-----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, USkdPqMVjWnUa+puXd4GhEOGjT7XnxSxh1jRw3PuucKNA77VZyJp+FQ8yJ3C2OEv Cd/UdrcoNuI+EVgnkIS7Vw== 0000931763-97-000430.txt : 19970329 0000931763-97-000430.hdr.sgml : 19970329 ACCESSION NUMBER: 0000931763-97-000430 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA GULF CORP /DE/ CENTRAL INDEX KEY: 0000805264 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 581563799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09753 FILM NUMBER: 97567916 BUSINESS ADDRESS: STREET 1: 400 PERIMETER CTR TERRACE STREET 2: STE 595 CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043954500 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 1-9753 ---------------- GEORGIA GULF CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 58-1563799 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 400 PERIMETER CENTER TERRACE, SUITE 595, ATLANTA, GEORGIA 30346 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 395-4500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT OF 1934:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ----------------------------- Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing 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 the 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] Aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed using the closing price on the New York Stock Exchange for the Registrant's common stock on March 20, 1997 was $900,286,000. Indicate the number of shares outstanding of the Registrant's common stock as of the latest practicable date.
OUTSTANDING AT CLASS MARCH 20, 1997 ----- ----------------- Common Stock, $0.01 par value 34,296,625 shares
DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein) 1996 Annual Report to Stockholders in Parts II and IV of this Form 10-K. Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 1997 in Part III of this Form 10-K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
PAGE ITEM NUMBER - ---- ------ 1) Business General Description of Business.................................... 1 Electrochemical Products........................................... 2 Aromatic Chemical Products......................................... 3 Natural Gas Product................................................ 4 Great River Oil & Gas Corporation.................................. 4 Georgia-Pacific Contract........................................... 4 Marketing.......................................................... 4 Raw Materials...................................................... 4 Competition........................................................ 5 Employees.......................................................... 5 Environmental Regulation........................................... 5 2) Properties......................................................... 5 3) Legal Proceedings.................................................. 6 4) Submission of Matters to a Vote of Security Holders................ 7 PART II 5) Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters......................................... 7 6) Selected Financial Data............................................ 7 7) Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 7 8) Financial Statements and Supplementary Data........................ 7 9) Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................ 7 PART III 10) Directors and Executive Officers of the Registrant................. 7 11) Executive Compensation............................................. 8 12) Security Ownership of Certain Beneficial Owners and Management..... 8 13) Certain Relationships and Related Transactions..................... 8 PART IV 14) Exhibits, Financial Statement Schedule and Reports on Form 8-K..... 9 SIGNATURES............................................................. 12
PART I ITEM 1. BUSINESS. GENERAL DESCRIPTION OF BUSINESS Georgia Gulf Corporation (the "Company") is a major manufacturer and worldwide marketer of quality chemical and plastic products. The Company's products are manufactured through two highly integrated lines categorized into electrochemicals and aromatic chemicals; and also include a third product line, methanol, a natural gas chemical. The Company's electrochemical products include chlorine, caustic soda, sodium chlorate, vinyl chloride monomer ("VCM"), vinyl resins and compounds; the Company's aromatic chemical products include cumene, phenol, acetone and alpha-methylstyrene ("AMS"). The Company has operated as an independent corporation since its acquisition on December 31, 1984, of a major portion of the business and assets of the chemical division of Georgia-Pacific Corporation ("Georgia-Pacific"). The Company's operations include production units at four locations, several marketing organizations responsible for the sale of the Company's products, a research and development laboratory and a purchasing organization responsible for the acquisition of all major raw materials. In most product areas, the Company's marketing program is supported by an ongoing technical service effort. At the Company's four manufacturing locations, there are eleven plants, seven of which are located at Plaquemine, Louisiana. The Company also leases storage terminals and warehouses from which a portion of its products are distributed to customers. The Company's products are generally intermediate chemicals that are sold for further processing into a wide variety of end-use applications. Some of the more significant end-use markets include plastic piping, siding and window frames made from vinyl resins; bonding agents for wood products and high quality plastics made from phenol; acrylic sheeting for automotive and architectural products made from acetone; and MBTE, a gasoline additive produced from methanol. The following percentages of sales were made in 1996 to manufacturers in the following industries: 36% housing and construction, 25% plastics and fibers, 13% solvents and chemicals, 15% consumer products, 5% pulp and paper and 6% miscellaneous. The Company's major capital projects during 1996 included a rigid vinyl compound expansion at the Gallman, Mississippi plant; a product quality upgrade and expansion of the cumene plant at Pasadena, Texas; a modernization and expansion of the VCM and phenol/acetone plants in Plaquemine, Louisiana; and a new air separation plant constructed to supply oxygen and nitrogen to the Plaquemine, Louisiana complex. The major planned capital expenditures for 1997 include the completion of the VCM and phenol/acetone plant expansions at the Plaquemine, Louisiana complex and the completion of the rigid vinyl compound plant expansion at Gallman, Mississippi. Also a co-generation plant is being constructed under an operating lease agreement to provide electricity and steam to the Plaquemine, Louisiana complex. In the commodity chemical industry, a company's cost position as well as the balance in supply and demand for particular product lines significantly affect earnings and cash flow. The Company has invested $555 million in the past five years to maintain, expand and/or improve the efficiency of its operating facilities. Management believes that with its low-cost position and integrated product lines, the Company is well positioned to compete in its various markets. The Company's long-term strategy is to continue to concentrate its efforts on products and services in the chemical and plastic industries, particularly to its core product areas. The Company will continue to make investments that will improve or maintain its low-cost position, as well as selective and prudent capacity additions or expansions that management believes will promote profitable growth in present and closely related product lines. 1 ELECTROCHEMICAL PRODUCTS Chlorine/Caustic Soda/Sodium Chlorate. The Company's facility at Plaquemine, Louisiana has the annual capacity to produce approximately 450 thousand tons of chlorine and 500 thousand tons of chlorine's co-product, caustic soda, as well as 27 thousand tons of sodium chlorate. The major raw materials for these products are salt and electric power. The Company has a long-term lease on a salt dome near the Plaquemine, Louisiana facility with sufficient salt reserves to last over 40 years at current rates of production. Electric power is the most significant cost component in the production of chlorine, caustic soda and sodium chlorate. The Company is presently having a 250-megawatt co-generation facility constructed at its Plaquemine, Louisiana, complex, which will supply, under a long-term lease agreement, essentially all the electricity and steam requirements for that site. Completion of the co- generation facility is scheduled for the third quarter of 1997. Prior to the start-up of the co-generation facility, the Company's electrical requirements will continue to be supplied by Louisiana Power and Light Company. Management believes the co-generation facility will significantly reduce electrical costs as well as limit exposure to potential problems arising from rapidly changing regulatory and rate environments. Chlorine is used in the production of various chemicals, including those used to make plastics and vinyl resins. Other applications include water purification, waste water disinfection, pulp and paper bleaching, agricultural products, laundry aids and pharmaceuticals. The majority of the Company's chlorine production is consumed by the Company in the production of VCM, which is then used to produce vinyl resins. The Company sells the remaining chlorine principally to the pulp and paper and chemical industries. The major uses of caustic soda are in the production of pulp and paper, aluminum, oil, soaps and detergents. Caustic soda also has significant applications in the production of other chemicals and chemical processes where caustic soda is used to control pH levels aiding in waste neutralization. Another use is in the textile industry where it makes fabrics more absorbent and improves the strength of dyes. Caustic soda is also used, to a lesser extent, in food processing and electroplating. Sodium chlorate is a key chemical used in the bleaching process for pulp and paper and to a lesser extent as an ingredient in blasting agents, explosives and solid rocket fuels. Vinyl Chloride Monomer ("VCM"). The Company produces VCM at its Plaquemine, Louisiana complex, which in turn becomes the feedstock for the production of vinyl or plastic resins. The major raw materials used to produce VCM are purchased ethylene and Company-produced chlorine. The VCM plant's annual capacity has been recently expanded to approximately 1.6 billion pounds with the capability of also producing an additional 400 million pounds of ethylene dichloride ("EDC"), the precursor to VCM. A majority of the VCM production in 1996 was used by the Company's vinyl resins operations with the remainder being sold to other vinyl resins producers, particularly in the export market. Vinyl Suspension Resins. The Company operates a world-scale vinyl suspension resins plant at Plaquemine, Louisiana. The plant is located adjacent to its major raw material supplier, the Company's VCM facility, thereby minimizing transportation and handling costs. The annual production capacity is approximately 1.12 billion pounds, of which approximately one-fourth is used internally to produce rigid vinyl compounds. Vinyl suspension resins are one of the most widely used plastics in the world today. After being formulated to desired properties, vinyl resins are heated and shaped into finished products by various extrusion, calendaring and molding processes. Applications are diverse and include pipe, window frames, siding, flooring, shower curtains, packaging, bottles, film, medical tubing and business machine housings. Vinyl resins are also important to the automotive industry for use in seats, trim, floormats and vinyl tops. 2 Rigid Vinyl Compounds. The Company's rigid vinyl compounding plants had an aggregate annual capacity of approximately 290 million pounds for 1996 and are located in Gallman, Mississippi and Tiptonville, Tennessee. During the first half of 1996, the Company brought on-line approximately one-half of the first phase of a 168 million pound expansion of the Gallman, Mississippi plant, which replaced the majority of the production from the sold Delaware City, Delaware facility. After the completion of the second phase of the Gallman, Mississippi expansion in 1997, the aggregate annual capacity for rigid vinyl compounds will be approximately 376 million pounds. Rigid vinyl compounds are formulated to provide specific end-use properties that allow the material to be thermoformed directly into a finished product. All sales of rigid vinyl compounds are to outside customers. The product line can be segregated into three major product areas according to the following fabrication methods: Blow Molding--The Company is a supplier of blow molding compounds, which are primarily used for both food-grade and general purpose bottles. Supplied in both clear and opaque colors, the materials are used to package cosmetics, shampoos, charcoal lighter fluid, bottled water and edible oils. Injection Molding--The Company supplies various compounds which are used in the business machine market for computer housings and keyboards. It also supplies compounds to produce electrical outlet boxes. These proprietary compounds, with extensive approval procedures by customers or regulatory bodies, are sold to some of the leading international producers of injection molded products. The Company also manufactures compounds for use in pipe fittings. Profile Extrusion--The Company supplies profile extrusion markets, which have applications in window and furniture profiles and extruded sheets for household fixtures and decorative overlays. Profile extrusions are an end- product for both pelletized and powder compounds. Vinyl Emulsion Resins. In April 1996, the Company completed the sale of its vinyl emulsion resins business, including the property and buildings at the Delaware City, Delaware location. The proceeds from the sale of the vinyl emulsion resins business approximated the net book value of the disposed assets. AROMATIC CHEMICAL PRODUCTS Cumene. Cumene is produced at the Company's Pasadena, Texas facility located on the Houston ship channel. The Company's cumene plant, the world's largest, has an annual stated capacity of approximately 1.5 billion pounds. Cumene is produced from benzene and propylene, which are purchased from various suppliers from the numerous petroleum complexes located in the surrounding area. A large portion of the Company's 1996 cumene output was consumed internally in the production of phenol and its co-product, acetone, with the balance being sold into the merchant market. Phenol/Acetone. Phenol and acetone are produced at the Company's Plaquemine, Louisiana facility which has approximately 440 million pounds of annual phenol capacity and 270 million pounds of annual acetone capacity, as well as at the Pasadena, Texas, facility where annual capacity is 160 million pounds of phenol and 100 million pounds of acetone. The Plaquemine, Louisiana phenol/acetone plant is in the process of being expanded and the product quality improved. The expansion will add 60 million pounds of phenol and 38 million pounds of acetone, bringing name plate capacity for the Plaquemine plant to 500 and 308 million pounds, respectively. Phenol is a major ingredient in phenolic resins, which are used extensively as bonding agents and adhesives for wood products such as plywood and granulated wood panels, as well as in insulation, electrical parts, nylon carpeting, oil additives and pharmaceuticals. Phenol is also a precursor to high performance plastics used in automobiles, household appliances, electronics and protective coating applications. The largest uses for acetone are as a key ingredient to methyl methacrylate, which is used to produce acrylic sheeting, and as an ingredient for surface coating resins for automotive and architectural markets. Acetone is 3 also an intermediate for the production of engineering plastics and several major industrial solvents. Other uses range from wash solvents for automotive and industrial applications to pharmaceutical and cosmetics. As a result of the phenol/acetone manufacturing process, the Company also produces small amounts of a by-product, AMS, which is primarily used as a polymer modifier and as a chemical intermediate. NATURAL GAS PRODUCT Methanol. Methanol is produced at the Company's facility at Plaquemine, Louisiana which has an annual capacity of approximately 160 million gallons. Natural gas represents the majority of the cost of methanol. The Plaquemine facility is located in the center of Louisiana's oil and gas producing region and has three separate pipeline systems delivering gas to the plant. The natural gas is purchased by the Company under contracts at market prices from both producers and gas pipeline suppliers. A key use for methanol is in the production of methyl tertiary-butyl ether, or MTBE, an additive that promotes cleaner burning gasoline by adding oxygen. Methanol is also used as a raw material in the manufacture of formaldehyde, which is an ingredient in bonding agents for building materials such as granulated wood panels and plywood. Other applications for methanol include windshield washer fluid, solvents, and components of acrylic sheeting, coatings, fibers and household adhesives. GREAT RIVER OIL & GAS CORPORATION Great River Oil & Gas Corporation ("GROG"), a subsidiary of the Company, is a small oil and gas exploration company with activities centered in southern Louisiana. The Company is presently considering the possible sale of this subsidiary and has recently retained a consultant to obtain bids from potential buyers. The operations of GROG are not material to the Company. GEORGIA-PACIFIC CONTRACT The Company has supply contracts, subject to certain limitations, for substantial percentages of Georgia-Pacific's requirements for caustic soda, methanol and phenol at market prices. These supply contracts have various expiration dates (depending on the product) from 1998 through 2003 and may be extended yearly upon expiration. Total sales to Georgia-Pacific for the years ended December 31, 1996, 1995 and 1994 amounted to approximately 15%, 14% and 15% of the Company's sales, respectively. MARKETING AND SALES The Company's marketing program has been aimed at expanding and diversifying its customer base both domestically and internationally. Other than Georgia- Pacific, no single customer represents more than 10% of the Company's net sales. Export sales accounted for approximately 12%, 15% and 13% of the Company's net sales for the years ended December 31, 1996, 1995 and 1994, respectively. The principal international markets served by the Company include Canada, Mexico, Central and South America, Europe and Asia. The Company markets its products primarily to industrial customers. The Company's products are sold by its sales force, which is organized by product line. The sales organization, located predominantly in the southeastern and midwestern United States, is supported by the Company's technical service staff. RAW MATERIALS The most important raw materials purchased by the Company are salt, electricity, ethylene, benzene, propylene and natural gas. Raw materials used for production of the Company's products are usually purchased from various suppliers under supply contracts, some of which are long-term take or pay agreements. Since raw materials account for a significant portion of the Company's total production costs, the Company's ability to pass on increases in these costs to its customers has a significant impact on operating results which is, to a large 4 extent, related to market conditions. Management believes the Company has a reliable supply base of raw materials under normal market conditions. The impact of any future raw material shortages cannot be accurately predicted. COMPETITION The Company experiences competition from numerous manufacturers in all of its product lines. Some of the Company's competitors have substantially greater financial resources and are more highly diversified than the Company. The Company competes on a variety of factors such as price, product quality, delivery and technical service. Management believes that the Company is well-positioned to compete as a result of integrated product lines, the operational efficiency of its plants and the location of its facilities near major water and rail transportation terminals. EMPLOYEES As of December 31, 1996, the Company had 1,030 full-time employees. The Company has one collective bargaining agreement, which covered 56 employees at the Tiptonville, Tennessee facility as of December 31, 1996. ENVIRONMENTAL REGULATION The Company's operations are subject to various federal, state and local laws and regulations relating to environmental quality. These regulations, which are enforced principally by the United States Environmental Protection Agency and comparable state agencies, govern the management of solid and hazardous waste; emissions into the air and discharges into surface and underground waters; and the manufacture of chemical substances. Management believes that the Company is in material compliance with all current environmental laws and regulations. The Company estimates that any expenses incurred in maintaining compliance with these requirements will not materially affect earnings or cause the Company to exceed its level of anticipated capital expenditures. However, there can be no assurance that regulatory requirements will not change, and therefore, it is not possible to accurately predict the aggregate cost of compliance resulting from any such changes. ITEM 2. PROPERTIES The Company's asset base was established from 1971 to the present with construction of the Plaquemine, Louisiana, complex; the construction of the Pasadena, Texas, cumene plant; the purchase of the vinyl resin and/or compound plants and the purchase of the Bound Brook, New Jersey, phenol/acetone facility subsequently relocated to Pasadena, Texas, and modernized in 1990. In April 1996, the Company sold its vinyl emulsion business including the property and buildings at the Delaware City location as described in Item 1 of this Form 10-K. The Company continues to explore ways to expand both its plant capacities and product lines. The Company believes current and additional planned capacity will adequately meet anticipated demand requirements. The average capacity utilization of the Company's production facilities in 1996 was 88%, reflecting "down-time" associated with the Company's modernization and expansion projects. 5 The following table sets forth the location of each chemical manufacturing facility owned by the Company, the products manufactured at each facility and the approximate processing capability of each, assuming normal plant operation, as of December 31, 1996:
LOCATIONS PRODUCTS ANNUAL CAPACITY --------- -------- --------------- Gallman, MS Rigid Vinyl Compounds, in million 290 Tiptonville, TN pounds(1) Pasadena, TX Cumene, in billion pounds 1.5 Phenol, in million pounds 160 Acetone, in million pounds 100 Plaquemine, LA Chlorine, in thousand tons 450 Caustic Soda, in thousand tons 500 Sodium Chlorate, in thousand tons 27 Vinyl Chloride Monomer, in billion 1.6 pounds Vinyl Suspension Resins, in billion 1.12 pounds Phenol, in million pounds(1) 440 Acetone, in million pounds(1) 270 Methanol, in million gallons 160
- -------- (1) Production capacity is being expanded as discussed in Item 1 of this Form 10-K. The Company's manufacturing facilities are located near major water and rail transportation terminals facilitating efficient delivery of raw materials and prompt shipment of finished products. In addition, the Company has a fleet of 2,368 railcars of which 706 are owned and the remainder leased pursuant to operating leases with varying terms through the year 2010. The total lease expense for the Company's railcars and other transportation equipment was approximately $9,353,000 for 1996. The Company leases office space for its principal executive offices in Atlanta, Georgia. The Company also leases office space for information services in Baton Rouge, Louisiana; and for sales and marketing offices in Houston, Texas; Schaumburg, Illinois; and Lawrenceville, New Jersey; as well as numerous storage terminals located throughout the United States. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to numerous individual and several class action lawsuits filed against the Company, among other parties, known as In re: September 25, 1996 Chemical Exposure in Plaquemine, Louisiana. These suits arise out of an incident that occurred in September 1996, in which workers employed by the Company's contractors were exposed to a chemical substance on the Company's premises in Plaquemine, Louisiana. The substance was later identified to be a form of mustard agent, a chemical which is not manufactured as part of the Company's ordinary operations and which apparently resulted from the unexpected introduction into the Company's feedstocks of one or more impurities from sources unknown. The lawsuits are pending in the 18th Judicial District, Iberville Parish. The Company has filed answers in the cases in which it has been served, although it has not been served in all cases of which it is now aware. Discovery has been served in some of the cases. All of the actions claim one or more forms of compensable damages, including past and future lost wages and past and future physical and emotional pain and suffering. At the present time, it is not possible to fully estimate the number of suits that will be filed, the number of persons who will make claims, the merit of any such claims, the nature or extent of damages that will be sought, the defenses available to the Company, the liability of other persons, or to make a factual or legal assessment of the Company's ultimate exposure. Notwithstanding the foregoing, the Company believes it has meritorious defenses to the claims and intends to assert and pursue those defenses vigorously. 6 The Company is subject to claims and legal actions that arise in the ordinary course of its business. Management believes that the ultimate liability, if any, with respect to these claims and legal actions will not have a material effect on the financial position or on the results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1996. PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information set forth under the captions "Corporate Information--Common Stock Data" and Notes 5, 6, 7 and 14 of the "Notes to Consolidated Financial Statements" of the Company's 1996 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item. ITEM 6. SELECTED FINANCIAL DATA. The information set forth under the caption "Ten-Year Selected Financial Data" of the Company's 1996 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth under the caption "Management's Discussion and Analysis" of the Company's 1996 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information set forth on pages 19 through 33 of the Company's 1996 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company has not changed its independent public accountants and has had no disagreements with its independent public accountants on accounting and financial disclosure during the Registrant's two most recent fiscal years prior to, or in any period subsequent to, the date of the most recent financial statements included herein. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information set forth under the caption "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 20, 1997, is hereby incorporated by reference in response to this item. The following is certain information regarding the executive officers of the Company who are not Directors: Edward A. Schmitt, 50, has served as Executive Vice President and Chief Operating Officer since February 1997. Mr. Schmitt served as Vice President--Operations Commodity Chemicals Group from August 1993 until January 1997; as General Manager--Chemical Operations from March 1992 until August 7 1993; as General Manager--Plaquemine Division from May 1989 until March 1992; and as Plant Manager--Plaquemine Division from February 1988 until May 1989. Prior thereto, Mr. Schmitt served as Manufacturing Manager from October 1985 until February 1988 and as VCM Production Manager for the Company from its inception until October 1985. Richard B. Marchese, 55, has served as Vice President--Finance, Chief Financial Officer and Treasurer of the Company since May 1989, and prior thereto served as Corporate Controller from its inception. Joel I. Beerman, 47, has served as Vice President, General Counsel and Secretary since February 1994 and as General Counsel since February 1992. Prior thereto, Mr. Beerman served as Associate General Counsel for the Company since its inception. Gary L. Elliott, 52, has served as Vice President--Marketing and Sales Commodity Chemicals Group since August 1993. Mr. Elliott served as Business Manager--Electrochemicals and Midwest Regional Sales Manager from June 1989 until August 1993. Prior thereto, Mr. Elliott served as Northeast Regional Sales Manager from May 1987 until June 1989; as VCM Product Manager from November 1985 to May 1987; and as a Sales Representative for the Company from its inception until November 1985. Mark J. Seal, 45, has served as Vice President--Polymer Group since August 1993. Mr. Seal served as Business and Manufacturing Director--Vinyl Resins from May 1992 until August 1993 and as Business Manager PVC Resins and Compounds from May 1989 until May 1992. Prior thereto, Mr. Seal served as Business Manager--Electrochemicals from January 1987 until May 1989 and as Midwest Regional Sales Manager for the Company from its inception until January 1987. Thomas G. Swanson, 55, has served as Vice President--Supply and Corporate Development since August 1993. Mr. Swanson served as Vice President-- Commodity Chemicals Group from December 1989 to August 1993; as General Manager--Commodity Chemicals Group from November 1988 until December 1989; and prior thereto as Director of Corporate Development for the Company from July 1987. Prior thereto, Mr. Swanson was Manager--Supply and Distribution for the Company since its inception. Executive officers are elected by, and serve at the pleasure of, the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION. The information set forth under the captions "Election of Directors" and "Executive Compensation" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 1997, is hereby incorporated by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set forth under the captions "Principal Stockholders" and "Security Ownership of Management" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 1997, is hereby incorporated by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has not had any transactions required to be reported under this item for the calendar year 1996, or for the period from January 1, 1997 to the date of this report. 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this 1996 Annual Report for Georgia Gulf Corporation: (1)The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, the Report of Management and the Report of Independent Public Accountants listed below are incorporated herein by reference from pages 19 through 33 of the Company's 1996 Annual Report to Stockholders: Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Management Report of Independent Public Accountants. (2)Financial Statement Schedules: Report of Independent Public Accountants on Financial Statement Schedule The following financial statement schedule is for the years ended December 31, 1996, 1995 and 1994: II Valuation and Qualifying Accounts Schedules other than the one listed above are omitted because they are not required and are inapplicable or the information is otherwise shown in the Consolidated Financial Statements or notes thereto. (3)Exhibits. Each management contract or compensatory plan or arrangement is preceded by an asterisk. The following exhibits are filed as part of this Form 10-K Annual Report:
EXHIBIT NO. DESCRIPTION ----------- ----------- 10(i) Receivables Transfer Agreement dated December 4, 1996, between the Company, as Transferor, and Dynamic Funding Corporation 13 1996 Annual Report to Stockholders 21 Subsidiaries of the Registrant 23 Consent of Independent Public Accountants
The following exhibits are incorporated herein by reference to the Company's 1995 Form 10-K Annual Report filed March 28, 1996: The following exhibits relate to the Company's operating lease agreement for its co-generation project:
EXHIBIT NO. DESCRIPTION ----------- ----------- 10(a) Trust Agreement dated February 6, 1996, between NationsBanc Leasing Corporation of North Carolina and First Security Bank of Utah, N.A. 10(b) Leasehold Mortgage, Assignment of Leases, Security Agreement and Financing Statement dated February 16, 1996, between the Company, First Security Bank of Utah, N.A., and Val T. Orton.
9
EXHIBIT NO. DESCRIPTION ----------- ----------- 10(c) Participation Agreement dated February 6, 1996, between the Company, First Security Bank of Utah, N.A., NationsBanc Leasing Corporation of North Carolina, NationsBank, N.A. (South), ABN AMRO Bank N.V., Bank of Montreal, Bank of New York, Bank of Nova Scotia, Bank of Tokyo Trust Company, Chase Manhattan Bank, The Dai-Ichi Kangyo Bank, Limited, Atlanta Agency, The Fuji Bank, Ltd., The Industrial Bank of Japan, Limited, the Sakura Bank Limited, Atlanta Agency, Rabobank Nederland, New York Branch, The Tokai Bank, Limited, Atlanta Agency, Wachovia Bank of Georgia, N.A., and Val T. Orton. 10(d) Lease Agreement (Tax Retention Operating Lease) dated February 6, 1996, between the Company and First Security Bank of Utah, N.A. 10(e) Credit Agreement dated February 6, 1996, between First Security Bank of Utah, N.A. and NationsBank, N.A. (South). 10(f) Security Agreement dated February 6, 1996, between First Security Bank of Utah, N.A., Val T. Orton, NationsBank, N.A. (South), and NationsBanc Leasing Corporation of North Carolina. 10(g) Ground Lease Agreement dated February 16, 1996, between the Company and First Security Bank of Utah, N.A.
The following exhibit is incorporated herein by reference to the Company's Form S-8 (File No. 33-64749) filed December 5, 1995:
EXHIBIT NO. DESCRIPTION ----------- ----------- 10 Georgia Gulf Corporation Employee Stock Purchase Plan
The following exhibit is incorporated herein by reference to the Company's Form S-3 (File No. 33-63051) filed September 28, 1995:
EXHIBIT NO. DESCRIPTION ----------- ----------- 4 Indenture, dated as of November 15, 1995, between the Company and LaSalle National Bank, as trustee (including form of Notes).
The following exhibits are incorporated by reference to the Company's 1995 Form 10-Q Quarterly Report for the period ending June 30, 1995, filed August 2, 1995.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10(i) Receivables Transfer Agreement dated May 12, 1995, between the Company, as Transferor, and Dynamic Funding Corporation. 10(ii) Term Loan Agreement dated June 29, 1995, between the Company and The Industrial Bank of Japan, Limited as Administrative Agent.
The following exhibit is incorporated by reference to the Company's 1995 Form 10-Q Quarterly Report for the period ending March 31, 1995, filed May 15, 1995.
EXHIBIT NO. DESCRIPTION ----------- ----------- 10 Credit Agreement, dated March 30, 1995, between the Company and The Chase Manhattan Bank (National Association) as Administrative Agent.
The following exhibits are incorporated herein by reference to the Company's 1991 Form 10-K Annual Report filed March 30, 1992.
EXHIBIT NO. DESCRIPTION ----------- ----------- 3(a) Certificate of Amendment of Certificate of Incorporation 3(b) Amended and Restated By-Laws *10 Georgia Gulf Corporation 1990 Incentive Equity Plan
The following exhibit is incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed May 11, 1990, as amended:
EXHIBIT NO. DESCRIPTION ----------- ----------- 4 Amended and Restated Rights Agreement effective as of August 31, 1990
10 The following exhibits are incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-9902) declared effective on December 17, 1986:
EXHIBIT NO. DESCRIPTION ----------- ----------- 3(a) Certificate of Agreement of Merger, with Certificate of Incorporation of Company as Exhibit A thereto, dated December 31, 1984, and amendments thereto 10(e) Stock Purchase Agreement between the Company and Georgia-Pacific dated December 31, 1984, and Letter re: Stock Purchase Agreement dated December 31, 1984 10(f) Chemical Sales Agreement between the Company and Georgia-Pacific dated December 31, 1984 and Letter re: Chemical Sales Agreement dated December 31, 1984 10(g) Agreement re: Liabilities among Georgia-Pacific, Georgia-Pacific Chemicals, Inc. and others dated December 31, 1984 10(o) Georgia Gulf Savings and Capital Growth Plan 10(p) Georgia Gulf Salaried Employees Retirement Plan 10(q) Georgia Gulf Hourly Employees Retirement Plan *10(u) Executive Retirement Agreements 10(v) Salt Contract
(b) Reports on Form 8-K No report on Form 8-K was filed with the Securities and Exchange Commission during the last quarter of 1996. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Georgia Gulf Corporation (Registrant) By: /s/ Jerry R. Satrum _______________________ Jerry R. Satrum, President and Chief Executive Officer Date: March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Jerry R. Satrum President, Chief March 27, 1997 - ------------------------------------- Executive Officer JERRY R. SATRUM and Director (Principal Executive Officer) /s/ Richard B. Marchese Vice President-- March 27, 1997 - ------------------------------------- Finance, Chief RICHARD B. MARCHESE Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ James R. Kuse Chairman of the March 27, 1997 - ------------------------------------- Board and Director JAMES R. KUSE /s/ John D. Bryan Director March 27, 1997 - ------------------------------------- JOHN D. BRYAN /s/ Dennis M. Chorba Director March 27, 1997 - ------------------------------------- DENNIS M. CHORBA 12 SIGNATURE TITLE DATE /s/ Alfred C. Eckert III Director March 27, 1997 - ------------------------------------- ALFRED C. ECKERT III /s/ Robert E. Flowerree Director March 27, 1997 - ------------------------------------- ROBERT E. FLOWERREE /s/ Holcombe T. Green, Jr. Director March 27, 1997 - ------------------------------------- HOLCOMBE T. GREEN, JR. /s/ Edward S. Smith Director March 27, 1997 - ------------------------------------- EDWARD S. SMITH 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To Georgia Gulf Corporation: We have audited in accordance with generally accepted auditing standards, the financial statements included in Georgia Gulf Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 14, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen llp Atlanta, Georgia February 14, 1997 14 GEORGIA GULF CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
ADDITIONS ---------------------- CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE --DESCRIBE PERIOD ----------- ---------- ---------- ----------- ---------- ---------- 1994 Allowance for doubtful accounts $3,200 $1,800 $-- $(2,600)(1) $2,400 ====== ====== === ========== ====== 1995 Allowance for doubtful accounts $2,400 $1,000 $-- $(1,000)(1) $2,400 ====== ====== === ========== ====== 1996 Allowance for doubtful accounts $2,400 $ 300 $-- $ (300)(1) $2,400 ====== ====== === ========== ======
NOTES: (1) Accounts receivable balances written off during the period. 15 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION PAGE/(1)/ - ------- ------------ --------- 10(I) Receivables Transfer Agreement dated December 4, 1996, between the Company, as Transferor, and Dynamic Funding Corporation .............................................. __ 13 1996 Annual Report to Stockholders........................ __ 21 Subsidiaries of the Registrant............................ __ 23 Consent of Independent Public Accountants................. __ /(1)/ Page numbers appear on the manually signed Form 10-K's only. EX-10.1 2 RECEIVABLES TRANSFER AGREEMENT - -------------------------------------------------------------------------------- AMENDED AND RESTATED RECEIVABLES TRANSFER AGREEMENT by and among ------------ GGRC CORP., as Transferor, GEORGIA GULF CORPORATION, individually and as Collection Agent, and --- DYNAMIC FUNDING CORPORATION. Dated as of December 4, 1996 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS ----------- SECTION 1.1. Certain Defined Terms.................................... 1 SECTION 1.2. Other Terms.............................................. 19 SECTION 1.3. Computation of Time Periods.............................. 19 ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 2.1. Assignment and Conveyance; Facility...................... 20 SECTION 2.2. Transfers................................................ 20 SECTION 2.3. Selection of Tranche Periods and Tranche Rates...................................... 23 SECTION 2.4. Discount, Fees and Other Costs and Expenses........................................... 24 SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures................................ 25 SECTION 2.6. Liquidation Settlement Procedures........................ 25 SECTION 2.7. Fees..................................................... 27 SECTION 2.8. Protection of Ownership of the Company............................................ 27 SECTION 2.9. General Settlement Procedures............................ 28 SECTION 2.10. Payments and Computations, Etc........................... 29 SECTION 2.11. Reports.................................................. 29 SECTION 2.12. Increase in and Reduction of Facility Limit......................................... 29 SECTION 2.13. Optional Retransfer...................................... 29 ARTICLE III REPRESENTATIONS AND WARRANTIES
i
Page ---- SECTION 3.1. Representations and Warranties........................... 31 SECTION 3.2. Reaffirmation of Representations and Warranties......................................... 35 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing.................................... 36 ARTICLE V COVENANTS SECTION 5.1. Financial Reporting...................................... 39 SECTION 5.2. Negative Covenants of the Transferor and Georgia Gulf............................ 42 ARTICLE VI ADMINISTRATION AND COLLECTIONS SECTION 6.1. Appointment of Collection Agent.......................... 46 SECTION 6.2. Duties of Collection Agent............................... 46 SECTION 6.3. Rights After Designation of New Collection Agent................................... 48 SECTION 6.4. Responsibilities of the Transferor and Georgia Gulf......................................... 49 SECTION 6.5. Lock-Box Notices......................................... 49 ARTICLE VII TERMINATION EVENTS SECTION 7.1. Termination Events....................................... 51
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Page ---- SECTION 7.2. Termination.............................................. 53 ARTICLE VIII INDEMNIFICATION SECTION 8.1. Indemnities by the Transferor............................ 54 SECTION 8.2. Tax Indemnification...................................... 56 SECTION 8.3. Additional Costs......................................... 57 SECTION 8.4. Other Costs and Expenses................................. 58 SECTION 8.5. Reconveyance Under Certain Circumstances.......................................... 59 ARTICLE IX MISCELLANEOUS SECTION 9.1. Term of Agreement........................................ 61 SECTION 9.2. Waivers; Amendments...................................... 61 SECTION 9.3. Notices.................................................. 61 SECTION 9.4. Governing Law; Submission to Jurisdiction; Integration........................... 63 SECTION 9.5. Severability; Counterparts............................... 63 SECTION 9.6. Assignments.............................................. 63 SECTION 9.7. Confidentiality.......................................... 64 SECTION 9.8. No Bankruptcy Petition Against the Company............................................ 64 SECTION 9.9. Limited Recourse; Waiver of Setoff....................... 65 SECTION 9.10. Characterization of the Trans- actions Contemplated by this Agreement.............................................. 65
EXHIBITS iii
Page ---- EXHIBIT A Form of Contract......................................... A-1 EXHIBIT B Credit and Collection Policy............................. B-1 EXHIBIT C Schedule of Location of Records.......................... C-1 EXHIBIT D Schedule of Corporate Names, Tradenames or Assumed Names............................ D-1 EXHIBIT E List of Top Ten Obligors By Aging........................ E-1 EXHIBIT F Form of Compliance Certificate........................... F-1 EXHIBIT G Form of Monthly Report................................... G-1 EXHIBIT H Forms of Opinion of Special Counsel to the Transferor and Georgia Gulf..................... H-1 EXHIBIT I List of Lock-Box Banks................................... I-1 EXHIBIT J Form of Lock-Box Notice.................................. J-1 EXHIBIT K List of Actions/Suits.................................... K-1 EXHIBIT L Form of Tranche Selection Notice......................... L-1
iv RECEIVABLES TRANSFER AGREEMENT RECEIVABLES TRANSFER AGREEMENT, dated as of December 4, 1996 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement") between GGRC CORP., a Delaware corporation, as transferor ---------- (the "Transferor"), GEORGIA GULF CORPORATION, a Delaware corporation ("Georgia ---------- ------- Gulf"), individually and as collection agent (in such capacity, the "Collection - ---- ---------- Agent") and DYNAMIC FUNDING CORPORATION, a Delaware corporation (the "Company"). - ----- ------- PRELIMINARY STATEMENT The Transferor desires to sell, from time to time, undivided percentage interests in certain of its domestic accounts receivable, and the Company desires to acquire such undivided percentage interests, subject to the terms and conditions of this Agreement. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings: "Additional Costs" shall have the meaning specified in Section 8.3(a). ---------------- "Administration Fee" shall mean the fee payable by the Transferor to ------------------ the New York Operating Agent pursu- ant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter. "Adverse Claim" shall mean a lien, security interest, charge or ------------- encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person. "Affiliate" shall mean any Person directly or indirectly controlling, --------- controlled by, or under direct or indirect common control with, another Person or a Subsidiary of such other Person. A Person shall be deemed to control another Person if the controlling Person owns, directly or indirectly, 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock or otherwise. "Aggregate Net Investment" shall mean the sum of the amounts paid to ------------------------ the Transferor for each Transfer less the aggregate amount of Collections (or payments, if any, pursuant to the first sentence of Section 2.6) received and applied by the Company to reduce such Aggregate Net Investment pursuant to Section 2.5 or 2.6; provided that the Aggregate Net Investment shall be restored -------- in the amount of any Collections so received and applied if at any time the distribution of such Collections is rescinded or is returned for any reason. "Aggregate Unpaids" shall mean, at any time, an amount equal to the ----------------- sum of (i) the aggregate accrued and unpaid Discount with respect to all Tranche Periods at such time, (ii) the Aggregate Net Investment at such time and (iii) all other amounts owed (whether due or accrued) hereunder by the Transferor to the Company at such time. 2 "Allocated Net Investment" shall mean, with respect to any Tranche ------------------------ Period, the portion of the Aggregate Net Investment allocated to such Tranche Period. "Business Day" shall mean (i) with respect to any matters relating to ------------ the Eurodollar Rate, a day on which banks are open for business in The City of New York or Atlanta, Georgia and on which dealings in Dollars are carried on in the London interbank market and (ii) for all other purposes, any day other than a Saturday, Sunday or other day on which banking institutions or trust companies in The City of New York or Atlanta, Georgia are authorized or obligated by law, executive order or governmental decree to be closed. "Capitalized Lease" of a Person shall mean any lease of property by ----------------- such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with generally accepted accounting principles. "CBR Tranche" shall mean a Tranche as to which Discount is calculated ----------- at the Corporate Base Rate. "CBR Tranche Period" shall mean, with respect to a CBR Tranche, prior ------------------ to the Termination Date, a period of up to thirty (30) days (which period shall be equal to the number of calendar days by which the date of the related Transfer precedes the related Due Date for such Receivable) commencing on a Business Day selected by the Transferor pursuant to this Agreement, and after the Termination Date or the occurrence of the event described in Section 7.1(e)(i) (exclusive of any days of grace), at the Company's option pursuant to Section 2.3(b), up to thirty (30) days. If such CBR Tranche Period would end on a day which is not a Business Day, such CBR Tranche Period shall end on the next succeeding Business Day. "Closing Date" shall mean December 4, 1996. ------------ 3 "Collateral Agent" shall have the meaning specified in Section 9.6(a). ---------------- "Collection Agent" shall mean, at any time, the Person then authorized ---------------- pursuant to Section 6.1 to service, administer and collect Receivables. "Collections" shall mean, with respect to each Receivable, all cash ----------- collections and other cash proceeds of such Receivable, including, without limitation, all Finance Charges and cash proceeds of Residual Receivable Interest with respect to such Receivable, and any Collections of such Receivable deemed to have been received pursuant to Section 2.9 hereof. "Commercial Paper" shall mean the promissory notes of the Company ---------------- issued by the Company. "Concentration Limit" shall mean, at any time for any Obligor and its ------------------- Subsidiaries, 2% of the Outstanding Balance of Total Receivables; provided that -------- with respect to Obligors rated at least Baa1 by Moody's Investors Service, Inc. and BBB+ by Standard & Poor's Ratings Group the Concentration Limit shall be 3% of the Outstanding Balance of Total Receivables. "Contract" shall mean any invoice in substantially the form of Exhibit -------- A hereto or any other written agreement relating thereto approved in writing by the Company, pursuant to or under which an Obligor shall be obligated to pay for goods and services purchased or otherwise obtained from Georgia Gulf. "Corporate Base Rate" shall mean, prior to the occurrence of a ------------------- Termination Event, a rate per annum equal to the greater of (i) the sum of (a) the Federal Funds Rate and (b) 1% or (ii) the corporate base rate of interest announced by the Liquidity Bank from time to time, changing when and as said rate changes. At all times 4 after a Termination Event, the "Corporate Base Rate" shall be the Corporate Base Rate specified above plus 2% per annum. "Coverage Amount" shall mean, at any time, the amount equal to the --------------- product of (i) the Coverage Percentage at such time and (ii) the Aggregate Net Investment at such time. "Coverage Percentage" shall mean, at any time, a percentage equal to ------------------- the sum of (i) 110% plus (ii) the Loss Percentage at such time. ---- "CP Rate" shall mean, with respect to any CP Tranche Period, the rate ------- equivalent to the rate (or if more than one rate, the weighted average of the rates) at which Commercial Paper having a term equal to such CP Tranche Period is sold by any placement agent or commercial paper dealer selected by the Company, as agreed between each such dealer or agent and the Company, plus the amount of any placement agent or commercial agent fees. "CP Tranche" shall mean a Tranche as to which Discount is calculated ---------- at a CP Rate. "CP Tranche Period" shall mean, with respect to a CP Tranche, a period ----------------- of up to ninety-five (95) days commencing on a Business Day requested by the Transferor pursuant to Section 2.3. If such CP Tranche Period would end on a day which is not a Business Day, such CP Tranche Period shall end on the next succeeding Business Day. "Credit Agreement" shall mean that certain Credit Agreement, dated as ---------------- of March 30, 1995, between Georgia Gulf and The Chase Manhattan Bank (National Association), as the same may from time to time be amended, supplemented, or otherwise modified and in effect. 5 "Credit and Collection Policy" shall mean the Georgia Gulf's credit ---------------------------- and collection procedures and practices relating to its purchase and collection of Contracts and Receivables existing on the date hereof and as attached hereto as Exhibit B, as modified from time to time subject to the terms hereof. "Default Ratio" shall mean, for any date of determination, the ratio ------------- (expressed as a percentage) of (i) the aggregate Outstanding Balance of all Defaulted Receivables, to (ii) the average Outstanding Balance of all Total Receivables on the last day of the month as determined three (3) calendar months prior to such date of determination. "Defaulted Receivable" shall mean that portion of a Total Receivable: -------------------- (i) as to which the payment related thereto, remains unpaid for sixty-one (61) days or more from the original due date for such payment; (ii) as to which Georgia Gulf or the Transferor has notice that the Obligor thereof has taken any action, or suffered any event to occur, of the type described in Section 7.1(e) (as if references to the Transferor therein refer to such Obligor, excluding any cure period); or (iii) which, consistent with the objective requirements of the Credit and Collection Policy, would be written off the Transferor's or Georgia Gulf's books as uncollectible. "Delinquency Ratio" shall mean, for any date of determination, the ----------------- ratio (expressed as a percentage) of (i) the aggregate Outstanding Balance of all Delinquent Receivables, to (ii) the average Outstanding Balance of all Total Receivables on the last day of the month as determined two (2) calendar months prior to such date of determination. "Delinquent Receivable" shall mean that portion of a Total Receivable --------------------- as to which the payment related 6 thereto, remains unpaid for more than thirty (30) days but less than sixty-one (61) days from the due date for such payment. "Discount" shall mean, with respect to any Tranche Period: -------- TR x TA x AD ---- 360 Where: TR = the Tranche Rate applicable to such Tranche Period. TA = the portion of the Aggregate Net Investment allocated to such Tranche Period (provided, in the case of a CP Tranche, Aggregate Net -------- Investment shall be construed, for purposes of this definition, as the face amount of Commercial Paper). AD = the actual number of days in such Tranche Period. provided, however, that no provision of this 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 shall not be considered paid by any distribution if at any time such distribution is rescinded or must be returned for any reason. "Discount Reserve" shall mean, on any date of determination, (A) if ---------------- Georgia Gulf is the Collection Agent, the sum of the accrued and unpaid Discount for all outstanding Tranche Periods and (B) if Georgia Gulf is not the Collection Agent, or if a Termination Event has occurred and is continuing, the sum of (i) the accrued 7 and unpaid Discount for all outstanding Tranche Periods and (ii) the aggregate Discount to become due (other than as specified in clause (i)) with respect to all outstanding Tranche Periods. "Dollars" or "$" shall mean the lawful currency of the United States ------- - of America. "Early Collection Fee" shall mean, for any Tranche Period (such -------------------- Tranche Period to be determined without regard to the last sentence in Section 2.3(a)) during which the Allocated Net Investment allocated to such Tranche Period is reduced (other than by reason of a termination of a Tranche Period by the Company pursuant to Section 7.2), the excess, if any, of (i) the additional Discount that would have accrued during such Tranche Period if such reductions had not occurred, minus (ii) the income, if any, received by the Company from ----- investing the proceeds of such reductions. "Eligible Receivable" shall mean, at any date of determination, any ------------------- Receivable: (i) which has been originated by Georgia Gulf, sold to the Transferor pursuant to (and in accordance with) the Receivables Purchase Agreement and to which the Transferor has good title thereto, free and clear of all Adverse Claims; (ii) the Obligor of which is a resident of the United States of America or its possessions or territories or any other areas subject to its jurisdiction, is not an Affiliate of any of the parties hereto, and is not a government or a governmental subdivision or agency; 8 (iii) which is not a Defaulted Receivable; (iv) which is not a Delinquent or Defaulted Receivable at the time of the initial creation of an interest of the Company therein; (v) which, according to the Contract related thereto, is required to be paid in full within sixty (60) days of the original billing date thereof or, in the case of Contracts relating to the sale of polyvinyl chloride resin, ninety (90) days of the original billing date thereof; (vi) an acquisition of which by the Company with the proceeds of Commercial Paper would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (vii) which is either (A) an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended or (B) an "eligible asset" within the meaning of Rule 3(a)-7 promulgated under the Investment Company Act of 1940, as amended; (viii) which is an "account" or a "general intangible" within the meaning of Section 9-106, or "chattel paper" within the meaning of Section 9-105, of the Relevant UCC; (ix) which is denominated and payable only in Dollars in the United States of America; 9 (x) which is evidenced by a Contract as to which, together with such Receivable, is (A) in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (B) subject to no rescission, setoff, counterclaim or other defense; (xi) which, together with the Contract related thereto, Georgia Gulf or the Transferor has not received notice that such receivable contravenes or violates in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy); (xii) which arises under a Contract which (A) does not require the Obligor under such Contract to consent to the transfer of the rights and duties of Georgia Gulf under such Contract (provided that breach of any -------- such consent provision shall not be deemed to cause this condition to be breached unless such breach causes the related Contract to be unenforceable) and (B) does not contain a confidentiality provision that purports to restrict the ability of the Company to exercise its rights under this Agreement, including, without limitation, its right to review the Contract; 10 (xiii) which satisfies all applicable objective requirements of the Credit and Collection Policy; (xiv) the Obligor of which has been directed to make all payments to a specified account of the Collection Agent with respect to which there shall be a Lock-Box Agreement; (xv) as to which the Company has not notified Georgia Gulf or the Transferor in writing that such Receivable is not acceptable for acquisition hereunder because of credit-related reasons determined in the sole discretion of the Company; (xvi) which was generated in the ordinary course of Georgia Gulf's business; and (xvii) in which the Company has a perfected security interest prior in right to the rights of any other Person. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, and the rules and regulations promulgated thereunder. "Eurodollar Rate" shall mean, with respect to any Eurodollar Tranche --------------- Period, a rate per annum determined by the Liquidity Bank to be equal to the sum of (a) 0.45 of 1% and (b) the quotient (expressed as a percentage and rounded upwards, if necessary, to the nearest 1/100 of 1%) obtained by dividing (i) LIBOR for such Eurodollar Tranche Period by (ii) 100% minus the LIBOR Reserve Percentage for such Eurodollar Tranche Period, if any. 11 "Eurodollar Tranche" shall mean a Tranche as to which Discount is ------------------ calculated at the Eurodollar Rate. "Eurodollar Tranche Period" shall mean, with respect to a Eurodollar ------------------------- Tranche, a period of one month commencing on a Business Day as requested by the Transferor and agreed to by the Company pursuant to Section 2.3. If such Eurodollar Tranche Period would end on a day which is not a Business Day, such Eurodollar Tranche Period shall end on the next succeeding Business Day, unless such extension would cause the last day of such Period to occur in the next following calendar month, in which event the last day of such Period shall occur on the next preceding Business Day. "Excess Concentration Amount" shall mean, with respect to all --------------------------- Obligors, the sum of all amounts by which the Outstanding Balance of all Total Receivables of each such Obligor exceeds the Concentration Limit related to such Obligor. "Facility Limit" shall mean an amount equal to $50,000,000, as such -------------- amount may be increased or reduced from time to time in accordance with Section 2.12. "Federal Funds Rate" shall mean, under a CBR Tranche Period, the ------------------ interest rate per annum equal to the weighted average of the rates on Federal funds transactions equal to the CBR Tranche Period with members of the Federal Reserve System arranged by Federal funds brokers, as published on Telerate, page 333, for such day at 11:00 A.M. (New York time) (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the New York Operating Agent from three (3) Federal funds brokers of recognized standing selected by it. 12 "Fee Letter" shall mean the letter agreement between the Transferor ---------- and the New York Operating Agent, as from time to time amended, supplemented or otherwise modified and in effect. "Finance Charges" shall mean, with respect to a Contract, any finance, --------------- interest, late or similar charges owing by the Obligor pursuant to such Contract. "Guaranty" of a Person shall mean any agreement by which such Person -------- assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, administrative agreement or take-or-pay contract and shall include, without limitation, the contingent liability of such Person in connection with any application for a letter of credit. "Indebtedness" of a Person shall mean such Person's (i) obligations ------------ for borrowed money, (ii) obligations representing the deferred purchase price of property other than accounts payable arising in the ordinary course of such Person's business on terms customary in the trade, (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease obligations and (vi) obligations for which such Person is obligated pursuant to a Guaranty. "Indemnified Amounts" shall have the meaning specified in Section 8.1. ------------------- 13 "LIBOR" shall mean, with respect to any Eurodollar Tranche Period, a ----- rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the principal London branch of the Liquidity Bank at approximately 11:00 a.m. London time two (2) Business Days prior to the first day of such Eurodollar Tranche Period as the rate which it is quoting to leading banks in the London interbank market for the placement by the Liquidity Bank of United States dollar deposits in immediately available funds for a period, and in an amount, comparable to the Eurodollar Tranche Period and the principal amount of such Eurodollar Tranche. "LIBOR Reserve Percentage" shall mean, with respect to any Eurodollar ------------------------ Tranche Period, the maximum reserve percentage, if any, applicable to the Liquidity Bank under Regulation D during such Eurodollar Tranche Period (or if more than one percentage shall be applicable, the daily average of such percentages for those days in such Eurodollar Tranche Period during which any such percentage shall be applicable) for determining the Liquidity Bank's reserve requirement (including any marginal, supplemental or emergency reserves) with respect to liabilities or assets having a term comparable to such Eurodollar Tranche Period consisting or included in the computation of Eurocurrency liabilities. Without limiting the effect of the foregoing, the LIBOR Reserve Percentage shall reflect any other reserves required to be maintained by the Liquidity Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which LIBOR is to be determined or (b) any category of extensions of credit or other assets which include LIBOR-based credits or assets. "Liquidity Bank" shall mean The Fuji Bank, Limited, acting through its -------------- New York Branch. 14 "Liquidity Facility" shall mean that certain revolving liquidity ------------------ facility entered into between the Company and the Liquidity Bank pursuant to which the Liquidity Bank has agreed to make certain liquidity loans from time to time to the Company. "Lock-Box Account" shall mean an account maintained by the Collection ---------------- Agent at a Lock-Box Bank for the purpose of receiving Collections from Receivables. "Lock-Box Bank" shall mean each of the banks set forth in Exhibit I ------------- and such banks as may be added thereto or deleted therefrom pursuant to Section 2.8. "Lock-Box Notice" shall mean a notice in substantially the form of --------------- Exhibit J from the Transferor to any Lock-Box Bank. "Loss Percentage" shall mean, on any date of determination, 15%. --------------- "Loss Reserve" shall mean, on any date of determination, an amount ------------ equal to: LP x (ANI + DR) Where: LP = the Loss Percentage at the close of business of the Collection Agent on such day. ANI = the Aggregate Net Investment at the close of business of the Collection Agent on such day. DR = the Discount Reserve at the close of business of the Collection Agent on such day (in the case of a CP Tranche, calculated in accordance with clause (B) of the definition of Discount Reserve). 15 "Material Adverse Effect" shall mean a material adverse effect on (i) ----------------------- the condition (financial or otherwise) or operations of Georgia Gulf, the Transferor and their respective Subsidiaries, taken as one enterprise, (ii) the ability of Georgia Gulf or the Transferor to perform its obligations under this Agreement, (iii) the legality, validity or enforceability of this Agreement, (iv) the Company's interest in the aggregate amount of Receivables or in any significant portion of the Receivables, the Residual Receivable Interest or the Collec tions with respect thereto, or (v) the collectibility of the aggregate amount of Receivables or of any significant portion of the Receivables, other than such Material Adverse Effects which are the direct result of actions or omissions of the Company or its Affiliates. "Monthly Report" shall mean a report, in substantially the form of -------------- Exhibit G or in such other form as is mutually agreed to by the Transferor and the Company, furnished by the Collection Agent to the Company pursuant to Section 2.11. "Net Receivables Balance" shall mean, at any time, the Outstanding ----------------------- Balance of all Eligible Receivables at such time reduced by (i) the Excess Concentration Amount and (ii) the Outstanding Balance of all Defaulted Receivables and Delinquent Receivables at such time. "New York Operating Agent" shall mean The Fuji Bank and Trust Company, ------------------------ in its capacity as New York operating agent on behalf of the Company, and its successors and assigns in such capacity. "Obligor" shall mean any Person obligated to make payments to the ------- Transferor pursuant to a Contract. "Other Costs" shall have the meaning specified in Section 8.4. ----------- 16 "Other Transferors" shall have the meaning specified in Section 8.1. ----------------- "Outstanding Balance" of any Receivable at any time shall mean the ------------------- then outstanding principal amount thereof including any accrued and outstanding Finance Charges related thereto. "Percentage Factor" shall mean the percentage computed at any time of ----------------- determination as follows: ANI + LR + DR ------------- OBR
Where: ANI = the Aggregate Net Investment at the time of such computation. LR = the Loss Reserve at the time of such computation. DR = the Discount Reserve at the time of such computation (in the case of a CP Tranche, calculated in accordance with clause (B) of the definition of Discount Reserve). OBR = the aggregate Outstanding Balance of Receivables.
Notwithstanding the foregoing computation, the Percentage Factor shall not exceed one hundred percent (100%). The Percentage Factor shall be calculated by the Collection Agent on the day of the initial incremental Transfer hereunder. Thereafter, until the Termination Date, the Collection Agent shall daily recompute the Percentage Factor and report such recomputations to the Company monthly in the Monthly Report or as requested by the Company. The Percentage Factor shall remain constant from the time as of which any such computation or 17 recomputation is made until the time as of which the next such recomputation shall be made, notwithstanding any additional Receivables arising, any incremental Transfer made pursuant to Section 2.2(a) or any reinvestment Transfer made pursuant to Section 2.2(b) and 2.5 during any period between computations of the Percentage Factor. On and after the Termination Date, the Percentage Factor shall be calculated as of the close of business on the Business Day immediately preceding the Termination Date (provided that clause -------- (b) of the definition of Discount Reserve shall apply for purposes of such calculation), shall remain constant at all times thereafter until such time as the Company shall have received the Aggregate Unpaids, at which time the Percentage Factor shall be recomputed in accordance with Section 2.6. "Person" shall mean any corporation, natural person, firm, joint ------ venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Potential Termination Event" shall mean an event which, but for the --------------------------- lapse of time or the giving of notice or both, would constitute a Termination Event. "Proceeds" shall mean "proceeds" as defined in Section 9-306(1) of the -------- UCC. "Receivable" shall mean indebtedness owed to Georgia Gulf by an ---------- Obligor with a mailing address in the United States under a Contract and sold by Georgia Gulf to the Transferor pursuant to the Receivables Purchase Agreement, whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of products or services by Georgia Gulf, and includes the right of payment of any Finance Charges and other obligations of the Obligor with respect thereto. Notwithstanding the foregoing, once a Receivable has been deemed collected pursuant to Section 18 2.9 hereof, it shall no longer constitute a Receivable hereunder. "Receivables Purchase Agreement" shall mean that certain Receivables ------------------------------ Purchase Agreement, dated as of December 4, 1996, between Georgia Gulf, as seller, and the Transferor, as purchaser, as the same may from time to time be amended, supplemented or otherwise modified and in effect. "Records" shall mean all Contracts and other documents, books, records ------- and other information (including without limitation computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained by the Transferor and Georgia Gulf with respect to the Receivables and the Obligors. "Regulation D" shall mean Regulation D of the Board of Governors of ------------ the Federal Reserve System, as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean any change after the date of this ----------------- Agreement in United States (federal, state or municipal), Japan or foreign laws or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks (including the Liquidity Bank) of or under any United States (federal, state or municipal), Japan or foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Relevant UCC" shall mean, with respect to any state, the Uniform ------------ Commercial Code as from time to time in effect in such state. "Residual Receivable Interest" shall mean with respect to any ---------------------------- Receivable: 19 (i) all of the Transferor's interest, if any, in the product (including returned product), the sale of which by the Transferor gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by the Obligor describing any collateral securing such Receivable; (iii) all guarantees, insurance and other agreements or arrangements of whatever character (including, without limitation, the beneficial interest in any insurance policy or bill of lading) from time to time supporting or securing payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise; (iv all Records; and (v) all Proceeds of the foregoing. "Section 8.2 Costs" shall have the meaning specified in Section 8.2. ----------------- "Section 8.3 Costs" shall have the meaning specified in Section 8.3. ----------------- "Subsidiary" shall mean, for any Person, any corporation or other ---------- business organization 50% or more of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more such corporations or organizations or by such Person and one or more such corpora- 20 tions or organizations, and any partnership of which such Person or any such corporation or organization is a general partner. "Termination Date" shall mean the earliest to occur of (i) the date ---------------- that the Company terminates outstanding Tranche Periods pursuant to Section 7.2 hereof, (ii) that Business Day designated by the Transferor as the Termination Date at any time following ninety (90) days' written notice to the Company, (iii) November 14, 1997, unless extended from time to time upon written agreement between the Company and the Transferor, and (iv) May 15, 1998, unless extended from time to time upon written agreement between the Company and the Transferor. "Termination Event" shall mean an event described in Section 7.1. ----------------- "Total Receivable" shall have the meaning set forth herein in the ---------------- definition of "Receivable", except that a Total Receivable shall include indebtedness owed to Georgia Gulf by Obligors with mailing addresses outside the United States. "Tranche" shall mean a portion of the Aggregate Net Investment ------- allocated to a Tranche Period pursuant to Section 2.3. "Tranche Period" shall mean a CP Tranche Period, Eurodollar Tranche -------------- Period or a CBR Tranche Period. "Tranche Rate" shall mean the CP Rate, the Eurodollar Rate or the ------------ Corporate Base Rate. "Tranche Selection Notice" shall have the meaning set forth in Section ------------------------ 2.2(a). "Transfer" shall mean a transfer by the Transferor on each Transfer -------- Date of an undivided percentage 21 ownership interest in each and every Receivable, together with all Residual Receivable Interest, Collections and Proceeds with respect thereto. "Transfer Date" shall mean, with respect to each Transfer, either (i) ------------- one, two or three Business Days as specified in Section 2.3(a) relating to such Transfer pursuant to Section 2.2(a) hereof or (ii) each day on which Collections are received by the Collection Agent and reinvested in accordance with Section 2.2(b) hereof. "Transfer Notice Date" shall mean, with respect to each Transfer -------------------- pursuant to Section 2.2(a) hereof, the Business Day indicated in a written notice provided by the Transferor to the Company, which date is agreed to by the Company. "Transfer Price" shall mean, with respect to any Transfer, the amount -------------- paid to the Transferor by the Company pursuant to Section 2.2(a). "Transferred Interest" shall mean, at any time of determination, an -------------------- undivided percentage ownership interest in (i) each and every then outstanding Receivable, (ii) all Residual Receivable Interest with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) other Proceeds of the foregoing, equal to the Percentage Factor at such time, and only at such time (without regard to prior calculations). SECTION 2 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, and not specifically defined herein, are used herein as defined in such Article 9. References herein to Articles, Sections, Exhibits and Schedules shall, unless otherwise specified, refer respectively to Articles and Sections hereof and Exhibits and Schedules hereto. 22 SECTION 3 Computation of Time Periods. Unless otherwise stated in --------------------------- this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". 23 ARTICLE II TRANSFERS AND SETTLEMENTS SECTION 1 Assignment and Conveyance; Facility. Upon the terms and ----------------------------------- subject to the conditions herein set forth, the Transferor may transfer and assign to the Company, and the Company shall, subject to its ability to obtain financing therefor through the issuance of Commercial Paper or the obtaining of liquidity loans pursuant to the Liquidity Facility (it being understood that the Company shall have no obligation to obtain such financing through the obtaining of a Eurodollar Tranche or CBR Tranche unless financing is not available through a CP Tranche on such day), acquire from the Transferor undivided percentage ownership interests in Receivables, together with the Residual Receivable Interest and Collections with respect thereto; provided, however, that no such -------- ------- acquisition shall be made if, after giving effect to such acquisition, the sum of the Aggregate Net Investment and the aggregate amount of Discount applicable to all existing Tranches would exceed the Facility Limit; provided further, -------- ------- however, that no such acquisition shall be made unless such Transfer Price, - ------- together with clause (B) of the definition of Discount Reserve (in the case of a CP Tranche) is equal to at least $1,000,000, and no such acquisition shall be made on or after the occurrence of a Termination Event. The Company will pay the Transfer Price of any Transfer made pursuant to Section 2.2(a) with the proceeds of (a) a CP Tranche or (b) the obtaining of liquidity loans pursuant to the Liquidity Facility. SECTION 2 Transfers. (a) On each Transfer Notice Date, the --------- Transferor shall provide the Company with notice in substantially the form of Exhibit L hereto (each, a "Tranche Selection Notice") which shall specify, among ------------------------ other things, the amount of commercial paper pro- 24 posed to be issued by the Company; provided that all Commercial Paper issued by -------- the Company hereunder shall have maturities no later than fifteen (15) days prior to the scheduled Termination Date hereunder. Such Tranche Selection Notice shall also contain the Tranche Period(s) and Tranche Rate(s) requested by the Transferor as required by, and subject to, the limitations of Sections 2.1 and 2.3. The Company shall inquire as to the availability of such Tranche Period and Tranche Rate and shall, if available and if the terms of the transfer of such Receivables is otherwise satisfactory, transfer such Receivables on the following Transfer Date. Following each Transfer on a Transfer Date pursuant to this Section 2.2(a), the Company shall deposit to the Transferor's account (No. 910-2-624310), account name "GGRC Corp." maintained at the office of The Chase Manhattan Bank, N.A. in The City of New York, in immediately available funds, an amount equal to the Transfer Price for such Transfer. Each Tranche Selection Notice shall be irrevocable and binding on the Transferor, and the Transferor shall indemnify the Company against any loss or expense incurred by the Company as a result of any failure by the Transferor to complete such Transfer including, without limitation, any loss or expense incurred by the Company by reason of the liquidation or reemployment of funds acquired or requested by the Company to fund such Transfer. (b) Reinvestment Transfers. On each Business Day occurring ---------------------- after the initial Transfer hereunder and prior to the Termination Date, the Transferor hereby transfers and assigns to the Company, and the Company hereby acquires from the Transferor, undivided percentage ownership interests in each and every Receivable, together with the Residual Receivable Interest and Collections with respect thereto, to the extent the Collections are available for such Transfer in accordance with Section 2.5, such that, after giving effect to such Transfer, (i) the amount of the Company's Aggregate Net 25 Investment at the close of the Company's business on such Business Day, shall be equal to the amount of the Company's Aggregate Net Investment at the close of the Company's business on the Business Day immediately preceding such Business Day, plus the Transfer Price of any Transfer made on such day, if any, and (ii) the Company's Transferred Interest in each Receivable, together with the Residual Receivable Interest and Collections with respect thereto, shall be equal to its Transferred Interest in each other Receivable, together with the Residual Receivable Interest and Collections with respect thereto. (c) All Transfers. Each Transfer shall constitute an absolute ------------- transfer and assignment of undivided percentage ownership interests in each and every Receivable, together with the Residual Receivable Interest and Collections with respect thereto then existing, as well as each and every Receivable, together with the Residual Receivable Interest which arises at any time after the date of such Transfer until the Termination Date. The Company's aggregate undivided percentage ownership interest in the Receivables, together with the Residual Receivable Interest and Collections with respect thereto, shall equal the Percentage Factor in effect from time to time. The Transferred Interest in each Receivable, together with the Residual Receivable Interest and Collections with respect thereto, shall at all times be equal to the Transferred Interest in each other Receivable, together with the Residual Receivable Interest and Collections. To the extent that the Transferred Interest shall decrease as a result of a recalculation of the Percentage Factor, the Company shall be considered to have reconveyed to the Transferor an undivided percentage ownership interest in such Receivable, together with the Residual Receivable Interest and Collections with respect thereto, in an amount equal to such decrease such that, in each case, the Transferred Interest in Receivable shall be equal to the Transferred Interest in each other Receivable. 26 It is the express intent of the Transferor and the Company that the conveyance of the Receivables by the Transferor to the Company pursuant to this Agreement be construed as a sale of such Receivables by the Transferor to the Company. Further, it is not the intention of the Transferor and the Company that such conveyance be deemed a grant of a security interest in the Receivables by the Transferor to the Company to secure a debt or other obligation of the Transferor. However, in the event that, notwithstanding the intent of the parties, the Receivables are construed to constitute property of the Transferor, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Transferor provided for in this Agreement shall be deemed to be, and the Transferor hereby grants to the Company, a security interest in, to and under all of the Transferor's right, title and interest in, to and under the Receivables outstanding on the Closing Date and thereafter purchased by the Transferor pursuant to the Receivables Purchase Agreement, together with all Residual Receivable Interest and Collections with respect thereto and all proceeds of the foregoing, to secure the rights of the Company set forth in this Agreement or as may be determined in connection therewith by applicable law. The Transferor and the Company shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receivables, such security interest would be deemed to be a perfected security interest in favor of the Company under applicable law and will be maintained as such throughout the term of this Agreement. (d) Percentage Factor. The Percentage Factor shall be initially ----------------- computed as of the opening of business of the Collection Agent on the date of the initial incremental Transfer hereunder. Thereafter until the Termination Date, the Percentage Factor shall be 27 automatically recomputed as of the close of business of the Collection Agent on each day (other than a day after the Termination Date). The Percentage Factor shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputation, if any, shall be made. The Percentage Factor, as computed as of the day immediately preceding the Termination Date, shall remain constant at all times on and after such Termination Date until the date on which the Aggregate Net Investment shall become zero. SECTION 3 Selection of Tranche Periods and Tranche Rates. ---------------------------------------------- (a) At all times hereafter, but prior to the occurrence of a Termination Event, the Transferor shall, subject to availability and the Company's approval as described in Sections 2.1 and 2.2 and the limitations described below, request Tranche Periods and Tranche Rates applicable thereto and allocate each Transfer to each selected Tranche Period, so that the aggregate amounts allocated to outstanding Tranche Periods at all times shall equal the Aggregate Net Investment. The Company shall promptly confirm to the Transferor the Tranche Rate(s) and Tranche Period(s). In the case of any Tranche Period outstanding at the time of the Company's notice of termination of all outstanding Tranche Periods given pursuant to Section 7.2, such Tranche Period shall end on the date of such notice. In the Tranche Selection Notice, the Transferor shall give the Company irrevocable notice of each new Tranche Period (i) with respect to a CBR Tranche, by 12:00 P.M. (New York City time) on the day of expiration of any then existing Tranche Period, (ii) with respect to a Eurodollar Tranche, by 12:00 P.M. (New York City time) on a Business Day not less than three (3) Business Days prior to the expiration of any then existing Tranche Period and (iii) with respect to a CP Tranche, by the close of 28 business in New York City not less than three (3) Business Days prior to the expiration of any then existing Tranche Period; provided, however, that the -------- ------- Company may select, in its sole discretion, any such new Tranche Period and Tranche Rate if (i) the Transferor fails to provide such notice on a timely basis or (ii) the Company determines, in its sole discretion, that the Tranche Rate or Tranche Period selected by the Transferor is unavailable; and provided -------- further, however, that any such Tranche Period chosen by the Company, in its - ------- ------- sole discretion, shall be for a term of one (1) day. The Company shall promptly confirm to the Transferor the Tranche Rate and Tranche Period. In the case of any Tranche Period outstanding at the time of the Company's notice of termination of all outstanding Tranche Periods given pursuant to Section 7.2, such Tranche Period shall end on the date of such notice. (b) At all times on and after the occurrence of a Termination Event, (i) the Company shall select all Tranche Periods and Tranche Rates (which shall be the Corporate Base Rate) applicable thereto and (ii) the Facility Limit will be reduced on each day thereafter to the Aggregate Unpaids as of such day. SECTION 4 Discount, Fees and Other Costs and Expenses. The ------------------------------------------- Transferor shall pay or cause to be paid, as and when due in accordance with this Agreement (to the extent unpaid after giving effect to any payments made pursuant to Section 2.5 or Section 2.6), all amounts payable as Discount, all fees hereunder, all dealer commissions (if applicable), all amounts payable pursuant to Article VIII, if any, and all Collection Agent costs, if any, payable pursuant to Section 6.2. Discount shall accrue with respect to each Tranche on each day occurring during the Tranche Period related thereto. Discount accrued on each Tranche shall be payable on the last day of the applicable Tranche Period. The Transferor may, at its option and prior to the occurrence of a Termination 29 Event hereunder, satisfy its obligation to pay Discount accrued on a Tranche by requesting a new CP Tranche Period in accordance with Section 2.3(a). Such new Tranche will increase the Aggregate Net Investment by the amount of such accrued Discount which is allocated to such new CP Tranche Period and will constitute a Transfer pursuant to Section 2.2(a). All per annum fees shall be payable monthly. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day. Discount and all per annum fees hereunder shall be calculated for the actual days elapsed on the basis of 360-day year. Nothing in this Agreement shall limit in any way the obligations of Transferor to pay the amounts set forth in this Section 2.4. SECTION 5 Non-Liquidation Settlement and Reinvestment Procedures. On ------------------------------------------------------ each day after the date of the initial Transfer, but prior to the Termination Date, the Collection Agent shall, out of the Percentage Factor of Collections received on such day or prior to such day and not previously applied or accounted for, allocate funds in the following order: (i) from and after the request of the Company, set aside and hold in trust for the Company, an amount equal to all Discount accrued through such day and not previously set aside or paid and (ii) apply the balance of such Percentage Factor of Collections remaining after application as provided in clause (i) of this Section 2.5 to the Transfer, for the benefit of the Company, of additional undivided percentage interests in each Receivable, together with Residual Receivable Interest and Collections with respect thereto, pursuant to Section 2.2(b). On the last day of each Tranche Period, from the amounts set aside as described in clause (i) of the first sentence of this Section 2.5, the Collection Agent shall deposit to the Company's account an amount equal to the accrued and unpaid Discount for such Tranche Period. 30 SECTION 6 Liquidation Settlement Procedures. (a) If, on the --------------------------------- Termination Date, the Net Receivables Balance is less than the Coverage Amount, then the Transferor shall immediately pay to the Company an amount equal to the quotient of (i) the difference between the Coverage Amount and the Net Receivables Balance, divided by (ii) 1.10, and such amount shall be applied to the reduction of the Aggregate Net Investment of Tranche Periods selected by the Company. On the Termination Date and on each day thereafter, the Collection Agent shall set aside and hold in trust for the Company, the Percentage Factor of all Collections received on such day. On the last day of each Tranche Period to occur on or after the Termination Date, the Collection Agent shall deposit to the Company's account the amounts set aside pursuant to the preceding sentence, together with any remaining amounts set aside pursuant to Section 2.5(i) prior to the Termination Date, but not to exceed the sum of (i) the accrued Discount for such Tranche Period, (ii) the portion of the Aggregate Net Investment allocated to such Tranche Period, and (iii) the aggregate of all other amounts then owed (whether due or accrued) hereunder by Transferor to the Company. If the Collection Agent is the Transferor, the foregoing amounts described in clauses (i), (ii) and (iii) shall be paid by the Collection Agent from any legally available source up to the amount that would have been set aside by the Collection Agent had the Collection Agent been required to comply with the second sentence of this Section 2.6. (b) If there shall be insufficient funds on deposit for the Collection Agent to distribute funds in payment in full of the amounts described in Section 2.6(a), the Collection Agent shall distribute funds first, in ----- reduction of the Aggregate Net Investment, second, in payment of all fees and ------ expenses payable to the Company, third, in payment of the accrued Discount and ----- fourth, in payment of all other amounts payable to the Company. Following the - ------ date on which the Aggregate 31 Net Investment has been reduced to zero, all accrued Discount has been paid in full and all other Aggregate Unpaids have been paid in full, (i) the Collection Agent shall recompute the Percentage Factor as zero, (ii) the Company shall be deemed to have reconveyed to the Transferor any interest in the Receivables (including the Transferred Interest), (iii) the Collection Agent shall pay to the Transferor pursuant to the second sentence of Section 2.6(a) and (iv) the Company shall promptly at the request of the Transferor execute and deliver to the Transferor any documents required or advisable to terminate its interest in the Receivables and the Residual Receivable Interest. SECTION 7 Fees. Notwithstanding any limitation on recourse ---- contained in this Agreement, the Transferor shall pay the following fees: (a) to the Company, on the first Business Day of each month, the Administration Fee for the preceding month. (b) to the Company, on the date of incurrence thereof, any Early Collection Fee. SECTION 8 Protection of Ownership of the Company. (a) The -------------------------------------- Transferor agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all action that the Company may reasonably request in order to perfect or protect the Transferred Interest or to enable the Company to exercise or enforce any of its rights hereunder. Without limiting the foregoing, each of the Transferor and Georgia Gulf will, upon the request of the Company, in order to accurately reflect this transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 9.6) as may be reasonably requested by the Company and mark its master data processing re- 32 cords and other documents with a legend describing the acquisition by the Company of the Transferred Interest, as the Company may reasonably request. To the fullest extent permitted by applicable law, the Company shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Transferor's signature in such cases where the Transferor is obligated hereunder to sign such statements, amendments or assignments. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. Neither the Transferor nor Georgia Gulf shall change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the Relevant UCC) nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Company at least fifteen (15) days' prior notice thereof and (ii) delivered to the Company all financing statements, instruments and other documents reasonably requested by the Company in connection with such change or relocation. (b) Each Contract shall instruct the Obligor with respect thereto to cause all Collections to be deposited directly with a Lock-Box Bank. Neither the Transferor nor the Collection Agent shall add any bank as a Lock-Box Bank to those listed on Exhibit I hereto unless the Company shall have received notice of such addition and undated executed copies of Lock-Box Notices to each new Lock-Box Bank. Neither the Transferor nor the Collection Agent shall terminate any bank as a Lock-Box Bank or terminate any account as a Lock-Box Account unless the Company shall have received thirty (30) days' prior notice of such termination. If the Transferor or the Collection Agent receives any Collections or is deemed to receive any Collections pursuant to Section 2.9, the Transferor or the Collection Agent shall immediately remit such Collections to the Company. 33 SECTION 9 General Settlement Procedures. If on any day the ----------------------------- Outstanding Balance of a Receivable is either (x) reduced as a result of any defective or rejected goods or services, any cash discount or any adjustment by the Transferor or the Collection Agent or (y) reduced or cancelled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) cancelled as a result of the Transferor or the Collection Agent exercising its right to assign a Receivable back to the Obligor thereof, the Transferor shall be deemed to have received on such day a Collection of such Receivable in the amount of such reduction or cancellation. If on any day any of the representations or warranties with respect to the Receivables in Section 3.1(d), (i), (j), (k), (n) or (o) is no longer true with respect to a Receivable, as the Transferor or the Company shall notify the other, the Transferor shall be deemed to have received on such day a Collection of such Receivable in full, and the Aggregate Net Investment shall not be deemed to be reduced hereunder until such time as such amount is remitted and received by the Company. Any payment by an Obligor in respect of any Receivable shall, except as otherwise specified by such Obligor or otherwise required by contract or law, be applied as a Collection of the Receivables of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other Receivable of such Obligor. SECTION 10 Payments and Computations, Etc. All amounts to be paid or ------------------------------- deposited by the Transferor or the Collection Agent hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 A.M. (New York City time) on the day when due in immediately available funds; if such amounts are payable to the Company they shall be paid or deposited to Account Number 001-051016, titled Dynamic Funding Corporation 34 General Account," and maintained at the offices of The Fuji Bank and Trust Company, until otherwise notified by the New York Operating Agent on behalf of the Company. The Transferor shall, to the extent permitted by law, pay to the Company upon demand, interest on all amounts not paid or deposited when due to the Company hereunder at a rate equal to 2% per annum plus the Corporate Base Rate. All computations of interest hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. SECTION 11 Reports. Prior to the 20th day of each month, the ------- Collection Agent shall prepare and forward to the Company (i) a Monthly Report, as of the close of business of the Collection Agent on the last day of the immediately preceding month, in the form attached hereto as Exhibit G, (ii) a listing of the ten (10) largest Obligors by Receivables balance, together with an aging of such Receivables, in substantially the form of Exhibit E hereto and (iii) such other information as the Company may reasonably request. SECTION 12 Increase in and Reduction of Facility Limit. The ------------------------------------------- Transferor may, upon at least thirty (30) days' prior written notice to the Company, and with the consent of the Company, either (i) increase in part the Facility Limit or (ii) terminate in whole or reduce in part the unused portion of the Facility Limit; provided that each partial increase or reduction of the -------- Facility Limit shall be in an amount equal to $10,000,000 or an integral multiple thereof. SECTION 13 Optional Retransfer. On any day on which the Aggregate ------------------- Unpaids falls below 10% of the Facility Limit, then, in such event, the Transferor may, in its sole discretion, direct the Company to retransfer the Transferred Interest to the Transferor at a price equal to the Aggregate Unpaids calculated as of the 35 proposed date of such retransfer. The Company further agrees to take on or prior to such transfer, at the sole expense of the Transferor, any action reasonably necessary to effectuate the transfer to the Transferor of all of the Company's interest in, to and under the Receivables and the Residual Receivable Interest and Collections with respect thereto. 36 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 1 Representations and Warranties. Each of the Transferor and ------------------------------ Georgia Gulf, as applicable to itself and not as to the other, hereby represents and warrants to the Company that: (a) Corporate Existence and Power. Each of the Transferor and ----------------------------- Georgia Gulf is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all corporate power and all governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted, except where the failure to obtain such approval would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contravention. -------------------------------------------------------- The execution, delivery and performance by the Transferor and Georgia Gulf of this Agreement and the Receivables Purchase Agreement are within each of their respective corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.8), and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Certificate of Incorporation or Bylaws of either the Transferor or Georgia Gulf, or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Transferor or Georgia Gulf or result in the creation or imposition of any lien on assets of the Transferor, Georgia Gulf or any of their respective Subsidiaries (except as contemplated by Section 2.8). 37 (c) Binding Effect of Agreement. Each of this Agreement and the --------------------------- Receivables Purchase Agreement constitutes the legal, valid and binding obligation of the Transferor and Georgia Gulf, enforceable against each of them in accordance with the terms hereof, subject to the effect of bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally. (d) Perfection. Immediately preceding each Transfer hereunder, ---------- the Transferor shall be the owner of all of the Receivables, free and clear of any Adverse Claim. On or prior to each Transfer, all financing statements and other documents required to be recorded or filed in order to protect the Transferred Interest against all creditors of and purchasers from the Transferor or Georgia Gulf, as applicable (other than any financing statements or assignments of financing statements required to perfect the Transferred Interest), will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Accuracy of Information. All information heretofore ----------------------- furnished by the Transferor and Georgia Gulf to the Company for purposes of or in connection with this Agreement, the Receivables Purchase Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Transferor or Georgia Gulf, as applicable, to the Company will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Returns. The Transferor has filed or properly extended ----------- all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other government charges, the failure by 38 the Transferor to perform such obligations may have a Material Adverse Effect. (g) Actions, Suits. Except as set forth in Exhibit K, there are -------------- no actions, suits or proceedings pending, or to the knowledge of the Transferor and Georgia Gulf threatened, against or affecting the Transferor, Georgia Gulf or any Affiliate of either of them or their respective properties, in or before any court, arbitrator or other body, which may have a Material Adverse Effect. (h) Place of Business. The principal place of business and ----------------- chief executive office of Georgia Gulf and the Transferor are located at 400 Perimeter Center Terrace, Suite 595, Atlanta, Georgia 30346, and the offices where each of Georgia Gulf and the Transferor keeps all its Records are located at the address(es) described on Exhibit C or such other locations notified to the Company in accordance with Section 2.8 in jurisdictions where all action required by Section 2.8 has been taken and completed. (i) Good Title. Upon each Transfer, the Company shall acquire a ---------- valid and perfected first priority undivided percentage ownership interest in each Receivable that exists on the date of such Transfer and in the Residual Receivable Interest and Collections with respect thereto, free and clear of any Adverse Claim. (j) Nature of Receivables; Use of Proceeds. Each Receivable is -------------------------------------- (A) an account receivable representing all or part of the sales price of merchandise, insurance or services (or an "eligible asset" within the meaning of Rule 3(a)-7 under the Investment Company Act of 1940, as amended) and the proceeds of the Commercial Paper with which the Company will acquire Receivables are to be used by the Transferor for current transactions within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended, and (B) an Eligible 39 Receivable. No proceeds of any Transfer will be used by the Transferor to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. (k) Lock-Box Accounts. The names and addresses of all the Lock- ----------------- Box Banks, together with the account numbers of the Transferor at such Lock-Box Banks are described on Exhibit I or described in a notice provided by the Transferor and Georgia Gulf to the Company pursuant to Section 2.8. All Obligors have been instructed to make payment directly to a Lock-Box Account, and only Collections are deposited into the Lock-Box Accounts. (l) No Material Adverse Change. Since December 31, 1995, there -------------------------- has been no change in the condition (financial or otherwise), business, operations or prospects of the Transferor or Georgia Gulf, or in the ability of either of them to perform its obligations hereunder or in the collectibility of the Receivables which change might have a Material Adverse Effect. (m) Tradenames. Except as described in Exhibit D, neither the ---------- Transferor nor Georgia Gulf has used any corporate names, tradenames or assumed names other than its name set forth on the signature pages of this Agreement and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy). (n) Binding Effect of Receivables and Contract. Each Receivable ------------------------------------------ and related Contract constitutes a legal, valid and binding obligation of the Obligor enforceable against the Obligor, subject to the effect of bankruptcy, insolvency, reorganization or 40 similar laws affecting enforcement of creditors' rights generally. (o) No Restriction on Transfer. No Contract requires the prior -------------------------- written consent of an Obligor or contains another restriction relating to the transfer or assignment of rights of payment under such Contract which are legally enforceable (other than a consent or waiver of such restriction that has been obtained prior to the Closing Date). (p) Restrictions on Chattel Paper. The Transferor and Georgia ----------------------------- Gulf shall not permit any portion of the Transferred Interest that constitutes chattel paper within the meaning of Section 9-105 of the Relevant UCC to be transferred to or possessed by any other party other than the Company or the Transferor, as appropriate. (q) Coverage Requirement. The Net Receivables Balance equals -------------------- or exceeds the Coverage Amount. (r) Credit and Collection Policy. Since April 27, 1995, there ---------------------------- have been no material changes in the Credit and Collection Policy. (s) No Termination Event. No event has occurred and is -------------------- continuing and no condition exists which constitutes a Termination Event or a Potential Termination Event. (t) Not an Investment Company. Neither the Transferor nor ------------------------- Georgia Gulf is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (u) ERISA. Each of the Transferor and Georgia Gulf is in ----- compliance in all material respects 41 with ERISA and no lien in favor of the Pension Benefit Guaranty Corporation on any of the Receivables exists. Any document, instrument, certificate or notice delivered to the Company hereunder shall be deemed a representation and warranty by the Transferor and Georgia Gulf. SECTION 2 Reaffirmation of Representations and Warranties. On ----------------------------------------------- each day that a Transfer is made hereunder, the Transferor, by accepting the proceeds of such Transfer or reinvestment pursuant to Section 2.2(b), shall be deemed to have certified that (i) all representations and warranties described in Section 3.1, as from time to time amended in accordance with the terms hereof, are correct on and as of such day as though made on and as of such day and (ii) no event has occurred or is continuing, or would result from any such Transfer or recomputation, which constitutes a Termination Event or a Potential Termination Event. 42 ARTICLE IV CONDITIONS PRECEDENT SECTION 1 Conditions to Closing. This Agreement shall become --------------------- effective on the first date on which the Transferor and Georgia Gulf shall deliver to the Company the following documents and instruments, all of which shall be in form and substance acceptable to the Company: (a) A Certificate of the Secretary of the Transferor certifying (i) the names and signatures of the officers and employees authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder (on which Certificate the Company may conclusively rely until such time as the Company shall receive from the Transferor a revised Certificate meeting the requirements of this clause (a)(i)), (ii) a copy of the Transferor's Certificate of Incorporation, certified by the Secretary of State of the State of Delaware, (iii) a copy of the Transferor's By-Laws, (iv) a copy of resolutions of the Board of Directors of the Transferor approving this transaction and (v) certificates of the Secretaries of State of the States of Delaware and Georgia certifying the Transferor's good standing under the laws of the States of Delaware and Georgia, respectively. (b) A Certificate of the Secretary of Georgia Gulf certifying (i) the names and signatures of the officers and employees authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder (on which Certificate the Company may conclusively rely until such time as the Company shall receive from Georgia Gulf a revised Certificate meeting the requirements of this clause (b)(i)), (ii) a copy of Georgia Gulf's Certificate of Incorpora- 43 tion, certified by the Secretary of State of the State of Delaware, (iii) a copy of Georgia Gulf's By-Laws, (iv) a copy of resolutions of the Board of Directors of Georgia Gulf approving this transaction and (v) certificates of the Secretaries of State of the States of Delaware and Georgia certifying the Transferor's good standing under the laws of the States of Delaware and Georgia, respectively. (c) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Transfer naming the Transferor as the transferor of Receivables and the Company as acquiror or other similar instruments or documents as may be necessary or in the opinion of the Company desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Company's ownership interest in all Receivables and the Residual Receivable Interest with respect thereto hereunder. (d) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Transfer naming Georgia Gulf as the seller of Receivables and the Transferor as purchaser or other similar instruments or documents as may be necessary or in the opinion of the Company desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Transferor's ownership interest in all Receivables and the Residual Receivable Interest with respect thereto under the Receivables Purchase Agreement. (e) Acknowledgment copies of proper financing statements (Form UCC-3) and lien releases, if any, necessary to release all security interests and other rights of any person in Receivables previously granted by Georgia Gulf and the Transferor. 44 (f) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Company) dated a date reasonably near the date of the initial Transfer listing all effective financing statements which name Georgia Gulf (under its present name and any previous name) as transferor or debtor and which are filed in appropriate jurisdictions together with copies of such financing statements. (g) A favorable opinion of Jones, Day, Reavis and Pogue, special counsel for Georgia Gulf, as to such matters set forth in Exhibit H-1 hereto and as to other matters as the Company may reasonably request. (h) A favorable opinion of Jones, Day, Reavis and Pogue, special counsel for Georgia Gulf, as to such matters set forth in Exhibit H-2 hereto and as to other matters as the Company may reasonably request. (i) A favorable opinion of Jones, Day, Reavis and Pogue, special counsel for Georgia Gulf and the Transferor, covering certain bankruptcy, insolvency and consolidation matters, in form and substance satisfactory to the Company and the Company's counsel. (j) A certificate in the form of Exhibit F, executed by the chief financial officer or corporate controller of the Transferor. (k) A Monthly Report relating to the Receivables for the months of September 1996 and October 1996. (l) Undated executed copies of Lock-Box Notices to Lock-Box Banks. (m) Executed copies of the Receivables Purchase Agreement and the Fee Letter. 45 (n) Such other documents as the Company shall reasonably request. 46 ARTICLE V COVENANTS SECTION 1 At all times from the date hereof to the latest to occur of (i) the Termination Date or (ii) the date on which the Company's Transferred Interest shall be equal to zero, unless the Company shall otherwise consent in writing: (a) Financial Reporting. The Transferor will, and will cause ------------------- Georgia Gulf to, maintain, each for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles as in effect in the United States, and furnish to the Company: (i) S.E.C. Filings. Within ninety-five (95) days of filing -------------- thereof, copies of all registration statements and annual (Form 10-K) reports and, within fifty (50) days after the filing thereof, copies of all quarterly (Form 10-Q), monthly or other regular reports which the Transferor, Georgia Gulf or any Subsidiary thereof files with the Securities and Exchange Commission. (ii) Compliance Certificate. Together with the annual ---------------------- report and quarterly report required above, a compliance certificate in substantially the form of Exhibit F hereto signed by its chief financial officer or corporate controller stating that no Termination Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof. 47 (iii) Change in Credit and Collection Policy. Within thirty -------------------------------------- (30) days after the date any material change in or amendment to the Credit and Collection Policy is made (including, but not limited to, changes in payment instructions to Obligors), a copy of the Credit and Collection Policy then in effect indicating such change or amendment. (iv) Other Information. Such other information (including ----------------- non-financial information) as the Company may from time to time reasonably request. (b) Each of the Transferor and Georgia Gulf will notify the Company in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (i) Notice of Termination Events or Potential Termination ----------------------------------------------------- Events. As soon as possible and in any event within two (2) days after the ------ occurrence of each Termination Event or each Potential Termination Event of which the Transferor or Georgia Gulf has knowledge, a statement of the chief financial officer or corporate controller of the Transferor or Georgia Gulf, as applicable, setting forth details of such Termination Event or Potential Termination Event and the action which the Transferor or Georgia Gulf, as applicable, proposes to take with respect thereto. (ii) Litigation. The institution of any litigation, ---------- arbitration proceeding or governmental proceeding which may have a Material Adverse Effect. 48 (iii) Judgment. The entry of any judgment or decree against -------- the Transferor or any of its Subsidiaries if the aggregate amount of all judgments or decrees then outstanding against the Transferor or any of its Subsidiaries exceeds $5,000,000 after deducting (A) the amount with respect to which the Transferor or any of its Subsidiaries is insured and (B) the amount for which the Transferor or such Subsidiary is otherwise indemnified if the terms of such indemnification are satisfactory to the Company. (c) Conduct of Business. Each of the Transferor and Georgia Gulf ------------------- will, and will cause each of its Subsidiaries to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and will do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and will maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to obtain any such approval would not have a Material Adverse Effect. (d) Compliance with Laws. Each of the Transferor and Georgia -------------------- Gulf will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to comply with such laws and regulations would not have a Material Adverse Effect. (e) Furnishing of Information and Inspection of Records. Each of --------------------------------------------------- the Transferor and Georgia Gulf will furnish to the Company from time to time such information with respect to the Receivables as the Company may reasonably request, including, without limitation, list- 49 ings identifying the Outstanding Balance for each Receivable. Each of the Transferor and Georgia Gulf will, at any time and from time to time during regular business hours with prior written notice, permit the Company or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Transferor or Georgia Gulf for the purpose of examining such Records, and to discuss matters relating to Receivables or the Transferor's or Georgia Gulf's performance hereunder with any of the officers, directors, employees or independent public accountants of the Transferor or Georgia Gulf having knowledge of such matters. (f) Keeping of Records and Books of Account. Each of the ---------------------------------------- Transferor and Georgia Gulf will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, or obtain, as and when required, all documents, books, records and other information reasonably necessary or advisable for the collection of all 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). Each of the Transferor and Georgia Gulf will give the Company prompt notice of any change in the administrative and operating procedures referred to in the previous sentence to the extent such change may have a Material Adverse Effect. (g) Performance and Compliance with Receivables and Contracts. ---------------------------------------------------------- Each of the Transferor and Georgia Gulf will at its expense timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables. 50 (h) Credit and Collection Policy. Each of the Transferor and ---------------------------- Georgia Gulf will comply with the Credit and Collection Policy in regard to each Receivable and the related Contract. (i) Collections. The Transferor and/or Georgia Gulf shall ----------- instruct all Obligors to cause all Collections to be deposited directly to a Lock-Box Account. (j) Payment to Georgia Gulf. With respect to any Receivable sold ----------------------- by Georgia Gulf to the Transferor, the Transferor shall, and shall cause Georgia Gulf to, effect such sale under, and pursuant to the terms of, the Receivables Purchase Agreement, including, without limitation, the payment by the Transferor either in cash, by a capital contribution or by an increase in the amount of the Subordinated Note (as defined in the Receivables Purchase Agreement) to Georgia Gulf of an amount equal to the purchase price for such Receivable as required by the terms of the Receivables Purchase Agreement. SECTION 2 Negative Covenants of the Transferor and Georgia Gulf. ----------------------------------------------------- During the term of this Agreement, unless the Company shall otherwise consent in writing: (a) No Sales, Transfers, Liens, etc. Except as otherwise -------------------------------- provided herein and in the Receivables Purchase Agreement, neither the Transferor nor Georgia Gulf will sell, transfer, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable or related Contract, or upon or with respect to any account which concentrates in a Lock-Box Bank to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereof. 51 (b) No Extension or Amendment of Receivables. Neither the ----------------------------------------- Transferor nor Georgia Gulf will extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Contract related thereto, without the prior written consent of the Company if such amendment, modification or waiver might result in a Material Adverse Effect. (c) Change in Business or Credit and Collection Policy. Neither -------------------------------------------------- the Transferor nor Georgia Gulf will make any change in the character of its business or in the Credit and Collection Policy, which change might result in a Material Adverse Effect. (d) Use of Proceeds. No proceeds of any Transfer will be used by --------------- the Transferor or Georgia Gulf to purchase or carry any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) in violation of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. (e) No Mergers, Etc. Neither the Transferor nor Georgia Gulf --------------- will (i) consolidate or merge with or into any other Person, or (ii) sell, lease or transfer all or substantially all of its assets to any other person. (f) Change in Payment Instructions to Obligors. Neither the ------------------------------------------ Transferor nor Georgia Gulf will add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account to or from those listed in Exhibit I hereto or make any change in its instructions to Obligors regarding payments to be made to any Lock-Box Account, unless (i) such instructions are to deposit such payments to another existing Lock-Box Account or (ii) the Company shall have received written notice of such addition, termination or change (including any change in the officer or agent of the Transferor or Georgia Gulf executing the related Lock-Box Notice) at least thirty (30) 52 days prior thereto and the Company shall have received a Lock-Box Notice executed by each new Lock-Box Bank or an existing Lock-Box Bank with respect to each new Lock-Box Account, as applicable. (g) Deposits to Lock-Box Accounts. Neither the Transferor nor ----------------------------- Georgia Gulf will 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 of Receivables. (h) Change of Name, Etc. Neither the Transferor nor Georgia -------------------- Gulf will change its name, identity or structure or its chief executive office, unless, at least ten (10) days prior to the effective date of any such change, the Transferor or Georgia Gulf, as applicable, delivers to the Company (i) UCC financing statements, executed by the Transferor or Georgia Gulf (as applicable), necessary to reflect such change and to continue the perfection of the Company's or Transferor's, as applicable, ownership interests or security interests in the Receivables and the Residual Receivable Interest and Collections with respect thereto and (ii) new or revised Lock-Box Notices executed by the Lock-Box Banks which reflect such change and enable the Company to continue to exercise its rights contained in Section 2.8. (i) Sale Treatment. The Transferor will not (i) and will not permit -------------- Georgia Gulf to, account for (including for accounting purposes), or otherwise treat, the transactions contemplated by the Receivables Purchase Agreement in any manner other than as a sale of Receivables by Georgia Gulf to the Transferor, or (ii) account for (other than for tax purposes) or otherwise treat the transactions contemplated hereby in any manner other than a sale of Receivables by the Transferor to the Company. In addition, the Transferor shall, and shall cause Georgia Gulf to, disclose (in a footnote or otherwise) in all of its respective financial statements (including any 53 such financial statements consolidated with any other Persons' financial statements) the existence and nature of the transaction contemplated hereby and by the Receivables Purchase Agreement and the interest of the Transferor (in the case of Georgia Gulf's financial statements) and the Company in the Transferred Property. (j) Separate Business. The Transferor shall at all times ----------------- comply in all respects with Articles X, XV and XVII of its Certificate of Incorporation. The officers and directors of the Transferor (as appropriate) shall make decisions with respect to the business and daily operations of the Transferor independent of and not dictated by any controlling entity. The Transferor shall not engage in any business not permitted by its Certificate of Incorporation as in effect on the Closing Date. (k) Corporate Documents. The Transferor shall only amend, ------------------- alter, change or repeal its Certificate of Incorporation with the prior written consent of the Agent. 54 ARTICLE VI ADMINISTRATION AND COLLECTIONS SECTION 1 Appointment of Collection Agent. The servicing, ------------------------------- administering and collection of the Receivables shall be conducted by such Person (the "Collection Agent") so designated from time to time in accordance ----------------- with this Section 6.1. Until the Company gives notice to Georgia Gulf of the designation of a new Collection Agent, Georgia Gulf is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof. The Company may, upon the occurrence of a Termination Event (other than a Termination Event solely with respect to Section 7.1(m)) (i) designate as Collection Agent any Person (including itself) to succeed Georgia Gulf or any successor Collection Agent, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Collection Agent pursuant to the terms hereof and (ii) and notify any Obligor of the Transferred Interest. SECTION 2 Duties of Collection Agent. -------------------------- (a) The Collection Agent shall take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. Each of the Transferor and the Company hereby appoints as its agent the Collection Agent, from time to time designated pursuant to Section 6.1, to enforce its respective rights and interests in and under the Receivables, the Residual Receivable Interest, the Collections and the Contracts. The Collection Agent shall set aside for the account of 55 the Transferor and the Company their respective allocable shares of the Collections of Receivables in accordance with Sections 2.5 and 2.6. The Collection Agent shall segregate and deposit to the Company's account the Company's allocable share of Collections of Receivables when required pursuant to Article II hereof. The Transferor and Georgia Gulf shall deliver to the Collection Agent, and the Collection Agent shall hold in trust for the Transferor and the Company in accordance with their respective interests, all Records which evidence or relate to Receivables, the Residual Receivable Interest or Collections. Notwithstanding anything to the contrary contained herein, the Company shall have the absolute and unlimited right to direct the Collection Agent (whether the Collection Agent is Georgia Gulf or any other Person) to commence or settle any legal action to enforce collection of any Receivable or to foreclose upon or repossess any Residual Receivable Interest. (b) The Collection Agent shall hold, for the benefit of the Transferor, Collections received minus the Percentage Factor of such ----- Collections. On the last day of each Tranche Period, the Collection Agent shall deduct from such Collections and pay to the Company in reduction of the Aggregate Net Investment and accrued Discount and any amounts due under Section 2.9 hereof and unpaid from the Transferor and turn the remainder of such Collections over to the Transferor. In addition, the Collection Agent shall, as soon as practicable following receipt thereof, turn over to the Transferor any collections of any indebtedness of any Obligor which is not a Receivable. The Collection Agent, if other than the Transferor, shall as soon as practicable upon demand, deliver to the Transferor all Records in its possession which evidence or relate to indebtedness of an Obligor which is not a Receivable or the Residual Receivable Interest. 56 (c) On or before ninety (90) days after the end of each fiscal year of the Collection Agent, beginning with December 31, 1996, the Collection Agent shall cause a firm of nationally recognized independent public accountants (who may also render other services to the Collection Agent, Georgia Gulf or the Transferor) to furnish a report to the Company substantially to the effect that (i) such accountants have performed certain procedures related to certain documents and records relating to the servicing of Receivables under this Agreement, compared on a test basis the information contained in the Monthly Reports delivered pursuant to Section 2.11 during the period covered by such reports with such documents and records and that, on the basis of such procedures, and subject to such limitations and qualifications as may be reasonably set forth in such report, such accountants obtained no knowledge that the servicing had not been conducted substantially in compliance with the terms and conditions as set forth in this Agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement and (ii) such accountants have compared on a test basis the mathematical calculations of the amounts set forth in the Monthly Reports delivered pursuant to Section 2.11 during the period covered by such reports with the Transferor's and Collection Agent's computer reports which were the source of such amounts and that on the basis of such comparison, such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such statement. (d) Notwithstanding anything to the contrary contained in this Article VI, the Collection Agent, if not Georgia Gulf, shall have no obligation to collect, enforce or take any other action described in this Article VI with respect to any Receivable that is not included in the Transferred Interest other than to deliver to 57 the Transferor the Collections and documents with respect to any such Receivable as described in Section 6.2(b). SECTION 3 Rights After Designation of New Collection Agent. At any ------------------------------------------------ time following the designation of a Collection Agent (other than Georgia Gulf) pursuant to Section 6.1: (i) The Company may direct that payment of all amounts payable under any Receivable be made directly to the Company or its designee. (ii) The Transferor shall, at the Company's request and at the Transferor's expense, give notice of the Company's ownership of Receivables to each Obligor and direct that payments be made directly to the Company or its designee. (iii) The Transferor shall, at the Company's request, (A) assemble all of the Records, and shall make the same available to the Company at a place selected by the Company or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Receivables in a manner acceptable to the Company and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Company or its designee. (iv) Each of Georgia Gulf and tHe Transferor hereby authorizes the Company to take any and all steps in the Transferor's name and Georgia Gulf's name and on behalf of the Transferor and Georgia Gulf, as applicable, necessary or desirable, in the determination of the Company, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Transferor's name and Georgia Gulf's name on checks and other in- 58 struments representing Collections and enforcing such Receivables and the related Contracts. SECTION 4 Responsibilities of the Transferor and Georgia Gulf. --------------------------------------------------- Anything herein to the contrary notwithstanding, each of the Transferor and Georgia Gulf shall (i) perform all of its obligations under the Contracts related to the Receivables to the same extent as if such Receivables had not been sold hereunder and the exercise by the Company of its rights hereunder shall not relieve the Transferor and Georgia Gulf from such obligations and (ii) pay when due any taxes of the Transferor and Georgia Gulf, including without limitation, any sales taxes payable in connection with the Receivables. The Company shall not have any obligation or liability with respect to any Receivable or related Contracts, nor shall it be obligated to perform any of the obligations of the Transferor and Georgia Gulf thereunder. SECTION 5 Lock-Box Notices. From and after the occurrence of a ---------------- Potential Termination Event, the Company is hereby authorized at any time to date, and to deliver to the Lock-Box Banks, the Lock-Box Notices delivered hereunder; provided that for so long as this Agreement is in full force and -------- effect and a Potential Termination Event has not occurred, the Company hereby covenants and agrees with the Transferor and Georgia Gulf that it will hold any such Lock-Box Notice provided by the Transferor and Georgia Gulf to the Company in safekeeping. Each of the Transferor and Georgia Gulf hereby, when the Company shall deliver the Lock-Box Notices to the Lock-Box Banks, transfers to the Company the exclusive ownership and control of the accounts to which the Obligors of Receivables shall make payments and in which Collections may be concentrated, and shall take any further action that the Company may reasonably request, to effect such transfer. In case any authorized signatory of the Transferor or Georgia Gulf whose signature shall appear on any Lock-Box Notice shall cease to have 59 such authority before the delivery of such Lock-Box Notice, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such delivery. Notwithstanding the delivery of such Lock-Box Notices, the Collection Agent shall continue to comply with the provisions of this Section 6.5. 60 ARTICLE VII TERMINATION EVENTS SECTION 1 Termination Events. The occurrence of any one or more of ------------------ the following events shall constitute a Termination Event: (a) the Transferor, Georgia Gulf or the Collection Agent shall fail to perform or observe any term, covenant, agreement or undertaking hereunder (other than as referred to in clause (c) below) and such failure shall remain unremedied for two (2) Business Days after written notice thereof has been given to the Transferor, Georgia Gulf or the Collection Agent, as applicable, by the Company; or (b) any representation, warranty, certification or statement made by the Transferor or Georgia Gulf in this Agreement or in any other document delivered pursuant hereto or in connection herewith shall prove to have been incorrect in any material respect when made or deemed made and such condition shall continue unremedied for a period of five (5) days; or (c) either the Transferor, Georgia Gulf or the Collection Agent shall fail, for a period of two (2) Business Days, to make any payment or deposit to be made by it hereunder when due; or (d) (i) failure of the Transferor, Georgia Gulf or any of their respective Subsidiaries to pay any Indebtedness (other than Indebtedness subject to a good faith dispute) when due; or (ii) any Indebtedness (other than Indebtedness subject to a good faith dispute) shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof (other than any 61 acceleration arising out of a good faith dispute), and such condition shall continue unremedied for a period of two (2) Business Days; or (e) (i) the Transferor, Georgia Gulf or any of their respective Subsidiaries shall generally not pay its debts as such debts become due or shall 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 the Transferor, Georgia Gulf or any of their respective Subsidiaries, or sixty (60) days shall have elapsed since the commencement of any proceeding against the Transferor, Georgia Gulf or any of their respective Subsidiaries (which proceeding shall not have been dismissed), seeking to adjudicate it as 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 or other similar official for it or any substantial part of its property, or (ii) the Transferor, Georgia Gulf or any of their respective Subsidiaries shall take any corporate action to authorize any of the actions set forth in clause (i) above in this subsection (e); or (f) the institution of any litigation, arbitration proceedings or governmental proceeding involving the Transferor, Georgia Gulf, any of their respective Subsidiaries or the Receivables which may have a Material Adverse Effect; or (g) the entry of any judgment or decree against the Transferor, Georgia Gulf or any of their respective Subsidiaries if the aggregate amount of all judgments and decrees then outstanding against any of them or their Subsidiaries for which insurance is not 62 available and the collection of which has not been stayed, might result in a Material Adverse Effect; or (h) a change in the majority ownership of the voting stock of Georgia Gulf or the Transferor shall have occurred, or Georgia Gulf or the Transferor shall enter into any transaction or merger whereby it is not the surviving entity; or (i) the Default Ratio (averaged over the previous three (3) consecutive months) shall exceed 3%, the Delinquency Ratio (averaged over the previous three (3) consecutive months) shall exceed 3%; or (j) the Net Receivables Balance shall be less than the Coverage Amount and such failure shall remain unremedied for five (5) consecutive Business Days thereafter; or (k) the aggregate amount of Eligible Receivables of the Transferor shall be less than the product of (i) the sum of the Aggregate Net Investment, the Loss Reserve and the Discount Reserve (as calculated in accordance with clause (B) of the definition thereof) multiplied by (ii) 110%; or (l) an Event of Default (as defined in the Credit Agreement) under the Credit Agreement shall have occurred; or (m) the Company is unable to obtain liquidity loans under the Liquidity Facility in support of Commercial Paper issued or to be issued by the Company in connection with the transactions contemplated by this Agreement; or (n) the Receivables Purchase Agreement shall have terminated in accordance with the terms of Article VIII thereof. 63 SECTION 2 Termination. If a Termination Event occurs, (i) the ----------- Company may, by notice to the Transferor, declare all outstanding Tranche Periods to be ended and designate the Tranche Rate applicable to the Aggregate Net Investment plus the Discount Reserve, (ii) the Facility Limit shall be reduced on each day thereafter to the aggregate, as of such day, of the Aggregate Net Investment plus the Discount Reserve, (iii) the Company may cease to issue Commercial Paper or obtain liquidity loans for the purpose of reinvestment from the Liquidity Bank under the Liquidity Facility, (iv) if Georgia Gulf is the Collection Agent at the time, the Company may terminate Georgia Gulf as Collection Agent, and (v) the Company and the Collateral Agent shall have all of the rights and remedies provided to a secured creditor or a transferee under the Relevant UCC and applicable local law. 64 ARTICLE VII INDEMNIFICATION SECTION 1 Indemnities by the Transferor. Without limiting any other ----------------------------- rights which the Company may have hereunder or under applicable law, the Transferor hereby agrees to indemnify the Company and its respective officers, directors, agents and employees from and against any and all damages, losses, claims, liabilities, costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by the Company arising out of - -------------------- or as a result of this Agreement or the ownership, either directly or indirectly, by the Company of the Transferred Interest excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Company or (ii) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables. Without limiting the generality of the foregoing, the Transferor shall indemnify the Company for Indemnified Amounts relating to or resulting from: (a) reliance on any representation or warranty made by the Transferor (or any of its officers) under or in connection with this Agreement or any other information or report delivered by or on behalf of the Transferor pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; (b) the failure by the Transferor or the Collection Agent to comply with any applicable law, rule or regulation with respect to any Receivable or the related Contract, or the nonconformity of any Receivable 65 or the related Contract with any such applicable law, rule or regulation; (c) the failure to vest and maintain vested in the Company or the Liquidity Bank when applicable, the Transferred Interest in the Receivables free and clear of any Adverse Claim; (d) the failure to file, or delay in filing, financing statements or other similar instruments or documents under the UCC or the laws of any applicable jurisdiction or other applicable laws with respect to any Receivable; (e) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, 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 products or services related to such Receivable or the furnishing or failure to furnish such products or services; (f) any failure of the Transferor or the Collection Agent to perform its duties or obligations in accordance with the provisions of this Agreement; (g) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with products or services which are the subject of any Receivable; or (h) the transfer of an undivided percentage ownership interest in any Receivable other than an Eligible Receivable, if, on the date of such transfer the 66 Net Receivables Balance was less than the Coverage Amount. If the Company enters into agreements for the transfer of interests in receivables from one or more other Persons ("Other Transferors"), the Company ----------------- shall allocate such Indemnified Amounts which are attributable to the Transferor and to the Other Transferors to the Transferor and each Other Transferor; provided, however, that if such Indemnified Amounts are attributable to the - -------- ------- Transferor and not attributable to any Other Transferor, the Transferor shall be solely liable for such Indemni fied Amounts or if such Indemnified Amounts are attributable to Other Transferors and not attributable to the Transferor, such Other Transferors shall be solely liable for such Indemnified Amounts. SECTION 2 Tax Indemnification. The Transferor and hereby agrees to ------------------- pay, and to indemnify the Company from and against, any taxes which may at any time be asserted in respect of this transaction or the subject matter hereof or any funding agreement or the subject matter thereof (including, without limitation, any sales, gross receipts, general corporation, personal property, privilege or license taxes, but not including any federal or (except as provided below) other income taxes imposed upon the Company, with respect to its net income or profits arising out of the transactions contemplated hereby), whether arising by reason of the acts to be performed by the Transferor hereunder or imposed against the Transferor or the Company, the property involved or otherwise. If any tax, fee or similar charge measured by net income or profits is imposed or with respect to any payment for the account of the Company provided for in this Agreement by any State or political subdivision thereof (other than income taxes of the Company), the Transferor will, upon demand by the Company, pay an amount necessary to make the Company whole, taking into account any tax consequences to the Company of the payment of such tax and the receipt of the indemnity provid- 67 ed for by this Section 8.2, including the effect of such tax or refund on the amount of tax measured by net income or profits which is or was payable by the Company in the jurisdiction in which its principal executive office is located, provided, however, that if the Company enters into agreements for the transfer - -------- ------- of interests in receivables from Other Transferors, the Company shall allocate among the Transferor and such Other Transferors any amounts owing under this Section 8.2 which are attributable to the Transferor or to the Other Transferors ("Section 8.2 Costs"); provided, further, that if such Section 8.2 ----------------- -------- ------- Costs are attributable to the Transferor and not attributable to any Other Transferor, the Transferor shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs are attributable to Other Transferors and not attributable to the Transferor, such Other Transferors shall be solely liable for such Section 8.2 Costs; and provided, further, that such Section 8.2 Costs -------- ------- shall include any amounts the Company must pay to the Liquidity Bank pursuant to the Liquidity Facility on account of any tax described in this Section 8.2 and applicable to the Liquidity Bank. SECTION 3 Additional Costs. ---------------- (a) The Transferor shall pay to the Company from time to time on demand of the Company such amounts as the Company may reasonably determine to be necessary to compensate it for any increase in costs which the Company determines are attributable to its making a Transfer or maintaining any Tranche under this Agreement or its obligation to make any such Transfer or reinvestment hereunder, or any reduction in any amount receivable by the Company hereunder in respect of any such Tranche or such obligation (such increases in costs, payments and reductions in amounts receivable being herein called "Additional ---------- Costs") resulting from any Regulatory Change which (i) changes the method or - ----- basis of taxation of (A) any amounts payable to the Company 68 under this Agreement in respect of any such Tranche or (B) such amounts when considered together with any amounts to be paid by the Company in respect of its commercial paper notes relating to such Tranche, (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, capital or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the banks that are parties to the Liquidity Facility or (iii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Company will notify the Transferor of any event that will entitle the Company to compensation pursuant to this Section 8.3(a) as promptly as practicable after it obtains knowledge thereof. (b) Without limiting the effect of the foregoing provisions of this Section 8.3 (but without duplication), the Transferor shall pay to the Company from time to time on demand of the Company such amounts as the Company may reasonably determine to be necessary to compensate it for any costs which the Company determines are attributable to its making a Transfer or maintaining any Tranche under this Agreement or its obligation to make any transfers or reinvestments hereunder, in respect of any amount of capital maintained by the banks that are parties to the Liquidity Facility pursuant to any law or regulation of any jurisdiction or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority, whether in effect on the date of this Agreement or thereafter or in respect of any costs or expenses incurred by the Company under the Liquidity Facility. The Company will notify the Transferor if the Company is entitled to compensation pursuant to this Section 8.3(b) as promptly as practicable after it obtains knowledge of such event or condition. (c) Determinations and allocations by the Company for purposes of this Section 8.3 shall be con- 69 clusive, provided that such determinations and allocations are made in good faith and on a reasonable basis, reasonable evidence (including an explanation of the applicable Regulatory Change and an accounting for any amounts demanded) of which shall be provided to the Transferor upon request. (d) Anything in this Section 8.3 to the contrary notwithstanding, if the Company enters into agreements for the transfer of interests in receivables from Other Transferors, the Company shall allocate the liability for any amounts under this Section 8.3 ("Section 8.3 Costs") to the ----------------- Transferor and each Other Transferor which is attributable to the Transferor, which amounts shall be paid by the Transferor or to the Other Transferors; and provided, further, that if such Section 8.3 Costs are attributable to the - -------- ------- Transferor and not attributable to any Other Transferor, the Transferor shall be solely liable for such Section 8.3 Costs or if such Section 8.3 Costs are attributable to Other Transferors and not attributable to the Transferor, such Other Transferors shall be solely liable for such Section 8.3 Costs. SECTION 4 Other Costs and Expenses. The Transferor shall pay on ------------------------ demand all costs and expenses in connection with the preparation, execution, delivery and administration of this Agreement, any operating agreement, any funding agreement by and between the Company and any financial institution and the other documents to be delivered hereunder, including without limitation, reasonable fees and out-of-pocket expenses of legal counsel for the Company, any operating agent and the financial institution party to such funding agreement (which such counsel may be employees of the Company, such operating agent or such financial institution) with respect thereto and with respect to advising the Company, such operating agent and such financial institution as to its rights and remedies under this Agreement, any operating agreement and any funding agreement, respectively, 70 and all costs and expenses, if any, including reasonable counsel fees and expenses in connection with the enforcement or amendment of this Agreement and the other documents delivered hereunder. The Transferor shall reimburse the Company for any amounts the Company must pay to any financial institution pursuant to any funding agreement on account of any tax described in Section 8.2 and applicable to such financial institution. The Transferor shall reimburse the Company for any and all commissions of placement agents and commercial paper dealers in respect of Commercial Paper issued to fund any CP Tranche hereunder. The Transferor shall reimburse the Company on demand for all other costs and expenses incurred by the Company, any operating agent or any shareholder of the Company, including reasonable counsel fees and expenses incurred in connection with the enforcement of, or amendment to, this Agreement and any documents related hereto, to the extent such fees, costs and expenses are incurred in respect of such enforcement or amendment by or in respect of the Transferor ("Other Costs") (provided that with respect to legal fees of the Company and the ----- ----- -------- new York Operating Agent incurred in connection with the negotiation and implementation of this Agreement, the Transferor shall be obligated to pay such fees, together with any out-of-pocket expenses and disbursements incurred by such counsel); provided, however, that if the Company enters into agreements for -------- ------- the transfer of interests in receivables from Other Transferors, the Company shall allocate the liability for such Other Costs to the Transferor and each Other Transferor; and provided, further, that if such Other Costs are -------- ------- attributable to the Transferor and not attributable to any Other Transferor, the Transferor shall be solely liable for such Other Costs or if such Other Costs are attributable to Other Transferors and not attributable to the Transferor, such Other Transferors shall be solely liable for such Other Costs. SECTION 5 Reconveyance Under Certain Circumstances. The Transferor ----------------------------------------- agrees to accept the reconvey- 71 ance from the Company of a particular portion of the Transferred Interest if the Company notifies the Transferor of a breach of any representation or warranty made or deemed made at the time of such Transfer pursuant to Article III of this Agreement with respect to such portion of the Transferred Interest and the Transferor shall fail to cure such breach with respect to such portion within five (5) days after becoming aware thereof. The reconveyance price shall be paid by the Transferor to the Company in immediately available funds on such day in an amount equal to the Outstanding Balance of the Receivables related to such portion of the Transferred Interest. 72 ARTICLE IX MISCELLANEOUS SECTION 1 Term of Agreement. This Agreement shall terminate ----------------- following the Termination Date when all Aggregate Unpaids have been paid in full; provided, however, that (i) the rights and remedies of the Company with -------- ------- respect to any representation and warranty made or deemed to be made by Transferor and Georgia Gulf pursuant to this Agreement and (ii) the indemnification and payment provisions of Article VIII, shall be continuing and shall survive any termination of this Agreement, subject to applicable statutes of limitation. SECTION 2 Waivers; Amendments. No failure or delay on the part of ------------------- the Company in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the Transferor, Georgia Gulf and the Company. SECTION 3 Notices. Except as provided below, all communications and ------- notices provided for hereunder shall be in writing (including bank wire, telex, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or facsimile set forth below. Each such notice or other communication shall be effective if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and the appropriate answerback or written confirmation is received, if given 73 by any other means when received at the address specified in this Section. However, anything in this Section to the contrary notwithstanding, the Transferor hereby authorizes the Company to effect Transfers, Tranche Period and Tranche Rate selections based on telephonic notices made by any Person which the Company in good faith believes to be acting on behalf of the Transferor. The Transferor agrees to deliver promptly to the Company a written confirmation of each telephonic notice signed by an authorized officer of Transferor. However, the absence of such confirmation shall not affect the validty of such notice. If the written confirmation differs in any material respect from the action taken by the Company, the records of the Company shall govern absent manifest error. If to the Company: ----------------- DYNAMIC FUNDING CORPORATION c/o J H Management Corporation One International Place Boston, Massachusetts 02110 Attention: President Telephone: (617) 951-7000 Telecopy: (617) 951-7050 (with a copy to the New York Operating Agent) If to the Transferor: -------------------- GGRC CORP. 400 Perimeter Center Terrace, Suite 595 Atlanta, Georgia 30346 Attention: Donald P. Burke Telephone: (404) 395-4533 Telecopy: (404) 395-4572 If to Georgia Gulf: ------------------ GEORGIA GULF CORPORATION 74 400 Perimeter Center Terrace, Suite 595 Atlanta, Georgia 30346 Attention: Donald P. Burke Telephone: (404) 395-4533 Telecopy: (404) 395-4572 If to the New York Operating Agent: ---------------------------------- THE FUJI BANK AND TRUST COMPANY Two World Trade Center 81st Floor New York, New York 10048 Attention: Corporate Trust Department Telephone: (212) 898-2258 Telecopy: (212) 321-2468 SECTION 4 Governing Law; Submission to Jurisdiction; Integration. ------------------------------------------------------ This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Each of the Transferor and Georgia Gulf hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York, New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each of the Transferor and Georgia Gulf hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 9.4 shall affect the right of the Company to bring any action or proceeding against the Transferor, Georgia Gulf or their respective properties in the courts of other jurisdictions. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among 75 the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. SECTION 5 Severability; 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. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 6 Assignments. ----------- (a) This Agreement shall be binding on the parties hereto and their respective successors and assigns; provided, however, that neither the -------- ------- Transferor nor Georgia Gulf may assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Company. No provision on this Agreement shall in any manner restrict the ability of the Company to assign, participate, grant security interests in, or otherwise transfer any portion of the Transferred Interest, to The Fuji Bank, Limited, New York Branch, as collateral agent (in such capacity, the "Collateral Agent") on behalf of the ---------------- Liquidity Bank and other secured parties. (b) The Transferor hereby acknowledges the complete assignment by the Company of all of its rights under this Agreement and all of its interest in, 76 to and under the Transferred Interest to the Collateral Agent. SECTION 7 Confidentiality. (a) Each of the Transferor and Georgia --------------- Gulf hereby consents to the disclosure of any non-public information with respect to it to (i) either the New York Operating Agent or the Company by the other and (ii) the Liquidity Bank (or any prospective or actual participant in the Liquidity Facility) by the New York Operating Agent or the Company. (b) Each of the Transferor and Georgia Gulf shall maintain, and shall cause each of its officers, employees and agents to maintain, the confidentiality of this Agreement, all documents related hereto and all other confidential proprietary information with respect to the Company, the New York Operating Agent and the Liquidity Bank and each of their respective businesses obtained by them in connection with the structuring, negotiation and execution of the transactions contemplated herein, except for information that has become publicly available and has been disclosed to (i) legal counsel, accountants and other professional advisors to the Transferor and Georgia Gulf, (ii) as required by law, regulation or legal process and (iii) in connection with any legal or regulatory proceeding to which the Transferor and/or Georgia Gulf is subject. Both the Company and the New York Operating Agent hereby consent to the disclosure of information in the manner and to the Persons set forth in clauses (i) through (iii) above. SECTION 8 No Bankruptcy Petition Against the Company. Each of the ------------------------------------------ Transferor and Georgia Gulf hereby covenants and agrees that, prior to the date which is one year and one day after the date upon which all outstanding commercial paper of the Company is paid in full, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceed- 77 ings or other similar proceeding under the laws of any jurisdiction. SECTION 9 Limited Recourse; Waiver of Setoff. (a) Notwithstanding ---------------------------------- anything to the contrary contained herein, the obligations of the Company under this Agreement are solely the corporate obligations of the Company and shall be payable at such time as funds are received from the Transferor, Georgia Gulf and other transferors or from any party to any agreement with the Company in accordance with the terms thereof in excess of funds necessary to pay matured and maturing Commercial Paper and, to the extent funds are not available to pay such obligations, the claims relating thereto shall continue to accrue. Each party hereto agrees that the payment of any claim (as defined in Section 101 of Title 11 of the Bankruptcy Code) of any such party shall be subordinated to the payment in full of all Commercial Paper. No recourse shall be had for the payment of any amount owing in respect of any obligation of, or claim against, the Company arising out of or based upon this Agreement against any stockholder, employee, officer, director or incorporator of the Company or any Affiliate thereof or against any stockholder, employee, officer, director, incorporator or Affiliate of the New York Operating Agent; provided, however, that the foregoing -------- ------- shall not relieve any such person or entity from any liability they might otherwise have as a result of fraudulent actions or omissions taken by them. (b) Each of the Transferor and Georgia Gulf hereby agrees to waive any right of setoff which it may have or to which it may be entitled against the Company and its assets. SECTION 10 Characterization of the Transactions Contemplated by this --------------------------------------------------------- Agreement. The Transferor and the Company agree to treat the transactions - --------- contemplated by this Agreement as a financing for tax purposes and 78 further agree to file on a timely basis all federal and other income tax returns consistent with such treatment. 79 IN WITNESS WHEREOF, the parties hereto have caused this Receivables Transfer Agreement to be executed and delivered by their duly authorized officers as of the date hereof. GGRC CORP., as Transferor By___________________________ Name: Title: GEORGIA GULF CORPORATION, individually and as Collection Agent By__________________________ Name: Title: DYNAMIC FUNDING CORPORATION, as Company By___________________________ Name: Title: Accepted and agreed as of the date first above written: THE FUJI BANK AND TRUST COMPANY, as New York Operating Agent 80 By:____________________________ Name: Title: 81 EXHIBIT A [FORM OF CONTRACT] A-1 EXHIBIT B [CREDIT AND COLLECTION POLICY] B-1 EXHIBIT C Schedule of Location of Records ------------------------------- Georgia Gulf Corporation Highway 405 Plaquemine, Louisiana 70764 Attention: Credit Department Georgia Gulf Corporation 400 Perimeter Center Terrace Suite 595 Atlanta, Georgia 30346 C-1 EXHIBIT D Schedule of Corporate Names, Tradenames or Assumed Names --------------------------- GG Terminal Management Corporation Georgia Gulf Export Corporation Georgia Gulf Corporation Georgia Gulf D-1 EXHIBIT E List of Top Ten Obligors By Aging --------------------------------- Georgia Pacific Allied Signal Borden Aluminum Co. of America Colorite Lamson & Sessions Tomkins Industries North American Plastic Owens-Illinois Klockner Pentaplast E-1 EXHIBIT F FORM OF COMPLIANCE CERTIFICATE I, the undersigned Treasurer of GGRC Corp. ("GGRC") DO HEREBY CERTIFY pursuant to Section 5.1(a)(iii) of the Receivables Transfer Agreement, dated as of December 4, 1996 (as amended, supplemented or otherwise modified and in effect from time to time, the "Transfer Agreement"), between GGRC Corp., Georgia Gulf Corporation and Dynamic Funding Corporation, that on, and as of the date hereof, there exists no Termination Event or Potential Termination Event. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Transfer Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate this ____ day of ________, 199__. _________________________, as Transferor By:_________________________ Name: Title: [Treasurer] F-1 EXHIBIT G [FORM OF MONTHLY REPORT] G-1 EXHIBIT H Reference may be made to Tabs 20 and 21. H-1 EXHIBIT I List of Lock-Box Banks ---------------------- Bank Account Number - ---- -------------- Wachovia Bank of Georgia 18-340-667 191 Peachtree Street NE Atlanta, Georgia 30303-1757 Attn: Mike G. Mountcastle Tel: (404) 332-5317 Lock-Box #: 101784 I-1 EXHIBIT J FORM OF LOCK-BOX NOTICE ___________, 19__ [Name and Address of Lock-Box Bank] ________________________________________ Ladies and Gentlemen: We hereby notify you that we have transferred exclusive ownership and control of our lock-box account[s] no[s]. _____ maintained with you (the "Lock- Box Account[s]") to Dynamic Funding Corporation, c/o J H Management Corporation, One International Place, Boston, Massachusetts 02110-2624 (the "Company"). We hereby irrevocably instruct you to make all payments to be made by you out of or in connection with the Lock-Box Account[s] directly to The Fuji Bank, Limited, New York Branch, Account no. _____ in the name of the Company, for the account of the Company, or otherwise in accordance with the instructions of the Company. We also hereby notify you that the Company shall be irrevocably entitled to exercise any and all rights in respect of or in connection with the Lock-Box Account[s], including, without limitation, the right to specify when payments are to be made out of or in connection with the Lock-Box Account[s]. J-1 [INTENTIONALLY LEFT BLANK] J-2 Please agree to the terms of, and acknowledge receipt of, this notice by signing in the space provided below on two copies hereof sent herewith and send one signed copy to the Company, at its address referred to above, Attention of President, and send the other signed copy via overnight courier to the undersigned at its address at _______________, Attention of ____________. In addition, please furnish a copy to The Fuji Bank and Trust Company, Two World Trade Center, 81st Floor, New York, New York 10048, Attention: Corporate Trust Department. Very truly yours, _______________________ By: _______________________ Name: Title: Agreed and acknowledged: [NAME OF BANK] By: _________________________ Name: Title: J-3 EXHIBIT K List of Actions/Suits --------------------- None. K-1 EXHIBIT L Form of Tranche Selection Notice -------------------------------- GGRC CORP. 400 PERIMETER CENTER TERRACE, SUITE 595 ATLANTA, GEORGIA 30346 Transfer Notice Date: _________________ Dynamic Funding Corporation c/o The Fuji Bank and Trust Company Trust Administration Department Two World Trade Center, 81st Floor New York, New York 10048 TRANCHE SELECTION NOTICE ------------------------ Dear Sir or Madam: With reference to Section 2.2 of the Amended and Restated Receivables Transfer Agreement, dated as of December 4, 1996 (as amended, the "Transfer Agreement") by and among Dynamic Funding Corporation (the "Company"), GGRC Corp. (the "Transferor") and Georgia Gulf Corporation, the Transferor hereby requests the Company to accept the Transfer or maintain the Transfer of Receivables, as the case maybe, from the Transferor utilizing the proceeds of the following: Commercial Paper Face Value*: _______________ Transfer Date: _______________ Maturity Date: _______________ * A CP Tranche unless otherwise specified. Sincerely, __________________________ Name: Title: ____________________________________________________________ CONFIRMATION Date of Issuance: ________ Maturity Date: ________ No. of Days in Tranche: _______ Face Amt. of CP: ________ Disc. Amt. of CP: ________ CP Rate: _______ Proceeds of CP: ________ L-1 IN WITNESS WHEREOF, the parties hereto have caused this Receivables Transfer Agreement to be executed and delivered by their duly authorized officers as of the date hereof. GGRC CORP., as Transferor By /s/ Samuel M. Hensley -------------------------------- Name: Samuel M. Hensley Title: Treasurer GEORGIA GULF CORPORATION, individually and as Collection Agent By /s/ Samuel M. Hensley -------------------------------- Name: Samuel M. Hensley Title: Corporate Controller DYNAMIC FUNDING CORPORATION, as Company By_________________________________ Name: Title: Accepted and agreed as of the date first above written: THE FUJI BANK AND TRUST COMPANY, as New York Operating Agent By:_________________________________ Name: Title: 66 IN WITNESS WHEREOF, the parties hereto have caused this Receivables Transfer Agreement to be executed and delivered by their duly authorized officers as of the date hereof. GGRC CORP., as Transferor By_________________________________ Name: Title: GEORGIA GULF CORPORATION, individually and as Collection Agent By_________________________________ Name: Title: DYNAMIC FUNDING CORPORATION, as Company By: /s/ Tiffany Percival ---------------------------------- Name: TIFFANY PERCIVAL Title: Vice President Accepted and agreed as of the date first above written: THE FUJI BANK AND TRUST COMPANY, as New York Operating Agent By:________________________________ Name: Title: IN WITNESS WHEREOF, the parties hereto have caused this Receivables Transfer Agreement to be executed and delivered by their duly authorized officers as of the date hereof. GGRC CORP., as Transferor By________________________________ Name: Title: GEORGIA GULF CORPORATION, individually and as Collection Agent By________________________________ Name: Title: DYNAMIC FUNDING CORPORATION, as Company By_________________________________ Name: Title: Accepted and agreed as of the date first above written: THE FUJI BANK AND TRUST COMPANY, as New York Operating Agent By: /s/ Masao Takahashi -------------------------------- Name: Masao Takahashi Title: Executive Vice President EX-13 3 ANNUAL REPORT FINANCIAL HIGHLIGHTS GEORGIA GULF CORPORATION AND SUBSIDIARIES
Results of Operations For the Year Ended (In thousands, except per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales $896,186 $1,081,576 $955,305 $768,902 $ 779,455 Operating Income 136,273 327,946 230,222 110,461 128,826 Net Income 71,620 186,494 122,160 41,934 46,337 Net Income per Common Share 1.97 4.73 2.88 1.01 1.18 Interest Expense 20,833 25,114 37,557 44,779 61,216 Cash Provided by Operating Activities 114,689 278,641 111,595 88,268 60,385 Cash Flow Used in Financing Activities (2,688) (191,049) (54,336) (58,490) (45,729) Capital Expenditures 119,895 86,278 59,142 29,583 14,261 Sales per Employee 870 946 834 684 691 - ------------------------------------------------------------------------------------------------------------------------------------ Financial Highlights At Year End (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Working Capital $ 49,395 $ 73,370 $126,668 $ 67,674 $ 57,465 Total Assets 587,999 507,332 508,447 405,287 419,420 Total Debt 395,600 292,400 314,081 379,206 444,416 Stockholders' Equity (Deficit) 18,570 50,628 31,138 (110,577) (161,165) - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Data (Dollars in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) $175,704 $ 360,014 $257,996 $137,523 $ 158,409 Employees 1,030 1,143 1,146 1,124 1,128 Shares Outstanding (In thousands) 34,585 37,240 42,013 40,952 40,294 Return on Assets 13.1% 36.7% 26.7% 10.2% 11.1% Return on Sales 8.0% 17.2% 12.8% 5.5% 5.9% - ------------------------------------------------------------------------------------------------------------------------------------
1 TEN-YEAR SELECTED FINANCIAL DATA GEORGIA GULF CORPORATION AND SUBSIDIARIES
Year Ended December 31 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Results of Operations (In thousands, except per share data) - -------------------------------------------------------------------------------------------------------------------------------- Net sales $896,186 $1,081,576 $955,305 $ 768,902 $ 779,455 Cost of sales 718,327 705,259 677,919 619,540 616,802 Selling and administrative expenses 41,586 48,371 47,164 38,901 33,827 - -------------------------------------------------------------------------------------------------------------------------------- Operating income 136,273 327,946 230,222 110,461 128,826 Recapitalization expense(1) - - - - - Interest expense (20,833) (25,114) (37,557) (44,779) (61,216) Interest income 67 244 113 106 73 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary charge and cumulative effect of accounting change 115,507 303,076 192,778 65,788 67,683 Provision for income taxes 43,887 116,582 70,618 23,560 21,346 - --------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary charge and cumulative effect of accounting change 71,620 186,494 122,160 42,228 46,337 Extraordinary charge on early retirement of debt - - - (13,267) - Cumulative effect of accounting change for income taxes - - - 12,973 - - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 71,620 $ 186,494 $122,160 $ 41,934 $ 46,337 ================================================================================================================================ Net income per common share $ 1.97 $ 4.73 $ 2.88 $ 1.01 $ 1.18 ================================================================================================================================ Dividends per common share $ 0.32 $ 0.32 $ - $ - $ - ================================================================================================================================ Financial Highlights (In thousands) - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 49,395 $ 73,370 $126,668 $ 67,674 $ 57,465 Property, plant and equipment, net 394,737 312,536 255,608 222,835 217,781 Total assets 587,999 507,332 508,447 405,287 419,420 Total debt 395,600 292,400 314,081 379,206 444,416 Stockholders' equity (deficit)(1) 18,570 50,628 31,138 (110,577) (161,165) Cash provided by operating activities 114,689 278,641 111,595 88,268 60,385 Cash flow used in financing activities (2,688) (191,049) (54,336) (58,490) (45,729) Depreciation and amortization 39,431 32,068 27,774 27,062 29,583 Capital expenditures 119,895 86,278 59,142 29,583 14,261 Maintenance expenditures 57,064 51,558 46,033 43,141 47,664 Sales per employee 870 946 834 684 691 ================================================================================================================================ Other Selected Data - -------------------------------------------------------------------------------------------------------------------------------- Earnings before interest, taxes, depreciation and amortization (EBITDA)(2) $175,704 $ 360,014 $257,996 $137,523 $158,409 Current ratio 1.4 1.6 2.0 1.6 1.4 Return on assets 13.1% 36.7% 26.7% 10.2% 11.1% Return on sales 8.0% 17.2% 12.8% 5.5% 5.9% Ratio of operating income to interest expense 6.5 13.1 6.1 2.5 2.1 Weighted average common shares and equivalents outstanding (in thousands) 36,288 39,428 42,445 41,672 39,227 Employees 1,030 1,143 1,146 1,124 1,128 =================================================================================================================================
(1) All years subsequent to 1989 include the effects of the recapitalization, which occurred in April 1990. (See Note 6 to the consolidated financial statements,) 2
Year Ended December 31 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Results of Operations (In thousands, except per share data) - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $ 838,336 $ 932,104 $1,104,468 $1,060,612 $707,435 Cost of sales 626,672 661,448 753,255 698,009 507,028 Selling and administrative expenses 41,129 42,087 52,204 49,489 27,989 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 170,535 228,569 299,009 313,114 172,418 Recapitalization expense(1) - (17,869) - - - Interest expense (80,772) (63,161) (961) (3,373) (10,796) Interest income 492 2,505 2,045 2,594 1,320 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes, extraordinary charge and cumulative effect of accounting change 90,255 150,044 300,093 312,335 162,942 Provision for income taxes 28,782 54,700 108,103 118,731 71,206 - ---------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary charge and cumulative effect of accounting change 61,473 95,344 191,990 193,604 91,736 Extraordinary charge on early retirement of debt - - - - (9,885) Cumulative effect of accounting change for income taxes - - - - - - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 61,473 $ 95,344 $ 191,990 $ 193,604 $ 81,851 ================================================================================================================================== Net income per common share $ 1.75 $ 3.07 $ 7.58 $ 6.75 $ 2.81 ================================================================================================================================== Dividends per common share $ - $ - $ 1.00 $ 0.65 $ 0.20 ================================================================================================================================== Financial Highlights (In thousands) - ---------------------------------------------------------------------------------------------------------------------------------- Working capital $ 20,676 $ 50,131 $ 132,097 $ 125,642 $ 76,348 Property, plant and equipment, net 226,746 220,851 215,182 175,358 126,086 Total assets 415,585 456,657 472,989 457,327 308,609 Total debt 639,153 726,481 856 42,603 41,593 Stockholders' equity (deficit)(1) (357,512) (424,476) 330,341 256,083 142,546 Cash provided by operating activities 112,148 127,752 225,255 191,948 118,070 Cash flow used in financing activities (86,889) (176,183) (165,118) (83,753) (87,128) Depreciation and amortization 26,447 19,834 18,667 15,589 9,405 Capital expenditures 28,273 58,111 54,159 25,062 9,931 Maintenance expenditures 42,853 42,985 40,400 41,469 41,152 Sales per employee 760 868 818 776 712 ================================================================================================================================== Other Selected Data - ---------------------------------------------------------------------------------------------------------------------------------- Earnings before interest, taxes, depreciation and amortization (EBITDA)(2) $ 196,982 $ 248,403 $ 317,676 $ 328,703 $181,823 Current ratio 1.1 1.3 2.2 2.0 1.8 Return on assets 14.1% 20.5% 41.3% 50.6% 28.6% Return on sales 7.3% 10.2% 17.4% 18.3% 11.6% Ratio of operating income to interest expense 2.1 3.6 311.1 92.8 16.0 Weighted average common shares and equivalents outstanding (in thousands) 35,143 31,069 25,327 28,663 29,061 Employees 1,103 1,074 1,350 1,367 993 ==================================================================================================================================
3 MANAGEMENT'S DISCUSSION AND ANALYSIS GEORGIA GULF CORPORATION AND SUBSIDIARIES Results of Operations - -------------------------------------------------------------------------------- Georgia Gulf is a major manufacturer of several highly integrated lines of commodity chemicals and polymers including aromatic, natural gas and electrochemical products. The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and related notes thereto. 1996 Compared With 1995 Net sales of $896.2 million for 1996 were down 17 percent from $1.1 billion in 1995, resulting in a 58 percent decline in operating income from the record level reported in 1995. Earnings per share for 1996 were $1.97 on net income of $71.6 million as compared to earnings per share and net income for 1995 of $4.73 and $186.5 million, respectively. The decline in net sales during 1996 primarily resulted from a 14 percent reduction in the average sales price of the Company's products, accompanied by a 3 percent decrease in sales volumes. Although generally all selling prices were below 1995 levels, vinyl products experienced the sharpest drop followed by methanol. These sales price declines primarily related to increased industry capacity. The decrease in sales volumes was largely attributable to lower production volumes in 1996 as a result of planned and unplanned plant downtime, primarily from tie-ins of capacity expansions during the year and freeze damage during the earlier part of the year. Overall, raw material prices were lower in 1996 as the Company was able to offset higher natural gas costs with reductions in other raw materials. However, the impact of the lower raw material costs was insignificant in comparison with the declines in selling prices. Selling and administrative expenses decreased $6.8 million primarily as a result of lower compensation expense related to profit-sharing programs. Interest expense declined $4.3 million in 1996 due to increased interest capitalized during 1996 in connection with capital expansion activity and a lower average interest rate on the Company's debt portfolio. Earnings per share decreased 58 percent in 1996 due to lower net income, which was partially offset by fewer shares outstanding resulting from the Company's share purchase program. 1995 Compared With 1994 Net income increased 53 percent in 1995 to $186.5 million, compared to net income of $122.2 million for 1994. Net sales increased 13 percent to $1.1 billion from $955.3 million in 1994 on level sales volumes, as sales prices were up for most products, with the exception of methanol where a decrease in demand returned prices to more historical levels. Demand was particularly strong for caustic soda and aromatic products throughout 1995, with additional support coming from vinyl resins during the first half of the year. International sales increased to 15 percent of total sales in 1995 from 13 percent in 1994 as a result of stronger export markets. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES Operating income was $327.9 million in 1995, an increase of 42 percent over 1994 operating income of $230.2 million. Although the strongest earnings contributions came from caustic soda, most products showed improved results, as increases in sales prices outpaced higher raw material costs. Interest expense declined 33 percent to $25.1 million in 1995 from $37.6 million in 1994. This decline was attributable to a lower debt balance in 1995 and reduced interest rates in connection with the redemption of $191.1 million principal amount of the Company's 15% Senior Subordinated Notes in April 1995. The effective income tax rate was 38.5 percent for 1995 as compared to 36.6 percent for 1994. The 1995 rate increase was a result of higher taxable income, which minimized the effect of permanent tax differences. Earnings per share for 1995 increased 64 percent to $4.73 from $2.88 for 1994 as a result of higher earnings and the effect of the Company's stock purchase program. Liquidity and Capital Resources - -------------------------------------------------------------------------------- In 1996, Georgia Gulf generated $114.7 million from operating activities, down $164.0 million from 1995. Major sources of cash flow from operating activities in 1996 were net income of $71.6 million and noncash provisions of $39.4 million for depreciation and amortization. The items affecting net income are discussed in the "Results of Operations" section. Total working capital at year-end was $49.4 million versus $73.4 million at the end of 1995. The significant changes related to a decrease in receivables and an increase in inventory at the end of 1996 resulting from lower sales. Other changes included higher accounts payable at the end of 1996 due to increased capital expenditure activity and lower accrued compensation costs as a result of a reduction in employee profit sharing expense for 1996. Significant cash flow requirements in 1996 included capital expenditures of $119.9 million, the purchase of common stock for $99.6 million and dividends paid of $11.4 million. Major capital expenditures included $57.4 million for the expansion of the vinyl chloride monomer ("VCM") plant in Plaquemine, Louisiana; $11.4 million for the cumene upgrade and expansion project in Pasadena, Texas; and $14.9 million for the expansion of the phenol/acetone plant in Plaquemine, Louisiana. The Company estimates that capital expenditures for 1997 will approximate $70 million. Significant projects will include completing the phenol/acetone and VCM expansions and expanding the vinyl compound plant at Gallman, Mississippi. Georgia Gulf purchased and retired 3.1 million shares of its common stock during 1996. As of December 31, 1996, the Company had authorization to retire an additional 3.2 million shares under its stock purchase program. Debt increased during 1996 to a level of $395.6 million. Georgia Gulf's debt portfolio primarily consists of a $100 million term loan, $100 million principal amount 7-5/8% Notes and $167 million outstanding under its $350 million revolving credit agreement. The Company has interest rate swap agreements to fix the interest rate on the term loan at a rate ranging from 6.71 to 7.04 percent. The Company does not use interest rate swap agreements or any other derivatives for trading purposes. As of December 31, 1996, the Company had available $183.0 million under its $350 million revolving credit facility. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES In 1995, Georgia Gulf generated $278.6 million from operating activities, up significantly from $111.6 million in 1994. Cash flow increased due to improved earnings in 1995, along with a decrease in working capital. The majority of the decrease in working capital in 1995 was attributable to a $50.0 million sale of trade receivables under a revolving trade receivables sales program, offset in part by a reduction of $18.2 million in accrued income taxes. Net cash used for financing activities was $191.0 million in 1995, compared with $54.3 million in 1994, as the Company purchased approximately 5.2 million shares of common stock in 1995 at a cost of $162.6 million and paid dividends of $12.3 million. Debt declined during 1995 to a level of $292.4 million. In April 1995, the Company's 15% Senior Subordinated Notes were redeemed at par for $191.1 million. Later in the year, the Company entered into a $100 million seven-year term loan agreement and issued $100 million principal amount of 7 5/8% Notes due 2005. Georgia Gulf's primary focus is to maintain debt at a manageable level with regard to the Company's position in the economic cycle and to invest capital in incremental expansions of existing product lines. Management believes that cash provided by operations and the availability of borrowings under the Company's revolving credit facility will provide sufficient funds to support planned capital expenditures, dividends, stock purchases, working capital fluctuations and debt service requirements. Inflation - -------------------------------------------------------------------------------- The most significant components of the Company's cost of sales are raw materials and energy, which consist of basic commodity items. The cost of raw materials and energy is based primarily on market forces and has not been significantly affected by inflation. Inflation has not had a material impact on the Company's sales or income from operations. Environmental - -------------------------------------------------------------------------------- The Company's operations are subject to various federal, state and local laws and regulations relating to environmental quality. These regulations, which are enforced principally by the United States Environmental Protection Agency and comparable state agencies, govern the management of solid hazardous waste, emissions into the air and discharges into surface and underground waters, and the manufacture of chemical substances. Management believes that the Company is in material compliance with all current environmental laws and regulations. The Company estimates that any expenses incurred in maintaining compliance with these requirements will not materially affect earnings or cause the Company to exceed its level of anticipated capital expenditures. However, there can be no assurance that regulatory requirements will not change, and therefore, it is not possible to accurately predict the aggregate cost of compliance resulting from any such changes. 6 CONSOLIDATED BALANCE SHEETS GEORGIA GULF CORPORATION AND SUBSIDIARIES December 31, (In thousands, except share data) 1996 1995 - ------------------------------------------------------------------------------ Assets - ------------------------------------------------------------------------------ Cash and cash equivalents $ 698 $ 2,530 Receivables, net of allowance for doubtful accounts of $2,400 in 1996 and 1995 64,131 89,414 Inventories 89,196 75,049 Prepaid expenses 9,934 12,108 Deferred income taxes 6,410 8,115 - ------------------------------------------------------------------------------ Total current assets 170,369 187,216 - ------------------------------------------------------------------------------ Property, plant and equipment, at cost 646,144 534,264 Less accumulated depreciation 251,407 221,728 - ------------------------------------------------------------------------------ Property, plant and equipment, net 394,737 312,536 - ------------------------------------------------------------------------------ Other assets 22,893 7,580 - ------------------------------------------------------------------------------ Total assets $587,999 $507,332 ============================================================================== Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------ Accounts payable $ 94,767 $ 78,861 Interest payable 2,910 2,737 Accrued income taxes 2,039 3,296 Accrued compensation 5,637 14,715 Accrued pension 2,139 2,307 Other accrued liabilities 13,482 11,930 - ------------------------------------------------------------------------------ Total current liabilities 120,974 113,846 - ------------------------------------------------------------------------------ Long-term debt 395,600 292,400 - ------------------------------------------------------------------------------ Deferred income taxes 52,855 50,458 - ------------------------------------------------------------------------------ Stockholders' equity Preferred stock - $0.01 par value; 75,000,000 shares authorized; no shares issued - - Common stock - $0.01 par value; 75,000,000 shares authorized; shares issued and outstanding: 34,584,800 in 1996 and 37,240,252 in 1995 346 372 Additional paid-in capital - 31,312 Retained earnings 18,224 18,944 - ------------------------------------------------------------------------------ Total stockholders' equity 18,570 50,628 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity $587,999 $507,332 ============================================================================== The accompanying notes are an integral part of these consolidated financial statements. 7 CONSOLIDATED STATEMENTS OF INCOME GEORGIA GULF CORPORATION AND SUBSIDIARIES Year Ended December 31, (In thousands, except share data) 1996 1995 1994 - ------------------------------------------------------------------------------- Net sales $896,186 $1,081,576 $955,305 - ------------------------------------------------------------------------------- Operating costs and expenses Cost of sales 718,327 705,259 677,919 Selling and administrative 41,586 48,371 47,164 - ------------------------------------------------------------------------------- Total operating costs and expenses 759,913 753,630 725,083 - ------------------------------------------------------------------------------- Operating income 136,273 327,946 230,222 Other income (expense) Interest expense (20,833) (25,114) (37,557) Interest income 67 244 113 - ------------------------------------------------------------------------------- Income before income taxes 115,507 303,076 192,778 Provision for income taxes 43,887 116,582 70,618 - ------------------------------------------------------------------------------- Net income $ 71,620 $ 186,494 $122,160 - ------------------------------------------------------------------------------- Primary and fully diluted net income per common share $ 1.97 $ 4.73 $ 2.88 - ------------------------------------------------------------------------------- Weighted average common shares and equivalents outstanding 36,288,026 39,427,943 42,445,499 =============================================================================== The accompanying notes are an integral part of these consolidated financial statements. 8 CONSOLIDATED STATEMENTS OF CASH FLOWS GEORGIA GULF CORPORATION AND SUBSIDIARIES Year Ended December 31, (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 71,620 $186,494 $122,160 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,431 32,068 27,774 Deferred income taxes 4,102 9,435 1,823 Compensation and tax benefit related to stock plans 2,210 2,364 8,766 Change in assets and liabilities: Receivables 25,283 67,671 (61,017) Inventories (17,408) (4,382) (12,406) Prepaid expenses 2,174 1,774 (3,532) Accounts payable 15,906 5,090 13,860 Interest payable 173 (3,687) (10,400) Accrued income taxes (1,257) (18,241) 18,408 Accrued compensation (9,078) 2,991 8,151 Accrued pension (168) (969) (1,394) Accrued liabilities 1,552 5,411 (1,188) Other (19,851) (7,378) 590 - -------------------------------------------------------------------------------- Net cash provided by operating activities 114,689 278,641 111,595 - -------------------------------------------------------------------------------- Cash flows from financing activities: Long-term debt proceeds 268,500 559,400 181,000 Long-term debt payments (165,300) (581,081) (246,125) Proceeds from issuance of common stock 5,084 5,481 10,789 Purchase and retirement of common stock (99,586) (162,565) - Dividends paid (11,386) (12,284) - - -------------------------------------------------------------------------------- Net cash used in financing activities (2,688) (191,049) (54,336) - -------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (119,895) (86,278) (59,142) Net proceeds from the sale of assets 6,062 - - - -------------------------------------------------------------------------------- Net cash used in investing activities (113,833) (86,278) (59,142) - -------------------------------------------------------------------------------- Net change in cash and cash equivalents (1,832) 1,314 (1,883) Cash and cash equivalents at beginning of year 2,530 1,216 3,099 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 698 $ 2,530 $ 1,216 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. 9 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY GEORGIA GULF CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------ Additional Retained Total Common Stock Paid-in Earnings Stockholders' (In thousands, except share data) Shares Amount Capital (Deficit) Equity (Deficit) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1993 40,951,571 $410 $166,439 $(277,426) $(110,577) Net income - - _ 122,160 122,160 Tax benefit realized from stock option plans - - 6,291 - 6,291 Compensation related to stock option plans - - 2,475 - 2,475 Common stock issued upon exercise of stock options 809,605 8 6,753 - 6,761 Common stock issued under stock purchase plan 251,940 2 4,026 - 4,028 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 42,013,116 420 185,984 (155,266) 31,138 Net income - - - 186,494 186,494 Dividends paid - - - (12,284) (12,284) Tax benefit realized from stock option plans - - 2,364 - 2,364 Common stock issued upon exercise of stock options 270,214 3 2,139 - 2,142 Common stock issued under stock purchase plan 127,722 1 3,338 - 3,339 Purchase and retirement of common stock (5,170,800) (52) (162,513) - (162,565) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 37,240,252 372 31,312 18,944 50,628 Net income - - - 71,620 71,620 Dividends paid - - - (11,386) (11,386) Tax benefit realized from stock option plans - - 2,210 - 2,210 Common stock issued upon exercise of stock options 340,770 3 1,662 - 1,665 Common stock issued under stock purchase plan 152,178 2 3,417 - 3,419 Purchase and retirement of common stock (3,148,400) (31) (38,601) (60,954) (99,586) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 34,584,800 $346 $ - $ 18,224 $ 18,570 ==================================================================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GEORGIA GULF CORPORATION AND SUBSIDIARIES Note 1: Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of Georgia Gulf Corporation and its subsidiaries (the "Company"). All significant intercompany balances and transactions are eliminated in consolidation. Nature of Operations - The Company is a manufacturer and marketer of chemical and plastics products. The Company's products are primarily intermediate chemicals sold for further processing into a wide variety of end-use applications including plastic piping, siding and window frames, bonding agents for wood products, high-quality plastics, acrylic sheeting and gasoline additives. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents - The Company considers all highly liquid investment instruments with an original maturity of three months or less to be the equivalent of cash for the purposes of balance sheet and statement of cash flow presentations. Inventories - Inventories are valued at the lower of cost (first-in, first-out) or market. Costs include raw materials, direct labor and manufacturing overhead. Market is based on current replacement cost for raw materials and supplies and on net realizable value for finished goods. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred, and major renewals and improvements are capitalized. Interest expense attributable to funds used in financing the construction of major plant and equipment is capitalized. Interest expense capitalized during 1996, 1995 and 1994 was $4,826,000, $1,602,000 and $1,842,000, respectively. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for book purposes, with accelerated methods being used for income tax purposes. The estimated useful lives of the assets are as follows: Buildings and land improvements 20 - 30 years Machinery and equipment 3 - 15 years Other Assets - Other assets are comprised primarily of deposits of $16,330,000 for long-term raw material purchase contracts and debt issuance costs of $3,483,000. Deposits will be amortized over the life of the related contracts in accordance with raw material delivery. Debt issuance costs are amortized to expense using the effective interest method over the term of the related indebtedness. Debt issuance costs amortized to interest expense during 1996, 1995 and 1994 were $440,000, $420,000 and $792,000, respectively. Environmental Expenditures - Environmental expenditures related to current operations or future revenues are expensed or capitalized consistent with the Company's capitalization policy. Expenditures that relate to an existing condition caused by past operations and that do not contribute to future revenues are expensed. Liabilities are recognized when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Net Income per Common Share - Primary and fully diluted net income per common share is based on the weighted average common shares and equivalents outstanding during the year. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES New Accounting Pronouncement - The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which became effective for fiscal years beginning after December 1996. SFAS No. 125 established, among other things, accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The Company will adopt the new standard in 1997, but does not anticipate any material impact to the financial statements. Note 2: Receivables - -------------------------------------------------------------------------------- The Company has entered into an agreement pursuant to which it sold a percentage ownership interest in a defined pool of the Company's trade receivables. As collections reduce accounts receivable included in the pool, the Company sells participating interests in new receivables to bring the amount sold up to the $50,000,000 maximum permitted by the agreement. The receivables are sold at a discount, which approximates the purchaser's financing cost of issuing its own commercial paper backed by these accounts receivable. On-going costs of this program of $2,882,000 and $2,003,000 for 1996 and 1995, respectively, were charged to selling and administrative expense in the accompanying consolidated statements of income. Note 3: Inventories - -------------------------------------------------------------------------------- The major classes of inventories were as follows (in thousands): December 31, 1996 1995 Raw materials and supplies $ 38,803 $ 23,973 Finished goods 50,393 51,076 - -------------------------------------------------------------------------------- $ 89,196 $ 75,049 ================================================================================ Note 4: Property, Plant and Equipment - -------------------------------------------------------------------------------- Property, plant and equipment consisted of the following (in thousands): December 31, 1996 1995 Machinery and equipment $470,039 $427,370 Land and improvements 23,009 23,369 Buildings 17,365 13,289 Construction in progress 135,731 70,236 - -------------------------------------------------------------------------------- Property, plant and equipment, at cost $646,144 $534,264 ================================================================================ 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES Note 5: Long-Term Debt - -------------------------------------------------------------------------------- Long-term debt consisted of the following (in thousands): December 31, 1996 1995 Revolving credit loan $167,000 $ 66,000 Term Loan 100,000 100,000 7 5/8% Notes due 2005 100,000 100,000 Other 28,600 26,400 - -------------------------------------------------------------------------------- Long-term debt $395,600 $292,400 ================================================================================ The Company's credit agreement (the "Credit Agreement") provides for an unsecured revolving credit facility, which permits borrowings of up to $350,000,000. The revolving credit facility terminates and related outstanding loans, if any, are due in March 2000. As of December 31, 1996, the Company had availability to borrow up to $183,000,000 under the terms of the revolving credit facility. An annual commitment fee, which ranges from 0.10 percent to 0.25 percent, is required to be paid on the revolving credit facility commitment. The interest rate on the revolving credit facility is based on LIBOR and averaged 5.77 percent and 6.27 percent for 1996 and 1995, respectively. The Company has a $100,000,000 unsecured term loan agreement (the "Term Loan") with an average rate of 6.88 percent and 6.78 percent for 1996 and 1995, respectively. Required principal payments under the Term Loan are $25,000,000 in June 2001 and $75,000,000 in June 2002. The LIBOR-based variable interest rate on the Term Loan has been fixed at a rate ranging from 6.71 percent to 7.04 percent using interest rate swap agreements. The Company has a $100,000,000 principal amount of unsecured 7 5/8% notes outstanding ("Notes"), which are due in November 2005. Interest on the Notes is payable semiannually on May 15 and November 15 of each year. The Notes are not redeemable prior to maturity. Under the Credit Agreement, Term Loan and Notes, the Company is subject to certain restrictive covenants, the most significant of which require the Company to maintain certain financial ratios and limit the amount the Company can pay for dividends and purchases of common stock. Cash payments for interest during 1996, 1995 and 1994 were $22,945,000, $28,336,000 and $43,045,000, respectively. Note 6: Stockholders' Equity - -------------------------------------------------------------------------------- In April 1990, the Company's stockholders approved a plan of recapitalization (the "Recapitalization"), which resulted in a distribution to stockholders of $864,733,000. The distribution for the Recapitalization, net of certain tax benefits, was charged against retained earnings. During 1996 and 1995, the Company purchased 3,148,400 shares of its common stock for $99,586,000 and 5,170,800 shares of its common stock for $162,565,000, respectively. As of December 31, 1996, the Company had authorization to purchase up to 3,150,800 additional shares under the current common stock purchase program. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES In connection with the stock purchase rights described below, 30,000,000 of the authorized shares of preferred stock are designated Junior Participating Preferred Stock. If issued, the Junior Participating Preferred Stock would be entitled, subject to the prior rights of any senior preferred stock, to a dividend equal to the greater of $0.01 or that which is paid on the common shares. Each outstanding share of common stock is accompanied by a preferred stock purchase right, which entitles the holder to purchase from the Company 1/100 of a share of Junior Participating Preferred Stock for $45.00, subject to adjustment in certain circumstances. The rights become exercisable only after a person or group acquires beneficial ownership of 15 percent or more of the Company's outstanding shares of common stock, or commences a tender or exchange offer that would result in such person or group beneficially owning 15 percent or more of the Company's outstanding shares of common stock. The rights expire on April 27, 2000, and may be redeemed by the Company for $0.01 per right until ten days following the earlier to occur of the announcement that a person or group beneficially owns 15 percent or more of the Company's outstanding shares of common stock, or the commencement, or announcement by any person or group of an intent to commence, a tender offer which would result in any person or group beneficially owning 15 percent or more of the Company's outstanding shares of common stock. Subject to certain conditions, if a person or group becomes the beneficial owner of 15 percent or more of the Company's outstanding shares of common stock, each right will entitle its holder (other than certain acquiring persons) to receive, upon exercise, common stock having a value equal to two times the right's exercise price. In addition, subject to certain conditions, if the Company is involved in a merger or certain other business combination transactions, each right will entitle its holder (other than certain acquiring persons) to receive, upon exercise, common stock of the acquiring company having a value equal to two times the right's exercise price. Note 7: Stock Option and Purchase Plans - -------------------------------------------------------------------------------- Options to purchase common stock of the Company have been granted to employees under plans adopted in 1987 and 1990. Option prices are equal to the closing price of the Company's stock on date of grant. Options vest ratably over a three- or five-year period from the date of grant and expire no more than ten years after grant. The following is a summary of all stock option information: Year Ended December 31, 1996 1995 1994 Stock options: Outstanding at beginning of year 1,299,031 1,569,245 2,170,800 Granted at $36.50 per share - - 210,000 Exercised (340,770) (270,214) (809,605) Forfeited or canceled (1,700) - (1,950) - -------------------------------------------------------------------------------- Outstanding at end of year 956,561 1,299,031 1,569,245 - -------------------------------------------------------------------------------- Option exercise price range per share $6.36-$36.5 $3.07-$36.50 $3.07-$36.50 Options exercisable 830,561 1,131,031 1,359,245 Options available for grant 15,527 13,827 13,827 The Company's stockholders have approved a qualified, non-compensatory employee stock purchase plan, which allows employees to acquire shares of common stock through payroll deductions over a twelve-month period. The purchase price is equal to 85 percent of the fair market value of the common stock on either the first 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES or last day of the subscription period, whichever is lower. Purchases under the plan are limited to 15 percent of an employee's base salary. In connection with this stock purchase plan, 647,822 shares of common stock are reserved for future issuances. Under this plan and similar plans, 152,178; 127,722 and 251,940 shares of common stock were issued at $22.47, $26.14 and $15.99 per share during 1996, 1995 and 1994, respectively. The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation was recognized in 1996 and 1995 for its stock option plans or its stock purchase plans. Options issued under the plan adopted in 1987 were granted with related cash compensation awards. Compensation expense of $3,827,000 was recognized in 1994 relating to options issued under this plan. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," for disclosure purposes in 1996. In accordance with the disclosure requirements of SFAS No. 123, the Company is required to calculate the pro forma compensation cost of all stock options and purchase rights granted after December 31, 1994, using an option pricing model. Since no stock options have been granted since December 31, 1994, only stock purchase rights granted in connection with the Company's stock purchase plan, described above, are subject to the calculation. For SFAS No. 123 purposes, the fair value of each stock purchase right for 1996 and 1995 has been estimated as of the date of the right using the Black-Scholes option pricing model with the following weighted average assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.09 percent and 7.43 percent; dividend yields of 1.04 percent and 0.82 percent, expected volatilities of 0.30 and 0.32, and expected life of one year for both years. Using these assumptions, the fair value of the stock purchase plan rights for 1996 and 1995 were $1,062,000 and $1,544,000, respectively. Had compensation cost been determined consistently with SFAS No. 123, utilizing the assumptions detailed above, the Company's net income and net income per common share would have been reduced to the following pro forma amounts: - -------------------------------------------------------------------------------- 1996 1995 Net income (in thousands): As reported $71,620 $186,494 Pro forma 70,962 185,537 Net income per common share As reported $ 1.97 $ 4.73 Pro forma 1.96 4.70 - -------------------------------------------------------------------------------- Note 8: Employee Benefit Plans - -------------------------------------------------------------------------------- The Company has certain pension, savings and profit-sharing plans that cover substantially all of its employees. The expense incurred for these plans was approximately $4,522,000, $5,551,000 and $5,431,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Employees are covered by defined contribution plans under which the Company makes contributions to individual employee accounts and by defined benefit plans for which the benefits are based on years of service and the employee's compensation or for which the benefit is a specific monthly amount for each year of service. The Company's policy on funding the defined benefit plans is to contribute an amount within the range of the minimum required and the maximum tax-deductible contribution. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES The net pension costs for the defined benefit plans include the following components (in thousands): Year ended December 31, ------------------------------ 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost for benefits earned during the year $ 2,060 $ 1,776 $ 1,853 Interest cost on projected benefit obligation 2,730 2,527 2,229 Actual return on assets (5,056) (7,983) (304) Net amortization and deferrals 1,814 5,920 (1,487) - -------------------------------------------------------------------------------- Net pension cost $ 1,548 $ 2,240 $ 2,291 ================================================================================ Pension expenses were calculated using assumed discount rates of 7 percent in 1996, 7.5 percent in 1995 and 7 percent in 1994; assumed long-term compensation increase rates of 5.5 percent in 1996, 1995 and 1994; and assumed long-term rates of return on plan assets of 9 percent in 1996, 1995 and 1994. The funded status of the defined benefit plans at December 31, 1996 and 1995 was as follows (in thousands):
1996 1995 - ------------------------------------------------------------------------------------------------ Unfunded Unfunded Fully-Funded Executive Fully-Funded Executive Benefit Plans Benefit Plan Benefit Plans Benefit Plan - ------------------------------------------------------------------------------------------------ Actuarial present value of: Vested benefit obligation $(22,087) $(4,607) $(21,308) $(4,815) Nonvested benefit obligation (372) (621) (413) (541) - ------------------------------------------------------------------------------------------------ Accumulated benefit obligation $(22,459) $(5,228) $(21,721) $(5,356) ================================================================================================ Projected benefit obligation $(30,718) $(7,010) $(31,831) $(7,322) Plan assets at fair value 45,093 - 39,171 - - ------------------------------------------------------------------------------------------------ Fair value of assets in excess of (less than) projected benefit obligation 14,375 (7,010) 7,340 (7,322) Unrecognized net (gains) and losses (11,786) (518) (5,301) (5) Unrecognized prior service cost (750) 1,607 (804) 1,764 Unrecognized transition obligation 2,058 856 2,256 1,002 Additional minimum liability - (673) - (966) - ------------------------------------------------------------------------------------------------ Prepaid pension expense (liability) $ 3,897 $(5,738 ) $ 3,491 $(5,527) ================================================================================================
The projected benefit obligations for the defined benefit plans were determined using assumed discount rates of 7 percent in 1996 and 1995 and an assumed long-term compensation increase rate of 5.5 percent in 1996 and 1995. The plan assets are invested in a diversified portfolio that consists primarily of equity and debt securities. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES Note 9: Income Taxes - -------------------------------------------------------------------------------- The provision for income taxes was as follows (in thousands): Year Ended December 31, ------------------------------------ 1996 1995 1994 - -------------------------------------------------------------------------------- Current: Federal $35,903 $ 94,068 $59,825 State 3,882 13,079 8,970 - -------------------------------------------------------------------------------- 39,785 107,147 68,795 - -------------------------------------------------------------------------------- Deferred: Federal 2,884 8,812 2,123 State 1,218 623 (300) - -------------------------------------------------------------------------------- 4,102 9,435 1,823 - -------------------------------------------------------------------------------- Provision for income taxes $43,887 $116,582 $70,618 ================================================================================ The difference between the statutory federal income tax rate and the Company's effective income tax rate is summarized as follows: Year Ended December 31, ------------------------------------ 1996 1995 1994 - -------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.9 2.9 2.8 Other 0.1 0.6 (1.2) - -------------------------------------------------------------------------------- Effective income tax rate 38.0% 38.5% 36.6% ================================================================================ Cash payments for income taxes during 1996, 1995 and 1994 were $28,685,000, $133,170,000 and $44,096,000, respectively. The Company's net deferred tax liability consisted of the following major items (in thousands): December 31, -------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Receivables $ 715 $ 602 Inventories 1,323 1,288 Vacation accruals 1,315 1,403 Stock options 198 2,813 Other 2,859 2,009 - -------------------------------------------------------------------------------- Total deferred tax assets 6,410 8,115 Deferred tax liability: Property, plant and equipment (52,855) (50,458) - -------------------------------------------------------------------------------- Net deferred tax liability $(46,445) $(42,343) ================================================================================ 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES The Company has determined, based on its history of operating earnings and expectations for the future, that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets at December 31, 1996. Note 10: Commitments and Contingencies - -------------------------------------------------------------------------------- Leases - The Company leases railcars, storage terminals, computer equipment, warehouse and office space under noncancelable operating leases with varying maturities through the year 2010. Future minimum payments under these noncancelable operating leases as of December 31, 1996 were $13,163,000 for 1997, $9,536,000 for 1998, $8,399,000 for 1999, $5,804,000 for 2000, $3,985,000 for 2001 and $19,630,000 thereafter. Total lease expense was approximately $13,275,000, $12,465,000 and $10,767,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In February 1996, the Company entered into an operating lease agreement for a 250 megawatt co-generation facility to be constructed at the Company's Plaquemine, Louisiana, complex. The total cost of assets to be covered by the lease is limited to $120,000,000. The accumulated construction in progress was $82,387,000 at December 31, 1996. The co-generation facility, scheduled for completion by the third quarter of 1997, will supply essentially all electricity and steam requirements for the Plaquemine location. Payments under the lease will be determined and will commence upon completion of construction and will continue through the initial lease term of three years. The Company has options to renew the lease for two one-year periods and to purchase the facility at its estimated fair market value at any time during the lease term. The lease provides for substantial residual value guarantees by the Company at the termination of the lease. Purchase Commitments - The Company has certain take or pay raw material purchase agreements with various terms extending through 2014. The aggregate amount of the fixed and determinable portion of the required payments under these agreements as of December 31, 1996 were $7,143,000 for each of the years 1997 through 2001 and $47,507,000 thereafter. Total payments under these agreements were $16,330,000 in 1996, which represent deposits for future raw material deliveries (see Note 1). Legal Proceedings - The Company is subject to claims and legal actions that arise in the ordinary course of its business. Management believes that the ultimate liability, if any, with respect to these claims and legal actions, will not have a material effect on the financial position or on the results of operations of the Company. Chemical Exposure Litigation, Plaquemine, Louisiana The Company is a party to numerous individual and several class-action lawsuits filed against the Company, among other parties, arising out of an incident that occurred in September 1996 in which workers were exposed to a chemical substance on the Company's premises in Plaquemine, Louisiana. The substance was later identified to be a form of mustard agent, a chemical that is not manufactured as part of the Company's ordinary operations and that apparently resulted from the unexpected introduction into the Company's feedstocks of one or more impurities from sources unknown. The lawsuits are pending in the 18th Judicial District, Iberville Parish. The Company has filed answers in the cases in which it has been served, although it has not been served in all cases of which it is now aware. Discovery has been served in some of the cases. All of the actions claim one or more forms of compensable damages, including past and future lost wages and past and future physical and emotional pain and suffering. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES At the present time, it is not possible to estimate the number of suits that will be filed, the number of persons who will make claims, the merit of any such claims, the nature or extent of damages that will be sought, the defenses available to the Company, the liability of other persons, or to make a factual or legal assessment of the Company's ultimate exposure. Notwithstanding the foregoing, the Company believes it has meritorious defenses to the claims asserted and intends to assert and pursue those defenses vigorously. Note 11: Significant Customer and Export Sales - -------------------------------------------------------------------------------- Significant Customer - The Company has supply contracts, subject to certain limitations, for a substantial percentage of Georgia-Pacific Corporation's requirements for certain chemicals at market prices. These supply contracts have various expiration dates (depending on the product) from 1998 through 2003 and may be extended year-to- year upon expiration. The sales to Georgia-Pacific Corporation under these supply contracts for the years ended December 31, 1996, 1995 and 1994 amounted to approximately 15 percent, 14 percent and 15 percent of net sales, respectively. Receivables outstanding from these sales were $11,226,000 and $12,474,000 at December 31, 1996 and 1995, respectively. Export Sales - Export sales were approximately 12 percent, 15 percent and 13 percent of the Company's net sales for the years ended December 31, 1996, 1995 and 1994, respectively. The principal international markets served by the Company include Canada, Mexico, Latin America, Europe and Asia. Note 12: Derivative Financial Instruments and Fair Value of Financial Instruments - -------------------------------------------------------------------------------- The Company does not use derivatives for trading purposes. Interest rate swaps, a form of derivative, are used to manage interest costs. The Company entered into two interest rate swap agreements in June 1995, for a total notional amount of $100,000,000 maturing in June 2000, to fix the interest rate on the Term Loan. The fixed interest rate paid on the two interest rate swap agreements was 6.31 percent, while the floating interest rate received averaged 5.57 percent and 5.94 percent for 1996 and 1995, respectively. The Company also entered into an interest rate swap agreement for a notional amount $100,000,000 as a cash flow hedge for the co-generation facility operating lease agreement. This interest rate swap agreement will become effective in August 1997 and will mature August 2002 with a fixed interest rate to be paid of 5.88 percent and the floating interest rate to be received based on three-month LIBOR. As of December 31, 1996, these interest rates swap agreements were the only derivative financial instruments outstanding. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Debt - The fair value of the Notes was based on quoted market prices. The carrying amounts of the revolving credit loan and the Term Loan were assumed to approximate fair value due to the floating market interest rates to which the respective agreements are subject. Interest Rate Swap Agreements - The fair value of the interest rate swap agreements was estimated by obtaining quotes from brokers. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEORGIA GULF CORPORATION AND SUBSIDIARIES The estimated fair value of financial instruments was as follows (in thousands): December 31, ---------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------- Debt: Revolving credit loan $167,000 $167,000 $ 66,000 $ 66,000 Term Loan 100,000 100,000 100,000 100,000 7 5/8% Notes due 2005 100,000 100,144 100,000 102,364 Other 28,600 28,600 26,400 26,400 Interest rate swap agreements in receivable (payable) position - 2,741 - (3,648) Note 13: Disposition - -------------------------------------------------------------------------------- In April 1996, the Company completed the sale of its Delaware City, Delaware, facility and its emulsion resin business. The majority of the Delaware City vinyl compound production has been transferred to the Company's vinyl compound plant in Gallman, Mississippi. The proceeds from the sale approximated the net book value of the disposed assets. Note 14: Quarterly Financial Data (Unaudited) - -------------------------------------------------------------------------------- The following table sets forth certain quarterly financial data for the periods indicated (in thousands, except per share data): First Second Third Fourth Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- 1996 Net sales $208,036 $231,387 $237,946 $218,817 Gross margin 40,918 47,093 47,578 42,270 Operating income 30,110 36,167 37,601 32,395* Net income 15,806 19,286 19,871 16,657 Net income per common share 0.42 0.52 0.56 0.48 Dividends per common share 0.08 0.08 0.08 0.08 -------------------------------------------------- 1995 Net sales $314,026 $275,833 $270,877 $220,840 Gross margin 118,187 101,760 88,673 67,697 Operating income 106,604 89,487 77,202 54,653 Net income 60,157 50,793 44,482 31,062 Net income per common share 1.44 1.30 1.15 0.82 Dividends per common share 0.08 0.08 0.08 0.08 * Includes the reversal of certain environmental tax liabilities accrued during 1996 for $4,000,000 and the recording of a favorable insurance settlement for $3,200,000. 20 REPORT OF MANAGEMENT GEORGIA GULF CORPORATION AND SUBSIDIARIES To the Stockholders of Georgia Gulf Corporation: The accompanying consolidated financial statements of Georgia Gulf Corporation and subsidiaries are the responsibility of and have been prepared by the Company in conformity with generally accepted accounting principles. The financial information displayed in other sections of this 1996 Annual Report is consistent with the consolidated financial statements. The integrity and the objectivity of the data in these consolidated financial statements, including estimates and judgments relating to matters not concluded by year-end, are the responsibility of management. The Company and its subsidiaries maintain accounting systems and related internal controls, including a detailed budget and reporting system, to provide reasonable assurance that financial records are reliable for preparing the consolidated financial statements and for maintaining accountability for assets. The system of internal controls also provides reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization. Periodic reviews of the systems and of internal controls are performed by the Company's internal audit department. The Audit Committee of the Board of Directors, composed solely of outside directors who are not officers or employees of the Company, has the responsibility of meeting periodically with management, the Company's internal auditors and Arthur Andersen LLP, the Company's independent public accountants that are approved by the stockholders, to review the scope and results of the annual audit, quarterly reviews and the general overall effectiveness of the internal accounting control system. The independent public accountants and the Company's internal auditors have direct access to the Audit Committee, with or without the presence of management, to discuss the scope and results of their audits, as well as any comments they may have related to the adequacy of the internal accounting control system and the quality of financial reporting. Richard B. Marchese Vice President Finance, Chief Financial Officer and Treasurer February 14, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Georgia Gulf Corporation: We have audited the accompanying consolidated balance sheets of Georgia Gulf Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 financial statements referred to above present fairly, in all material respects, the financial position of Georgia Gulf Corporation and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Atlanta, Georgia February 14, 1997 21 DIRECTORS AND OFFICERS GEORGIA GULF CORPORATION AND SUBSIDIARIES DIRECTORS JAMES R. KUSE CHAIRMAN OF THE BOARD, RETIRED CHIEF EXECUTIVE OFFICER, GEORGIA GULF CORPORATION JERRY R. SATRUM PRESIDENT AND CHIEF EXECUTIVE OFFICER, GEORGIA GULF CORPORATION JOHN D. BRYAN RETIRED VICE PRESIDENT OPERATIONS, GEORGIA GULF CORPORATION DENNIS M. CHORBA RETIRED VICE PRESIDENT, GENERAL COUNSEL, GEORGIA GULF CORPORATION ALFRED C. ECKERT III* PRESIDENT, GREENWICH STREET CAPITAL PARTNERS, INC. ROBERT E. FLOWERREE* RETIRED CHAIRMAN OF THE BOARD, GEORGIA-PACIFIC CORPORATION HOLCOMBE T. GREEN, JR.* CHAIRMAN AND CHIEF EXECUTIVE OFFICER, WESTPOINT STEVENS, INC. EDWARD S. SMITH* RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER, OMARK INDUSTRIES *AUDIT COMMITTEE OFFICERS JERRY R. SATRUM PRESIDENT AND CHIEF EXECUTIVE OFFICER EDWARD A. SCHMITT EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER RICHARD B. MARCHESE VICE PRESIDENT FINANCE, CHIEF FINANCIAL OFFICER AND TREASURER JOEL I. BEERMAN VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY GARY L. ELLIOTT VICE PRESIDENT MARKETING AND SALES, COMMODITY CHEMICALS GROUP MARK J. SEAL VICE PRESIDENT, POLYMER GROUP THOMAS G. SWANSON VICE PRESIDENT SUPPLY AND CORPORATE DEVELOPMENT 22 CORPORATE INFORMATION GEORGIA GULF CORPORATION AND SUBSIDIARIES Corporate Headquarters 400 Perimeter Center Terrace Suite 595 Atlanta, Georgia 30346 (770) 395-4500 Auditors Arthur Andersen LLP Atlanta, Georgia Transfer Agent and Registrar Wachovia Bank of North Carolina, N.A. P. O. Box 3001 Winston-Salem, North Carolina 27102 1-800-633-4236 Changes of address, questions regarding lost certificates, requests for changes in registration and other general correspondence concerning stockholder accounts should be directed to the Transfer Agent. Annual Meeting The Annual Meeting of Stockholders of Georgia Gulf Corporation will be held in the Conference Center of the South Terraces Building, 115 Perimeter Center Place, Atlanta, Georgia, on Tuesday, May 20, 1997 at 1:30 p.m. Stockholders are cordially invited to attend. Annual Report on Form 10-K Form 10-K is a report filed annually with the Securities and Exchange Commission. Much of the information contained therein is included in this Annual Report, though the Form 10-K includes some supplementary material. Upon receipt of a written request from a stockholder to the Financial Affairs Department, Georgia Gulf Corporation, P. O. Box 105197, Atlanta, Georgia 30348, Georgia Gulf will furnish a copy of its Form 10-K, excluding exhibits, without charge. Common Stock Data Georgia Gulf Corporation's common stock is listed on the New York Stock Exchange under the symbol GGC. At December 31, 1996, there were 901 common stockholders of record. The following table sets forth the New York Stock Exchange high, low and closing stock prices for the Company's common stock for the years 1996 and 1995. 1996 (In dollars) High Low Close - -------------------------------------- First quarter 39 1/2 28 1/4 37 1/2 Second quarter 38 3/4 28 1/2 29 1/4 Third quarter 32 7/8 27 7/8 29 7/8 Fourth quarter 30 1/4 25 3/4 26 7/8 1995 (In dollars) High Low Close - -------------------------------------- First quarter 40 3/4 26 5/8 29 7/8 Second quarter 34 1/4 28 1/8 32 5/8 Third quarter 37 1/2 32 1/4 34 1/2 Fourth quarter 37 5/8 30 1/2 30 3/4 23 EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT GG Terminal Management Corporation Georgia Gulf Export Corporation Great River Oil & Gas Corporation GGRC Corp. EX-23 5 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, file no. 33- 14696, file no. 33-27365, file no. 33-40952, file no. 33-42008 and file no. 33- 64749. ARTHUR ANDERSEN LLP Atlanta, Georgia March 24, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 698 0 66,531 2,400 89,196 170,369 646,144 251,407 587,999 120,974 395,600 0 0 346 18,224 587,999 896,186 896,186 718,327 718,327 0 0 20,766 115,507 43,887 71,620 0 0 0 71,620 1.97 1.97
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