person described in clause (a), except that with respect to the Issuer, Affiliate shall mean the holder(s) of its capital stock. For purposes of this definition, control of a Person shall mean the power, direct or indirect: (x) to vote 25% or more of the securities having ordinary voting power for the election of directors of such Person or (y) to direct or cause the direction of the management and policies of such Person, in either case whether by ownership of securities, contract, proxy or otherwise. "Agreement" has the meaning set forth in the preamble to the Agreement. Receivables Purchase Agreement -I-1- "Alternate Rate" for any Settlement Period for any Portion of Capital of the Purchased Interest means an interest rate per annum equal to, at the Seller's option: (a) 0.75% per annum above the Eurodollar Rate for such Settlement Period, or (b) the Base Rate for such Settlement Period; provided, however, that in the case of: (i) any Settlement Period on or before the first day of which the Administrator shall have been notified by the Issuer, a Purchaser or any other Program Support Provider that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for the Issuer, such Purchaser or other Program Support Provider, as applicable, to fund any Portion of Capital based on the Eurodollar Rate (and the Issuer, such Purchaser or other Program Support Provider shall not have subsequently notified the Administrator that such circumstances no longer exist), (ii) any Settlement Period of one to (and including) 30 days, (iii) any Settlement Period as to which: (A) the Administrator does not receive notice before noon (New York City time) on: (1) the first Business Day preceding the first day of such Settlement Period that the Seller desires that the related Portion of Capital be funded at the CP Rate or (2) the third Business Day preceding the first day of such Settlement Period that the Seller desires that the related Portion of Capital be funded at the Alternate Rate and based on the Eurodollar Rate, or (B) the Seller has given the notice contemplated by clause (A)(1) and the Administrator shall have notified the Seller that funding the related Portion of Capital at the CP Rate is (in the Administrator's sole discretion) economically inadvisable to the Issuer, the Administrator, the Seller or any similarly situated Person or the Issuer is not permitted to issue Notes to fund the Purchased Interest hereunder, or (iv) any Settlement Period relating to a Portion of Capital that is less than $5,000,000, the "Alternate Rate" for each such Settlement Period shall be an interest rate per annum equal to the Base Rate in effect on each day of such Settlement Period. The "Alternate Rate" for any day while a Termination Event exists shall be an interest rate equal to 2% per annum above the Base Rate in effect on such day. "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the Receivables Purchase Agreement -I-2- reasonable allocated cost of internal legal services and all reasonable disbursements of internal counsel. "Autozone" means Autozone Inc. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11 U.S.C. 'SS' 101, et seq.), as amended from time to time. "Base Rate" means for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher of: (a) the rate of interest in effect for such day as publicly announced from time to time by PNC in Pittsburgh, Pennsylvania as its "prime rate." Such "prime rate" is set by PNC based upon various factors, including PNC's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate, and (b) 0.50% per annum above the latest Federal Funds Rate. "Benefit Plan" means any employee benefit pension plan as defined in Section 3(2) of ERISA in respect of which the Seller, any Originator, First Brands or any ERISA Affiliate is, or at any time during the immediately preceding six years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day (other than a Saturday or Sunday) on which: (a) banks are not authorized or required to close in New York City, New York or Pittsburgh, Pennsylvania, and (b) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "Capital" means the amount paid to the Seller in respect of the Purchased Interest by the Issuer pursuant to the Agreement, or such amount divided or combined in accordance with Section 1.7 of the Agreement, in each case reduced from time to time by Collections distributed and applied on account of such Capital pursuant to Section 1.4(d) of the Agreement; provided, that if such Capital shall have been reduced by any distribution and thereafter all or a portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution as though it had not been made. Receivables Purchase Agreement -I-3- "Cash Discount" means, at any time, the amount of payments made or owed by the Seller pursuant to Section 1.4(e)(i) of the Agreement as a result of any discount offered by the Seller or an Affiliate of the Seller to any Obligor. "Cash Discount Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward), computed as of the last day of each calendar month by dividing: (a) the aggregate amount of Cash Discounts arising during such calendar month, by (b) the aggregate credit sales made by all the Originators during the calendar month that is one month prior to such calendar month. "Change in Control" means that First Brands ceases to own, directly or indirectly, 100% of the capital stock of the Seller free and clear of all Adverse Claims or a majority of the capital stock of any Originator. "Chargeback" means, at any time, the amount of payments made or owed by the Seller pursuant to Section 1.4(e)(i) of the Agreement as a result of any chargeback between the Seller or an Affiliate of the Seller and an Obligor. "Chargeback and Cash Discount Reserve" means, at any time, the product of (a) the aggregate Capital at such time multiplied by (b)(i) the Chargeback and Cash Discount Reserve Percentage, divided by (ii) 100% minus the Chargeback and Cash Discount Reserve Percentage. "Chargeback and Cash Discount Reserve Percentage" means, as of any date, the product of: (a) the sum of (i) 2 times the highest average of the Chargeback Ratios for any three consecutive calendar months during the twelve most recent calendar months and (ii) the greater of (A) 2% and (B) and the Cash Discount Ratio, and (b) the Dilution Horizon. "Chargeback Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward), computed as of the last day of each calendar month by dividing: (a) the aggregate amount of Chargebacks arising during such calendar month, by (b) the aggregate credit sales made by all the Originators during the calendar month that is one month prior to such calendar month. "Closing Date" means June 5, 1998. "Collections" means, with respect to any Pool Receivable: (a) all funds that are received by any Originator, First Brands, the Seller or the Servicer in payment of any amounts owed in respect of such Receivable (including purchase price, finance charges, interest and all other charges), or applied to amounts Receivables Purchase Agreement -I-4- owed in respect of such Receivable (including insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the related Obligor or any other Person directly or indirectly liable for the payment of such Pool Receivable and available to be applied thereon), (b) all Collections deemed to have been received pursuant to Section 1.4(e) of the Agreement and (c) all other proceeds of such Pool Receivable. "Company Note" has the meaning set forth in Section 3.1 of the Purchase and Sale Agreement. "Concentration Percentage" means: (a) for any Group A Obligor, 30%, (b) for any Group B Obligor, 14%, (c) for any Group C Obligor, 7% and (d) for any Group D Obligor, 3.5%; provided, however, that the Issuer may, with prior written consent from the Administrator and the Liquidity Agent and if the Rating Agency Condition is satisfied, approve higher Concentration Percentages for selected Obligors "Concentration Reserve" means, at any time: (a) the aggregate Capital at such time multiplied by (b)(i) the Concentration Reserve Percentage divided by (ii) 100% minus the Concentration Reserve Percentage. "Concentration Reserve Percentage" means, at any time, the largest of: (a) the sum of four largest Group D Obligor Percentages, (b) the sum of the two largest Group C Obligor Percentages and (c) the largest Group B Obligor Percentage. "Contract" means, with respect to any Receivable, any and all contracts, instruments, agreements, leases, invoices, notes or other writings pursuant to which such Receivable arises or that evidence such Receivable or under which an Obligor becomes or is obligated to make payment in respect of such Receivable. "CP Rate" for any Settlement Period for any Portion of Capital means a rate calculated by the Administrator equal to: (a) the rate (or if more than one rate, the weighted average of the rates) at which Notes of the Issuer on each day during such period have been sold by any placement agent or commercial paper dealer selected by the Administrator on behalf of the Issuer; provided, that if such rate(s) is a discount rate(s), then the CP Rate shall be the rate (or if more than one rate, the weighted average of the rates) resulting from converting such discount rate(s) to an interest-bearing equivalent rate plus (b) the commissions and charges charged by such placement agent or commercial paper dealer with respect to such Notes, expressed as a percentage of the face amount of such Notes and converted to an interest-bearing equivalent rate per annum. Notwithstanding the foregoing, the "CP Rate" for any day while a Termination Event Receivables Purchase Agreement -I-5- exists shall be an interest rate equal to 2% above the Base Rate in effect on such day. "Credit and Collection Policy" means, as the context may require, those receivables credit and collection policies and practices of each Originator in effect on the date of the Agreement and described in Schedule I to the Agreement, as modified in compliance with the Agreement. "Cut-off Date" has the meaning set forth in the Sale Agreement. "Days' Sales Outstanding" means, for any Settlement Period: (a) the Outstanding Balance of all Pool Receivables at the end of such Settlement Period divided by (b)(i) the aggregate credit sales made by all the Originators during the three calendar months ended on or before the last day of such Settlement Period divided by (ii) the number of days in such three-month period. "Debt" means: (a) indebtedness for borrowed money, (b) obligations evidenced by bonds, debentures, notes or other similar instruments, (c) obligations to pay the deferred purchase price of property or services, (d) obligations as lessee under leases that shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (e) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (d). "Debt-to-Capital Ratio" means, with respect to Autozone, the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1% with 5/1000 of 1% rounded upward) computed as of the last day of each fiscal quarter by dividing (a) Autozone's total debt (as reported in its most recent 10Q), by (b) the sum of (i) Autozone's total debt (as reported in its most recent 10Q), plus (ii) the total shareholder's equity of Autozone. "Defaulted Receivable" means a Receivable: (a) as to which any payment, or part thereof, remains unpaid for more than 60 days from the original due date for such payment, or (b) without duplication, (i) as to which an Event of Bankruptcy shall have occurred with respect to the Obligor thereof or any other Person obligated thereon or owning any Related Security with respect thereto or (ii) that has been written off the Seller's books as uncollectible. Receivables Purchase Agreement -I-6- "Default Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of the last day of each calendar month by dividing: (a) the aggregate Outstanding Balance (excluding credit balances) of all Pool Receivables that became Defaulted Receivables during such month plus, without double counting, the aggregate Outstanding Balance of all Pool Receivables as to which a payment, or part thereof, remained unpaid for less than 61 days from the original due date for such payment and that was written off as uncollectible during such month, by (b) the aggregate credit sales made by all the Originators during the month that is three calendar months before such month. "Delinquency Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward) computed as of the last day of each calendar month by dividing: (a) the aggregate Outstanding Balance of all Pool Receivables as to which a payment, or part thereof, became unpaid for more than 30 days from the original due date for such payment on such day by (b) the aggregate Outstanding Balance of all Pool Receivables on such day. "Delinquent Receivable" means a Receivable (other than a Defaulted Receivable) as to which any payment, or part thereof, remains unpaid for more than 60 days from the original due date for such payment. "Dilution Horizon" means, for any calendar month, the ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward) computed as of the last day of such calendar month of: (a) the aggregate credit sales made by all the Originators during the most recent calendar month to (b) the aggregate Outstanding Balance of the Eligible Receivables at the last day of such calendar month. "Dilution Ratio" means the ratio (expressed as a percentage and rounded to the nearest 1/100th of 1%, with 5/1000th of 1% rounded upward), computed as of the last day of each calendar month by dividing: (a) the aggregate amount of payments made or owed by the Seller pursuant to Section 1.4(e)(i) of the Agreement during such calendar month (including without limitation Chargebacks, Cash Discounts and Radar Receivables) by (b) the aggregate credit sales made by all the Originators during the calendar month that is one month prior to such calendar month. "Dilution Reserve" means, on any day, an amount equal to the greater of : (a) 11.11% of the Capital at the close of business of the Servicer on such date and (b) the sum of (i) the Chargeback and Cash Discount Reserve and (ii) the Radar Reserve. Receivables Purchase Agreement -I-7- "Discount" means: (a) for the Portion of Capital for any Settlement Period to the extent the Issuer will be funding such Portion of Capital during such Settlement Period through the issuance of Notes, CPR x C x ED/360 (b) for the Portion of Capital for any Settlement Period to the extent the Issuer will not be funding such Portion of Capital during such Settlement Period through the issuance of Notes: AR x C x ED/Year + TF where: AR = the Alternate Rate for the Portion of Capital for such Settlement Period, C = the Portion of Capital during such Settlement Period, CPR = the CP Rate for the Portion of Capital for such Settlement Period, ED = the actual number of days during such Settlement Period, Year = if such Portion of Capital is funded based upon: (i) the Eurodollar Rate, 360 days, and (ii) the Base Rate, 365 or 366 days, as applicable, and TF = the Termination Fee, if any, for the Portion of Capital for such Settlement Period; provided, that no provision of the Agreement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; and provided further, that Discount for the Portion of Capital shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason. "Eligible Receivable" means, at any time, a Pool Receivable: (a) the Obligor of which is (i) a United States resident, (ii) not a government or a governmental subdivision, affiliate or agency, (iii) not subject to any Receivables Purchase Agreement -I-8- action of the type described in paragraph (f) of Exhibit V to the Agreement and (iv) not an Affiliate of First Brands or any other Originator, (b) that is denominated and payable only in U.S. dollars in the United States, (c) that has a stated maturity that is not more than 90 days after the original invoice date of such Receivable; provided, however, that up to 4% of the Net Receivables Pool Balance may have a stated maturity that is greater than 90 days after the original invoice date but less than 120 days from such original invoice date of such Receivable. (d) that arises under a duly authorized Contract for the sale and delivery of goods and services in the ordinary course of an Originator's business, (e) that arises under a duly authorized Contract that is in full force and effect and that is a legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms, (f) that conforms in all material respects with all applicable laws, rulings and regulations in effect, (g) that is not the subject of any asserted dispute, offset, hold back defense, Adverse Claim or other claim, (h) that satisfies all applicable requirements of the applicable Credit and Collection Policy, (i) that has not been modified, waived or restructured since its creation, except as permitted pursuant to Section 4.2 of the Agreement, (j) in which the Seller owns good and marketable title, free and clear of any Adverse Claims, and that is freely assignable by the Seller (including without any consent of the related Obligor), (k) for which the Issuer shall have a valid and enforceable undivided percentage ownership or security interest, to the extent of the Purchased Interest, and a valid and enforceable first priority perfected security interest therein and in the Related Security and Collections with respect thereto, in each case free and clear of any Adverse Claim, (l) that constitutes an account as defined in the UCC, and that is not evidenced by instruments or chattel paper, Receivables Purchase Agreement -I-9- (m) that is neither a Defaulted Receivable nor a Delinquent Receivable, (n) for which neither the Originator thereof, the Seller nor the Servicer has established any offset arrangements with the related Obligor, (o) for which Defaulted Receivables of the related Obligor do not exceed 25% of the Outstanding Balance of all such Obligor's Receivables, and (p) that represents amounts earned and payable by the Obligor that are not subject to the performance of additional services by the Originator thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ERISA Affiliate" means: (a) any corporation that is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as the Seller, any Originator or First Brands, (b) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Seller, any Originator or First Brands, (c) a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as the Seller, any Originator, First Brands, any corporation described in clause (a) or any trade or business described in clause (b), or (d) as to the Seller or any of its Affiliates, Eagle Industrial Products Corporation and all other Person(s) that are members of Eagle Industrial Products Corporation's controlled group or under common control therewith (within the meaning of Sections 414(b) and (c) of the Internal Revenue Code), but only until the termination of the Agreement dated as of October 24, 1994 among the Pension Benefit Guaranty Corporation, First Brands and certain of its Affiliates. "Eurodollar Rate" means, for any Settlement Period, an interest rate per annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the following formula: LIBOR ------------------------------------------- 100% - Eurodollar Rate Reserve Percentage where "Eurodollar Rate Reserve Percentage" means, for any Settlement Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect Receivables Purchase Agreement -I-10- on the date LIBOR for such Settlement Period is determined 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") having a term comparable to such Settlement Period. "Event of Bankruptcy" means (a) any case, action or proceeding before any court or other governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors or (b) any general assignment for the benefit of creditors of a Person composition, marshalling of assets for creditors of a Person, or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each of cases (a) and (b) undertaken under U.S. Federal, state or foreign law, including the U.S. Bankruptcy Code. "Excess Concentration" means the sum of the amounts by which the Outstanding Balance of Eligible Receivables of each Obligor then in the Receivables Pool exceeds an amount equal to: (a) the Concentration Percentage for such Obligor multiplied by (b) the Outstanding Balance of all Eligible Receivables then in the Receivables Pool. "Extended Term Receivable" means, at any time, a Receivable that has a stated maturity greater than 30 days after the date on which such Receivable was invoiced. "Facility Termination Date" means the earliest to occur of: (a) June 4, 2001, (b) the date determined pursuant to Section 2.2 of the Agreement, (c) the date the Purchase Limit reduces to zero pursuant to Section 1.1(b) of the Agreement and (d) the date that the commitments of the Purchasers terminate under the Liquidity Agreement. "Federal Funds Rate" means, for any day, the per annum rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)." If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate." If on any relevant day the appropriate rate is Receivables Purchase Agreement -I-11- not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic mean as determined by the Administrator of the rates for the last transaction in overnight Federal funds arranged before 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrator. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions. "Fee Letter" has the meaning set forth in Section 1.5 of the Agreement. "First Brands" has the meaning set forth in the preamble to the Agreement. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any body or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any court, and any Person owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Group A Obligor" means any Obligor with a short-term rating of at least: (a) "A-1" by Standard & Poor's, or if such Obligor does not have a short-term rating from Standard & Poor's, a rating of "A+" or better by Standard & Poor's on its long-term senior unsecured and uncredit-enhanced debt securities, and (b) "P-1" by Moody's, or if such Obligor does not have a short-term rating from Moody's, "A1" or better by Moody's on its long-term senior unsecured and uncredit-enhanced debt securities. "Group B Obligor" means (i) an Obligor, not a Group A Obligor, with a short-term rating of at least: (a) "A-2" by Standard & Poor's, or if such Obligor does not have a short-term rating from Standard & Poor's, a rating of "BBB+" to "A" by Standard & Poor's on its long-term senior unsecured and uncredit-enhanced debt securities, and (b) "P-2" by Moody's, or if such Obligor does not have a short-term rating from Moody's, "Baa1" to "A2" by Moody's on its long-term senior unsecured and uncredit-enhanced debt securities and (ii) Autozone, if Autozone remains unrated by the Rating Agencies and maintains a Debt-to-Capital Ratio of not greater than 25%. "Group B Obligor Percentage" means, at any time, for each Group B Obligor, the percentage equivalent of: (a) the aggregate Outstanding Balance of the Eligible Receivables of such Group B Receivables Purchase Agreement -I-12- Obligor less any Excess Concentrations of such Obligor, divided by (b) the aggregate Outstanding Balance of all Eligible Receivables at such time. "Group C Obligor" means an Obligor, not a Group A Obligor or a Group B Obligor, with a short-term rating of at least: (a) "A-3" by Standard & Poor's, or if such Obligor does not have a short-term rating from Standard & Poor's, a rating of "BBB-" to "BBB" by Standard & Poor's on its long-term senior unsecured and uncredit-enhanced debt securities, and (b) "P-3" by Moody's, or if such Obligor does not have a short-term rating from Moody's, "Baa3" to "Baa2" by Moody's on its long-term senior unsecured and uncredit-enhanced debt securities. "Group C Obligor Percentage" means, at any time, for each Group C Obligor, the percentage equivalent of: (a) the aggregate Outstanding Balance of the Eligible Receivables of such Group C Obligor less any Excess Concentrations of such Obligor, divided by (b) the aggregate Outstanding Balance of all Eligible Receivables at such time. "Group D Obligor" means any Obligor that is not a Group A Obligor, Group B Obligor or Group C Obligor. "Group D Obligor Percentage" means, at any time, for each Group D Obligor: (a) the aggregate Outstanding Balance of the Eligible Receivables of such Group D Obligor less any Excess Concentrations of such Obligor, divided by (b) the aggregate Outstanding Balance of all Eligible Receivables at such time. "Himolene" means Himolene Incorporated, a Delaware corporation. "Indemnified Amounts" has the meaning set forth in Section 3.1 of the Agreement. "Indemnified Party" has the meaning set forth in Section 3.1 of the Agreement. "Independent Director" has the meaning set forth in paragraph 3(c) of Exhibit IV to the Agreement. "Information Package" means a report, in substantially the form of Annex A to the Agreement, furnished to the Administrator pursuant to (i) Section 2(j)(iii) of Exhibit IV of the Agreement (a) as of the last day of each calendar month, not later than the eighth Business Day after the last day of such calendar month or (b) for such periods as is specified by the Administrator (including on a semi-monthly, weekly or daily basis) within six Business Days of a request by the Administrator, and (ii) Section Receivables Purchase Agreement -I-13- 1(j) and 2(a) of Exhibit II to the Agreement as a condition to the respective initial and subsequent purchases thereunder. "Insolvency Proceeding" means: (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidations, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each case undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Internal Revenue Code also refer to any successor sections. "Issuer" has the meaning set forth in the preamble to the Agreement. "Issuer's Share" of any amount means such amount multiplied by the Purchased Interest at the time of determination. "LIBOR" means the rate of interest per annum determined by the Administrator to be the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Administrator by each Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the Portion of Capital to be in funded at the Eurodollar Rate during such Settlement Period would be offered by major banks in the London interbank market to such Reference Bank at its request at or about 11:00 a.m. (London time) on the second Business Day before the commencement of such Settlement Period. "Liquidity Agent" means PNC in its capacity as the Liquidity Agent pursuant to the Liquidity Agreement. "Liquidity Agreement" means the Liquidity Asset Purchase Agreement, dated as of June 5, 1998 between the purchasers from time to time party thereto, the Issuer and PNC, as Administrator and Liquidity Agent, as the same may be further amended, supplemented or otherwise modified from time to time. "Lock-Box Account" means an account maintained at a bank or other financial institution for the purpose of receiving Collections. "Lock-Box Agreement" means an agreement, in substantially Receivables Purchase Agreement -I-14- the form of Annex A to the Agreement, among the Seller, the Servicer and a Lock-Box Bank. "Lock-Box Bank" means any of the banks or other financial institutions holding one or more Lock-Box Accounts. "Loss Reserve" means, on any date, an amount equal to: (a) the Capital at the close of business of the Servicer on such date multiplied by (b)(i) the Loss Reserve Percentage on such date divided by (ii) 100% minus the Loss Reserve Percentage on such date. "Loss Reserve Percentage" means, on any date, the greater of: (a) 4% or (b) a percentage (calculated as of the end of each calendar month) equal to (i) the product of (A) 2 times the highest average of the Default Ratios for any three consecutive calendar months during the twelve most recent calendar months multiplied by (B) the sum of (I) the aggregate credit sales made during the four most recent calendar months and (II) the product of (x) the aggregate credit sales made during the fifth preceding calendar month, and (y) a fraction (expressed as a percentage) the numerator of which is the Outstanding Balance of Eligible Receivables then in the Receivables Pool that are Extended Term Receivables and the denominator of which is the Outstanding Balance of Receivables then in the Receivables Pool, divided by (ii) the aggregate Outstanding Balance of Eligible Receivables as of such date. "Material Adverse Effect" means, relative to any Person with respect to any event or circumstance, a material adverse effect on: (a) the assets, operations, business or financial condition of such Person, (b) the ability of any of such Person to perform its obligations under the Agreement or any other Transaction Document to which it is a party, (c) the validity or enforceability of any other Transaction Document, or the validity, enforceability or collectibility of a material portion of the Pool Receivables or (d) the status, perfection, enforceability or priority of the Issuer's or the Seller's interest in the Pool Assets. "Monthly Settlement Date" means the tenth Business Day of each calendar month. "Moody's" means Moody's Investors Service, Inc. Receivables Purchase Agreement -I-15- "Net Receivables Pool Balance" means, at any time: (a) the Outstanding Balance of Eligible Receivables then in the Receivables Pool minus (b) the Excess Concentration. "Notes" means short-term promissory notes issued or to be issued by the Issuer to fund its investments in accounts receivable or other financial assets. "Obligor" means, with respect to any Receivable, the Person obligated to make payments pursuant to the Contract relating to such Receivable. "Originator" has the meaning set forth in the Sale Agreement. "Originator Assignment Certificate" means each assignment, in substantially the form of Exhibit C to the Sale Agreement, evidencing Seller's ownership of the Receivables generated by a particular Originator, as the same may be amended, supplemented, amended and restated, or otherwise modified from time to time in accordance with the Sale Agreement. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Payment Date" has the meaning set forth in Section 2.1 of the Sale Agreement. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "PNC" has the meaning set forth in the preamble to the Agreement. "Pool Assets" has the meaning set forth in Section 1.2(d) of the Agreement. "Pool Receivable" means a Receivable in the Receivables Pool. "Portion of Capital" has the meaning set forth in Section 1.7 of the Agreement. In addition, at any time when the Capital of the Purchased Interest is not divided into two or more such portions, APortion of Capital" means 100% of the Capital. "Program Support Agreement" means and includes the Liquidity Agreement and any other agreement entered into by any Program Receivables Purchase Agreement -I-16- Support Provider providing for: (a) the issuance of one or more letters of credit for the account of the Issuer, (b) the issuance of one or more surety bonds for which the Issuer is obligated to reimburse the applicable Program Support Provider for any drawings thereunder, (c) the sale by the Issuer to any Program Support Provider of the Purchased Interest (or portions thereof) and/or (d) the making of loans and/or other extensions of credit to the Issuer in connection with the Issuer's Receivables-securitization program contemplated in the Agreement, together with any letter of credit, surety bond or other instrument issued thereunder (but excluding any discretionary advance facility provided by the Administrator). "Program Support Provider" means and includes any Purchaser and any other Person (other than any customer of the Issuer) now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, the Issuer pursuant to any Program Support Agreement. "Purchase and Sale Indemnified Amounts" has the meaning set forth in Section 9.1 of the Sale Agreement. "Purchase and Sale Indemnified Party" has the meaning set forth in Section 9.1 of the Sale Agreement. "Purchase and Sale Termination Date" has the meaning set forth in Section 1.4 of the Sale Agreement. "Purchase and Sale Termination Event" has the meaning set forth in Section 8.1 of the Sale Agreement. "Purchase Facility" has the meaning set forth in Section 1.1 of the Sale Agreement. "Purchase Limit" means $100,000,000, as such amount may be reduced pursuant to Section 1.1(b) of the Agreement. References to the unused portion of the Purchase Limit shall mean, at any time, the Purchase Limit minus the then outstanding Capital. "Purchase Price" has the meaning set forth in Section 2.1 of the Sale Agreement. "Purchase Report" has the meaning set forth in Section 2.1 of the Sale Agreement. "Purchased Interest" means, at any time, the undivided percentage ownership interest in: (a) each and every Pool Receivable now existing or hereafter arising, other than any Pool Receivable that arises on or after the Facility Termination Date, (b) all Related Security with respect to such Pool Receivables and (c) all Collections with respect to, and other proceeds of, Receivables Purchase Agreement -I-17- such Pool Receivables and Related Security. Such undivided percentage interest shall be computed as: Capital + Total Reserves ---------------------------------- Net Receivables Pool Balance The Purchased Interest shall be determined from time to time pursuant to Section 1.3 of the Agreement. "Purchaser" has the meaning set forth in Section 5.3(b) of the Agreement. "Purchaser's Yield" means, for any Settlement Period, the Discount plus all Fees payable under the Fee Letter accrued or to accrue during such Settlement Period, expressed as a percentage of Capital and converted to an interest-bearing equivalent rate per annum. "Radar Receivable" means each Receivable of any Originator which is identified on the books and records of such Originator as a Radar Receivable. "Radar Reserve" means, at any time, the product of (a) the aggregate Outstanding Balance of Radar Receivables originated during the current calendar month, times (b) the Turnover Rate. "Rating Agency Condition" means, with respect to any event or occurrence, receipt by the Issuer of written confirmation from Standard & Poor's and Moody's that such event or occurrence shall not cause the rating on the then outstanding Notes to be downgraded or withdrawn. "Receivable" means any indebtedness and other obligations owed to the Seller or any Originator by, or any right of the Seller or any Originator to payment from or on behalf of, an Obligor (other than an Obligor which is not a U.S. Obligor), whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of goods or the rendering of services by an Originator, and includes the obligation to pay any finance charges, fees and other charges with respect thereto. Indebtedness and other obligations arising from any one transaction, including indebtedness and other obligations represented by an individual invoice or agreement, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other obligations arising from any other transaction. "Receivables Pool" means, at any time, all of the then outstanding Receivables purchased by the Seller pursuant to the Sale Agreement. Receivables Purchase Agreement -I-18- "Reference Bank" means PNC. "Related Rights" has the meaning set forth in Section 1.1 of the Sale Agreement. "Related Security" means, with respect to any Receivable: (a) all of the Seller's and the Originator thereof's interest in any goods (including returned goods), and documentation of title evidencing the shipment or storage of any goods (including returned goods), relating to any sale giving rise to such Receivable, (b) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all UCC financing statements or similar filings relating thereto, and (c) all of the Seller's and Originator's rights, interests and claims under the Contracts and all guaranties, indemnities, insurance and other agreements (including the related Contract) or arrangements of whatever character from time to time supporting or securing payment of such Receivable or otherwise relating to such Receivable, whether pursuant to the Contract related to such Receivable or otherwise. "Sale Agreement" means the Purchase and Sale Agreement, dated as of June 5, 1998, between the Seller and the Originators as such agreement may be amended, amended and restated, supplemented or otherwise modified from time to time. "Seller" has the meaning set forth in the preamble to the Agreement. "Seller Party" means any of the Seller, Servicer or any Originator or any of their respective successors or assigns. "Seller's Share" of any amount means the greater of: (a) $0 and (b) such amount minus the Issuer's Share. "Servicer" has the meaning set forth in the preamble to the Agreement. "Servicing Fee" shall mean the fee referred to in Section 4.6 of the Agreement. "Servicing Fee Rate" shall mean the rate referred to in Receivables Purchase Agreement -I-19- Section 4.6 of the Agreement. "Servicing Fee Reserve" for the Purchased Interest at any time means the sum of (i) the unpaid Servicing Fee accrued to such time, plus (ii) an amount equal to (a) the Net Receivables Pool Balance at the time of computation multiplied by (b) the product of (x) the percentage per annum at which the Servicing Fee is accruing on such date and (y) a fraction having the sum of 2 times the Days' Sales Outstanding as its numerator and 360 as its denominator. "Settlement Period" means: (a) before the Facility Termination Date: (i) initially the period commencing on the date of the initial purchase pursuant to Section 1.2 of the Agreement (or in the case of any fees payable hereunder, commencing on the Closing Date) and ending on (but not including) the next Monthly Settlement Date, and (ii) thereafter, each period commencing on such Monthly Settlement Date and ending on (but not including) the next Monthly Settlement Date, and (b) on and after the Facility Termination Date, such period (including a period of one day) as shall be selected from time to time by the Administrator or, in the absence of any such selection, each period of 30 days from the last day of the preceding Settlement Period. "Solvent" means, with respect to any Person at any time, a condition under which: (i) the fair value and present fair saleable value of such Person's total assets is, on the date of determination, greater than such Person's total liabilities (including contingent and unliquidated liabilities) at such time; (ii) the fair value and present fair saleable value of such Person's assets is greater than the amount that will be required to pay such Person's probable liability on its existing debts as they become absolute and matured ("debts," for this purpose, includes all legal liabilities, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent); (iii) such Person is and shall continue to be able to pay all of its liabilities as such liabilities mature; and (iv) such Person does not have unreasonably small capital with which to engage in its current and in its anticipated business. For purposes of this definition: (A) the amount of a Person's contingent or unliquidated liabilities at any time shall be that amount Receivables Purchase Agreement -I-20- which, in light of all the facts and circumstances then existing, represents the amount which can reasonably be expected to become an actual or matured liability; (B) the "fair value" of an asset shall be the amount which may be realized within a reasonable time either through collection or sale of such asset at its regular market value; (C) the "regular market value" of an asset shall be the amount which a capable and diligent business person could obtain for such asset from an interested buyer who is willing to Purchase such asset under ordinary selling conditions; and (D) the "present fair saleable value" of an asset means the amount which can be obtained if such asset is sold with reasonable promptness in an arm's-length transaction in an existing and not theoretical market. "Spike Factor" means, for any calendar month the positive difference, if any, between: (a) the highest Dilution Ratio for any calendar month during the twelve most recent calendar months and (b) the arithmetic average of the Dilution Ratios for such twelve months. "Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "Subsidiary" means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock of each class or other interests having ordinary voting power (other than stock or other interests having such power only by reason of the happening of a contingency) to elect a majority of the Board of Directors or other managers of such entity are at the time owned, or management of which is otherwise controlled: (a) by such Person, (b) by one or more Subsidiaries of such Person or (c) by such Person and one or more Subsidiaries of such Person. "Termination Day" means: (a) each day on which the conditions set forth in Section 2 of Exhibit II to the Agreement are not satisfied or (b) each day that occurs on or after the Facility Termination Date. "Termination Event" has the meaning specified in Exhibit V to the Agreement. "Termination Fee" means, for any Settlement Period during which a Termination Day occurs, the amount, if any, by which: (a) the additional Discount (calculated without taking into account Receivables Purchase Agreement -I-21- any Termination Fee or any shortened duration of such Settlement Period pursuant to the definition thereof) that would have accrued during such Settlement Period on the reductions of Capital relating to such Settlement Period had such reductions not been made, exceeds (b) the income, if any, received by the Issuer from investing the proceeds of such reductions of Capital, as determined by the Administrator, which determination shall be binding and conclusive for all purposes, absent manifest error. "Total Reserves" means, at any time the sum of : (a) the Yield Reserve, plus (b) the greatest of (i) the sum of (A) the Loss Reserve, plus (B) the Dilution Reserve, or (ii) the Concentration Reserve. "Transaction Documents" means the Agreement, the Lock-Box Agreements, the Liquidity Agreement, the Fee Letter, the Sale Agreement and all other certificates, instruments, UCC financing statements, reports, notices, agreements and documents executed or delivered under or in connection with the Agreement, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Agreement. "Transfer Event" has the meaning set forth in Section 1(e) of Exhibit IV to the Agreement. "Turnover Rate" means, for any Settlement Period: (a) the Outstanding Balance of all Pool Receivables at the end of such Settlement Period divided by (b)(i) the aggregate credit sales made by all the Originators during the three calendar months ended on or before the last day of such Settlement Period divided by (ii) three. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. "Unmatured Purchase and Sale Termination Event" means any event which, with the giving of notice or lapse of time, or both, would become a Purchase and Sale Termination Event. "Unmatured Termination Event" means an event that, with the giving of notice or lapse of time, or both, would constitute a Termination Event. "U.S. Obligor" means an Obligor that is organized under the laws of the United States or any State thereof and whose principal place of business is located in the United States. Receivables Purchase Agreement -I-22- "Yield Reserve" means, at any time: (BR + 2.0% + SFR x 1.5(TR) x Capital) --------------- 12 where: BR = the Base Rate in effect at such time, TR = the Turnover Rate, and SFR = the Servicing Fee Rate Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of Connecticut, and not specifically defined herein, are used herein as defined in such Article 9. Unless the context otherwise requires, "or" means "and/or," and "including" (and with correlative meaning "include" and "includes") means including without limiting the generality of any description preceding such term. EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to Initial Purchase. The Initial Purchase under this Agreement is subject to the conditions precedent that the Administrator shall have received on or before the date of such purchase the following, each in form and substance (including the date thereof) satisfactory to the Administrator: (a) A counterpart of the Agreement and the other Transaction Documents executed by the parties thereto. (b) Certified copies of: (i) the resolutions of the Board of Directors of each of the Seller, the Originators and First Brands authorizing the execution, delivery and performance by the Seller, such Originator and First Brands, as the case may be, of the Agreement and the other Transaction Documents to which it is a party, (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement and the other Transaction Documents and (iii) the certificate of incorporation and by-laws of each of the Seller, each Originator and First Brands. (c) A certificate of the Secretary or Assistant Secretary of each of the Seller, the Originators and First Brands certifying the names and true signatures of its officers who are authorized to sign the Agreement and the other Transaction Documents. Until the Administrator receives a subsequent incumbency certificate from the Seller, an Originator or First Brands, as the case may be, the Administrator shall be entitled to rely on the last such certificate delivered to it by the Seller, an Originator or First Brands, as the case may be. (d) Acknowledgment copies, or time stamped receipt copies, of proper financing statements, duly filed on or before the date of such initial purchase under the UCC of all jurisdictions that the Administrator may deem necessary or desirable in order to perfect the interests of the Seller, First Brands and the Issuer contemplated by the Agreement and the Sale Agreement. (e) Acknowledgment copies, or time-stamped receipt copies, of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by the Originators, First Brands or the Seller. (f) Completed UCC search reports, dated on or shortly before the date of the initial purchase hereunder, listing the financing Receivables Purchase Agreement - II-1 statements filed all applicable the jurisdictions referred to in subsection (e) above that name the Originators or the Seller as debtor, together with copies of such other financing statements, and similar search reports with respect to judgment liens, federal tax liens and liens of the Pension Benefit Guaranty Corporation in such jurisdictions, as the Administrator may request, showing no Adverse Claims on any Pool Assets. (g) Copies of executed Lock-Box Agreements with the Lock-Box Banks. (h) Favorable opinions, in form and substance reasonably satisfactory to the Administrator, of Cummings & Lockwood, counsel for the Seller, the Originators, First Brands and the Servicer. (i) Satisfactory results of a review and audit (performed by representatives of the Administrator) of the Servicer's collection, operating and reporting systems, the Credit and Collection Policy of each Originator, historical receivables data and accounts, including satisfactory results of a review of the Servicer's operating location(s) and satisfactory review and approval of the Eligible Receivables in existence on the date of the initial purchase under the Agreement. (j) A pro forma Information Package representing the performance of the Receivables Pool for the calendar month before closing. (k) Evidence of payment by the Seller of all accrued and unpaid fees (including those contemplated by the Fee Letter), costs and expenses to the extent then due and payable on the date thereof, including any such costs, fees and expenses arising under or referenced in Section 5.4 of the Agreement and the Fee Letter. (l) The Fee Letter duly executed by the Seller and the Servicer. (m) Good standing certificates with respect to each of the Seller, the Originators and the Servicer issued by the Secretaries of State (or similar official) of the states of each such Person's organization and principal place of business. (n) Letters from each of the rating agencies then rating the Notes confirming the rating of such Notes after giving effect to the transaction contemplated by the Agreement. (o) The Liquidity Agreement and all other Transaction Documents duly executed by the parties thereto. Receivables Purchase Agreement - II-2 (p) A computer file containing all information with respect to the Receivables as the Administrator or the Issuer may reasonably request. (q) Such other approvals, opinions or documents as the Administrator or the Issuer may reasonably request. 2. Conditions Precedent to All Purchases and Reinvestments. Each purchase (except as to clause (a), including the initial purchase) and each reinvestment shall be subject to the further conditions precedent that: (a) in the case of each purchase, the Servicer shall have delivered to the Administrator on or before such purchase, in form and substance satisfactory to the Administrator, a completed pro forma Information Package to reflect the level of Capital and related reserves after such subsequent purchase, and (b) on the date of such purchase or reinvestment the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) the representations and warranties contained in Exhibit III to the Agreement are true and correct in all material respects on and as of the date of such purchase or reinvestment as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes a Termination Event or an Unmatured Termination Event. Receivables Purchase Agreement - II-3 EXHIBIT III REPRESENTATIONS AND WARRANTIES 1. Representations and Warranties of the Seller. The Seller represents and warrants as follows: (a) The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. (b) The execution, delivery and performance by the Seller of the Agreement and the other Transaction Documents to which it is a party, including its use of the proceeds of purchases and reinvestments: (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with: (A) its charter or by-laws, (B) any law, rule or regulation applicable to it, (C) any contractual restriction binding on or affecting it or any of its property or (D) any order, writ, judgment, award, injunction or decree binding on or affecting it or any of its property, and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties. The Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by the Seller. (c) No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for its due execution, delivery and performance by the Seller of the Agreement or any other Transaction Document to which it is a party, other than the Uniform Commercial Code filings referred to in Exhibit II to the Agreement, all of which shall have been filed on or before the date of the first purchase hereunder. (d) Each of the Agreement and the other Transaction Documents to which the Seller is a party constitutes its legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. Receivables Purchase Agreement - III-1 (e) There is no pending or, to Seller's best knowledge, threatened action or proceeding affecting Seller or any of its properties before any Governmental Authority or arbitrator. (f) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (g) The Seller is the legal and beneficial owner of the Pool Receivables and Related Security, free and clear of any Adverse Claim. Upon each purchase or reinvestment, the Issuer shall acquire a valid and enforceable perfected undivided percentage ownership or security interest, to the extent of the Purchased Interest, in each Pool Receivable then existing or thereafter arising and in the Related Security, Collections and other proceeds with respect thereto, free and clear of any Adverse Claim. The Agreement creates a security interest in favor of the Issuer in the Pool Assets, and the Issuer has a first priority perfected security interest in the Pool Assets, free and clear of any Adverse Claims. No effective financing statement or other instrument similar in effect covering any Pool Asset is on file in any recording office, except those filed in favor of the Seller pursuant to the Sale Agreement and the Issuer relating to the Agreement. (h) Each Information Package (if prepared by the Seller or one of its Affiliates, or to the extent that information contained therein is supplied by the Seller or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Administrator in connection with the Agreement or any other Transaction Document to which it is a party is or will be complete and accurate in all material respects as of its date or (except as otherwise disclosed to the Administrator at such time) as of the date so furnished, (i) The Seller's principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Receivables are located at the address referred to in Sections 1(b) and 2(b) of Exhibit IV to the Agreement. (j) The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Schedule II to the Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Administrator in accordance with the Agreement) and all Lock-Box Accounts are subject to Lock-Box Agreements. Receivables Purchase Agreement - III-2 (k) The Seller is not in violation of any order of any court, arbitrator or Governmental Authority that is likely to have a Material Adverse Effect. (l) Neither the Seller nor any of its Affiliates has any direct or indirect ownership or other financial interest in the Issuer. (m) No proceeds of any purchase or reinvestment will be used for any purpose that violates any applicable law, rule or regulation, including Regulations G or U of the Federal Reserve Board. (n) Each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance is an Eligible Receivable. (o) No event has occurred and is continuing, or would result from a purchase in respect of, or reinvestment in respect of, the Purchased Interest or from the application of the proceeds therefrom, that constitutes a Termination Event or an Unmatured Termination Event. (p) The Seller has accounted for each sale of undivided percentage ownership interests in Receivables in its books and financial statements as sales, consistent with generally accepted accounting principles. (q) The Seller has complied in all material respects with the Credit and Collection Policy of each Originator with regard to each Receivable originated by such Originator. (r) The Seller has complied in all material respects with all of the terms, covenants and agreements contained in the Agreement and the other Transaction Documents that are applicable to it. (s) The Seller's complete corporate name is set forth in the preamble to the Agreement, and it does not use and has not during the last six years used any other corporate name, trade name, doing-business name or fictitious name, except as set forth on Schedule III to the Agreement and except for names first used after the date of the Agreement and set forth in a notice delivered to the Administrator pursuant to Section 1(l)(iv) of Exhibit IV to the Agreement. (t) The Seller is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. In addition, the Seller is not a "holding company," a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a Receivables Purchase Agreement - III-3 "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 2. Representations and Warranties of First Brands (including in its capacity as the Servicer). First Brands, individually and in its capacity as the Servicer, represents and warrants as follows: (a) First Brands is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. (b) The execution, delivery and performance by First Brands of the Agreement and the other Transaction Documents to which it is a party, including the Servicer's use of the proceeds of purchases and reinvestments: (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with: (A) its charter or by-laws, (B) any law, rule or regulation applicable to it, (C) any contractual restriction binding on or affecting it or any of its property or (D) any order, writ, judgment, award, injunction or decree binding on or affecting it or any of its property, and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties. The Agreement and the other Transaction Documents to which First Brands is a party have been duly executed and delivered by First Brands. (c) No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for the due execution, delivery and performance by First Brands of the Agreement or any other Transaction Document to which it is a party. (d) Each of the Agreement and the other Transaction Documents to which First Brands is a party constitutes the legal, valid and binding obligation of First Brands enforceable against First Brands in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) The balance sheets of First Brands and its consolidated Subsidiaries as at December 31, 1997, and the related statements of income and retained earnings for the fiscal year then ended, Receivables Purchase Agreement - III-4 copies of which have been furnished to the Administrator, fairly present the financial condition of First Brands and its consolidated Subsidiaries as at such date and the results of the operations of First Brands and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since December 31, 1997 there has been no event or circumstances which have had a Material Adverse Effect. (f) Except as disclosed in the most recent audited financial statements of First Brands furnished to the Administrator, there is no pending or, to its best knowledge, threatened action or proceeding affecting it or any of its Subsidiaries before any Governmental Authority or arbitrator that could have a Material Adverse Effect. (g) No proceeds of any purchase or reinvestment will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) Each Information Package (if prepared by First Brands or one of its Affiliates, or to the extent that information contained therein is supplied by First Brands or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Servicer to the Administrator in connection with the Agreement is or will be complete and accurate in all material respects as of its date or (except as otherwise disclosed to the Administrator at such time) as of the date so furnished. (i) The principal place of business and chief executive office (as such terms are used in the UCC) of First Brands and the office where it keeps its records concerning the Receivables are located at the address referred to in Section 2(b) of Exhibit IV to the Agreement. (j) First Brands is not in violation of any order of any court, arbitrator or Governmental Authority, which could have a Material Adverse Effect. (k) Neither First Brands nor any of its Affiliates has any direct or indirect ownership or other financial interest in the Issuer. (l) The Servicer has complied in all material respects with the Credit and Collection Policy of each Originator with regard to each Receivable originated by such Originator. (m) First Brands has complied in all material respects with all of the terms, covenants and agreements contained in the Agreement and the other Transaction Documents that are applicable Receivables Purchase Agreement - III-5 to it. (n) First Brands is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. In addition, First Brands is not a "holding company," a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Receivables Purchase Agreement - III-6 EXHIBIT IV COVENANTS 1. Covenants of the Seller. Until the latest of the Facility Termination Date, the date on which no Capital of or Discount in respect of the Purchased Interest shall be outstanding or the date all other amounts owed by the Seller under the Agreement to the Issuer, the Administrator and any other Indemnified Party or Affected Person shall be paid in full: (a) Compliance with Laws, Etc. The Seller shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges, except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications and privileges would not have a Material Adverse Effect. (b) Offices, Records and Books of Account, Etc. The Seller: (i) shall keep its principal place of business and chief executive office (as such terms or similar terms are used in the UCC) and the office where it keeps its records concerning the Receivables at the address of the Seller set forth under its name on the signature page to the Agreement or, pursuant to clause (l)(iv) below, at any other locations in jurisdictions where all actions reasonably requested by the Administrator to protect and perfect the interest of the Issuer in the Receivables and related items (including the Pool Assets) have been taken and completed and (ii) shall provide the Administrator with at least 30 days' written notice before making any change in the Seller's name or making any other change in the Seller's identity or corporate structure (including a Change in Control) that could render any UCC financing statement filed in connection with this Agreement "seriously misleading" as such term (or similar term) is used in the UCC; each notice to the Administrator pursuant to this sentence shall set forth the applicable change and the effective date thereof. The Seller also will maintain and implement (or cause the Servicer to maintain and implement) administrative and operating procedures (including an ability to recreate records evidencing Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain (or cause the Servicer to keep and maintain) all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Receivables (including records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable). Notwithstanding the above, in no event shall the Seller have or maintain, or be a Receivables Purchase Agreement - IV-1 partner in any partnership that has or maintains, its jurisdiction of organization, principal place of business or principal assets in any of the states of Colorado, Kansas, New Mexico, Oklahoma, Utah or Wyoming. (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Seller shall (and shall cause the Servicer to), at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and timely and fully comply in all material respects with the applicable Credit and Collection Policies with regard to each Receivable and the related Contract. (d) Ownership Interest, Etc. The Seller shall (and shall cause the Servicer to), at its expense, take all action necessary or desirable to establish and maintain a valid and enforceable undivided percentage ownership or security interest, to the extent of the Purchased Interest, in the Pool Receivables, the Related Security and Collections with respect thereto, and a first priority perfected security interest in the Pool Assets, in each case free and clear of any Adverse Claim, in favor of the Issuer, including taking such action to perfect, protect or more fully evidence the interest of the Issuer as the Issuer, through the Administrator, may reasonably request. (e) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any or all of its right, title or interest in, to or under any Pool Assets (including the Seller's undivided interest in any Receivable, Related Security or Collections, or upon or with respect to any account to which any Collections of any Receivables are sent), or assign any right to receive income in respect of any items contemplated by this paragraph; provided, however, if (i) a Change in Control shall occur with respect to Himolene or A&M, (ii) Himolene or A&M becomes a party to any merger or consolidation where First Brands, Himolene or A&M is not the surviving corporation or (iii) Himolene or A&M sells all or substantially all of its assets (the occurrence of any event described in clauses (i), (ii) and (iii) is herein referred to as a "Transfer Event"), then upon 30 days prior written notice to the Administrator, the Seller may, in connection with such Transfer Event, sell or assign to any Person, without recourse, all of the Receivables and Related Rights then in the Receivables Pool that were originated by either Himolene or A&M, as applicable; provided, however, that after giving effect to such sale or assignment, and the application of the proceeds thereof in accordance with Section 1.4, no Unmatured Termination Event or Termination Event shall have occurred. Receivables Purchase Agreement - IV-2 (f) Extension or Amendment of Receivables. Except as provided in the Agreement, the Seller shall not, and shall not permit the Servicer to, extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any related Contract. (g) Change in Business or Credit and Collection Policy. The Seller shall not make (or permit any Originator to make) any material change in the character of its business or in any Credit and Collection Policy, or any change in any Credit and Collection Policy that would have a Material Adverse Effect with respect to the Receivables. The Seller shall not make (or permit any Originator to make) any other change in any Credit and Collection Policy without giving prior written notice thereof to the Administrator. (h) Audits. The Seller shall (and shall cause each Originator to), from time to time during regular business hours as reasonably requested in advance (unless a Termination Event or Unmatured Termination Event exists) by the Administrator, permit the Administrator, or its agents or representatives: (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in the possession or under the control of the Seller (or any such Originator) relating to Receivables and the Related Security, including the related Contracts, and (ii) to visit the offices and properties of the Seller and the Originators for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Security or the Seller's, First Brands' or the Originators' performance under the Transaction Documents or under the Contracts with any of the officers, employees, agents or contractors of the Seller, First Brands or the Originators having knowledge of such matters. (i) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. The Seller shall not, and shall not permit the Servicer or any Originator to, add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account from those listed in Schedule II to the Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Seller, the Originators, the Servicer or any Lock-Box Account (or related post office box), unless the Administrator shall have consented thereto in writing and the Administrator shall have received copies of all agreements and documents (including Lock-Box Agreements) that it may request in connection therewith. (j) Deposits to Lock-Box Accounts. The Seller shall (or shall cause the Servicer to): (i) instruct all Obligors to make payments of all Receivables to one or more Lock-Box Accounts or to post office boxes to which only Lock-Box Banks have access Receivables Purchase Agreement - IV-3 (and shall instruct the Lock-Box Banks to cause all items and amounts relating to such Receivables received in such post office boxes to be removed and deposited into a Lock-Box Account on a daily basis), and (ii) deposit, or cause to be deposited, any Collections received by it, the Servicer or any Originator into Lock-Box Accounts not later than one Business Day after receipt thereof. Each Lock-Box Account shall at all times be subject to a Lock-Box Agreement. The Seller will not (and will not permit the Servicer to) deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections. (k) Marking of Records. At its expense, the Seller shall: (i) mark (or cause the Servicer to mark) its master data processing records relating to Pool Receivables and related Contracts, including with a legend evidencing that the undivided percentage ownership interests with regard to the Purchased Interest related to such Receivables and related Contracts have been sold in accordance with the Agreement, and (ii) cause each Originator so to mark their master data processing records pursuant to the Sale Agreement. (l) Reporting Requirements. The Seller will provide to the Administrator (in multiple copies, if requested by the Administrator) the following: (i) as soon as available and in any event within 90 days after the end of each fiscal year of the Seller, a copy of the annual report for such year for the Seller, containing unaudited financial statements for such year certified as to accuracy by the chief financial officer or treasurer of the Seller; (ii) as soon as possible and in any event within five days after the occurrence of each Termination Event or Unmatured Termination Event, a statement of the chief financial officer of the Seller setting forth details of such Termination Event or Unmatured Termination Event and the action that the Seller has taken and proposes to take with respect thereto; (iii) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller or any Affiliate files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that the Seller or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller or any of its Affiliates is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or Receivables Purchase Agreement - IV-4 an event or condition that could, in the aggregate, result in the imposition of liability on the Seller and/or any such Affiliate; (iv) at least thirty days before any change in the Seller's name or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof; (v) promptly after the Seller obtains knowledge thereof, notice of any: (A) litigation, investigation or proceeding that may exist at any time between the Seller and any Person or (B) litigation or proceeding relating to any Transaction Document; (vi) promptly after the occurrence thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Seller, the Servicer or any Originator; and (vii) such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Seller or any of its Affiliates as the Administrator may from time to time reasonably request. (m) Certain Agreements. Without the prior written consent of the Administrator, the Seller will not (and will not permit any Originator to) amend, modify, waive, revoke or terminate any Transaction Document to which it is a party or any provision of Seller's certificate of incorporation or by-laws. (n) Restricted Payments. (i) Except pursuant to clause (ii) below, the Seller will not: (A) purchase or redeem any shares of its capital stock, (B) declare or pay any dividend or set aside any funds for any such purpose, (C) prepay, purchase or redeem any Debt, (D) lend or advance any funds or (E) repay any loans or advances to, for or from any of its Affiliates (the amounts described in clauses (A) through (E) being referred to as "Restricted Payments"). (ii) Subject to the limitations set forth in clause (iii) below, the Seller may make Restricted Payments so long as such Restricted Payments are made only in one or more of the following ways: (A) the Seller may make cash payments (including prepayments) on the Company Note in accordance with its terms, and (B) if no amounts are then outstanding under the Company Note, the Seller may declare and pay dividends. (iii) The Seller may make Restricted Payments only out of the funds it receives pursuant to Sections 1.4(b)(ii) and Receivables Purchase Agreement - IV-5 (iv) of the Agreement. Furthermore, the Seller shall not pay, make or declare: (A) any dividend if, after giving effect thereto, the Seller's tangible net worth would be less than $5,000,000, or (B) any Restricted Payment (including any dividend) if, after giving effect thereto, any Termination Event or Unmatured Termination Event shall have occurred and be continuing. (o) Other Business. The Seller will not: (i) engage in any business other than the transactions contemplated by the Transaction Documents, (ii) create, incur or permit to exist any Debt of any kind (or cause or permit to be issued for its account any letters of credit or bankers' acceptances) other than pursuant to this Agreement or the Company Note, or (iii) form any Subsidiary or make any investments in any other Person; provided, however, that the Seller shall be permitted to incur minimal obligations to the extent necessary for the day-to-day operations of the Seller (such as expenses for stationery, audits, maintenance of legal status, etc.). (p) Use of Seller's Share of Collections. The Seller shall apply the Seller's Share of Collections to make payments in the following order of priority: (i) the payment of its expenses (including all obligations payable to the Issuer and the Administrator under the Agreement and under the Fee Letter), (ii) the payment of accrued and unpaid interest on the Company Note and (iii) other legal and valid corporate purposes. (q) Tangible Net Worth. The Seller will not permit its tangible net worth, at any time, to be less than $5,000,000. 2. Covenants of the Servicer and First Brands. Until the latest of the Facility Termination Date, the date on which no Capital of or Discount in respect of the Purchased Interest shall be outstanding or the date all other amounts owed by the Seller under the Agreement to the Issuer, the Administrator and any other Indemnified Party or Affected Person shall be paid in full: (a) Compliance with Laws, Etc. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall comply (and shall cause each Originator to comply) in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications and privileges, except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications and privileges would not have a Material Adverse Effect. (b) Offices, Records and Books of Account, Etc. The Servicer and, to the extent that it ceases to be the Servicer, First Receivables Purchase Agreement - IV-6 Brands shall keep (and shall cause each Originator to keep) its principal place of business and chief executive office (as such terms or similar terms are used in the applicable UCC) and the office where it keeps its records concerning the Receivables at the address of the Servicer set forth under its name on the signature page to the Agreement or, upon at least 30 days' prior written notice of a proposed change to the Administrator, at any other locations in jurisdictions where all actions reasonably requested by the Administrator to protect and perfect the interest of the Issuer in the Receivables and related items (including the Pool Assets) have been taken and completed. The Servicer and, to the extent that it ceases to be the Servicer, First Brands also will (and will cause each Originator to) maintain and implement administrative and operating procedures (including an ability to recreate records evidencing Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Receivables (including records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall (and shall cause each Originator to), at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract. (d) Extension or Amendment of Receivables. Except as provided in the Agreement, the Servicer and, to the extent that it ceases to be the Servicer, First Brands shall not extend (and shall not permit any Originator to extend) the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable, or amend, modify or waive any term or condition of any related Contract. (e) Change in Business or Credit and Collection Policy. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall not make (and shall not permit any Originator to make) any material change in the character of its business or in any Credit and Collection Policy, or any change in any Credit and Collection Policy that would have a Material Adverse Effect. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall not make (and shall not permit any Originator to make) any other change in any Credit and Collection Policy without giving prior written notice thereof to the Receivables Purchase Agreement - IV-7 Administrator. (f) Audits. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall (and shall cause each Originator to), from time to time during regular business hours as reasonably requested in advance (unless a Termination Event or Unmatured Termination Event exists) by the Administrator, permit the Administrator, or its agents or representatives: (i) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in its possession or under its control relating to Receivables and the Related Security, including the related Contracts, and (ii) to visit its offices and properties for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Security or its performance hereunder or under the Contracts with any of its officers, employees, agents or contractors having knowledge of such matters. (g) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. The Servicer and, to the extent that it ceases to be the Servicer, First Brands shall not (and shall not permit any Originator to) add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account from those listed in Schedule II to the Agreement, or make any change in its instructions to Obligors regarding payments to be made to the Servicer or any Lock-Box Account (or related post office box), unless the Administrator shall have consented thereto in writing and the Administrator shall have received copies of all agreements and documents (including Lock-Box Agreements) that it may request in connection therewith. (h) Deposits to Lock-Box Accounts. The Servicer shall: (i) instruct all Obligors to make payments of all Receivables to one or more Lock-Box Accounts or to post office boxes to which only Lock-Box Banks have access (and shall instruct the Lock-Box Banks to cause all items and amounts relating to such Receivables received in such post office boxes to be removed and deposited into a Lock-Box Account on a daily basis), and (ii) deposit, or cause to be deposited, any Collections received by it into Lock-Box Accounts not later than one Business Day after receipt thereof. Each Lock-Box Account shall at all times be subject to a Lock-Box Agreement. The Servicer will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections. (i) Marking of Records. At its expense, the Servicer shall mark its master data processing records relating to Pool Receivables and related Contracts, including with a legend evidencing that the undivided percentage ownership interests with regard to the Purchased Interest related to such Receivables and Receivables Purchase Agreement - IV-8 related Contracts have been sold in accordance with the Agreement. (j) Reporting Requirements. First Brands shall provide to the Administrator (in multiple copies, if requested by the Administrator) the following: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of First Brands, balance sheets of First Brands and its consolidated Subsidiaries as of the end of such quarter and statements of income, retained earnings and cash flow of First Brands and its consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer of such Person; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of such Person, a copy of the annual report for such year for such Person and its consolidated Subsidiaries, containing financial statements for such year audited by independent certified public accountants of nationally recognized standing; (iii) as to the Servicer only, as soon as available and in any event not later than the eighth Business Day after the last day of each calendar month, an Information Package as of the last day of such month, or, within six Business Days of a request by the Administrator, an Information Package for such periods as is specified by the Administrator (including on a semi-monthly, weekly or daily basis); (iv) as soon as possible and in any event within five days after becoming aware of the occurrence of each Termination Event or Unmatured Termination Event, a statement of the chief financial officer of First Brands setting forth details of such Termination Event or Unmatured Termination Event and the action that such Person has taken and proposes to take with respect thereto; (v) promptly after the sending or filing thereof, copies of all reports that First Brands sends to any of its security holders, and copies of all reports and registration statements that First Brands or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange; provided, that any filings with the Securities and Exchange Commission that have been granted "confidential" treatment shall be provided promptly after such filings have become publicly available; Receivables Purchase Agreement - IV-9 (vi) promptly after the filing or receiving thereof, copies of all reports and notices that First Brands or any of its Affiliate files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or that such Person or any of its Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which such Person or any of its Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition that could, in the aggregate, result in the imposition of liability on First Brands and/or any such Affiliate; (vii) at least thirty days before any change in First Brands' or any Originator's name or any other change requiring the amendment of UCC financing statements, a notice setting forth such changes and the effective date thereof; (viii) promptly after First Brands obtains knowledge thereof, notice of any: (A) litigation, investigation or proceeding that may exist at any time between First Brands or any of its Subsidiaries and any Governmental Authority that, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect, (B) litigation or proceeding adversely affecting such Person or any of its Subsidiaries in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought, or (C) litigation or proceeding relating to any Transaction Document; (ix) promptly after the occurrence thereof, notice of a material adverse change in the business, operations, property or financial or other condition of First Brands or any of its Subsidiaries; (x) such other information respecting the Receivables or the condition or operations, financial or otherwise, of First Brands or any of its Affiliates as the Administrator may from time to time reasonably request. 3. Separate Existence. Each of the Seller and First Brands hereby acknowledges that the Purchasers, the Issuer and the Administrator are entering into the transactions contemplated by this Agreement and the other Transaction Documents in reliance upon the Seller's identity as a legal entity separate from First Brands and its Affiliates. Therefore, from and after the date hereof, each of the Seller and First Brands shall take all steps specifically required by the Agreement or reasonably required by the Administrator to continue the Seller's identity as a separate Receivables Purchase Agreement - IV-10 legal entity and to make it apparent to third Persons that the Seller is an entity with assets and liabilities distinct from those of First Brands and any other Person, and is not a division of First Brands, its Affiliates or any other Person. Without limiting the generality of the foregoing and in addition to and consistent with the other covenants set forth herein, each of the Seller and First Brands shall take such actions as shall be required in order that: (a) The Seller will be a limited purpose corporation whose primary activities are restricted in its certificate of incorporation to: (i) purchasing or otherwise acquiring from the Originators, owning, holding, granting security interests or selling interests in Pool Assets, (ii) entering into agreements for the selling and servicing of the Receivables Pool, and (iii) conducting such other activities as it deems necessary or appropriate to carry out its primary activities; (b) The Seller shall not engage in any business or activity, or incur any indebtedness or liability, other than as expressly permitted by the Transaction Documents; (c) Not less than one member of the Seller's Board of Directors (the "Independent Director") shall be an individual who is not a direct, indirect or beneficial stockholder, officer, director, employee, affiliate, associate or supplier of First Brands or any of its Affiliates. The certificate of incorporation of the Seller shall provide that: (i) the Seller's Board of Directors shall not approve, or take any other action to cause the filing of, a voluntary bankruptcy petition with respect to the Seller unless the Independent Director shall approve the taking of such action in writing before the taking of such action, and (ii) such provision cannot be amended without the prior written consent of the Independent Director; (d) The Independent Director shall not at any time serve as a trustee in bankruptcy for the Seller, First Brands or any Affiliate thereof; (e) Any employee, consultant or agent of the Seller will be compensated from the Seller's funds for services provided to the Seller. The Seller will not engage any agents other than its attorneys, auditors and other professionals, and a servicer and any other agent contemplated by the Transaction Documents for the Receivables Pool, which servicer will be fully compensated for its services by payment of the Servicing Fee, and a manager, which manager will be fully compensated from the Seller's funds; Receivables Purchase Agreement - IV-11 (f) The Seller will contract with the Servicer to perform for the Seller all operations required on a daily basis to service the Receivables Pool. The Seller will pay the Servicer the Servicing Fee pursuant hereto. The Seller will not incur any material indirect or overhead expenses for items shared with First Brands (or any other Affiliate thereof) that are not reflected in the Servicing Fee. To the extent, if any, that the Seller (or any Affiliate thereof) shares items of expenses not reflected in the Servicing Fee or the manager's fee, such as legal, auditing and other professional services, such expenses will be allocated to the extent practical on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to the actual use or the value of services rendered; it being understood that First Brands shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including legal, agency and other fees; (g) The Seller's operating expenses will not be paid by First Brands or any other Affiliate thereof; (h) The Seller will have its own separate stationery; (i) The Seller's books and records will be maintained separately from those of First Brands and any other Affiliate thereof; (j) All financial statements of First Brands or any Affiliate thereof that are consolidated to include Seller will contain detailed notes clearly stating that: (i) a special purpose corporation exists as a Subsidiary of First Brands, and (ii) the Originators have sold receivables and other related assets to such special purpose Subsidiary that, in turn, has sold undivided interests therein to certain financial institutions and other entities; (k) The Seller's assets will be maintained in a manner that facilitates their identification and segregation from those of First Brands or any Affiliate thereof; (l) The Seller will strictly observe corporate formalities in its dealings with First Brands or any Affiliate thereof, and funds or other assets of the Seller will not be commingled with those of First Brands or any Affiliate thereof except as permitted by the Agreement in connection with servicing the Pool Receivables. The Seller shall not maintain joint bank accounts or other depository accounts to which First Brands or any Affiliate thereof (other than First Brands in its capacity as the Servicer) has independent access. The Seller is not named, and has not Receivables Purchase Agreement - IV-12 entered into any agreement to be named, directly or indirectly, as a direct or contingent beneficiary or loss payee on any insurance policy with respect to any loss relating to the property of First Brands or any Subsidiary or other Affiliate of First Brands. The Seller will pay to the appropriate Affiliate the marginal increase or, in the absence of such increase, the market amount of its portion of the premium payable with respect to any insurance policy that covers the Seller and such Affiliate; and (m) The Seller will maintain arm's-length relationships with First Brands (and any Affiliate thereof). Any Person that renders or otherwise furnishes services to the Seller will be compensated by the Seller at market rates for such services it renders or otherwise furnishes to the Seller. Neither the Seller nor First Brands will be or will hold itself out to be responsible for the debts of the other or the decisions or actions respecting the daily business and affairs of the other. The Seller and First Brands will immediately correct any known misrepresentation with respect to the foregoing, and they will not operate or purport to operate as an integrated single economic unit with respect to each other or in their dealing with any other entity. Receivables Purchase Agreement - IV-13 EXHIBIT V TERMINATION EVENTS Each of the following shall be a "Termination Event": (a)(i) the Seller, First Brands, any Originator or the Servicer (if First Brands or any of its Affiliates) shall fail to perform or observe any term, covenant or agreement under the Agreement or any other Transaction Document and, except as otherwise provided herein, such failure shall continue for 30 days after knowledge or notice thereof, (ii) the Seller or the Servicer shall fail to make when due any payment or deposit to be made by it under the Agreement and such failure shall continue unremedied for two Business Days or (iii) First Brands shall resign as Servicer, and no successor Servicer reasonably satisfactory to the Administrator shall have been appointed; (b) First Brands (or any Affiliate thereof) shall fail to transfer to any successor Servicer when required any rights pursuant to the Agreement that First Brands (or such Affiliate) then has as Servicer; (c) any representation or warranty made or deemed made by the Seller, First Brands or any Originator (or any of their respective officers) under or in connection with the Agreement or any other Transaction Document, or any information or report delivered by the Seller, First Brands or any Originator or the Servicer pursuant to the Agreement or any other Transaction Document, shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; (d) the Seller or the Servicer shall fail to deliver the Information Package pursuant to the Agreement, and such failure shall remain unremedied for five days; (e) the Agreement or any purchase or reinvestment pursuant to the Agreement shall for any reason: (i) cease to create, or the Purchased Interest shall for any reason cease to be, a valid and enforceable perfected undivided percentage ownership or security interest to the extent of the Purchased Interest in each Pool Receivable, the Related Security and Collections with respect thereto, free and clear of any Adverse Claim, or (ii) cease to create with respect to the Pool Assets, or the interest of the Issuer with respect to such Pool Assets shall cease to be, a valid and enforceable first priority perfected security interest, free and clear of any Adverse Claim, (f) the Seller, First Brands or any Originator shall generally not pay its debts as such debts become due, or shall Receivables Purchase Agreement - V-1 admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Seller, First Brands or any Originator seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Seller, First Brands or any Originator shall take any corporate action to authorize any of the actions set forth above in this paragraph; (g)(i) the (A) Default Ratio shall exceed 1.75% (B) the Delinquency Ratio shall exceed 2.31% or (ii) the average for three consecutive calendar months of: (A) the Default Ratio shall exceed 0.90%, (B) the Delinquency Ratio shall exceed 1.51%, or (C) the Dilution Ratio shall exceed 15.10%. (h) a Change in Control shall occur (other than a Change in Control with respect to Himolene or A&M as to which the Seller shall have complied with Section 1(e) of Exhibit IV to the Agreement). (i) the Purchased Interest shall exceed 100% and such circumstance shall not have been cured within five Business Days, (j) First Brands or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any of its Debt that is outstanding in a principal amount of at least $5,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement, mortgage, indenture or instrument relating to such Debt (and shall have not been waived); or any other event shall occur or condition shall exist under any agreement, mortgage, indenture or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement, mortgage, indenture or instrument (and shall have not been waived), if, in either case: (a) the effect of such non-payment, event or condition is to give the applicable debtholders the right (whether acted upon or not) to accelerate the maturity of Receivables Purchase Agreement - V-2 such Debt, or (b) any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case before the stated maturity thereof; (k) either: (i) a contribution failure shall occur with respect to any Benefit Plan sufficient to give rise to a lien under Section 302(f) of ERISA, (ii) the Internal Revenue Service shall, or shall indicate its intention in writing to the Seller, any Originator, First Brands or any ERISA Affiliate to, file a notice of lien asserting a claim or claims of $100,000 or more in the aggregate pursuant to the Internal Revenue Code with regard to any of the assets of Seller, any Originator, First Brands or any ERISA Affiliate and such lien shall have been filed and not released within 10 days, or (iii) the Pension Benefit Guaranty Corporation shall, or shall indicate its intention in writing to the Seller, any Originator, First Brands or any ERISA Affiliate to, either file a notice of lien asserting a claim pursuant to ERISA with regard to any assets of the Seller, any Originator, First Brands or any ERISA Affiliate or terminate any Benefit Plan that has unfunded benefit liabilities, or any steps shall have been taken to terminate any Benefit Plan subject to Title IV of ERISA so as to result in any liability in excess of $100,000 and such lien shall have been filed and not released within 10 days. Receivables Purchase Agreement - V-3 SCHEDULE I CREDIT AND COLLECTION POLICY Receivables Purchase Agreement - Schedule I-1 SCHEDULE II LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS LOCK-BOX BANK LOCK-BOX ACCOUNTS LOCK-BOX - ------------- ----------------- -------- NUMBER - ------ Receivables Purchase Agreement - Schedule II-1 SCHEDULE III TRADE NAMES None Receivables Purchase Agreement - Schedule III-1 ANNEX A TO RECEIVABLES PURCHASE AGREEMENT FORM OF INFORMATION PACKAGE Receivables Purchase Agreement - Annex B-1 EX-10 3 EXHIBIT 10.3 EXHIBIT 10.3 PURCHASE AND SALE AGREEMENT Dated as of June 5, 1998 among THE ORIGINATORS NAMED HEREIN, FIRST BRANDS FUNDING INC. and FIRST BRANDS CORPORATION individually and as the initial Servicer
TABLE OF CONTENTS PAGE ARTICLE I AGREEMENT TO PURCHASE AND SELL;........................................................2 1.1 Agreement To Purchase and Sell.........................................................2 1.2 Timing of Purchases....................................................................3 1.3 Consideration for Purchases............................................................3 1.4 Purchase and Sale Termination Date.....................................................3 1.5 Intention of the Parties...............................................................3 ARTICLE II CALCULATION OF PURCHASE PRICE..........................................................4 2.1 Calculation of Purchase Price..........................................................4 ARTICLE III PAYMENT OF PURCHASE PRICE..............................................................5 3.1 Initial Purchase Price Payment.........................................................5 3.2 Subsequent Purchase Price Payments.....................................................5 3.3 Settlement as to Specific Receivables and Dilution...............................................................................6 3.4 Reconveyance of Receivables............................................................7 ARTICLE IV CONDITIONS OF PURCHASES................................................................7 4.1 Conditions Precedent to Initial Purchase...............................................7 4.2 Certification as to Representations and Warranties.............................................................................9 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS............................................................................9 5.1 Organization and Good Standing.........................................................9 5.2 Due Qualification......................................................................9 5.3 Power and Authority; Due Authorization.................................................9 5.4 Valid Sale; Binding Obligations.......................................................10 5.5 No Violation..........................................................................10 5.6 Proceedings...........................................................................10 5.7 Bulk Sales Acts.......................................................................10 5.8 Government Approvals..................................................................11 5.9 Financial Condition...................................................................11 5.10 Licenses, Contingent Liabilities, and Labor Controversies.........................................................................11 5.11 Margin Regulations....................................................................11 5.12 Quality of Title......................................................................11 5.13 Accuracy of Information...............................................................12 5.14 Offices...............................................................................12 5.15 Trade Names...........................................................................12 5.16 Taxes.................................................................................12 5.17 Compliance with Applicable Laws.......................................................13 5.18 Reliance on Separate Legal Identity...................................................13
-i- ARTICLE VI COVENANTS OF FIRST BRANDS AND THE ORIGINATORS ..........................................................................13 6.1 Affirmative Covenants.................................................................13 6.2 Reporting Requirements................................................................15 6.3 Negative Covenants....................................................................15 6.4 Lock-box Banks. .....................................................................16 6.5 Accounting for Purchases. ...........................................................16 6.6 Transaction Documents. ..............................................................17 ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES............................................................17 7.1 Rights of the Company.................................................................17 7.2 Responsibilities of Each Originator...................................................17 7.3 Further Action Evidencing Purchases...................................................18 7.4 Application of Collections............................................................18 ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS..................................................19 8.1 Purchase and Sale Termination Events..................................................19 8.2 Remedies 19 ARTICLE IX INDEMNIFICATION.......................................................................20 9.1 Indemnities by First Brands and the Originators...........................................................................20 ARTICLE X MISCELLANEOUS.........................................................................22 10.1 Amendments, etc.......................................................................22 10.2 Notices, etc..........................................................................22 10.3 No Waiver; Cumulative Remedies........................................................23 10.4 Binding Effect; Assignability.........................................................23 10.5 Governing Law.........................................................................23 10.6 Costs, Expenses and Taxes.............................................................23 10.7 Submission to Jurisdiction............................................................24 10.8 Waiver of Jury Trial..................................................................24 10.9 Captions and Cross References; Incorporation by Reference.............................................................................24 10.10 Execution in Counterparts.............................................................24 10.11 Acknowledgment and Agreement..........................................................25
-ii- EXHIBIT A - Form of Purchase Report EXHIBIT B - Form of Company Note EXHIBIT C - Form of Originator Assignment Certificate EXHIBIT D - Proceedings EXHIBIT E - Office Locations EXHIBIT F - Trade Names -iii- PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of June 5, 1998, is among FIRST BRANDS CORPORATION, a Delaware corporation ("First Brands"), individually and as the initial Servicer, HIMOLENE INCORPORATED ("Himolene"), a Delaware corporation, A&M PRODUCTS INC. ("A&M"), a Texas corporation (First Brands, Himolene and A&M are herein collectively called the "Originators" and individually called an "Originator"), and FIRST BRANDS FUNDING INC., a Delaware corporation (the "Company"). Definitions Unless otherwise indicated, certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to the Receivables Purchase Agreement of even date herewith (as the same may be amended, supplemented or otherwise modified from time to time, the "Receivables Purchase Agreement") among First Brands, the Company, Market Street Funding Corp., as Issuer ("the Issuer") and PNC Bank, National Association. All references herein to months are to calendar months unless otherwise expressly indicated. Background 1. The Company is a special purpose corporation, all of the issued and outstanding shares of which are owned by First Brands. 2. The Originators generate Receivables in the ordinary course of their respective businesses. 3. The Originators, in order to finance their respective businesses, wish to sell Receivables to the Company, and the Company is willing, on the terms and subject to the conditions set forth herein, to purchase Receivables from the Originators. 4. Each Originator and the Company intends this transaction to be a true sale of Receivables by each Originator to the Company providing the Company with the full benefits of ownership of the Receivables and each Originator and the Company do not intend the transactions hereunder to be, or for any purpose to be, characterized as a loan from the Company to any Originator. 5. The Company intends to sell the Purchased Interest in the Receivables pursuant to the Receivables Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I AGREEMENT TO PURCHASE AND SELL 1.1 Agreement To Purchase and Sell. On the terms and subject to the conditions set forth in this Agreement (including Article V), each Originator, severally and for itself alone, agrees to sell to the Company, and the Company agrees to purchase from such Originator, from time to time on or after the Initial Closing Date, but before the Purchase and Sale Termination Date, all of such Originator's right, title and interest in and to: (a) each Receivable of such Originator that existed and was owing to such Originator as at the closing of such Originator's business on June 5, 1998 of (the "Cut-off Date"); (b) each Receivable created by such Originator from and including the Cut-off Date to and including the Purchase and Sale Termination Date; (c) all rights to, but not the obligations under, all Related Security; (d) all monies due or to become due with respect to any of the foregoing; (e) all books and records related to any of the foregoing; and (f) all collections and other proceeds of any of the foregoing (as defined in the applicable UCC) that are or were received by such Originator on or after Cut-off Date, including, without limitation, all funds which either are received by such Originator, the Company or Servicer from or on behalf of the Obligors in payment of any amounts owed (including, without limitation, invoice price, finance charges, interest and all other charges) in respect of Receivables, or are applied to such amounts owed by the Obligors (including, without limitation, insurance payments that an Originator or Servicer applies in the ordinary course of its business to amounts owed in respect of any Receivable and net proceeds of sale or other disposition of repossessed goods or other collateral or property of the Obligors or any other parties directly or indirectly liable for payment of such Receivables). All purchases hereunder shall be made without recourse, but shall be made pursuant to, and in reliance upon, the representations, warranties and covenants of each Originator set forth in this Agreement and each other Transaction Document. No obligation or liability to any Obligor on any Receivable is intended to be assumed by the Company hereunder, and any such assumption is expressly disclaimed. The Company's foregoing commitment to purchase Receivables and the proceeds and rights described in clauses (c) through (f) (collectively, the "Related Rights") is herein called the "Purchase Facility." 1.2 Timing of Purchases. (a) Initial Closing Date Purchases. Each Originator's entire right, title and interest in (i) each Receivable that existed and was owing to such Originator as at the Cut-off Date, (ii) all Receivables created by such Originator from and including the Cut-off Date, to and including the Closing Date, and (iii) all Related Rights automatically shall be deemed to have been sold to the Company on the Closing Date. (b) Regular Purchases. After the Closing Date, until the Purchase and Sale Termination Date, each Receivable (and the Related Rights) created by each Originator shall be deemed to have been sold to the Company immediately (and without further action) upon the creation of such Receivable. 1.3 Consideration for Purchases. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to make Purchase Price payments to the respective Originators in accordance with Article III. 1.4 Purchase and Sale Termination Date. The "Purchase and Sale Termination Date" shall be the earliest to occur of (a) the date of the termination of this Agreement pursuant to Section 8.2 and (b) the Payment Date immediately following the day on which the Originators shall have given notice to the Company at or prior to 10:00 a.m. (New York City time) that the Originators desire to terminate this Agreement. 1.5 Intention of the Parties. It is the express intent of the parties hereto that the transfers of the Receivables and Related Rights by each Originator to the Company, as contemplated by this Agreement be, and be treated as sales, and not as secured loans secured by the Receivables and Related Rights. If, however, notwithstanding the intent of the parties, such -3- transactions are deemed to be loans, such Originator hereby grants to the Company a first priority security interest in all of such Originator's right, title and interest in and to the Receivables and the Related Rights now existing and hereafter created, all monies due or to become due and all amounts received with respect thereto, and all proceeds thereof, to secure all of such Originator's obligations hereunder. ARTICLE II CALCULATION OF PURCHASE PRICE 2.1 Calculation of Purchase Price. On each Monthly Settlement Date, the Servicer shall deliver to the Company, the Administrator and each Originator a report in substantially the form of Exhibit A (each such report being herein called a "Purchase Report") with respect to the matters set forth therein and the Company's purchases of Receivables from each Originator (a) that are to be made on the Closing Date (in the case of the Purchase Report to be delivered on the Closing Date), or (b) that were made during the period commencing on the Monthly Settlement Date immediately preceding such Monthly Settlement Date to (but not including) such Monthly Settlement Date (in the case of each subsequent Purchase Report). The "Purchase Price" (to be paid to each Originator in accordance with the terms of Article III) for the Receivables and the Related Rights that are purchased hereunder from such Originator shall be determined in accordance with the following formula: PP = OB X FMVD where: PP = Purchase Price for each Receivable as calculated on the relevant Payment Date. OB = the Outstanding Balance of such Receivable. FMVD = Fair Market Value Discount, as measured on such Payment Date, which is equal to the quotient (expressed as percentage) of (a) one divided by (b) the sum of (i) one, plus (ii) the product of (A) the Prime Rate on such Payment Date plus .25% and (B) a fraction, the numerator of which is the Days' Sales Outstanding (calculated as of the last day of the calendar month next preceding such -4- Payment Date) and the denominator of which is 365. "Payment Date" means (i) the Closing Date and (ii) each Business Day thereafter that Originator is open for business. "Prime Rate" means a per annum rate equal to the "Prime Rate" as published in the "Money Rates" section of The Wall Street Journal or such other publication as determined by the Administrator in its sole discretion. ARTICLE III PAYMENT OF PURCHASE PRICE 3.1 Initial Purchase Price Payment. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to pay to each Originator the Purchase Price for the purchase to be made from such Originator on the Closing Date partially in cash (in an amount to be agreed between the Company and such Originator and set forth in the initial Purchase Report) and partially by issuing a promissory note in the form of Exhibit B to such Originator with an initial principal balance equal to the remaining Purchase Price (each such promissory note, as it may be amended, supplemented, indorsed or otherwise modified from time to time, together with all promissory notes issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, being herein called a "Company Note"). 3.2 Subsequent Purchase Price Payments. On each Payment Date falling after the Closing Date, on the terms and subject to the conditions set forth in this Agreement, the Company shall pay to each Originator the Purchase Price for the Receivables generated by such Originator during the immediately preceding month as follows: (a) First, the Purchase Price shall be paid in cash to the extent the Company has cash available therefor; and (b) Second, to the extent any portion of the Purchase Price remains unpaid, the principal amount outstanding under the Company Note issued to such Originator shall be increased by an amount equal to such remaining Purchase Price. Servicer shall make all appropriate record keeping entries with respect to Company Notes or otherwise to reflect the foregoing payments and Servicer's books and records shall constitute rebuttable presumptive evidence of the principal -5- amount of and accrued interest on any Company Note at any time. Furthermore, Servicer shall hold the Company Notes for the benefit of the Originators. Each Originator hereby irrevocably authorizes Servicer to mark the Company Notes "CANCELLED" and to return such Company Notes to the Company upon the final payment thereof after the occurrence of the Purchase and Sale Termination Date. 3.3 Settlement as to Specific Receivables and Dilution (a) If on the day of purchase of any Receivable from Originator hereunder, any of the representations or warranties set forth in Section 5.12 of such Originator is not true with respect to such Receivable or as a result of any action or inaction of such Originator, on any day any of such representations or warranties set forth in Section 5.12 is no longer true with respect to such a Receivable, then the Purchase Price with respect to such Receivables shall be reduced by an amount equal to the Outstanding Balance of such Receivable and shall be accounted to Originator as provided in subsection (c) below; provided, that if the Company thereafter receives payment on account of Collections due with respect to such Receivable, the Company promptly shall deliver such funds to Originator. (b) If, on any day, the Outstanding Balance of any Receivable purchased hereunder is reduced or adjusted as a result of any defective, rejected, returned goods or services, or any discount or other adjustment made by Originator, the Company or Servicer or any setoff or dispute between such Originator or the Servicer and an Obligor as indicated on the books of the Company (or, for periods prior to the Closing Date, the books of such Originator), then the Purchase Price, with respect to such Receivable shall be reduced by the amount of such net reduction and shall be accounted to such Originator as provided in subsection (c) below. (c) Any reduction in the Purchase Price of any Receivable pursuant to subsection (a) or (b) above shall be applied as a credit for the account of the Company against the Purchase Price of Receivables subsequently purchased by the Company from such Originator hereunder; provided, however if there have been no purchases of Receivables from such Originator (or insufficiently large purchases of Receivables) to create a Purchase Price sufficient to so apply such credit against, the amount of such credit (i) shall be paid in cash to the Company by such Originator in the manner and for application as described in the following proviso, or -6- (ii) shall be deemed to be a payment under, and shall be deducted from the principal amount outstanding under, the Company Note payable to such Originator; provided, further, that at any time (y) when a Termination Event or Unmatured Termination Event exists under the Receivables Purchase Agreement or (z) on or after the Purchase and Sale Termination Date, the amount of any such credit shall be paid by such Originator to the Company by deposit in immediately available funds into the relevant Lock-Box Account for application by Servicer to the same extent as if Collections of the applicable Receivable in such amount had actually been received on such date. (d) Each Purchase Report (other than the Purchase Report delivered on the Closing Date) shall include, in respect of the Receivables previously generated by each Originator, a calculation of the aggregate reductions described in subsection (a) or (b) relating to such Receivables since the last Purchase Report delivered hereunder, as indicated on the books of the Company (or, for such period prior to the Closing Date, the books of Originator). 3.4 Reconveyance of Receivables. In the event that Originator has paid to the Company the full Outstanding Balance of any Receivable pursuant to Section 3.3, the Company shall reconvey such Receivable to such Originator, without representation or warranty, but free and clear of all liens created by the Company. ARTICLE IV CONDITIONS OF PURCHASES 4.1 Conditions Precedent to Initial Purchase. The initial purchase hereunder is subject to the condition precedent that Servicer (on the Company's behalf) shall have received, on or before the Closing Date, the following, each (unless otherwise indicated) dated the Closing Date, and each in form and substance satisfactory to Servicer (acting on the Company's behalf): (a) An Originator Assignment Certificate in the form of Exhibit C from each Originator, duly completed, executed and delivered by such Originator; (b) A copy of the resolutions of the Board of Directors of each Originator approving the Transaction -7- Documents to be delivered by it and the transactions contemplated hereby and thereby, certified by the respective Secretary or Assistant Secretary of each Originator; (c) Good standing certificates for each Originator issued as of a recent date acceptable to Servicer by the Secretary of State of the jurisdiction of such Originator's incorporation and the jurisdiction where such Originator's chief executive office is located; (d) A certificate of the Secretary or Assistant Secretary of each Originator certifying the names and true signatures of the officers authorized on such Person's behalf to sign the Transaction Documents to be delivered by it (on which certificate Servicer and the Company may conclusively rely until such time as Servicer shall receive from such Person a revised certificate meeting the requirements of this subsection (d)); (e) The certificate or articles of incorporation or other organizational document of each Originator, duly certified by the Secretary of State of the jurisdiction of such Originator's incorporation as of a recent date acceptable to Servicer, together with a copy of the by-laws of such Originator, each duly certified by the Secretary or an Assistant Secretary of such Originator; (f) Originals of the proper financing statements (Form UCC-1) that have been duly executed and name each Originator as the assignor and the Company as the assignee (and the Issuer), as assignee of the Company) of the Receivables generated by such Originator as may be necessary or, in Servicer's or the Administrator's opinion, desirable under the UCC of all appropriate jurisdictions to perfect the Company's ownership interest in all Receivables and such other rights, accounts, instruments and moneys (including, without limitation, Related Security) in which an ownership or security interest may be assigned to it hereunder; (g) A written search report from a Person satisfactory to Servicer listing all effective financing statements that name any Originator as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to the foregoing subsection (f), together with copies of such financing statements (none of which, except for those described in the foregoing subsection (f), shall cover any Receivable or any Related Rights) which is to be sold to the Company hereunder, and tax and judgment lien search reports from a Person satisfactory to Servicer showing no evidence of such liens filed against any Originator; -8- (h) A favorable opinion of Cummings & Lockwood, counsel to the Originators, in form and substance satisfactory to Servicer and the Administrator; (i) A Company Note in favor of each Originator, duly executed by the Company; and (j) A certificate from an officer of each Originator to the effect that Servicer and each Originator have placed on the most recent, and have taken all steps reasonably necessary to ensure that there shall be placed on each subsequent, data processing report that it generates which are of the type that a proposed purchaser or lender would use to evaluate the Receivables, the following legend (or the substantive equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO FIRST BRANDS FUNDING INC., PURSUANT TO A PURCHASE AND SALE AGREEMENT, DATED AS OF JUNE 5,1998, AMONG FIRST BRANDS CORPORATION, THE ORIGINATORS NAMED THEREIN AND FIRST BRANDS FUNDING INC.; AND UNDIVIDED, FRACTIONAL OWNERSHIP INTERESTS IN THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO MARKET STREET FUNDING CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF JUNE 5,1998, AMONG FIRST BRANDS FUNDING INC., FIRST BRANDS CORPORATION, MARKET STREET FUNDING CORPORATION AND PNC BANK, NATIONAL ASSOCIATION, AS ADMINISTRATOR." 4.2 Certification as to Representations and Warranties. Each Originator, by accepting the Purchase Price related to each purchase of Receivables generated by such Originator, shall be deemed to have certified that the representations and warranties contained in Article V are true and correct on and as of such day, with the same effect as though made on and as of such day. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ORIGINATORS In order to induce the Company to enter into this Agreement and to make purchases hereunder, each Originator hereby makes with respect to itself, and First Brands, jointly and severally, with each Originator makes with respect to such Originator, the representations and warranties set forth in this Article V. 5.1 Organization and Good Standing. Such Originator has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with power and authority to own its properties and to conduct its business as such properties are presently owned and such business -9- is presently conducted. 5.2 Due Qualification. Such Originator is duly licensed or qualified to do business as a foreign corporation in good standing in the jurisdiction where its chief executive office is located and in all other jurisdictions in which (a) the ownership or lease of its property or the conduct of its business requires such licensing or qualification and (b) the failure to be so licensed or qualified would be reasonably likely to have a Material Adverse Effect. 5.3 Power and Authority; Due Authorization. Such Originator has (a) all necessary power, authority and legal right (i) to execute and deliver, and perform its obligations under, each Transaction Document to which it is a party and (ii) to generate, own, sell and assign Receivables on the terms and subject to the conditions herein and therein provided; and (b) duly authorized such execution and delivery and such sale and assignment and the performance of such obligations by all necessary corporate action. 5.4 Valid Sale; Binding Obligations. Each sale made by such Originator pursuant to this Agreement shall constitute a valid sale, transfer, and assignment of Receivables to the Company, enforceable against creditors of, and purchasers from, such Originator; and this Agreement constitutes, and each other Transaction Document to be signed by such Originator, when duly executed and delivered, will constitute, a legal, valid, and binding obligation of such Originator, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. 5.5 No Violation. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents and the fulfillment of the terms hereof or thereof, will not (a) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under (i) such Originator's articles or certificate of incorporation or by-laws, or (ii) any indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which it is a party or by which it is bound, (b) result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument, other than the Transaction Documents, or (c) violate any law or any order, rule, or regulation applicable to it of any court or of any state or foreign regulatory body, administrative agency, or other governmental instrumentality -10- having jurisdiction over it or any of its properties. 5.6 Proceedings. Except as set forth in Exhibit D, there is no action, suit, proceeding or investigation pending before any court, regulatory body, arbitrator, administrative agency, or other tribunal or governmental instrumentality (a) asserting the invalidity of any Transaction Document, (b) seeking to prevent the issuance of such Originator's Originator Assignment Certificate or the consummation of any of the transactions contemplated by any Transaction Document, or (c) seeking any determination or ruling that is reasonably likely to have a Material Adverse Effect. 5.7 Bulk Sales Acts. No transaction contemplated hereby requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. 5.8 Government Approvals. Except for the filing of the UCC financing statements referred to in Article IV, all of which, at the time required in Article IV, shall have been duly made and shall be in full force and effect, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for such Originator's due execution, delivery and performance of any Transaction Document to which it is a party. 5.9 Financial Condition. (a) Material Adverse Change. Since December 31, 1997, no event has occurred that has had, or is reasonably likely to have, a Material Adverse Effect. (b) Solvent. On the date hereof, and on the date of each purchase hereunder (both before and after giving effect to such purchase), such Originator shall be Solvent. 5.10 Licenses, Contingent Liabilities, and Labor Controversies. (a) Such Originator has not failed to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure to obtain would be reasonably likely to have a Material Adverse Effect. (b) There are no labor controversies pending against such Originator that have had (or are reasonably likely to have) a Material Adverse Effect. 5.11 Margin Regulations. No use of any funds acquired by -11- such Originator under this Agreement will conflict with or contravene any of Regulations G, T, U and X promulgated by the F.R.S. Board from time to time. 5.12 Quality of Title. (a) Each Receivable of such Originator (together with the Related Rights with respect to such Receivable) which is to be sold to the Company hereunder is or shall be owned by such Originator, free and clear of any Adverse Claim, except as provided herein and in the Receivables Purchase Agreement. Whenever the Company makes a purchase hereunder, it shall have acquired and shall continue to have maintained a valid and perfected ownership interest (free and clear of any Adverse Claim) in all Receivables generated by such Originator and all Collections related thereto, and in such Originator's entire right, title and interest in and to the Related Rights with respect thereto. (b) No effective financing statement or other instrument similar in effect covering any Receivable generated by such Originator or any Related Rights is on file in any recording office except such as may be filed in favor of the Company or the Originators, as the case may be, in accordance with this Agreement or in favor of the Issuer in accordance with the Receivables Purchase Agreement. (c) Unless otherwise identified to the Company on the date of the purchase hereunder, each Receivable purchased thereunder is on the date of purchase an Eligible Receivable. 5.13 Accuracy of Information. All factual written information heretofore or contemporaneously furnished (and prepared) by such Originator to the Company or the Administrator for purposes of or in connection with any Transaction Document or any transaction contemplated hereby or thereby is, and all other such factual written information hereafter furnished (and prepared) by such Originator to the Company or the Administrator pursuant to or in connection with any Transaction Document will be, true and accurate in every material respect on the date as of which such information is dated or certified. 5.14 Offices. Such Originator's principal place of business and chief executive office is located at the address set forth under such Originator's signature hereto, and the offices where such Originator keeps all its books, records and documents evidencing its Receivables, the related Contracts and all other agreements related to such Receivables are located at the addresses specified in Exhibit E (or at such other locations, notified to Servicer and the Administrator in accordance with -12 Section 6.1(f), in jurisdictions where all action required by Section 7.3 has been taken and completed). 5.15 Trade Names. Such Originator does not use any trade name other than its actual corporate name and the trade names set forth in Exhibit F. From and after the date that fell five (5) years before the date hereof, except as set forth in Exhibit F, such Originator has not been known by any legal name other than its corporate name as of the date hereof, nor has such Originator been the subject of any merger or other corporate reorganization. 5.16 Taxes. Such Originator has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 5.17 Compliance with Applicable Laws. Such Originator is in compliance with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities, a breach of any of which, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect. 5.18 Reliance on Separate Legal Identity. Such Originator acknowledges that the Issuer and the Administrator are entering into the Receivables Purchase Agreement in reliance upon the Company's identity as a legal entity separate from any Originator. ARTICLE VI COVENANTS OF FIRST BRANDS AND THE ORIGINATORS 6.1 Affirmative Covenants. From the date hereof until the first day following the Purchase and Sale Termination Date, each Originator will, unless the Administrator and the Company shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to the Receivables generated by it and the Contracts and other agreements related thereto except where the failure to so comply would not materially and adversely affect the collectibility of such Receivables or the rights of the Company hereunder. (b) Preservation of Corporate Existence. Preserve and maintain its corporate existence, rights, franchises and -13- privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would be reasonably likely to have a Material Adverse Effect. (c) Receivables Reviews. (i) At any time and from time to time during regular business hours, and upon reasonable prior notice permit the Company or the Administrator, or their respective agents, or representatives, (A) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in possession or under the control of such Originator relating to Receivables, including, without limitation, the related Contracts and purchase orders and other agreements related thereto, and (B) to visit the offices and properties of such Originator for the purpose of examining such materials described in clause (i)(A) next above, and to discuss matters relating to Receivables originated by it or the performance hereunder with any of the officers or employees of such Originator having knowledge of such matters, and (ii) without limiting the foregoing clause (i) above, from time to time on request of the Administrator, permit certified public accountants or other auditors acceptable to the Company and Administrator to conduct, at the Company's expense, a review of such Originator's books and records with respect to such Receivables. (d) Keeping of Records and Books of Account. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables it generates in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of such Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). (e) Performance and Compliance with Receivables and Contracts. Timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts and all other agreements related to the Receivables that it generates. (f) Location of Records. Keep its principal place of business and chief executive office, and the offices where it keeps its records concerning or related to Receivables, -14- at the address(es) referred to in Exhibit E or, upon 30 days' prior written notice to the Company and the Administrator, at such other locations in jurisdictions where all action required by Section 7.3 shall have been taken and completed. (g) Credit and Collection Policies. Comply in all material respects with its Credit and Collection Policy in connection with the Receivables that it generates and all Contracts and other agreements related thereto. (h) Post Office Boxes. Within 30 days after the date hereof, deliver to Servicer (on behalf of the Company) a certificate from an authorized officer of such Originator to the effect that (i) the name of the renter of all post office boxes into which Collections may from time to time be mailed have been changed to the name of the Company (unless such post office boxes are in the name of the relevant Lock-box Banks) and (ii) all relevant postmasters have been notified that each of Servicer and the Administrator are authorized to collect mail delivered to such post office boxes (unless such post office boxes are in the name of the relevant Lock-box Banks). 6.2 Reporting Requirements. From the date hereof until the first day following the Purchase and Sale Termination Date, each Originator will, unless Servicer (on behalf of the Company) shall otherwise consent in writing, furnish to the Company and the Administrator: (a) Purchase and Sale Termination Events. As soon as possible after knowledge of the occurrence of, and in any event within three Business Days after knowledge of the occurrence of each Purchase and Sale Termination Event or each Unmatured Purchase and Sale Termination Event in respect of such Originator, the statement of the chief financial officer or chief accounting officer of such Originator describing such Purchase and Sale Termination Event or Unmatured Purchase and Sale Termination Event and the action that such Originator proposes to take with respect thereto, in each case in reasonable detail; (b) Proceedings. As soon as possible and in any event within three Business Days after such Originator otherwise has knowledge thereof, written notice of (i) litigation, investigation or proceeding of the type described in Section 5.6 not previously disclosed to the Company and (ii) all material adverse developments that have occurred with respect to any previously disclosed litigation, proceedings and investigations; and -15- (c) Other. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the conditions or operations, financial or otherwise, of such Originator as the Company, Purchaser or the Administrator may from time to time reasonably request in order to protect the interests of the Company, Purchaser or the Administrator under or as contemplated by the Transaction Documents. 6.3 Negative Covenants. From the date hereof until the date following the Purchase and Sale Termination Date, each Originator agrees that, unless Servicer (on behalf of the Company) shall otherwise consent in writing, it shall not: (a) Sales, Liens, Etc. Except as otherwise provided herein or in any other Transaction Document, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Receivable or related Contract or Related Security, or any interest therein, or any Collections thereon, or assign any right to receive income in respect thereof. (b) Extension or Amendment of Receivables. Except as otherwise permitted in Section 4.2(a) of the Receivables Purchase Agreement, extend, amend or otherwise modify the terms of any Receivable in any material respect generated by it, or amend, modify or waive, in any material respect, any term or condition of any Contract related thereto (which term or condition relates to payments under, or the enforcement of, such Contract). (c) Change in Business or Credit and Collection Policy. Make any change in the character of its business or materially alter its Credit and Collection Policy, which change would, in either case, materially change the credit standing required of particular Obligors or potential Obligors or impair, in any material respect, the collectibility of the Receivables generated by it. (d) Receivables Not to be Evidenced by Promissory Notes or Chattel Paper. Take any action to cause or permit any Receivable generated by it to become evidenced by any "instrument" or "chattel paper" (as defined in the applicable UCC). (e) Mergers, Acquisitions, Sales, etc. (i) Be a party to any merger or consolidation, except (A) a merger or consolidation involving First Brands where First Brands is the surviving corporation, or (B) a merger or consolidation among two or more Originators, or (ii) directly or -16- indirectly sell, transfer, assign, convey or lease (A) whether in one or a series of transactions, all or substantially all of its assets, except to another Originator (including, without limitation, First Brands), or (B) any Receivables or any interest therein (other than pursuant to this Agreement); provided, however, that (i) First Brands may sell, transfer or assign all the capital stock of Himolene or A&M and (ii) Himolene or A&M may (A) sell, transfer or assign to any Person all or substantially all of its assets or (B) be a party to a merger or consolidation with any Person (including one where it is not the surviving corporation); provided, further, that upon any such sale, tranfer, assignment or merger, Himolene or A&M, as applicable (or any Person who is the surviving corporation of a merger or consolidation with Himolene or A&M), shall cease to be an Originator hereunder. First Brands hereby covenants and agrees that from and after the occurrence of any sale, transfer, assignment or merger pursuant this Section 6.3(e), First Brands does hereby assume all obligations of Himolene or A&M, as applicable, arising under Section 3.3 of this Agreement with respect to any Receivables originated by Himolene or A&M. 6.4 Lock-box Banks. Make any changes in its instructions to Obligors regarding Collections or add or terminate any Lock-box Bank unless the requirements of paragraph 2 (g) of Exhibit IV of the Receivables Purchase Agreement have been met. 6.5 Accounting for Purchases. Account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than as sales of the Receivables and Related Rights by such Originator to the Company. 6.6 Transaction Documents. Enter into, execute, deliver or otherwise become bound by any agreement, instrument, document or other arrangement that restricts the right of such Originator to amend, supplement, amend and restate or otherwise modify, or to extend or renew, or to waive any right under, this Agreement or any other Transaction Documents. ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES 7.1 Rights of the Company. Each Originator hereby authorizes the Company, Servicer or their respective designees to take any and all steps in such Originator's name necessary or desirable, in their respective determination, to collect all -17- amounts due under any and all Receivables, including, without limitation, indorsing the name of such Originator on checks and other instruments representing Collections and enforcing such Receivables and the provisions of the related Contracts that concern payment and/or enforcement of rights to payment. 7.2 Responsibilities of Each Originator. Anything herein to the contrary notwithstanding: (a) Collection Procedures. Each Originator agrees to direct its respective Obligors to make payments of Receivables directly to a post office box related to the relevant Lock-box Account at a Lock-box Bank. Each Originator further agrees to transfer any Collections that it receives directly to Servicer (for the Company's account) within one (1) Business Day of receipt thereof, and agrees that all such Collections shall be deemed to be received in trust for the Company and shall be maintained and segregated separate and apart from all other funds and monies of such Originator until transfer of such Collections to Servicer. (b) Each Originator shall perform its obligations hereunder, and the exercise by the Company or its designee of its rights hereunder shall not relieve such Originator from such obligations. (c) None of the Company, Servicer or the Administrator shall have any obligation or liability to any Obligor or any other third Person with respect to any Receivables, Contracts related thereto or any other related agreements, nor shall the Company, Servicer, Issuer or the Administrator be obligated to perform any of the obligations of any Originator thereunder. (d) Each Originator hereby grants to Servicer an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of such Originator all steps necessary or advisable to indorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by such Originator or transmitted or received by the Company (whether or not from such Originator) in connection with any Receivable. 7.3 Further Action Evidencing Purchases. Each Originator agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that Servicer may reasonably request in order to perfect, protect or more fully evidence the Receivables and Related Rights purchased by the Company hereunder, or to enable the Company to exercise or -18- enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, upon the request of Servicer, each Originator will: (a) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate; and (b) mark the master data processing records that evidence or list (i) such Receivables and (ii) related Contracts with the legend set forth in Section 4.1(j). Each Originator hereby authorizes the Company or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Rights now existing or hereafter generated by such Originator. If any Originator fails to perform any of its agreements or obligations under this Agreement, the Company or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Company or its designee incurred in connection therewith shall be payable by such non-performing Originator as provided in Section 9.1. 7.4 Application of Collections. Any payment by an Obligor in respect of any indebtedness owed by it to any Originator shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Company or the Administrator, be applied as a Collection of any Receivable or Receivables of such Obligor to the extent of any amounts then due and payable thereunder before being applied to any other indebtedness of such Obligor. ARTICLE VIII PURCHASE AND SALE TERMINATION EVENTS 8.1 Purchase and Sale Termination Events. Each of the following events or occurrences described in this Section 8.1 shall constitute a "Purchase and Sale Termination Event": (a) A Termination Event (as defined in the Receivables Purchase Agreement) shall have occurred and, in the case of a Termination Event (other than one described in paragraph (f) of Exhibit V of the Receivables Purchase Agreement), the Administrator, the Issuer shall have declared the Facility Termination Date to have occurred; or -19 (b) Any Originator shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for two (2) Business Days; or (c) Any representation or warranty made or deemed to be made by any Originator (or any of its officers) under or in connection with this Agreement, any other Transaction Documents or any other information or report delivered pursuant hereto or thereto shall prove to have been false or incorrect in any material respect when made or deemed made; or (d) Any Originator shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and such failure shall remain unremedied for 30 calendar days after written notice thereof shall have been given by Servicer to such Originator. 8.2 Remedies. (a) Optional Termination. Upon the occurrence of a Purchase and Sale Termination Event, the Company (and not Servicer) shall have the option by notice to the Originators (with a copy to the Administrator) to declare the Purchase and Sale Termination Date to have occurred. (b) Remedies Cumulative. Upon any termination of the Purchase Facility pursuant to this Section 8.2 (a), the Company shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing, the occurrence of the Purchase and Sale Termination Date shall not deny the Company any remedy in addition to termination of the Purchase Facility to which the Company may be otherwise appropriately entitled, whether at law or equity. ARTICLE IX INDEMNIFICATION 9.1 Indemnities by First Brands and the Originators. Without limiting any other rights which the Company may have hereunder or under applicable law, each Originator, severally and for itself alone, and First Brands, jointly and severally with each Originator, hereby agrees to indemnify the Company and each of its officers, directors, employees and Administrators (each of -20 the foregoing Persons being individually called a "Purchase and Sale Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims, judgments, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively called "Purchase and Sale Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of the failure of such Originator to perform its obligations under this Agreement, any other Transaction Document or arising out of the claims asserted against a Purchase and Sale Indemnified Party relating to the transactions contemplated herein or therein or the use of proceeds thereof or therefrom, excluding, however, (i) Purchase and Sale Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Purchase and Sale Indemnified Party, (ii) any indemnification which has the effect of recourse for non-payment of the Receivables to any indemnitor (except as otherwise specifically provided under this Section 9.1) and (iii) any tax based upon or measured by net income or gross receipts. Without limiting the foregoing, each Originator, severally and for itself alone, and First Brands, jointly and severally with each Originator, indemnifies each Purchase and Sale Indemnified Party for Purchase and Sale Indemnified Amounts relating to or resulting from: (a) the transfer by such Originator of an interest in any Receivable to any Person other than the Company; (b) the breach of any representation or warranty made by such Originator (or any of its officers) under or in connection with this Agreement or any other Transaction Document, or any information or report delivered by such Originator pursuant hereto or thereto which shall have been false or incorrect in any material respect when made or deemed made; (c) the failure by such Originator to comply with any applicable law, rule or regulation with respect to any Receivable generated by such Originator or the related Contract, or the nonconformity of any Receivable generated by such Originator or the related Contract with any such applicable law, rule or regulation; (d) the failure to vest and maintain vested in the Company an ownership interest in the Receivables generated by such Originator free and clear of any Adverse Claim, other than an Adverse Claim arising solely as a result of an act of the Company, whether existing at the time of the purchase of such Receivables or at any time thereafter; (e) the failure to file, or any delay in filing, financing statements or other similar instruments or -21- documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or purported Receivables generated by such Originator, whether at the time of any purchase or at any subsequent time; (f) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable or purported Receivable generated by such Originator (including, without limitation, a defense based on such Receivable's or the related Contract's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the services related to any such Receivable or the furnishing of or failure to furnish such services; (g) any product liability claim arising out of or in connection with services that are the subject of any Receivable generated by such Originator; and (h) any tax or governmental fee or charge (other than any tax excluded pursuant to clause (iii) in the proviso to the preceding sentence), all interest and penalties thereon or with respect thereto, and all out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of the Receivables generated by such Originator or any Related Security connected with any such Receivables. If for any reason the indemnification provided above in this Section 9.1 is unavailable to a Purchase and Sale Indemnified Party or is insufficient to hold such Purchase and Sale Indemnified Party harmless, then each of the Originators, severally and for itself alone, and First Brands, jointly and severally with each Originator, shall contribute to the amount paid or payable by such Purchase and Sale Indemnified Party to the maximum extent permitted under applicable law. ARTICLE X MISCELLANEOUS 10.1 Amendments, etc. (a) The provisions of this Agreement may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Company, First Brands and the Originators (with respect to an amendment) or by the Company (with respect to a waiver or -22- consent by it). (b) No failure or delay on the part of the Company, Servicer, any Originator or any third party beneficiary in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company, Servicer, First Brands or any Originator in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Company or Servicer under this Agreement shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval under this Agreement shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. (c) The Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter thereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter thereof, superseding all prior oral or written understandings. 10.2 Notices, etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by certified mail, postage-prepaid, or by facsimile, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, (i) if personally delivered, when received, (ii) if sent by certified mail three (3) Business Days after having been deposited in the mail, postage prepaid, and (iii) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. 10.3 No Waiver; Cumulative Remedies. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, First Brands and each Originator hereby authorizes the Company, at any time and from time to time, to the fullest extent permitted by law, to setoff, against any obligations of such Originator to the Company arising in connection with the Transaction Documents (including without limitation amounts payable pursuant to Section 9.1) that are then due and payable or that are not then due and payable but are accruing in respect of the then current Settlement Period, any and all indebtedness at any time owing by the Company to or -23- for the credit or the account of First Brands or any Originator. 10.4 Binding Effect; Assignability. This Agreement shall be binding upon and inure to the benefit of the Company, First Brands and each Originator and their respective successors and permitted assigns. No Originator may assign any of its rights hereunder or any interest herein without the prior written consent of the Company, except as otherwise herein specifically provided. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time as the parties hereto shall agree. The rights and remedies with respect to any breach of any representation and warranty made by any Originator pursuant to Article V and the indemnification and payment provisions of Article IX and Section 10.6 shall be continuing and shall survive any termination of this Agreement. 10.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF). 10.6 Costs, Expenses and Taxes. In addition to the obligations of the Originators under Article IX, each Originator, severally and for itself alone, and First Brands, jointly and severally with each Originator, agrees to pay on demand: (a) all reasonable costs and expenses in connection with the enforcement of this Agreement, the Originator Assignment Certificates and the other Transaction Documents; and (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents to be delivered hereunder, and agrees to indemnify each Purchase and Sale Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. 10.7 Submission to Jurisdiction. EACH PARTY HERETO HEREBY IRREVOCABLY (a) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF PENNSYLVANIA OR UNITED STATES FEDERAL COURT SITTING IN PITTSBURGH, PENNSYLVANIA, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT; (b) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES FEDERAL COURT; (c) -24 WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; (d) IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION 10.2; AND (e) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 10.7 SHALL AFFECT THE COMPANY'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR PROCEEDING AGAINST FIRST BRANDS, ANY ORIGINATOR OR ITS RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS. 10.8 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT (a) ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND (b) ANY PARTY HERETO (OR ANY ASSIGNEE OR THIRD PARTY BENEFICIARY OF THIS AGREEMENT) MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF ANY OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY. 10.9 Captions and Cross References; Incorporation by Reference. The various captions (including, without limitation, the table of contents) in this Agreement are included for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. References in this Agreement to any underscored Section or Exhibit are to such Section or Exhibit of this Agreement, as the case may be. Appendix A and the Exhibits hereto are hereby incorporated by reference into and made a part of this Agreement. 10.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. 10.11 Acknowledgment and Agreement. By execution -25 below, First Brands and each other Originator expressly acknowledges and agrees that all of the Company's rights, title, and interests in, to, and under this Agreement (but not its obligations), shall be assigned by the Company pursuant to the Receivables Purchase Agreement, and First Brands and each Originator consents to such assignment. Each of the parties hereto acknowledges and agrees that the Administrator and Purchaser are third party beneficiaries of the rights of the Company arising hereunder and under the other Transaction Documents to which First Brands or any Originator is a party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -26- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FIRST BRANDS FUNDING INC. By: /s/ Donald A. DeSantis ---------------------------- Name: Donald A. DeSantis Title: President First Brands Funding Inc. 83 Wooster Heights Road Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 FIRST BRANDS CORPORATION, as initial Servicer By: /s/ Einar M. Rod ---------------------------- Name: Einar M. Rod Title: Vice President 83 Wooster Heights Road P.O. Box 1911 Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 ORIGINATORS: FIRST BRANDS CORPORATION, as initial Servicer By: /s/ Einar M. Rod ---------------------------- Name: Einar M. Rod Title: Vice President 83 Wooster Heights Road P.O. Box 1911 Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 HIMOLENE INCORPORATED By: /s/ Joseph B. Furey --------------------------- Name: Joseph B. Furey Title: Vice President 83 Wooster Heights Road P.O. Box 1911 Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 A&M PRODUCTS INC. By: /s/ Joseph B. Furey ------------------------------ Name: Joseph B. Furey Title: Vice President 83 Wooster Heights Road P.O. Box 1911 Danbury, CT 06813 Attention: Richard J. Mosback Telephone No.: (203) 731-2485 Facsimile No.: (203) 731-3668 EX-11 4 EXHIBIT 11 Exhibit 11 COMPUTATON OF NET INCOME PER COMMON SHARE (in thousands -- except per share amounts)
BASIC DILUTED Year ended June 30, Year ended June 30 1998 1997 1998 1997 ---- ---- ---- ---- Income before extraordinary loss and cumulative effect of change in accounting principle................... $52,330 $50,865 $52,330 $50,865 Extraordinary loss on repurchase of subordinated notes, net of taxes....... -- (633) -- (633) Cumulative effect of change in accounting principle................ (6,922) -- (6,922) -- -------- -------- -------- -------- Net income............................... $45,408 $50,232 $45,408 $50,232 ======== ======== ======== ======== Average common shares outstanding during the period...................... 43,483 43,271 43,483 43,271 Average treasury shares held during the period...................... (3,867) (2,499) (3,867) (2,499) Common shares issuable with respect to common equivalents for stock options...................... 0 0 886 985 -------- -------- -------- -------- Average common shares outstanding........ 39,616 40,772 40,502 41,757 ======== ======== ======== ======== Earnings per share: - --------------------------- Income before extraordinary loss and cumulative effective of change in accounting principle................... $ 1.32 $ 1.25 $ 1.29 $ 1.22 Extraordinary loss on repurchase of subordinated notes, net of taxes....... -- (0.02) -- (0.02) Cumulative effect of change in accounting principle................ (0.17) -- (0.17) -- -------- -------- -------- -------- Net income............................... $ 1.15 $ 1.23 $ 1.12 $ 1.20 ======== ======== ======== ========
EX-21 5 EXHIBIT-21 EXHIBIT 21 Page 1 of 2 Subsidiaries of First Brands Corporation (Delaware) (Unless otherwise noted, the following are wholly-owned by First Brands Corporation) First Brands Properties Inc. (Delaware) First Brands Acquisitions Inc. (Delaware) [wholly owned by First Brands Properties Inc.] A & M Products Inc. (Texas) [wholly owned by First Brands Acquisitions Inc.] First Brands Australia Pty Limited (Australia) [66% owned by First Brands Properties Inc.; 29.6% owned by FBC, LLC; 4.4% owned by management] NationalPak Pty Limited (Australia) [wholly owned by First Brands Australia Ltd.] First Brands New Zealand Limited (New Zealand) [wholly owned by First Brands Properties Inc.] National Pak New Zealand Limited (New Zealand) [wholly-owned by First Brands New Zealand Limited Forest Technology Corporation (Delaware) Himolene Incorporated (Delaware) Paulsboro Packaging, Inc. (New Jersey) STP Products, Inc. (Delaware) First Brands Funding Inc. (Delaware) Polysak, Inc. (Connecticut) STP Corporation (Delaware) Antifreeze Technology Systems,Inc. (Delaware) Antifreeze Properties, Inc. (Delaware) First Brands International, Inc. (Delaware) First Brands Asia Limited (Hong Kong) First Brands (Guangzhou) Ltd. (China) [51% owned by First Brands Asia Limited] STP International (Australia) Pty. Ltd. (Australia) First Brands Europe Limited (United Kingdom) STP First Brands Espana, S. L. (Spain) [wholly-owned by First Brands Europe Limited] EXHIBIT 21 Page 2 of 2 Subsidiaries of First Brands Corporation (Delaware) (Unless otherwise noted, the following are wholly-owned by First Brands Corporation) First Brands Holdings Corporation (Canada) First Brands (Canada) Corporation (Canada) [wholly-owned by First Brands Holdings Corporation] FBC, LLC (Delaware) [wholly-owned by First Brands (Canada) Corporation] STP Scientifically Tested Products of Canada Ltd. (Canada) [wholly-owned by First Brands Holdings Corporation] Renaissance: A Resource Recovery Corporation (Canada) [wholly-owned by First Brands Holdings Corporation] First Brands Africa (Holdings) (Pty) Ltd (South Africa) [93% owned by First Brands Holdings Corporation] First Brands Africa (Pty) Ltd. (South Africa) (wholly-owned by First Brands Africa Holdings (Pty) Ltd.) Sealapac (Pvt) Ltd. (South Africa) [76% owned by First Brands Africa (Pty) Ltd.) First Brands Zimbabwe (Private) Ltd (Zimbabwe) (wholly-owned by First Brands Africa (Pty) Ltd.) Multifoil Trading (Pty) Ltd (South Africa) (wholly-owned by First Brands Africa Holdings (Pty) Ltd.) First Brands Mexicana, S.A. de C.V. (Mexico) Fabricante de Productos Plasticos, S.A. de C.V. (Mexico) [wholly-owned by First Brands Mexicana, S.A. de C.V.] PCM International, Inc. (Delaware) [wholly-owned by Fabricante de Productos Plasticos, S.A. de D.V.] Comercial First Brands, S.A. de C.V. (Mexico) [wholly-owned by First Brands Mexicana, S.A. de C.V.] Distribuidora First Brands, S.A. de C.V. (Mexico) [wholly-owned by First Brands Mexicana, S.A. de C.V.] First Brands Philippines, Inc. (Philippines) First Brands Puerto Rico, Inc. (Puerto Rico) Comercial STP Ltda. (Brazil) [in liquidation] STP Corporation (Deutschland) GmbH (Germany) [in liquidation] EX-23 6 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders First Brands Corporation: We consent to incorporation by reference in the Registration Statement No. 333-25773 on Form S-4 and Nos. 33-35770, 33-56992, 33-56503, 333-20949 and 333-45379 on Form S-8 of First Brands Corporation of our report dated August 6, 1998, relating to the consolidated balance sheets of First Brands Corporation and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1998, which report refers to a change in the method of accounting for business process re-engineering costs, and our report dated August 6, 1998 on the related schedule, which reports respectively are incorporated by reference and appear in the June 30, 1998 annual report on Form 10-K of First Brands Corporation. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP New York, New York September 22, 1998 EX-27 7 EXHIBIT 27
5 1000 12-MOS JUN-30-1998 JUL-01-1997 JUN-30-1998 12,029 0 118,326 8,297 155,480 307,832 580,284 160,529 1,060,201 180,810 388,054 435 0 0 385,713 1,060,201 1,203,670 1,203,670 775,870 775,870 0 0 29,604 84,694 32,364 52,330 0 0 (6,922) 45,408 1.15 1.12
-----END PRIVACY-ENHANCED MESSAGE-----