SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to____________
Commission file number 0-7154
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QUAKER CHEMICAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-0993790
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quaker Park, 901 Hector Street, Conshohocken, Pennsylvania 19428 - 0809
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-832-4000
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Not Applicable
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Former name, former address and former fiscal year, if changed since last
report.
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 ___
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Number of Shares of Common Stock
Outstanding on July 31, 2002 9,311,598
QUAKER CHEMICAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheet at June 30, 2002 and December 31,
2001
Condensed Consolidated Statement of Income for the Three and Six
Months ended June 30, 2002 and 2001
Condensed Consolidated Statement of Cash Flows for the Six Months
ended June 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
* * * * * * * * * *
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
Unaudited
(dollars in thousands)
June 30, December 31,
2002 2001 *
---- ------
ASSETS
Current assets
Cash and cash equivalents $ 18,316 $ 20,549
Accounts receivable, net 55,828 44,787
Inventories
Raw materials and supplies 10,868 9,673
Work-in-process and finished goods 9,749 9,112
Prepaid expenses and other current assets 12,594 8,809
--------- ---------
Total current assets 107,355 92,930
--------- ---------
Property, plant and equipment, at cost 111,036 97,367
Less accumulated depreciation 63,921 59,123
--------- ---------
Total property, plant and equipment 47,115 38,244
Goodwill 22,097 14,960
Other intangible assets 6,337 1,442
Investments in associated companies 9,390 9,839
Deferred income taxes 8,837 9,085
Other assets 13,705 13,166
--------- ---------
$ 214,836 $ 179,666
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion of long-term debt $ 24,905 $ 2,858
Accounts and other payables 26,229 20,196
Accrued compensation 7,973 8,109
Other current liabilities 15,449 14,343
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Total current liabilities 74,556 45,506
Long-term debt 19,459 19,380
Deferred income taxes 1,152 1,233
Other noncurrent liabilities 25,632 24,212
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Total liabilities 120,799 90,331
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Minority interest in equity of subsidiaries 8,041 8,436
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Shareholders' Equity
Common stock $1 par value; authorized
30,000,000 shares; issued (including
treasury shares) 9,664,009 shares 9,664 9,664
Capital in excess of par value 576 357
Retained earnings 105,664 103,953
Unearned compensation (1,419) (1,597)
Accumulated other comprehensive (loss) (23,632) (24,075)
--------- ---------
90,853 88,302
Treasury stock, shares held at cost;
2002-356,898, 2001-526,865 (4,857) (7,403)
--------- ---------
Total shareholders' equity 85,996 80,899
--------- ---------
$ 214,836 $ 179,666
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
* Condensed from audited financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Income
Unaudited
(dollars in thousands, except per share data)
Three Months ended June 30, Six Months ended June 30,
----------------------------- ------------------------------
2002 2001 2002 2001
----------- ------------ ------------ -----------
Net sales $ 69,457 $ 65,073 $ 129,384 $ 129,288
Cost of goods sold 40,495 37,988 76,065 76,381
----------- ----------- ----------- -----------
Gross margin 28,962 27,085 53,319 52,907
Selling, general and administrative expenses 23,279 20,126 43,303 39,849
----------- ----------- ----------- -----------
Operating income 5,683 6,959 10,016 13,058
Other (expense) income, net (28) 379 252 1,159
Interest expense (407) (499) (826) (991)
Interest income 295 206 548 477
----------- ----------- ----------- -----------
Income before taxes 5,543 7,045 9,990 13,703
Taxes on income 1,774 2,184 3,197 4,248
----------- ----------- ----------- -----------
3,769 4,861 6,793 9,455
Equity in net income of associated
companies 201 216 184 496
Minority interest in net income of
subsidiaries (734) (963) (1,383) (1,824)
----------- ----------- ----------- -----------
Net income $ 3,236 $ 4,114 $ 5,594 $ 8,127
=========== =========== =========== ===========
Per share data:
Net income - basic $ 0.35 $ 0.45 $ 0.61 $ 0.90
Net income - diluted $ 0.35 $ 0.45 $ 0.60 $ 0.90
Dividends declared $ 0.21 $ 0.205 $ 0.42 $ 0.41
Based on weighted average number of shares outstanding:
Basic 9,249,925 9,064,679 9,202,378 8,983,623
Diluted 9,308,678 9,124,642 9,262,025 9,044,729
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the Six Months ended June 30,
Unaudited
(dollars in thousands)
2002 2001
---- ----
Cash flows from operating activities
Net income $ 5,594 $ 8,127
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,327 2,376
Amortization 325 730
Equity in net income of associated companies (184) (496)
Minority interest in earnings of subsidiaries 1,383 1,824
Deferred compensation and other postretirement benefits (329) 915
Other, net (1,938) 2,511
Increase (decrease) in cash from changes in current assets and current
liabilities:
Accounts receivable, net (4,532) (3,073)
Inventories (798) 1,644
Prepaid expenses and other current assets (1,080) (1,509)
Accounts payable and accrued liabilities 4,571 (4,858)
Change in restructuring liabilities (1,167) (244)
-------- --------
Net cash provided by operating activities 4,172 7,947
-------- --------
Cash flows from investing activities
Investments in property, plant and equipment (5,060) (3,148)
Payments related to acquisitions (21,576) (1,450)
Other, net 298 1,111
-------- --------
Net cash (used in) investing activities (26,338) (3,487)
-------- --------
Cash flows from financing activities
Net increase in short-term borrowings 22,009 2,548
Dividends paid (3,802) (3,672)
Treasury stock issued 2,404 2,427
Distributions to minority shareholders (1,335) (1,119)
Other, net 85 (36)
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Net cash provided by financing activities 19,361 148
-------- --------
Effect of exchange rate changes on cash 572 (2,217)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,233) 2,391
Cash and cash equivalents at beginning of period 20,549 16,552
-------- --------
Cash and cash equivalents at end of period $ 18,316 $ 18,943
======== ========
Noncash investing activities:
Contribution of property, plant & equipment to real estate joint venture $ - $ 4,350
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Quaker Chemical Corporation
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands)
(Unaudited)
Note 1 - Condensed Financial Information
The condensed consolidated financial statements included herein are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission regulations. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Certain prior year amounts have been reclassified to conform to the
2002 presentation. In the opinion of management, the financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
are necessary for a fair statement of the financial position, results of
operations and cash flows for the interim periods. The results for the three and
six months ended June 30, 2002 are not necessarily indicative of the results to
be expected for the full year. These financial statements should be read in
conjunction with the Annual Report filed on Form 10-K for the year ended
December 31, 2001.
As part of the Company's chemical management services, certain third party
products are transferred to customers at no gross profit and accordingly, these
transactions are not recorded in net sales or expense. Third party products
transferred under these arrangements totaled $14,187 and $10,099 for the six
months ended June 30, 2002 and 2001, respectively.
Note 2 - Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No 143 addresses
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs. This statement
is effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact of this new standard.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets." The provisions of this statement provide a single accounting
model for impairment of long-lived assets. The statement is effective for fiscal
years beginning after December 15, 2001. The Company adopted this standard on
January 1, 2002. Management has assessed the impact of the new standard and
determined there to be no material impact to the financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections." For
most companies, SFAS No. 145 will require gains and losses on extinguishments of
debt to be classified as income or loss from continuing operations rather than
as extraordinary items as previously required under SFAS No. 4. Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. The statement also amended SFAS No. 13 for certain
sales-leaseback and sublease accounting. The Company is required to adopt the
provisions of SFAS No. 145 effective January 1, 2003. The Company is currently
evaluating the impact of adoption of this statement.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", and nullifies EITF Issue No. 94-3. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No 94-3 had
recognized the liability at the commitment date to an exit plan. The Company is
required to adopt the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. The Company is currently
evaluating the impact of adoption of this statement.
Note 3 --Earnings Per Share
The following table summarizes earnings per share (EPS) calculations for the
three months ended June 30, 2002 and 2001:
2002 2001
---- ----
Numerator for basic EPS and diluted EPS--
net income ............................................ $ 3,236 $ 4,114
------- -------
Denominator for basic EPS--weighted
average shares ........................................ 9,250 9,065
Effect of dilutive securities, primarily
employee stock options ................................ 59 60
------- -------
Denominator for diluted EPS--weighted
average shares and assumed
conversions. .......................................... 9,309 9,125
======= =======
Basic EPS ............................................... $ .35 $ .45
Diluted EPS ............................................. $ .35 $ .45
The following table summarizes earnings per share (EPS) calculations for the six
months ended June 30, 2002 and 2001:
2002 2001
---- ----
Numerator for basic EPS and diluted EPS--
net income ......................................... $ 5,594 $ 8,127
------- -------
Denominator for basic EPS--weighted
average shares ..................................... 9,202 8,984
Effect of dilutive securities, primarily
employee stock options ............................. 60 61
------- -------
Denominator for diluted EPS--weighted
average shares and assumed
conversions......................................... 9,262 9,045
======= =======
Basic EPS ............................................. $ .61 $ .90
Diluted EPS ........................................... $ .60 $ .90
Note 4 - Business Segments
The Company's reportable segments are as follows:
(1) Metalworking process chemicals - products used as lubricants for various
heavy industrial and manufacturing applications.
(2) Coatings - temporary and permanent coatings for metal and concrete products
and chemical milling maskants.
(3) Other chemical products - other various chemical products.
Segment data includes direct segment costs as well as general operating costs,
including depreciation, allocated to each segment based on net sales.
The table below presents information about the reported segments for the six
months ending June 30:
Metalworking Other
Process Chemical
Chemicals Coatings Products Total
----------------------------------------------------
2002
Net sales $117,902 $ 9,383 $ 2,099 $129,384
Operating income 25,194 2,397 582 28,173
2001
Net sales $118,611 $ 8,760 $ 1,917 $129,288
Operating income 26,474 2,427 752 29,653
Operating income comprises revenue less related costs and expenses.
Non-operating items primarily consist of general corporate expenses identified
as not being a cost of operation, interest expense, interest income, and license
fees from non-consolidated associates.
A reconciliation of total segment operating income to total consolidated income
before taxes, for the six months ended June 30 is as follows:
2002 2001
---- ----
Total operating income for
reportable segments $ 28,173 $ 29,653
Non-operating expenses (17,832) (15,865)
Amortization (325) (730)
Interest expense (826) (991)
Interest income 548 477
Other income, net 252 1,159
-------- --------
Consolidated income before taxes $ 9,990 $ 13,703
======== ========
Note 5 - Comprehensive Income
The following table summarizes comprehensive income for the three months ended
June 30:
2002 2001
------- --------
Net income $ 3,236 $ 4,114
Foreign currency translation adjustments 2,746 (2,092)
------- -------
Comprehensive income $ 5,982 $ 2,022
======= =======
The following table summarizes comprehensive income for the six months ended
June 30:
2002 2001
------- -------
Net income $ 5,594 $ 8,127
Foreign currency translation adjustments 443 (7,223)
------- -------
Comprehensive income $ 6,037 $ 904
======= =======
Note 6 - Restructuring and Nonrecurring Expenses
In the third and fourth quarters of 2001, Quaker's management approved
restructuring plans to realign its organization and reduce operating costs.
Quaker's restructuring plans include the closure and sale of its manufacturing
facilities in the U.K. and France. In addition, Quaker consolidated certain
functions within its global business units and reduced administrative functions,
as well as expensed costs related to abandoned acquisitions. Included in the
third and fourth quarter restructuring charges are provisions for the severance
of 16 and 37 employees, respectively.
Restructuring and related charges of $2,958 and $2,896 were expensed during the
third and fourth quarters of 2001, respectively. The third quarter charge
comprised $520 related to employee separations, $2,038 related to facility
rationalization charges and $400 related to abandoned acquisitions. The fourth
quarter charge comprised $2,124 related to employee separations, $575 related to
facility rationalization charges and $197 related to abandoned acquisitions.
Employee separation benefits under each plan varied depending on local
regulations within certain foreign countries and included severance and other
benefits. As of June 30, 2002, Quaker had completed 48 of the planned 53
employee separations under the 2001 plans. Quaker expects to substantially
complete the initiatives contemplated under the restructuring plans, including
the disposition of the manufacturing facilities, by early to mid 2003.
Accrued restructuring balances as of June 30, 2002 are as follows:
- --------------------------------------------------------------------------------
Balance Currency Balance
December translation June
31, 2001 Payments and other 30,2002
-------- -------- --------- -------
- --------------------------------------------------------------------------------
Employee separations $ 2,534 $ (752) $ 55 $ 1,837
- --------------------------------------------------------------------------------
Facility rationalization 1,439 (415) 77 1,101
------- ------- ----- -------
- --------------------------------------------------------------------------------
Total $ 3,973 $(1,167) $ 132 $ 2,938
======= ======== ===== =======
- --------------------------------------------------------------------------------
Note 7 - Business Acquisitions
On March 1, 2002, the Company acquired certain assets and liabilities of United
Lubricants Corporation ("ULC"), a North American manufacturer and distributor of
specialty lubricant products and chemical management services, for approximately
$13,676. The acquisition of ULC strategically strengthens the Company's global
leadership supply position to the steel industry.
The following table shows the fair value of assets and liabilities recorded for
the acquisition, subject to post-closing adjustments:
Receivables $ 4,513
Inventories 868
Property, plant and equipment 4,166
Goodwill 4,930
Intangible assets 2,300
Other assets 74
-------
16,851
-------
Accounts payable 2,148
Accrued expenses and other current liabilities 261
Other noncurrent liabilities 766
-------
3,175
-------
Cash paid for acquisition $13,676
=======
The $4,930 of goodwill was assigned to the Metalworking process chemicals
segment, and the entire amount is expected to be deductible for income tax
purposes.
The $2,300 of intangible assets comprised $1,400 of branded customer lists, $700
of formulations, and $200 of trademarks. These intangibles are being amortized
over a five-year period.
The results of operations of ULC are included in the consolidated statement of
income beginning March 1, 2002. Pro-forma results of operations have not been
provided because the effects are not material.
On April 22, 2002, the Company acquired one hundred percent of the outstanding
stock of Epmar Corporation ("Epmar"), a North American manufacturer of polymeric
coatings, sealants, adhesives, and various other compounds, for approximately
$7,500 and the assumption of $400 of debt. The acquisition of Epmar provides
technological capability that is directly related to the Company's coatings
business.
The following table shows the fair value of assets and liabilities recorded for
the acquisition, subject to post-closing adjustments:
Receivables $ 848
Inventories 422
Property, plant and equipment 967
Goodwill 3,218
Intangible assets 2,920
Other assets 39
-------
8,414
-------
Accounts payable 406
Accrued expenses and other current liabilities 108
Other noncurrent liabilities 400
-------
914
-------
Cash paid for acquisition $ 7,500
=======
The $3,218 of goodwill was assigned to the Coatings segment, and the entire
amount is expected to be deductible for income tax purposes.
The $2,920 of intangible assets comprised: $1,600 of customer lists to be
amortized over twenty years, $720 of product line technology to be amortized
over ten years, and $600 of trademarks which have indefinite lives and will not
be amortized.
The results of operations of Epmar are included in the consolidated statement of
income beginning April 22, 2002. Pro-forma results of operations have not been
provided because the effects are not material.
Note 8 - Goodwill and Other Intangible Assets
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 established new guidelines for accounting for goodwill and
other intangible assets. Upon adoption, goodwill is no longer amortized, but
instead assessed for impairment at least on an annual basis. Accordingly, on
January 1, 2002, the Company ceased amortizing its goodwill. The Company
completed impairment assessment of its goodwill and did not incur an impairment
charge related to the adoption of SFAS No. 142.
The following is a reconciliation of previously reported financial information
to pro-forma amounts exclusive of goodwill amortization for the three months
ended June 30, 2001:
Net income $4,114
Goodwill amortization expense, net of tax 176
------
Pro-forma net income $4,290
======
Earnings per share, basic and diluted $0.45
Goodwill amortization expense, net of tax 0.02
-----
Pro-forma earnings per share, basic and diluted $0.47
=====
The following is a reconciliation of previously reported financial information
to pro-forma amounts exclusive of goodwill amortization for the six months ended
June 30, 2001:
Net income $8,127
Goodwill amortization expense, net of tax 357
------
Pro-forma net income $8,484
======
Earnings per share, basic and diluted $0.90
Goodwill amortization expense, net of tax 0.04
-----
Pro-forma earnings per share, basic and diluted $0.94
=====
The changes in carrying amount of goodwill for the six months ended June 30,
2002 are as follows:
Metalworking
process chemicals Coatings Total
----------------------------------------
Balance as of
January 1, 2002 $11,081 $3,879 $14,960
Goodwill additions 5,025 3,218 8,243
Currency translation
adjustments (1,106) -- (1,106)
------- ------ -------
Balance as of
June 30, 2002 $15,000 $7,097 $22,097
======= ====== =======
Goodwill additions are subject to post-closing adjustments.
Gross carrying amounts and accumulated amortization for intangibles assets as of
June 30, 2002, are as follows:
Gross carrying Accumulated
Amount Amortization
-----------------------------
Amortized intangible assets
Customer lists and rights to sell $3,850 $ 179
Trademarks and patents 2,300 1,513
Formulations and product technology 1,420 53
Other 1,491 979
------ -----
Total $9,061 $2,724
====== ======
Estimated annual aggregate amortization expense for the current year and
subsequent five years is as follows:
For the year ended December 31, 2002 $692
For the year ended December 31, 2003 $825
For the year ended December 31, 2004 $688
For the year ended December 31, 2005 $686
For the year ended December 31, 2006 $686
For the year ended December 31, 2007 $320
Note 9 - Debt
In April 2002, the Company entered into a $20,000 committed credit
facility, with a bank, which expires in April 2003. At the Company's option, the
interest rate for borrowings under the agreement may be based on the lender's
cost of funds plus a margin, LIBOR plus a margin, or on the prime rate. The
provisions of the agreement require that the Company maintain certain financial
ratios and covenants, all of which the Company was in compliance with as of June
30, 2002. A total of $4,000 in borrowings was outstanding under this facility as
of June 30, 2002.
In April 2002, the Company entered into a $10,000 uncommitted credit
facility with the same lender under similar terms. No borrowings under this
facility were outstanding as of June 30, 2002.
These facilities replace an existing uncommitted facility in the amount of
$18,000, which was fully drawn as of June 2002. This facility was terminated in
July 2002, with all remaining balances outstanding scheduled to be repaid
through borrowings under the new facilities discussed above.
Note 10 - Subsequent Event
Effective July 1, 2002, the Company acquired a controlling interest of Quaker
Chemical South Africa (Pty.) Ltd (South Africa), a previously fifty-percent
owned joint venture. As a result, South Africa, previously reported using the
equity method, will become a fully consolidated subsidiary commencing in July
2002. The effect of this change is not expected to be material to the financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Net cash flows provided by operating activities were $4.2 million in the
first six months of 2002 compared to $7.9 million in the same period of 2001.
The decrease was primarily due to lower net income in 2002 and increases in the
changes in accounts receivable, inventories, and prepaid expenses and other
current assets, offset by changes in accounts payable and accrued liabilities.
Net cash flows used in investing activities were $26.3 million in the first
six months of 2002 compared to $3.5 million in the same period of 2001. The
increase was primarily related to payments of $21.6 million in 2002 related to
the acquisitions of United Lubricants Corporation ("ULC") and Epmar Corporation
("Epmar"), compared to a payment of $1.4 million related to an acquisition in
2001.
Expenditures for property, plant, and equipment totaled $5.1 million in the
first six months of 2002 compared to $3.1 million in the same period of 2001.
The increase in spending was primarily the result of the project to implement a
global transaction system and the move into the new corporate headquarters.
Capital expenditures for 2002 are expected to be approximately $13.0 million,
which is down from the previous estimate of $17.0 million.
Net cash flows provided by financing activities were $19.4 million for the
first six months of 2002 compared with $0.1 million for the same period of the
prior year. The net change was primarily due to approximately $22.0 million of
short-term borrowings in 2002, primarily used to finance the ULC and Epmar
acquisitions, compared with $2.5 million of short-term borrowings in 2001.
In April 2002, the Company entered into a $20.0 million committed credit
facility, with a bank, which expires in April 2003. At the Company's option, the
interest rate for borrowings under the agreement may be based on the lender's
cost of funds plus a margin, LIBOR plus a margin, or on the prime rate. The
provisions of the agreement require that the Company maintain certain financial
ratios and covenants, all of which the Company was in compliance with as of June
30, 2002. A total of $4.0 million in borrowings was outstanding under this
facility as of June 30, 2002.
In April 2002, the Company entered into a $10.0 million uncommitted credit
facility with the same lender under similar terms. No borrowings under this
facility were outstanding as of June 30, 2002.
These facilities replace an existing uncommitted facility in the amount of
$18.0 million, which was fully drawn as of June 2002. This facility was
terminated in July 2002, with all remaining balances outstanding scheduled to be
repaid through borrowings under the new facilities discussed above.
The Company believes, that in 2002, it is capable of supporting its
operating requirements, payments of dividends to shareholders, possible
acquisition opportunities, and possible resolution of contingencies, through
internally generated funds supplemented with debt as needed.
Operations
Comparison of First Six Months 2002 with First Six Months 2001
Consolidated net sales for the first six months of 2002 were $129.4
million, essentially flat compared to the first six months of 2001. The sales
comparison was favorably impacted by the inclusion of revenues from ULC and
Epmar, partially offset by unfavorable foreign currency translations. At
constant exchange rates and excluding ULC and Epmar revenues, consolidated net
sales would have been down approximately three percent compared to 2001.
Cost of sales decreased as a percentage of sales from 59.1 percent in 2001
to 58.8 percent in 2002. The improvement was primarily a result of favorable raw
material costs.
Selling, general and administrative (SG&A) expenses of $43.3 million in the
first six months of 2002 were approximately nine percent higher than the $39.8
million reported in the first months of 2001. The increase was primarily the
result of SG&A expenses of ULC and Epmar, and higher pension, insurance, and
other administrative costs.
Other income variance primarily reflects foreign exchange losses in the
first six months of 2002 compared with foreign exchange gains in the first six
months of 2001, as well as lower license fee revenue in 2002 compared with 2001.
Net interest expense was favorable in the first six months of 2002 compared to
the prior year, despite increased borrowings to fund the ULC and Epmar
acquisitions, due to lower borrowing rates and the impact of principal payments
made on the Company's long-term debt. Equity income in the first six months of
2002 compared to the first six months of 2001 reflects lower income year over
year from the Company's joint venture in Mexico, as well as the start up of the
Company's real estate joint venture in Conshohocken, PA. Minority interest was
lower in the first six months of 2002 compared with the same period last year,
primarily due to lower net income from the Company's subsidiary in Brazil.
The effective tax rate for 2002 is currently 32%, compared to 31% in the
prior year. The effective tax rate is dependent on many internal and external
factors, and is assessed by the Company on a regular basis. The Company has been
assessed approximately $2 million of additional taxes based on an audit of
certain of its subsidiaries for prior years. The Company has initiated an appeal
process related to this assessment and currently believes its reserves are
adequate.
Comparison of Second Quarter 2002 with Second Quarter 2001
Consolidated net sales for the second quarter of 2002 were $69.5 million, a
seven percent increase compared to the second quarter of 2001. The sales
comparison was favorably impacted by the inclusion of revenues from ULC and
Epmar. The impact of foreign currency translations was not material to the
quarterly comparison, as the strengthening Euro was largely offset by the
weakening Brazilian Real and Argentine Peso. At constant exchange rates and
excluding ULC and Epmar revenues, consolidated net sales would have been down
approximately one percent compared to 2001.
Cost of sales as a percentage of sales was essentially flat.
Selling, general and administrative (SG&A) expenses in the second quarter
of 2002 were up $3.2 million from the second quarter of 2001. SG&A expenses of
ULC and Epmar accounted for approximately one half of the quarterly increase.
Higher pension, insurance, and other administrative costs were also factors.
Other income variance primarily reflects foreign exchange losses in the
second quarter of 2002 compared with foreign exchange gains in the second
quarter of 2001. Net interest expense was favorable in the second quarter of
2002 compared to the prior year, despite increased borrowings to fund the ULC
and Epmar acquisitions, due to lower borrowing rates and the impact of principal
payments made on the Company's long-term debt. Equity income in the second
quarter of 2002 was essentially flat compared to equity income in the second
quarter 2001. Minority interest was lower in the second quarter of 2002 compared
with the same period last year, primarily due to lower net income from the
Company's subsidiary in Brazil.
The effective tax rate for 2002 is currently 32%, compared to 31% in the
prior year.
Other Significant Items
On March 1, 2002, the Company acquired certain assets and liabilities of
United Lubricants Corporation for approximately $13.7 million, subject to
post-closing adjustments. The acquisition resulted in the recognition of
approximately $4.9 million of goodwill and $2.3 million of intangible assets.
Pro-forma results of operations have not been presented because the effects were
not material.
On April 22, 2002, the Company acquired all of the outstanding stock of
Epmar Corporation for $7.5 million and the assumption of $0.4 million of debt.
The acquisition resulted in the recognition of approximately $3.2 million of
goodwill and $2.9 million of intangible assets. Pro-forma results of operations
have not been presented because the effects were not material.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the euro. The euro trades on currency
exchanges and may be used in business transactions. In January 2002, new
euro-denominated bills and coins were issued, and legacy currencies were
withdrawn from circulation. The Company's operating subsidiaries affected by the
euro conversion executed plans to address the systems and business issues raised
by the euro currency. The euro conversion did not have a material adverse impact
on the Company's financial condition or results of operations.
Forward-Looking and Cautionary Statements
Except for historical information and discussions, statements contained in
this Form 10-Q may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements involve a
number of risks, uncertainties and other factors that could cause actual results
to differ materially from those projected in such statements.
Such risks and uncertainties include, but are not limited to, further
downturns in our customers' businesses, significant increases in raw material
costs, worldwide economic and political conditions, foreign currency
fluctuations and future terrorist attacks such as those that occurred on
September 11, 2001. Furthermore, the Company is subject to the same business
cycles as those experienced by steel, automobile, aircraft, appliance or durable
goods manufacturers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Quaker is exposed to the impact of interest rates, foreign currency
fluctuations, changes in commodity prices, and credit risk.
Interest Rate Risk. Quaker's exposure to market rate risk for changes in
interest rates relates primarily to its short and long-term debt. Most of
Quaker's long-term debt has a fixed interest rate, while its short-term debt is
negotiated at market rates which can be either fixed or variable. Incorporated
by reference is the information in "Liquidity and Capital Resources" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 8 of the Notes to Consolidated Financial Statements
beginning on pages 10 and 31, respectively, of the Registrant's 2001 Annual
Report filed on Form 10-K. Accordingly, if interest rates rise significantly,
the cost of short-term debt to Quaker will increase. This can have a material
adverse effect on Quaker depending on the extent of Quaker's short-term
borrowings. As of June 30, 2002, Quaker had $22.0 million of short-term
borrowings.
Foreign Exchange Risk. A significant portion of Quaker's revenues and
earnings is generated by its foreign subsidiaries. These foreign subsidiaries
also hold a significant portion of Quaker's assets and liabilities. Incorporated
by reference is the information concerning Quaker's non-U.S. activities
appearing in Note 11 of the Notes to Consolidated Financial Statements beginning
on page 35 of the Registrant's 2001 Annual Report filed on Form 10-K. All such
subsidiaries use the local currency as their functional currency. Accordingly,
Quaker's financial results are affected by risks typical of global business such
as currency fluctuations, particularly between the U.S. dollar, the Brazilian
real and the E.U. euro. As exchange rates vary, Quaker's results can be
materially adversely affected.
In the past, Quaker has used, on a limited basis, forward exchange
contracts to hedge foreign currency transactions and foreign exchange options to
reduce exposure to changes in foreign exchange rates. The amount of any gain or
loss on these derivative financial instruments was immaterial. Quaker is not
currently a party to any derivative financial instruments. Therefore, adoption
of SFAS No. 133, as amended by SFAS No. 138, did not have a material impact on
Quaker's operating results or financial position as of June 30, 2002.
Commodity Price Risk. Many of the raw materials used by Quaker are
commodity chemicals, and, therefore, Quaker's earnings can be materially
adversely affected by market changes in raw material prices. In certain cases,
Quaker has entered into fixed-price purchase contracts having a term of up to
one year. These contracts provide for protection to Quaker if the price for the
contracted raw materials rises, however, in certain limited circumstances,
Quaker will not realize the benefit if such prices decline. Quaker has not been,
nor is it currently a party to, any derivative financial instrument relative to
commodities.
Credit Risk. Quaker establishes allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of Quaker's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Downturns in the overall economic climate may also
tend to exacerbate specific customer financial issues. A significant portion of
Quaker's revenues is derived from sales to customers in the U.S. steel industry
where a number of bankruptcies occurred during recent years. In the first
quarter 2002, Quaker recorded additional provisions for doubtful accounts
primarily related to bankruptcies in the U.S. steel industry. When a bankruptcy
occurs, Quaker must judge the amount of proceeds, if any, that may ultimately be
received through the bankruptcy or liquidation process. As part of its terms of
trade, Quaker may custom manufacture products for certain large customers and/or
may ship product on a consignment basis. These practices may increase the
Company's exposure should a bankruptcy occur, and may require writedown or
disposal of certain inventory due to its estimated obsolescence or limited
marketability. Customer returns of products or disputes may also result in
similar issues related to the realizability of recorded accounts receivable or
returned inventory. Incorporated by reference is the information in "Critical
Accounting Policies and Estimates" and "Liquidity and Capital Resources" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations beginning on pages 8 and 10 respectively, of the Registrant's 2001
Annual Report filed on Form 10-K.
PART II. OTHER INFORMATION
Items 1,2,3 and 5 of Part II are inapplicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
The 2002 Annual Meeting of the Company's shareholders was held on May 8,
2002. At the Meeting, management's nominees, Peter A. Benoliel, Ronald J.
Naples, and Robert H. Rock were elected Class I Directors. Voting (expressed in
number of votes) was as follows: Peter A. Benoliel, 26,672,680 votes for,
101,268 votes against or withheld, and no abstentions or broker non-votes;
Ronald J. Naples, 25,856,670 votes for, 917,278 votes against or withheld, and
no abstentions or broker non-votes; and Robert H. Rock, 26,672,680 votes for,
101,268 votes against or withheld, and no abstentions or broker non-votes.
In addition, at the Meeting, the shareholders ratified the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants to examine
and report on its financial statements for the year ending December 31, 2002 by
a vote of 26,689,061 for, 68,854 votes against, 16,033 abstentions, and no
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
10(mm) - Credit Agreement between Registrant and ABN AMRO Bank N.V. in
the amount of $20,000,000, dated April 12, 2002.
10(nn) - Promissory Note in the amount of $10,000,000 in favor of ABN
AMRO Bank N.V., dated April 15, 2002.
99.1 - Certification of Ronald J. Naples
99.2 - Certification of Michael F. Barry
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
* * * * * * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAKER CHEMICAL CORPORATION
---------------------------
(Registrant)
/s/ Michael F. Barry
-----------------------------------
Michael F. Barry, officer duly
authorized to sign this report,
Vice President and Chief Financial
Officer
Date: August 14, 2002
EXHIBIT 10(mm)
CREDIT AGREEMENT
between
QUAKER CHEMICAL CORPORATION
and
ABN AMRO BANK N.V.
________________________________
Dated as of April 12, 2002
________________________________
$20,000,000
________________________________________________________________________________
CREDIT AGREEMENT, dated as of April 12, 2002, between QUAKER CHEMICAL
CORPORATION (the "Borrower"), and ABN AMRO Bank N.V., New York Branch (the
"Bank"). Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 9 are used herein as so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Bank is willing to make available the credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
Section 1. Amount and Terms of Credit
1.01 Commitment. Subject to and upon the terms and conditions herein set
forth, the Bank agrees to make a loan or loans (each, a "Loan" and,
collectively, the "Loans") to the Borrower, which Loans (i) shall be made at any
time and from time to time on and after the Effective Date and prior to the
Expiry Date; (ii) may be repaid and reborrowed in accordance with the provisions
hereof; and (iii) shall not exceed at any time outstanding that aggregate
principal amount of $20,000,000.
1.02 Minimum Borrowing Amounts, Etc. The aggregate principal amount of
each Loan shall not be less than the Minimum Borrowing Amount. More than one
Loan may be incurred on any day; provided that at no time shall there be
outstanding more than eight Loans.
1.03 Notice of Borrowing. Whenever the Borrower desires to incur a Loan,
it shall give written notice to the Bank, prior to (i) 12:00 Noon (New York
time), at least three Business Days' prior to the date on which the Loan will be
disbursed, if the requested Loan is to be a Eurodollar Loan, or (ii) 3:00 P.M.
(New York time) on the date on which the Loan will be disbursed if the requested
Loan is to be a Cost of Funds Loan or a Prime Rate Loan. Each such notice (each
a "Notice of Borrowing") shall, except as provided in Section 1.09(b), be
irrevocable, shall be executed by an Authorized Financial Officer of the
Borrower and shall be in the form of Exhibit A, appropriately completed to
specify: (i) the aggregate principal amount of the Loan requested; (ii) the date
of such borrowing (which shall be a Business Day); (iii) the Interest Rate Basis
selected for the Loan; and (iv) if applicable, the Interest Period to be
initially applicable thereto and (v) the Maturity Date of such Loan (provided
that the Maturity Date shall in no event be later than the Expiry Date).
1.04 Disbursement of Funds. On the date specified in the respective Notice
of Borrowing, the Bank will make available to the Borrower the amount of the
Loan to be made on such date (if any) by depositing such amount, in funds of
same day availability, to the account of the Borrower, on the books of the Bank;
or by wire transfer of such funds in accordance with the Borrower's prior
written instructions.
1.05 Note. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans shall be evidenced by a promissory note substantially in
the form of Exhibit B with blanks appropriately completed in conformity herewith
(the "Note").
(b) The Note shall (i) be executed by the Borrower, (ii) be payable to
the order of the Bank and be dated the Effective Date, (iii) be in a stated
principal amount equal to the
Commitment, and shall be payable in the principal amount of the Loans evidenced
thereby, (iv) mature on the Expiry Date, (v) bear interest as provided in
Section 1.06, (vi) be subject to voluntary prepayment as provided in Section
3.01, and (vii) be entitled to the benefits of the Agreement.
(c) The Bank will note on its internal records the amount of each Loan
made by it and each payment in respect thereof and will prior to any transfer of
the Note endorse on the reverse side thereof the outstanding principal amount of
Loans evidenced thereby. Failure to make any such notation shall not affect the
Borrower's obligations in respect of such Loans.
1.06 Interest. (a) The unpaid principal amount of each Loan shall bear
interest from the date of the disbursement thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Margin plus the relevant Interest Rate Basis.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum
(recomputed daily) equal to 2.55% per annum in excess of the average daily cost
to the Bank (as determined by the Bank, which determination shall be conclusive
and binding, absent manifest error) of overnight funds in the interbank market
in amounts comparable to the respective Loan.
(c) Interest shall accrue from and including the date of any Loan to but
excluding the date of any repayment thereof and shall be payable in respect of
the outstanding amount of each Loan, (i) in the case of any Prime Loan, on the
last Business Day of each consecutive calendar month, (ii) on the last day of
each Interest Period applicable thereto and, in the case of an Interest Period
in excess of three months, on each date occurring at three month intervals after
the first day of such Interest Period, and (iii) on any prepayment (on the
amount prepaid), (iv) at maturity (whether by acceleration or otherwise) and,
(v) after such maturity (as such maturity may be extended pursuant to Section
1.07(b)), on demand.
(d) All computations of interest hereunder shall be made in accordance
with Section 10.06(b).
(e) The Bank, upon determining the interest rate for any Loan for any
Interest Period, shall promptly notify the Borrower thereof.
1.07 Interest Periods.
(a) At the time the Borrower gives a Notice of Borrowing in respect of
the making of a Loan (in the case of the initial Interest Period applicable
thereto) or in the case of a notice given at the expiration of an Interest
Period, (i) prior to 12:00 Noon (New York time) on the third Business Day prior
to the expiration of an Interest Period (if the next Interest Rate Basis will be
the Eurodollar Rate) or (ii) prior to 3:00 P.M. on the date of the expiration of
the Interest Period (if the next Interest Rate Basis will be the Cost of Funds
Rate or the Prime Rate), it shall have the right to elect by giving the Bank
written notice (or telephonic notice promptly confirmed in writing) of the
Interest Period and Interest Rate Basis applicable to such Loan. If the Interest
Rate Basis is the Eurodollar Rate or the Cost of Funds Rate, the Interest Period
shall, at the option of the Borrower be any period not exceeding six months.
Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Loan shall commence on the
date of such Loan and each Interest Period occurring thereafter in respect
of such Loan shall commence on the day on which the next preceding Interest
Period expires;
Page 2
(ii) if any Interest Period for a Loan for which the Interest Rate
Basis is the Eurodollar Rate, begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iii) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, that if the Interest Rate Basis for the
respective Loan is the Eurodollar Rate and if such succeeding Business Day
falls in the following calendar month, such Interest Period shall expire on
the next preceding Business Day;
(iv) no Interest Period may be elected if it would extend beyond
the Maturity Date; and
(v) no Interest Period may be elected at any time when a Default
under Section 7.01 or Event of Default is then in existence.
(b) If by 3:00 P.M. on the day of the expiration of any Interest Period,
the Borrower (I) has not notified the Bank of its selection of a new Interest
Period and/or a new Interest Rate Basis, (II) has not notified the Bank that it
will repay the respective Loan at the expiration of such Interest Period, and
(III) no Event of Default has occurred and is continuing, then the Borrower
shall be deemed to have converted such Loan to an overnight Cost of Funds Loan
(and the Loan shall not thereupon be considered overdue), which election shall
be deemed to be remade daily and remain in effect until (A) the Borrower repays
such Loan and all accrued interest thereon, (B) selects another Interest Rate
Basis, (C) five consecutive days have elapsed or (D) the Expiry Date. In the
event that such election has continued for five consecutive days, then
thereafter, the Borrower shall be deemed to have selected a Prime Loan, which
election shall be deemed to be remade daily and remain in effect until (A) the
Borrower repays such Loan and all accrued interest thereon, (B) selects another
Interest Rate Basis, or (C) the Expiry Date.
1.08 Maturity of Loans. Each Loan shall mature on its Maturity Date or, in
the case of a Prime Rate Loan, on the Expiry Date. On the applicable date, the
Borrower will pay to the Bank any and all amounts due in connection with such
Loan, which have not theretofore been paid or automatically extended pursuant to
Section 1.07(b).
1.09 Increased Costs, Illegality, Etc. (a) In the event that the Bank
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the date of
this Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that the Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Loan because of (x) any change since the date of this Agreement in any
applicable law, governmental rule, regulation, guideline, or order (whether
or not having the force of law), or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all events,
excluding reserves required under Regulation D to the extent included in
the computation of the Eurodollar Rate) and/or (y) other circumstances
affecting the interbank markets generally; or
Page 3
(iii) at any time since the date of this Agreement, that the making or
continuance of any Loan has become unlawful by compliance by the Bank in
good faith with any law, governmental rule, regulation, guideline or order
(or would conflict with any such governmental rule, regulation, guideline
or order not having the force of law but with which the Bank and
similarly-situated banks customarily comply even though the failure to
comply therewith would not be unlawful), or has become impracticable as a
result of a contingency occurring after the date of this Agreement which
materially and adversely affects the interbank Eurodollar market; then, and
in any such event, the Bank shall (x) on such date and (y) within 10
Business Days of the date on which such event no longer exists give notice
(by telephone confirmed in writing) to the Borrower of such determination.
Thereafter, (x) in the case of clause (i) above, Loans shall no longer be
available until such time as the Bank notifies the Borrower that the
circumstances giving rise to such notice by the Bank no longer exist, and
any Notice of Borrowing given by the Borrower with respect to Loans which
have not yet been incurred shall be deemed rescinded by the borrower, (y)
in the case of clause (ii) above, the Borrower agrees to pay to the Bank,
upon written demand therefor (accompanied by the written notice referred to
below), such additional amounts as shall be required to compensate the Bank
for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to the Bank,
showing the basis for the calculation thereof (and in the case of any
notice given as a result of a change with any law, governmental rule,
regulation, guideline or order, a description of the relevant provisions of
such law, rule, regulation, guideline or order and, as requested by the
Borrower, a memorandum or an opinion of counsel (the reasonable fees and
expenses of which shall be born by the Borrower) of recognized standing as
to the effect of such change on the Bank), submitted to the Borrower by the
Bank shall, absent manifest error, be final and conclusive and binding upon
all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.09(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Loan is affected by the circumstances described in
Section 1.09(a)(ii) or (iii), the Borrower may (and in the case of a Loan
affected pursuant to Section 1.09(a)(iii) the Borrower shall) either (i) if the
affected Loan is then being made pursuant to a pending Notice of Borrowing,
cancel such Notice of Borrowing by giving the Bank telephonic notice (confirmed
promptly in writing) thereof on the same date that the Borrower was notified by
the Bank pursuant to Section 1.09(a)(ii) or (iii)) or (ii) if the affected Loan
is then outstanding, convert such loan together with interest accrued thereon
and any other amounts due thereunder to a Prime Rate Loan. The Bank, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 1.09(b), will give prompt written notice thereof to the
Borrower, which notice shall set forth the basis of the calculation of such
additional amounts, although the failure to give any such notice shall not
release or diminish the Borrower's obligations to pay additional amounts
pursuant to this Section 1.09(b) upon the subsequent receipt of such notice.
(c) If the Bank shall have determined that after the date hereof, the
adoption or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's capital or assets as a consequence of its commitments or obligations
hereunder to a level below that which the Bank could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration the
Bank's policies with respect to capital adequacy), then from time to time, upon
written demand by the Bank, accompanied by the notice referred to in the last
sentence of
Page 4
this clause (c), the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank for such reduction. The Bank, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 1.09(c), will give prompt written notice thereof to the
Borrower, which notice shall set forth the basis of the calculation of such
additional amounts, although the failure to give any such notice shall not
release or diminish the Borrower's obligations to pay additional amounts
pursuant to this Section 1.09(c) upon the subsequent receipt of such notice.
1.10 Compensation. The Borrower agrees to compensate the Bank, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by the Bank to
fund its Loans but excluding loss of anticipated profit with respect to any
Loans) which the Bank may sustain: (i) if for any reason (other than a default
by the Bank ) a Loan does not occur on a date specified therefor in a Notice of
Borrowing (whether or not withdrawn by the Borrower or deemed withdrawn pursuant
to Section 1.09(b)); (ii) if any repayment or conversion of any Loan occurs on a
date which is not the last day of an Interest Period applicable thereto; (iii)
if any prepayment of any Loan is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.09(b). Calculation of
all amounts payable to the Bank under this Section 1.10 shall be made as though
the Bank had actually funded its relevant Loan through the purchase of a deposit
bearing interest at the Eurodollar Rate in an amount equal to the amount of that
Loan, having a maturity comparable to the relevant Interest Period and through
the transfer of a Eurodollar deposit from an offshore office of the Bank to a
domestic office of the Bank in the United States of America; provided, however,
that the Bank may fund each of its Loans in any manner it sees fit and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 1.10.
1.11 Change of Lending Office. the Bank agrees that, upon the occurrence
of any event giving rise to the operation of Section 1.09(a)(ii) or (iii), or
1.09(c) with respect to the Bank, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of the Bank) to
designate another lending office for any Loans affected by such event; provided,
that such designation is made on such terms that, in the sole judgment of the
Bank, the Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequences of the event giving
rise to the operation of any such Section. Nothing in this Section 1.11 shall
affect or postpone any of the obligations of the Borrower or the right of the
Bank provided in Section 1.09.
1.12 Extension of Expiry Date. On any Business Day not less than 60 nor
more than 90 days prior to the Expiry Date then in effect, the Borrower may, by
written notice to the Bank, request that the Expiry Date be extended for an
additional 364 days. The Bank may accept or reject such request in its sole
discretion. The Bank will notify the Borrower of its decision, in writing, not
less than 45 days prior to the Expiry Date then in effect. If the Bank shall
fail to give such notice, it shall be deemed to have rejected such request.
Section 2. Fees; Commitments
2.01 Facility Fee. The Borrower agrees to pay to the Bank a facility fee
(the "Facility Fee") for the period from the Effective Date to but not including
the date the Commitment has been terminated, at a rate per annum equal to 0.20
per cent per annum, payable on the aggregate amount of the Commitment (as the
same may be reduced in accordance with
Page 5
Section 2.02), whether used or unused. The Facility Fee shall be computed in
accordance with Section 10.06.
2.02 Voluntary Reduction of Commitments. Upon at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
to the Bank the Borrower shall have the right, without premium or penalty, to
terminate or partially reduce the unutilized Commitment; provided, that any
partial reduction pursuant to this Section 2.02 shall be in the amount of at
least $250,000.
2.03 Termination of Commitments. The Commitment shall terminate on the
Expiry Date as extended from time to time in accordance with the terms hereof.
Section 3. Payments
3.01 Voluntary Prepayments. The Borrower shall have the right to prepay
the Loans, in whole or in part, without premium or penalty except as otherwise
provided in this Agreement, from time to time on the following terms and
conditions: (i) the Borrower shall give the Bank written notice (or telephonic
notice promptly confirmed in writing) of its intent to prepay the Loans, the
amount of such prepayment and the specific Loans(s) to which prepayment shall be
applied, which notice shall be given by the Borrower prior to 12:00 Noon (New
York time) at least three Business Days prior to the date of such prepayment in
the case of Eurodollar Loans, or prior to 3:00 P.M. (New York time) on the date
of such prepayment in the case of Cost of Funds Loans; and (ii) each prepayment
shall be in an aggregate principal amount of at least $250,000; provided, that
no partial prepayment of a Loan shall reduce the aggregate principal amount of
the Loans outstanding to an amount less than the Minimum Borrowing Amount
applicable thereto; and provided further that the Borrower shall comply with
Section 1.10 hereof.
3.02 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the Bank not
later than 3:00 P.M. (New York time) on the date when due and shall be made in
immediately available funds and in lawful money of the United States of America
at the office of the Bank designated to receive notices pursuant to Section
10.03 hereof, it being understood that written, telex or facsimile transmission
notice by the Borrower to the Bank to make a payment from the funds in the
Borrower's account at the Bank shall constitute the making of such payment to
the extent of such funds held in such account. Any payments under this Agreement
which are made later than 3:00 P.M. (New York time) shall be deemed to have been
made on the next succeeding Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
3.03 Net Payments. (a) All payments made by the Borrower hereunder or
under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 3.03(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or net profits of the Bank pursuant to the laws
of the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of the Bank is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such
Page 6
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the Borrower agrees to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under the Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
the Note. The Borrower will furnish to the Bank within 45 days after the date
the payment of any Tax is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by the Borrower. The Borrower agrees to
indemnify and hold harmless the Bank, and reimburse the Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by the Bank.
(b) The Bank agrees to deliver to the Borrower prior to the Effective Date,
an accurate and complete original signed copy of Internal Revenue Service Form
W-8 ECI (or successor form) certifying the Bank's entitlement to a complete
exemption from United States Withholding Tax with respect to payments to be made
under this Agreement and under the Note.
Section 4. Conditions
4.01 Conditions Precedent to the Effective Date. This Agreement shall
become effective on the date (the "Effective Date") on which the following
conditions shall have been satisfied:
(a) Execution of Agreement. The Borrower and the Bank shall have signed
counterparts of this Agreement and shall have delivered same each to the other;
(b) Note. On the Effective Date, there shall have been delivered to the
Bank the Note executed by the Borrower in the amount, maturity and as otherwise
provided herein;
(c) Corporate Proceedings. On the Effective Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the Note shall be reasonably
satisfactory in form and substance to the Bank, and the Bank shall have received
all information and copies of all certificates, documents and papers, including
good standing certificates and any other records of corporate proceedings and
governmental approvals, if any, which the Bank reasonably may have requested in
connection therewith, such documents and papers, where appropriate, to be
certified by proper corporate or governmental authorities;
provided, however, that if the Effective Date shall not have occurred on or
before the 30th day after the Bank shall have executed and delivered to the
Borrower a counterpart hereof, then this Agreement shall be deemed terminated.
4.02. Conditions Precedent to Loans. The obligation of the Bank to make
each Loan hereunder is subject, at the time of the making of each such Loan, to
the satisfaction of the following conditions:
(a) Effectiveness. The Effective Date shall have occurred.
(b) No Default; Representations and Warranties. At the time of the making
of each Loan and also immediately after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein and in the respective Notice of Borrowing shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of the making
of such Loan, unless stated to relate to a specific earlier date, in which case
such
Page 7
representations and warranties shall be true and correct in all material
respects as of such earlier date.
(c) Notice of Borrowing. The Bank shall have received a Notice of
Borrowing in respect of such Loans satisfying the requirements of Section 1.02.
The acceptance of the benefits of each Loan shall constitute a
representation and warranty by the Borrower to the Bank that all of the
applicable conditions specified above exist as of the date of such Loan. All of
the certificates, legal opinions and other documents and papers referred to in
Section 4.01 shall be reasonably satisfactory in form and substance to the Bank.
Section 5. Representations and Warranties
In order to induce the Bank to enter into this Agreement and to make the
Loans provided for herein, the Borrower makes the following representations and
warranties, all of which shall survive the execution and delivery of this
Agreement and the making of the Loans.
5.01 Corporate Status. The Borrower is a corporation duly existing and in
good standing under the laws of the Commonwealth of Pennsylvania; each Principal
Subsidiary is a corporation duly existing and in good standing under the laws of
the jurisdiction of its respective incorporation; and the Borrower and each
Principal Subsidiary is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction where, because of the
nature of its activities or properties, such qualification is required, except
where the failure to be so qualified would not have a Material Adverse Effect.
The Borrower and each Principal Subsidiary, respectively, has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
5.02 Power and Authority. The Borrower has the corporate power and
authority to execute, deliver and carry out the terms and provisions of the
Credit Documents and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Credit Documents. The Borrower has
duly executed and delivered each Credit Document and each such Credit Document
constitutes the legal, valid and binding obligation of the Borrower enforceable
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting creditors' rights, by equitable
principles (regardless of whether enforcement is sought in equity or at law) and
by principles of good faith and fair dealing.
5.03 No Violation. Neither the execution, delivery or performance by the
Borrower of the Credit Documents nor compliance by it with the terms and
provisions thereof, nor the consummation of the transactions contemplated
therein, (i) will contravene any applicable provision of any law, statute, rule
or regulation, or any material order, writ, injunction or decree binding upon
the Borrower of any court or governmental instrumentality, (ii) will conflict
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of the Borrower or any of its Principal Subsidiaries pursuant
to the terms of any indenture, mortgage, deed of trust, or other material
instrument or agreement to which the Borrower is a party or by which it or any
of its property or assets are bound or to which it is subject or (iii) will
violate any provision of the Certificate of Incorporation or By-Laws of the
Borrower.
Page 8
5.04 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of the Borrower, threatened with respect to the Borrower or any
Subsidiary (i) in which there is a reasonable possibility of an adverse decision
which could have Material Adverse Effect or (ii) that in any manner draws into
question the validity of any material provision of any Credit Document.
5.05 Use of Proceeds; Margin. (a) The proceeds of all Loans shall be
utilized for the general corporate and working capital purposes of the Borrower.
(b) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System and no part of the proceeds of
any Loan will be used to purchase or carry any Margin Stock or to extend credit
for the purpose of purchasing or carrying any Margin Stock.
5.06 Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required in
connection with (i) the execution, delivery and performance of any Credit
Document or (ii) the legality, validity, binding effect or enforceability of any
Credit Document.
5.07 Investment Company Act. The Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
5.08 Public Utility Holding Company Act. The Borrower is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
5.09 Financial Condition; Financial Statement. (a) The consolidated
balance sheet of the Borrower at December 31, 2001 and the related statement of
operations and cash flows of the Borrower for the fiscal period ended as of said
date, which have been certified by PriceWaterhouseCoopers LLP, independent
certified public accountants, copies of which have heretofore been furnished to
the Bank, present fairly in all material respects the financial position of the
Borrower and its Subsidiaries at the date of said statements and their results
of operations and cash flows for the period covered thereby. All such financial
statements have been prepared in accordance with GAAP consistently applied
except to the extent provided in the notes to said financial statements. Except
as disclosed publicly and in writing by the Borrower, nothing has occurred since
December 31, 2001 that has had a Material Adverse Effect.
(b) Except as correctly reflected in the financial statements described
in Section 5.09(a) or in the footnotes thereto and any Indebtedness incurred
under this Agreement, there were as of the Effective Date (and after giving
effect to any Loans made on such date), no material contingent obligation,
contingent liability or liability for taxes or any long-term lease or unusual
forward or long-term commitment, including interest rate or currency swap or
exchange transactions, or with respect to the Borrower or its Subsidiaries which
either individually or in the aggregate would be material to the Borrower and
its subsidiaries on a consolidated basis, except as incurred in the ordinary
course of business subsequent to December 31, 2001.
5.10 Tax Returns and Payments. The Borrower has filed all federal income
tax returns and all other material tax returns, domestic and foreign, required
to be filed by it and has paid all material taxes and assessments payable by it
which have become due, except for those contested in good faith. The Borrower
has at all times paid, or has provided adequate reserves
Page 9
(in the good faith judgment of the management of the Borrower) for the payment
of, all federal, state and foreign income taxes applicable for all prior fiscal
years and for the current fiscal year to date.
5.11 Compliance with ERISA. Each Plan is in substantial compliance with
ERISA and the Code; no Reportable Event has occurred and continues with respect
to a Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan has an accumulated or waived funding deficiency, has
applied for a waiver of the minimum funding standard or an extension of any
amortization period within the meaning of Section 412 of the Code; all
contributions required to be made with respect to a Plan have been timely made;
neither the Borrower nor any ERISA Affiliate has incurred any material liability
to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975
or 4980 of the Code or reasonably expects to incur any material liability
(including any indirect, contingent or secondary liability) under any of the
foregoing Sections with respect to any Plan (other than liabilities of any ERISA
Affiliate which could not, by operation of law or otherwise, become a liability
of the Borrower); no proceedings have been instituted to terminate, or to
appoint a trustee to administer, any Plan; no condition exists which presents a
material risk to the Borrower or any ERISA Affiliate of incurring a liability to
or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; neither the Borrower nor any of its ERISA Affiliates has, within the past
six years, withdrawn in a complete or partial withdrawal under Section 4201 or
Section 4204 of ERISA from a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) which would result in a Material Adverse Effect; and no
lien imposed under the Code or ERISA on the assets of the Borrower or any ERISA
Affiliate exists or is likely to arise on account of any Plan.
5.12 Environmental Matters. The Borrower and each Subsidiary is in
compliance with all applicable Environmental Laws, except to the extent that
such failure to comply will not result in, has not resulted in and cannot
reasonably be expected to result in a Material Adverse Effect.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment remains in
effect, the Note remains outstanding and unpaid or any other amount is owing to
the Bank hereunder, the Borrower shall:
6.01 Financial Statements. Furnish or cause to be furnished to the Bank:
(a) Within 90 days after each fiscal year of the Company, a consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated statements of earnings, cash flows
and changes in common stockholders' equity for such fiscal year, prepared on a
consolidated basis and in conformity with generally accepted accounting
principles, duly certified by independent certified public accountants of
recognized standing selected by the Borrower;
(b) Within 60 days after each quarter (except the last quarter) of each
fiscal year of the Borrower, a copy of unaudited consolidated financial
statements of the Borrower prepared in the same manner as the audited financial
statements referred to in Section 5.09, signed by a proper accounting officer of
the Borrower and consisting of at least a balance sheet as at the close of such
quarter and statements of operations and cash flows for such quarter and for the
period from the beginning of such fiscal year to the close of such quarter;
Page 10
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.02 Certificates; Other Information. Furnish to the Bank:
(a) from time to time such additional information regarding the business,
financial condition and operations of the Borrower and its Subsidiaries as the
Bank may reasonably request;
(b) as soon as possible and in any event within fifteen days after the
same are sent, (i) copies of all financial statements and reports which the
Borrower sends to its shareholders, and (ii) copies of any and all periodic or
special reports filed by the Borrower with any governmental authority, if such
reports indicate any Material Adverse Effect has occurred or is likely to occur,
or if copies thereof are reasonably requested by the Bank.
6.03 Payment of Obligations. If and to the extent the failure to do so
would result in a Material Adverse Effect, pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its Indebtedness and other obligations of whatever nature, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower; and cause each of its
Subsidiaries so to do.
6.04 Conduct of Business and Maintenance of Existence. Except to the extent
that failure to do so would not result in a Material Adverse Effect, continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business; comply with all material
contractual obligations and applicable laws except to the extent that failure to
comply therewith could not reasonably be expected, in the aggregate, to have a
Material Adverse Effect; and cause each of its Subsidiaries so to do. It is
expressly understood and agreed that the Borrower, continuing their respective
general businesses, have at any time the right to implement any changes that
they deem necessary or appropriate in their corporate group structures, provided
that such changes do not result in a Material Adverse Effect.
6.05 Insurance. Maintain, in the name of the Borrower, with financially
sound and reputable insurance companies, insurance with adequate coverage on all
of its properties.
6.06 Books and Records. Keep proper books of records and account in which
full, true and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and activities.
6.07 Notices. Promptly, upon gaining actual knowledge thereof, give notice
to the Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any contractual obligation
of the Borrower or (ii) litigation, investigation or proceeding which may exist
at any time between the Borrower and any governmental or administrative body or
agency, which in either case, if not cured or if adversely determined, as the
case may be, would have a Material Adverse Effect;
Page 11
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $10,000,000 or more and not covered
by insurance or in which injunctive or similar relief is sought which might
result in a Material Adverse Effect; and
(d) any Material Adverse Effect on the Borrower.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action (if any) the Borrower proposes to take with respect
thereto.
6.08 Environmental Laws.
(a) If and to the extent the failure to do so would result in a Material
Adverse Effect, comply with, and require compliance by all of its tenants and
subtenants, if any, and each of its Subsidiaries, with all Environmental Laws
and obtain and comply with and maintain, and require that all tenants and
subtenants obtain and comply with and maintain, any and all licenses, approval,
registrations or permits required by Environmental Laws; and
(b) If and to the extent the failure to do so would result in a Material
Adverse Effect, conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all applicable, lawful orders and
directives respecting Environmental Laws and cause each of its Subsidiaries so
to do
6.09 Payment of Taxes. If and to the extent the failure to do any of the
following would result in a Material Adverse Effect, (a) pay and discharge prior
to their becoming delinquent all taxes, assessments and other governmental
charges or levies imposed upon it or its income or upon any of its property or
assets, or upon any part thereof, as well as all lawful claims of any kind
(including claims for labor, materials and supplies) which, if unpaid, would by
law become a Lien upon its property; and (b) cause each of its Principal
Subsidiaries so to do; provided that the Borrower and its Principal Subsidiaries
will not be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall be contested in good faith
by appropriate proceedings or other appropriate actions diligently conducted and
if the Borrower shall have set aside on its books such reserves, if any, with
respect thereto as are required by GAAP and deemed appropriate by the Borrower
and its independent public accountants.
6.10 Further Assurances. From time to time hereafter, execute and deliver,
or cause to be executed and delivered, such additional instruments, certificates
or documents, and will take all such actions, as the Bank may reasonably
request, for the purposes of implementing or effectuating the provisions of the
Loan Documents. Upon the exercise by the Bank of any power, right, privileges or
remedy pursuant to the Loan Documents, which requires any consent, approval,
recording, qualification or authorization of any governmental or administrative
body or agency, the Borrower will execute and deliver, or will cause the
execution and delivery of, all applications, certifications, instruments and
other documents and papers that the Bank may be required to obtain from the
Borrower for such governmental consent, approval, recording, qualification or
authorization.
SECTION 7. NEGATIVE COVENANTS.
Page 12
7.01 Negative Pledge. The Borrower will not, and will not permit any
Principal Subsidiary to, create, assume, incur or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except for the following (the
"Permitted Liens"):
(a) any Lien on any asset securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
asset; provided that such Lien attaches to such asset concurrently with or
within 90 days after the acquisition thereof;
(b) any lien existing on any asset of any Person at the time such
corporation becomes a Subsidiary and not created in contemplation of such
event;
(c) any Lien on any asset of any Person existing at the time such
corporation is merged or consolidated with or into the Borrower or a
Subsidiary, or existing at the time that such asset was acquired from the
seller on arms' length terms, and, in each case, not created in
contemplation of such acquisition;
(d) Liens for taxes, assessments and governmental charges which are
not delinquent or which are being contested in good faith and by
appropriate proceedings and as to which appropriate reserves are being
maintained;
(e) Liens imposed by statute, ordinance or regulation, such as
materialmen's, mechanics' carriers', workmen's and repairmen's Liens and
other similar Liens arising in the ordinary course of business securing
obligations which (i) are not overdue for a period of more than 30 days
after filing of any notice with respect to, or such Person's otherwise
having notice of, such Lien, (ii) are fully bonded by reputable and
responsible insurers or (iii) involve claims which are being contested in
good faith and by proper proceedings and in respect of which such Person
has set aside adequate cash (or cash equivalent) reserves for the payment
of that portion thereof in excess of $100,000 or has provided such other
assurances as the Bank may approve;
(f) pledges or deposits to secure obligations under workers'
compensation laws, unemployment insurance or social security laws;
(g) Liens incurred to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or Capital
Leases or to secure statutory obligations or deposits of cash or United
States government bonds securing surety or appeal bonds or to secure
indemnity, performance or other similar bonds, in each case, incurred in
the ordinary course of business;
(h) zoning restrictions, easements, licenses, restriction on the use
of real property or immaterial irregularities in title thereto, which do
not in the aggregate have a material adverse effect on the business or
financial condition of the Borrower and its Subsidiaries;
(i) Liens incurred by any Subsidiary to secure Indebtedness owing to
the Borrower or a wholly-owned Subsidiary;
(j) any Lien arising our of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section, provided that such Indebtedness is not
increased and is not secured by any additional assets; and
(k) Liens not otherwise permitted by the foregoing clauses of this
Section securing Indebtedness in an aggregate principal amount at any time
outstanding not to exceed the greater of $10,000,000 and 15% of
Consolidated Net Worth.
Page 13
7.02 Dissolutions and Mergers. The Borrower shall not merge into or
consolidate with or into any corporation, unless, after giving effect to such
merger or consolidation, (a) the Borrower is the surviving corporation; or (b)
(i) no Default or Event of Default shall then exist and (ii) the surviving
corporation shall assume all of the obligations of the Borrower hereunder.
7.03 Disposition of Assets. The Borrower and its Principal Subsidiaries
shall not sell, assign, or transfer all or a substantial portion of its
consolidated assets, or its consolidated accounts receivable, other than in the
ordinary course of business.
7.04 Conduct of Business. The Borrower shall not make or permit to be
made any material change in the character of its business as carried on at the
date of this Agreement and will not allow any Principal Subsidiary so to do.
7.05 Use of Proceeds. The Borrower shall not use any part of the
proceeds of any credit extended under this Agreement or the Note to purchase or
carry, or to reduce or retire any indebtedness incurred to purchase or carry,
any margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) or to extend credit to any Person for the purpose of
purchasing or carrying any margin stock.
7.06 Financial Covenants.
(a) The Borrower will not at any time allow the ratio of (i)
Consolidated Total Indebtedness to (ii) the sum of (A) Consolidated Net Worth
plus (B) Consolidated Total Indebtedness to exceed 0.50 to 1.
(b) The Borrower will not permit the aggregate amount of all
Indebtedness of Subsidiaries (exclusive of Indebtedness owing to the Borrower or
to a Wholly-Owned Subsidiary) outstanding at any time to exceed $40,000,000.
(c) The Borrower will not at any time allow Consolidated Net Worth to
be less than the sum of (i) $50,000,000, plus (ii) 33% of Consolidated Net
Income (without deduction for losses sustained) accrued from December 31, 1991,
to and including the most recent fiscal quarter prior to the date of
determination thereof, plus (iii) the net proceeds of any common stock issue or
conversion of Convertible Securities occurring after December 31, 2001.
SECTION 8. Events of Default.
Upon the occurrence of any of the following specified events (each, an
"Event of Default"):
8.01 Payments. The Borrower shall default in the payment when due of
any principal of the Loans; or of any interest on the Loans and such default
shall continue for three days after the Borrower has actual notice thereof; or
any Fees or any other amounts owing hereunder or under any other Credit Document
and such default shall continue for seven days; or
8.02 Covenants Without Notice. The Borrower shall default in the due
performance or observance by it of any material term, covenant or agreement on
its part to be performed or observed pursuant to Sections 6.07 or 7; or
Page 14
8.03 Representations, etc. Any representation, warranty or statement
made by the Borrower herein or in any statement or certificate delivered
pursuant hereto shall prove to be untrue in any material respect on the date as
of which made or deemed made; or
8.04 Covenants With Notice. The Borrower shall default in the due
performance or observance by it of any material term, covenant or agreement
(other than those referred to in Sections 8.01, 8.02 and 8.03 hereof) contained
in this Agreement and such default shall continue unremedied for a period of
fifteen days after written notice from the Bank; or
8.05 Other Agreements. The Borrower or any Subsidiary shall fail to pay
any Indebtedness in excess of $5,000,000 (excluding Indebtedness hereunder or
under the Note) of the Borrower or Subsidiary (as the case may be), or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to any such Indebtedness; or any other default under any
agreement or instrument relating to any such Indebtedness, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
8.06 Bankruptcy, etc. The Borrower or any Principal Subsidiary shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy", as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower under the Bankruptcy Code and the petition is not dismissed within 60
days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of the Borrower; or the Borrower commences any other proceeding
under any other reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower; or
there is commenced against the Borrower any such proceeding which remains
undismissed for a period of 60 days; or the Borrower is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower suffers any appointment of any custodian
or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or the Borrower makes a
general assignment for the benefit of creditors; or any corporate action is
taken by the Borrower for the purpose of effecting any of the foregoing; or
8.07 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be terminated
or the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made to a Plan has not
been timely made or the Borrower or any ERISA Affiliate has incurred or is
likely to incur a liability to or on account of a Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971, 4975 or 4980 of the Code; (b) there shall result from
any such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; and (c)
which lien, security interest or liability, individually and/or in the
aggregate, in the opinion of the Bank, will have a Material Adverse Effect; or
Page 15
8.08 Judgments. A judgment or decree shall be entered against the Borrower
or any Principal Subsidiary for the payment of money (to the extent not paid or
covered by insurance) which together with all other such judgments is in excess
of $5,000,000 and such judgments or decrees shall not have been vacated, paid,
discharged or stayed or bonded pending appeal within 30 days from the entry
thereof;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Bank may, by written notice to the Borrower, take
any or all of the following actions, without prejudice to the rights of the Bank
to enforce its claims against the Borrower, except as otherwise specifically
provided for in this Agreement (provided, that if an Event of Default specified
in Section 8.06 shall occur with respect to the Borrower, the result which would
occur upon the giving of written notice by the Bank as specified in clauses (i)
and (ii) below shall occur automatically without the giving of any such notice):
(i) declare the Commitment (or the unutilized portion thereof) terminated,
whereupon the Commitment (or the unutilized portion thereof) shall forthwith
terminate immediately and any Commitment Fees shall forthwith become due and
payable without any other notice of any kind and (ii) declare the principal of
and any accrued interest in respect of all Loans and all obligations owing
hereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
SECTION 9. DEFINITIONS
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms in this Agreement
shall include in the singular number the plural and in the plural the singular:
"Agreement" shall mean this Credit Agreement, as the same may be
modified, amended and/or supplemented from time to time.
"Applicable Cost of Funds Margin" shall be 0.55 per cent per annum.
"Applicable Eurodollar Margin" shall be 0.55 per cent per annum.
"Applicable Margin" shall the Applicable Cost of Funds Margin, the
Applicable Eurodollar Margin or the Applicable Prime Margin, as the context may
require.
"Applicable Prime Margin" shall be 0.00 per cent per annum.
"Assets" shall mean at any time the aggregate book value of all assets
of the Borrower as would be set forth at such time on a consolidated balance
sheet of the Borrower prepared in accordance with GAAP.
"Authorized Financial Officer" shall mean the chief financial officer,
treasurer or corporate controller of the Borrower or any other person duly
appointed in writing by the Borrower.
"Bankruptcy Code" shall have the meaning provided in Section 8.06.
"Borrower" shall mean Quaker Chemical Corporation, a Pennsylvania
corporation.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which shall
be in the City of New York
Page 16
or the City of Philadelphia, Pennsylvania a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the London interbank Eurodollar market.
"Capital Lease" as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Commitment" means $20,000,000, as the same may be reduced from time
to time pursuant to Section 2.02 or Section 8
"Consolidated Net Income" shall mean, with respect to any period, the
Net Income of the Borrower and its Subsidiaries for such period after
eliminating intercompany items, all as consolidated and determined in accordance
with GAAP.
"Consolidated Net Worth" shall mean, as of any particular time, the
amount which would be set forth under the caption "Stockholder's Equity" (or any
like caption) on a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such period, less the amount which would be set
forth under the caption "Equity Adjustment from Foreign Currency Translation"
(or any like caption) on such consolidated balance sheet, all as prepared in
accordance with GAAP.
"Consolidated Total Indebtedness" shall mean, as of any particular
time and after eliminating inter-company items, all Indebtedness of the Borrower
and its Subsidiaries, all as consolidated and determined in accordance with
GAAP.
"Convertible Securities" shall mean any evidences of indebtedness,
shares of stock (other than common stock), or other securities directly or
indirectly convertible into or exchangeable for shares of common stock.
"Cost of Funds Loan" shall mean a Loan for which the interest rate is
the Cost of Funds Rate, plus the Applicable Cost of Funds Margin.
"Cost of Funds Rate" shall mean the rate, as determined by the Bank as
of the date on which the respective Loan is made (which determination shall be
conclusive and binding on the Borrower, absent manifest error) at which funds of
a comparable term and amount generally are available to the Bank.
"Credit Documents" shall mean this Agreement and the Note.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Effective Date" shall have the meaning provided in Section 4.01.
"Environmental Law" shall mean any federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy or rule of common law
now or hereafter in effect and in
Page 17
each case as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to the environment, health, safety or Hazardous Materials, including,
without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. (S)1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.
(S)7401 et seq.; the Clean Air Act, 42 U.S.C. (S)7401 et seq.; the Safe
Drinking Water Act, 42 U.S.C. (S)3808 et seq.; the Oil Pollution Act of 1990,
33 U.S.C. (S)2701 et seq. and any applicable state and local or foreign
counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations promulgated and the
rulings issued thereunder. Section references to ERISA are to ERISA as in effect
at the date of this Agreement and any subsequent provisions of ERISA amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower would be deemed to be a "single
employer" (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean a Loan for which the interest rate is the
Eurodollar Rate, plus the Applicable Eurodollar Margin.
"Eurodollar Rate" shall mean with respect to each day during each
Interest Period, (i) the rate per annum equal to the offered rate (or, as the
case may be, the arithmetic mean of the offered rates, rounded upwards to the
nearest 1/100th of 1% per annum) as appears on the LIBO page on the Reuters'
screen (or, if no such rate appears, on the Telerate page 3750) at 11:00 a.m.
(London time) two Business Days prior to the start of such Interest Period, for
deposits of comparable term and amount in the London interbank Eurodollar market
for the delivery on the first day of such Interest Period divided (and rounded
upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to
100% minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable to any member bank of the Federal Reserve System in respect
of Eurocurrency liabilities as defined in Regulation D (or any successor
category of liabilities under Regulation D)
"Event of Default" shall have the meaning provided in Section 8.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expiry Date" shall mean the date occurring 364 days after the
Effective Date.
"Facility Fee" shall have the meaning provided in Section 2.01.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 2.01.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that determinations in accordance with GAAP for purposes of Sections 6
and 7, including defined terms as used therein, are subject (to the extent
provided therein) to Section 10.06(a).
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
Page 18
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Indebtedness" of any Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property, except accounts payable arising in the ordinary course of business,
(iv) all obligations of such Person as lessee under Capital Leases, (v) all
Indebtedness of others secured by a Lien on any asset of such person, whether or
not such Indebtedness is assumed by such Person, (vi) all Indebtedness of others
guaranteed by such Person and (vii) all non-contingent obligations of such
Person to reimburse or prepay any bank or other Person in respect of amounts
paid under a letter of credit, banker's acceptance or similar instrument.
"Interest Expense" shall mean, for any period, the total interest
expense of the Borrower determined as the same would be set forth in a statement
of income of the Borrower for such period.
"Interest Period", with respect to any Loan, shall mean the interest
period applicable thereto, as determined pursuant to Section 1.07.
"Interest Rate Basis" means the Eurodollar Rate, the Cost of Funds
Rate or the Prime Rate, as selected by the Borrower in accordance with this
Agreement.
"Lien" shall mean, with respect to any Person, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind with respect to any
asset of such Person (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing or similar
statement or notice filed under the UCC or any similar recording or notice
statute, and any lease having substantially the same effect as the foregoing).
"Loan" shall have the meaning provided in Section 1.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, results of operations or financial condition of the Borrower taken as
a whole.
"Maturity Date" shall mean with respect to any Loan, the date
specified in the respective Notice of Borrowing as the same may be extended
pursuant to Section 1.07.
"Minimum Borrowing Amount" shall mean $250,000.
"Note" shall have the meaning provided in Section 1.
"Notice of Borrowing" shall have the meaning provided in Section 1.05.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Bank pursuant to the terms of this Agreement or any other Credit Document.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
Page 19
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Borrower or an ERISA Affiliate and
each plan for the five-year period immediately following the latest date on
which the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such a multiemployer or single-employer plan.
"Prime Rate" shall mean the rate of interest equal to the higher
(redetermined daily) of (i) the per annum rate of interest announced by the Bank
from time to time at its principal office in New York City as its prime rate for
U.S. dollar loans (with any change in such Prime Rate to become effective as and
when such prime rate change shall become effective) or (ii) the Federal Funds
Rate, plus one half of one per cent (0.50 %) per annum. "Federal Funds Rate"
shall mean the average daily Federal Funds Rate as published by the Federal
Reserve Bank of New York in Publication H.15 (or any successor thereto), or, if
no such rate is published, the per annum rate of interest at which overnight
federal funds are from time to time offered to the Bank by any bank in the
interbank market in an amount equal to the principal amount of the respective
Loan, as determined in good faith by the Bank.
"Prime Rate Loan" shall mean a Loan for which the interest rate is the
Prime Rate, plus the Applicable Prime Rate Margin.
"Principal Subsidiary" shall mean any Subsidiary (i) whose net sales
or earnings, as shown by the accounts of such Subsidiary based upon which the
most recent consolidated financial statements delivered to the Bank pursuant to
Sections 5.09 and 6.01 which have been made up, are at least 5% of the
consolidated total net sales or earnings of the Company and its consolidated
Subsidiaries as shown by such financial statements or (ii) whose gross assets,
as shown by the accounts of such Subsidiary based upon which the most recent
consolidated financial statements delivered to the Bank pursuant to Sections
5.09 and 6.01 have been made up, are at least 5% of the consolidated total gross
assets of the Company and its consolidated Subsidiaries as shown by such
consolidated financial statements.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under PBGC Regulation Section 4043.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Subsidiary" shall mean any corporation or other entity of which the
Borrower owns, directly or indirectly, such number of outstanding shares as have
more than 50% of the ordinary voting power for the election of directors.
Page 20
"Taxes" shall have the meaning provided in Section 3.03.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York.
"Unfunded Current Liability" of any Plan shall mean the amount, if any,
by which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"Wholly Owned Subsidiary" shall mean any Subsidiary in respect of which
all shares (other than directors' qualifying shares required by law) of the
capital stock of each class, or other such ownership interests, outstanding at
the time as of which any determination is being made, are owned, beneficially
and of record by the Borrower.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile device, telegraph or cable.
SECTION 10. MISCELLANEOUS.
10.01 Payment of Expenses, Etc. The Borrower agrees to: (i) while an Event
of Default exists, pay all reasonable out-of-pocket costs and expenses of the
Bank in connection with the enforcement of the Credit Documents and the
documents and instruments referred to therein and the protection of the rights
of the Bank thereunder (including, without limitation, the reasonable fees and
disbursements of counsel for the Bank); (ii) pay and hold the Bank harmless from
and against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save the Bank harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to the Bank) to pay such taxes; and (iii)
indemnify the Bank, its officers, directors, employees, representatives and
agents from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses incurred by any of them as a result of,
or arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not the Bank is a party thereto)
related to the entering into and/or performance of this Agreement or any other
Credit Document or the use of the proceeds of any Loans hereunder (but excluding
any such losses, liabilities, claims, damages or expenses to the extent incurred
by reason of the gross negligence or willful misconduct of the Bank as
determined by a court of competent jurisdiction), including, without limitation,
the reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (whether any such counsel's
fees are incurred in connection with any investigation, litigation or other
proceeding between the Borrower and the Bank or between the Bank or any third
Person or otherwise.) In case any proceeding shall be instituted in respect of
which indemnity may be sought by the Bank pursuant to this Section, the Bank
shall promptly notify the Borrower thereof provided that failure so to notify
the Borrower shall not relieve the Borrower from its obligations under this
Section. The Borrower (i) shall not be liable for any settlement effected
without its consent (which shall not be unreasonably withheld) and (ii) shall
have the right to participate in the defense of any proceedings for which
indemnification may be sought hereunder.
10.02 RIGHT OF SETOFF. In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default,
the Bank is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to the
Page 21
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by the Bank
(including, without limitation, by branches and agencies of the Bank wherever
located) to or for the credit or the account of the Borrower against and on
account of the Obligations and liabilities of the Borrower to the Bank under
this Agreement or under any of the other Credit Documents, irrespective of
whether or not the Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
10.03 Notices; Financial Information Available Through the SEC. Except as
otherwise expressly provided herein, all notices and other communications
provided for hereunder shall be in writing (including telegraphic, telex,
facsimile or cable communication) and mailed, e-mailed, telegraphed, telexed,
telecopied, cabled or delivered, at the address specified opposite the signature
of the Bank or the Borrower, as the case may be, below; or, at such other
address as shall be designated by any party in a written notice to the other
parties hereto. All such notices and communications shall be mailed, e-mailed,
telegraphed, telexed, telecopied or cabled or sent by overnight courier, and
shall be effective when received. In the event that this Agreement shall require
the Borrower to deliver to the Bank any financial statements or other similar
information, and such statements or information shall be publicly available at
the internet web site of the SEC, such statements or information shall be deemed
delivered in accordance herewith.
10.04 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, that the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Bank.
(b) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
10.05 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Bank in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between the Borrower and the Bank
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Bank would otherwise have. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Bank to any other or further action in any circumstances without notice
or demand.
10.06 Calculations; Computations. (a) Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP as in effect
from time to time, applied on a basis consistent (except for immaterial changes,
or changes concurred in by the Borrower's independent public accountants) with
the most recent audited financial statements of the Borrower delivered to the
Bank provided that, if the Borrower notifies the Bank that the Borrower wishes
to amend any covenant contained in Section 6 or F to eliminate the effect of any
change in GAAP on the operation of such covenant (or if the Bank notifies the
Borrower that the Bank wishes to amend any such covenant for such purpose), then
the Borrower's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP
Page 22
became effective, until either such notice is withdrawn or such covenant is
amended in a manner satisfactory to the Borrower and the Bank.
(b) All computations of Fees hereunder shall be made on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as applicable, and
all computations of interest shall be made on the basis of the actual number of
days elapsed over a year of 360 days.
10.07 Governing Law; Submission to Jurisdiction; Venue (a) This Agreement
and the other Credit Documents and the rights and obligations of the parties
hereunder and thereunder shall be construed in accordance with and be governed
by the law of the State of New York. Any legal action or proceeding with respect
to this Agreement or any other Credit Document may be brought in the courts of
the State of New York or of the United States for the Southern District of New
York, and, by execution and delivery of this agreement, the Borrower hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Nothing herein shall
affect the right of the Bank or the holder of the Note to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any the Borrower in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
10.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Bank.
10.09 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
10.10 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Bank and (except in the case of a waiver) the Borrower.
10.11 Survival. All indemnities set forth herein including, without
limitation, in Section 1.09, 1.10 or 10.01, shall survive the execution and
delivery of this Agreement and the Note, and the making and repayment of the
Loans.
10.13 Waiver of Jury Trial Each of the parties to this Agreement hereby
irrevocably waives all right to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement, the other Credit
Documents or the transactions contemplated hereby or thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address:
Page 23
QUAKER CHEMICAL CORPORATION
Elm and Lee Streets
Conshohocken, PA 19428
Attn.: Michael Barry
Tel.: 610 832-8500 By: /s/ Michael F. Barry
------------------------
Fax. 610 832-4494 Title: Vice President
e-mail address: barrym@quakerchem.com and Chief Financial
Officer
By /s/ Jeffry Benoliel
-------------------------
Title: Vice President
and General Counsel
55 East 52/nd/ Street ABN AMRO BANK N.V.
New York, NY 10055
Attn.: James Kreitler and George Dugan
Tel.: 212 409-7420 or 1569 By: /s/ James S. Kreitler
------------------------
Fax.: 212 409-1650 or 1641 Title: Group Vice
President
e-mail address: George.Dugan@abnamro.com or James.Kreitler@abnamro.com
By: /s/ George Dugan
------------------------
Title: Group Vice
President
Page 24
EXHIBIT 10(nn)
PROMISSORY NOTE
U.S.$10,000,000.00 New York, New York
APRIL 15, 2002
[Date]
FOR VALUE RECEIVED, QUAKER CHEMICAL CORPORATION (the "Borrower"), a
corporation duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania, hereby promises to pay to the order of ABN AMRO
BANK N.V. (the "Bank"), at its office located at 55 East 52nd Street, New York,
New York 10055 for the account of the Bank's New York Branch (or at such other
place of payment and for such other account as shall be designated by the holder
hereof to the Borrower), when due the principal sum of:
TEN MILLION DOLLARS
($10,000,000.00), or if less, the unpaid principal amount of all loans (the
"Loans") made hereunder by the Bank to the Borrower or at its request, in lawful
money of The United States of America. Each Loan shall be payable on a specified
maturity date (a "Time Loan") or on demand (a "Demand Loan"), as agreed to by
the Bank and the Borrower at the time the Loan is made. In no event, however,
shall any Time Loan have a maturity of greater than six months.
The Borrower hereby further promises to pay to the order of the Bank, at
the place of payment, interest on the unpaid principal amount of all Loans
evidenced hereby from the date thereof until the maturity thereof (whether by
acceleration or otherwise), at such rates of interest as shall be agreed upon
from time to time between the Borrower and the Bank at the time each Loan is
made (or prior thereto), such interest to be payable at maturity (whether by
acceleration or otherwise), at such regular monthly, quarterly or semi-annual
intervals prior to maturity as shall be specified by the Bank, and on the date
of any payment hereon on the amount paid. All interest payable hereunder shall
be calculated on the basis of a year of 360 days and actual days elapsed.
The rate of interest agreed to with respect to any Loan shall be a fixed
rate (expressed as a percentage per annum) or a specified margin (expressed as a
percentage per annum) in excess of an agreed upon index, which shall be one of
the following: (i) the Bank's "Prime Rate", (ii) the Bank's "Cost of Funds", or
(iii) "LIBOR". A Demand Loan may only bear interest based on the Prime Rate.
"Prime Rate" shall mean the rate of interest equal to the higher (redetermined
daily) of (i) the per annum rate of interest announced by the Bank from time to
time at its principal office in New York City as its prime rate for U.S. dollar
loans (with any change in such Prime Rate to become effective as and when such
prime rate change shall become effective) or (ii) the Federal Funds Rate, plus
one half of one per cent (0.50 %) per annum. "Federal Funds Rate" shall mean the
average daily Federal Funds Rate as published by the Federal Reserve Bank of New
York in Publication H.15 (or any successor thereto), or, if no such rate is
published, the per annum rate of interest at which overnight federal funds are
from time to time offered to the Bank by any bank in the interbank market in an
amount equal to the principal amount of the respective Loan, as determined in
good faith by the Bank. "Cost of Funds" shall mean the rate, as determined by
the Bank as of the date on which the respective Loan is made (which
determination shall be conclusive and binding on the Borrower, absent manifest
error) at which
funds of a comparable term and amount generally are available to the Bank.
"LIBOR" shall mean the per annum rate of interest at which U.S. dollar deposits
of an amount comparable to the amount of the respective Loan and for a period
equal to the relevant Interest Period (as hereinafter defined) are offered
generally to the Bank (rounded upward if necessary, to the nearest 1/16 of 1%)
in the London interbank Eurodollar market at 11:00 a.m. (London time) two
Business Days prior to the commencement of each Interest Period, such rate to
remain in effect for the entire Interest Period. "Interest Period" shall mean
(i) with regard to Time Loans bearing interest based on LIBOR, successive
one-month, three-month or six-month periods (as selected from time to time by
the Borrower not less than two Business Days prior to the commencement of the
respective Interest Period); and (ii) with regard to Time Loans bearing interest
based on the Bank's Cost of Funds, successive periods of six months or less (but
not less than one Business Day) (as selected from time to time by the Borrower
not later than 3:00 p.m. on the first Business Day of the respective Interest
Period); provided, however, that: (x) each such period occurring after the
initial such period shall commence on the day on which the next preceding period
expires; (y) the final Interest Period shall be such that its expiration occurs
on the maturity date of the Loan; and (z) if for any reason the Borrower shall
fail to timely select a period, then it shall be deemed to have selected a
one-month period or such shorter period as provided in clause (y). "Business
Day" shall mean any day other than a Saturday, a Sunday or a day on which banks
in New York City or Philadelphia, Pennsylvania (or, in the case of a Loan
bearing interest based on LIBOR, London, England) are required or permitted by
law to close.
The Borrower hereby further promises to pay to the order of the Bank, on
demand, at the place of payment, interest on the unpaid principal amount of all
Loans evidenced hereby after the maturity thereof (whether by acceleration or
otherwise), at a rate per annum equal to two and fifty five one hundredths
percent (2.55%) per annum in excess of the Bank's Cost of Funds for successive
one day Interest Periods.
The Bank shall record on its books or records or on the schedule to this
Promissory Note which is a part hereof, the principal amount and date of each
Loan made hereunder, the interest rate applicable thereto, the maturity date
thereof and all payments of principal made thereon; provided, however, that
prior to a transfer of this Note, if any, all such information shall be recorded
on the schedule attached to this Promissory Note. The record thereof, whether
shown on such books or records or on the schedule to this Promissory Note, shall
be conclusive and binding upon the Borrower, absent manifest error; provided,
however, that the failure of the Bank to record any of the foregoing shall not
limit or otherwise affect the obligation of the Borrower to repay all Loans made
hereunder, together with all accrued interest thereon and all other amounts
payable hereunder. Without limiting the foregoing, the Borrower acknowledges
that interest rates and maturity dates are ordinarily negotiated between the
Borrower and the Bank by telephone and the Borrower agrees that in the event of
any dispute as to any applicable interest rate and/or maturity date, the
determination of the Bank and its respective entry on the schedule hereinafter
referred to shall, absent manifest error, be conclusive and binding upon the
Borrower.
All payments due hereunder shall be made by the Borrower to the holder
hereof no later than 3 p.m. local time at the place of payment, in lawful money
of the United States of America and in funds immediately available and freely
transferable at the place of payment, free and clear of, and without deduction
for, any present or future taxes, levies, offsets, counterclaims or deductions
of any nature whatsoever ("Deductions"). Payments received after such local time
shall be deemed received by the holder hereof on the next succeeding Business
Day at such place of payment. In the event that the Borrower is compelled for
any reason to make any Deductions, it shall pay to the holder hereof such
amounts (after giving effect to all Deductions on all additional payments to be
made hereunder) as will result in the receipt by the holder hereof of the amount
such holder would have received had no such Deductions been required to be made.
If any payment shall fall due hereunder or on any Loan evidenced hereby on a day
that is not a
Page 2
Business Day for the holder hereof at the place of payment, payment shall be
made on the next succeeding Business Day at such place of payment and interest
thereon shall be payable for such extended time.
The Time Loans evidenced by this Promissory Note, other than Time Loans
bearing interest based on the Bank's Prime Rate, may not be prepaid in whole or
in part without the prior written consent of the holder hereof.
In the event that if an Event of Default (as defined in the Credit
Agreement dated as of April 12, 2002 between the Borrower and the Bank as in
effect from time to time or, if such Credit Agreement is no longer in effect,
than as in effect most recently) shall have occurred and be continuing; or if
the Borrower shall be in default in the payment when and as due of any amounts
due hereunder; or if the Borrower shall fail to comply in all material respects
with the terms of any Financial Covenant or any other covenant or other
provision contained in any agreement entered into with the Bank and such failure
to comply continues uncured for a period of 30 days after notice of such
noncompliance from the Bank; then the holder may, by notice to the Borrower,
declare all amounts which otherwise would not be payable on demand or until a
future date to be forthwith due and payable and thereupon this Promissory Note
and all such amounts shall be and become immediately due and payable all without
further demand, presentment, protest or notice of any kind, all of which are
hereby waived by the Borrower; provided, however, that upon any federal
bankruptcy proceedings being commenced by or against the Borrower all amounts
due hereunder shall be automatically due and payable all without demand,
presentment, protest or notice of any kind, all of which are hereby waived by
the Borrower.
The following are the "Financial Covenants" referred to above:
(a) The Borrower will not at any time allow the ratio of (i) Consolidated
Total Indebtedness to (ii) the sum of (A) Consolidated Net Worth plus (B)
Consolidated Total Indebtedness to exceed 0.50 to 1.
(b) The Borrower will not permit the aggregate amount of all Indebtedness
of Subsidiaries (exclusive of Indebtedness owing to the Borrower or to a
Wholly-Owned Subsidiary) outstanding at any time to exceed $40,000,000.
(c) The Borrower will not at any time allow Consolidated Net Worth to be
less than the sum of (i) $50,000,000, plus (ii) 33% of Consolidated Net Income
(without deduction for losses sustained) accrued from December 31, 1991, to and
including the most recent fiscal quarter prior to the date of determination
thereof, plus (iii) the net proceeds of any common stock issue or conversion of
Convertible Securities occurring after December 31, 2001.
As used herein,
"Capital Lease" as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Consolidated Net Income" shall mean, with respect to any period,
the net income of the Borrower and its Subsidiaries for such period after
eliminating intercompany items, all as consolidated and determined in
accordance with GAAP.
"Consolidated Net Worth" shall mean, as of any particular time, the
amount which would be set forth under the caption "Stockholder's Equity"
(or any like
Page 3
caption) on a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such period, less the amount which would be
set forth under the caption "Equity Adjustment from Foreign Currency
Translation" (or any like caption) on such consolidated balance sheet, all
as prepared in accordance with GAAP.
"Consolidated Total Indebtedness" shall mean, as of any particular
time and after eliminating inter-company items, all Indebtedness of the
Borrower and its Subsidiaries, all as consolidated and determined in
accordance with GAAP.
"Convertible Securities" shall mean any evidences of indebtedness,
shares of stock (other than common stock), or other securities directly or
indirectly convertible into or exchangeable for shares of common stock.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed money, (ii)
all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property, except accounts payable arising in the
ordinary course of business, (iv) all obligations of such Person as lessee
under Capital Leases, (v) all Indebtedness of others secured by a Lien on
any asset of such person, whether or not such Indebtedness is assumed by
such Person, (vi) all Indebtedness of others guaranteed by such Person and
(vii) all non-contingent obligations of such Person to reimburse or prepay
any bank or other Person in respect of amounts paid under a letter of
credit, banker's acceptance or similar instrument.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government
or political subdivision or any agency, department or instrumentality
thereof.
"Subsidiary" shall mean any corporation or other entity of which
the Borrower owns, directly or indirectly, such number of outstanding
shares as have more than 50% of the ordinary voting power for the election
of directors.
"Wholly Owned Subsidiary" shall mean any Subsidiary in respect of
which all shares (other than directors' qualifying shares required by law)
of the capital stock of each class, or other such ownership interests,
outstanding at the time as of which any determination is being made, are
owned, beneficially and of record by the Borrower.
The Borrower hereby agrees to indemnify the holder hereof against any loss
(including any loss on redeployment of funds repaid prior to maturity), cost or
expense incurred by such holder in connection with this Promissory Note and any
Loans evidenced hereby and the exercise of any and all rights pertaining
thereto, including, without limitation, all court costs, reasonable attorney's
fees and other costs of collection. No delay on the part of the holder hereof in
exercising any of its options, powers or rights, or partial or single exercise
thereof shall constitute a waiver thereof. The options, powers and rights of the
holder hereof specified herein are in addition to those otherwise created.
Demand of payment of this Note shall be sufficiently made upon the Borrower by
written, telex, telegraphic or telephonic notice given by or on behalf of the
holder to the Borrower at its last known address.
Page 4
This Promissory Note and the Loans evidenced hereby shall be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to choice of law or conflicts of laws principles.
QUAKER CHEMICAL CORPORATION
By /s/ Michael F. Barry
-------------------------------------
Its Vice President and Chief
-------------------------------------
Financial Officer
-------------------------------------
By /s/ D. Jeffry Benoliel
--------------------------------------
Its Vice President and General Counsel
------------------------------------
Page 5
EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report of
Quaker Chemical Corporation (the "Company") for the quarterly period ended June
30, 2002 filed with the Securities and Exchange Commission (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Quaker Chemical Corporation
Dated: August 14, 2002 By: /s/ Ronald J. Naples
-----------------------------
Ronald J. Naples
Chairman and Chief Executive Officer
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned hereby certifies that the Form 10-Q Quarterly Report of
Quaker Chemical Corporation (the "Company") for the quarterly period ended June
30, 2002 filed with the Securities and Exchange Commission (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Quaker Chemical Corporation
Dated: August 14, 2002 By: /s/ Michael F. Barry
----------------------------
Michael F. Barry
Vice President
and Chief Financial Officer
