SECURITIES AND EXCHANGE COMMISSION
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2003 | ||
| or | ||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission file number: 01-14010
Waters Corporation
|
Delaware
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13-3668640 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
34 Maple Street
Registrant’s telephone number, including
area code: (508) 478-2000
Common Stock, par value $0.01 per share
New York Stock Exchange, Inc.
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
State the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2003: $3,889,829,107.
Indicate the number of shares outstanding of the registrant’s common stock as of March 11, 2004: 119,362,849.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2004 Annual Meeting of Stockholders are incorporated by reference in Part III.
WATERS CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
INDEX
1
PART I
Item 1: Business
General
Waters Corporation, (“Waters” or the
“Company”) an analytical instrument manufacturer,
designs, manufactures and sells, through its Waters Division,
high performance liquid chromatography (“HPLC”) and
mass spectrometry (“MS”) instrument systems and
associated service and support products, including
chromatography columns and other “consumable”
products. Through its TA Instruments Division
(“TAI”), the Company designs, manufactures, services
and sells thermal analysis and rheology instruments. The Company
is also a developer and supplier of software based products
which interface with the Company’s instruments and are
typically purchased by customers as part of the instrument
system.
The Company’s products are used by
pharmaceutical, life science, biochemical, industrial, academic
and government customers working in research and development,
quality assurance and other laboratory applications. The
Company’s HPLC instruments are utilized in this broad range
of industries to detect, identify, monitor and measure the
chemical, physical and biological composition of materials as
well as to purify a full range of compounds. MS instruments
are used in drug discovery and development, including clinical
trial testing, the analysis of proteins in disease processes
(known as “proteomics”) and environmental testing. The
Company’s thermal analysis and rheometry instruments are
used in predicting the suitability of polymers and viscous
liquids for uses in various industrial, consumer goods and
health care products.
Waters is a holding company that owns all of the
outstanding common stock of Waters Technologies Corporation, its
operating subsidiary. The Company previously operated as the
Waters Chromatography division of Millipore Corporation, prior
to a management buyout of the division that became effective on
August 18, 1994. Waters became a publicly traded company
with its initial public offering (“IPO”) in November
1995. Since the IPO, the Company has added two significant and
complementary technologies to its range of products with the
acquisitions of Micromass Limited (“Micromass”) in
September 1997 and TAI in May 1996.
Business Segments
As indicated above, the Company operates in the
analytical instruments industry, manufacturing and distributing
products in three complementary technologies: HPLC, MS and
Thermal Analysis. In the third quarter of fiscal year 2003, the
Company completed the integration of the Micromass field sales,
service distribution and manufacturing organizations into the
Waters Division and changed the internal reporting structure to
reflect this integration. As a result, the Company has two
operating segments, Waters Division and TAI, which have similar
economic characteristics, product processes, products and
services, types and classes of customers, methods of
distribution, and regulatory environments. Because of these
similarities, the two segments have been aggregated into one
reporting segment for financial statement purposes.
Waters Division
HPLC
Developed in the 1950’s, HPLC is the
standard technique used to identify and analyze the constituent
components of a variety of chemicals and other materials.
HPLC’s performance capabilities enable it to separate and
identify 80% of all known chemicals and materials. As a result,
HPLC is used to analyze substances in a wide variety of
industries for research and development purposes, quality
control and process engineering applications.
The most significant end-use markets for HPLC are
those served by the pharmaceutical and life science industries.
In these markets, HPLC is used extensively to identify new
drugs, to develop manufacturing methods, and to assure the
potency and purity of new pharmaceuticals. HPLC is also used in
a variety of other applications such as the identification of
food content for nutritional labeling in the food and beverage
industry, the testing of water and air purity within the
environmental testing industry, as well as applications in
2
A complete HPLC system consists of five basic
components: solvent delivery system, sample injector, separation
column, detector and data acquisition unit. The solvent delivery
system pumps the solvent through the HPLC system, while the
sample injector introduces the sample into the solvent flow. The
chromatography column then separates the sample into its
components for analysis by the detector, which measures the
presence and amount of the constituents. The data acquisition
unit, usually referred to as the instrument’s software or
data system, then records and stores the information from the
detector.
The primary “consumable products” for
HPLC are chromatography columns. These columns are packed with
separation media used in the HPLC testing process and are
replaced at regular intervals. The chromatography column
contains one of several types of packing, typically stationary
phase particles made from silica. As the sample flows through
the column, it is separated into its constituent components.
Waters columns can be used on Waters-branded as
well as its competitors’ HPLC systems. The Company believes
that it is one of the few suppliers in the world that processes
silica, packs columns and distributes its own products. In doing
so, the Company believes it can better ensure product
consistency, a key attribute for its customers in quality
control laboratories, and react quickly to new customer
requirements.
During 2002 and 2003, the Company experienced
growth in its HPLC chromatography column and sample preparation
businesses, especially in the newly introduced
Xterra
TM
and Atlantis
TM
columns as well as
in Oasis
TM
sample preparation cartridges.
Based upon reports from independent marketing
research firms and publicly disclosed sales figures from
competitors, the Company believes that it is the world’s
largest manufacturer and distributor of HPLC Instruments,
chromatography columns and other consumables and related
services. The Company also believes that it has the leading HPLC
market share in the United States, Europe and non-Japan/ Asia
and believes it has a leading market share position in Japan.
Waters manufactures HPLC instruments that are
offered in configurations that allow for varying degrees of
automation, from Breeze
TM
systems for academic
research applications, to fully automated Alliance
TM
2795 systems for high speed screening, and with a variety of
detection technologies, from UV absorbance to MS, optimized for
certain analyses. In 2003, the Company introduced new
application tailored HPLC systems for the analysis of biologics
as well as a new HPLC detector utilizing evaporative light
scattering technology to expand the usage of HPLC to compounds
that are not amenable to UV absorbance detection.
The servicing and support of HPLC instruments and
accessories is an important source of revenue for the Waters
Division. These revenues are derived primarily through the sale
of support plans, demand service, customer training and
performance validation services. Support plans most typically
involve scheduled instrument maintenance, a commitment to supply
software and firmware upgrades and an agreement to promptly
repair a non-functioning instrument in return for a fee
described in a one or two year contract that is priced according
to the configuration of the instrument.
In the third quarter of 2003, Waters expanded its
data management product lines through the acquisition of Creon
Lab Control AG (“Creon”). The new software products
available for sale by the Waters Division as a result of this
acquisition expand the range of the Company’s information
management offerings. The Company’s existing server based
software products, Millenium and Empower, are now completed by
the addition of Creon’s internet or “web” based
software that enables the reporting of scientific data sourced
from a broader array of instruments.
3
Mass Spectrometry
Mass spectrometry is a powerful analytical
technique that is used to identify unknown compounds, to
quantify known materials, and to elucidate the structural and
chemical properties of molecules by measuring the masses of
individual molecules that have been converted into ions.
The Company believes it is a market leader in the
development, manufacturing, sale and distribution of MS
instruments. These instruments can be integrated and used along
with other complementary analytical instruments and systems such
as HPLC, chemical electrophoresis, chemical electrophoresis
chromatography, gas chromatography and elemental analysis
systems. A wide variety of instrumental designs fall within the
overall category of MS instrumentation including devices that
incorporate quadrupole, ion trap, time of flight
(“Tof”) and classical magnetic sector technologies.
Furthermore, these technologies are often used in tandem to
maximize the efficacy of certain experiments.
Currently, the Company offers and provides
service, support and training for a wide range of MS instruments
utilizing various combinations of quadrupole, Tof and magnetic
sector designs. These instruments are used in drug discovery and
development as well as for environmental testing. The majority
of mass spectrometers sold by Waters are designed to utilize an
HPLC system as the sample introduction device. These products
supply a diverse market with a strong emphasis on the life
science, pharmaceutical, biomedical, clinical and environmental
markets worldwide. Service revenues are primarily related to the
sale of parts and with billed labor associated with instrument
repair and routine maintenance.
The mass spectrometer is an increasingly
important detection device for HPLC. The Company’s smaller
sized mass spectrometers (such as the single quadrupole
ZQ
TM
and Waters EMD
TM
) are often referred
to as HPLC “detectors” and are either sold as part of
an HPLC system or as an HPLC upgrade. Tandem quadrupole systems,
such as the Waters Quattro micro
TM
and Quattro
Ultima
TM
instruments, are used primarily for
experiments performed for late stage drug development, including
clinical trial testing, and Q-Tof Instruments such as the
Company’s Q-Tof micro
TM
and Q-Tof
Ultima
TM
instruments, are typically used to analyze
the role of proteins in disease processes, an application
sometimes referred to as “proteomics”. The majority of
mass spectrometers sold by the Company are designed to use an
HPLC system as the sample introduction device.
In 2003, the Company introduced two new mass
spectrometry systems, the Quattro Premier
TM
and the
LCT Premier
TM
. The Quattro Premier
TM
is a
new tandem quadrupole instrument that is designed to deliver a
higher level of speed, sensitivity and reliability in a more
compact configuration. The LCT Premier
TM
is a Q-Tof
instrument designed to deliver a new level of mass accuracy and
the ability for more precise quantitative analysis.
TAI
Thermal Analysis
Thermal analysis measures the physical
characteristics of materials as a function of temperature.
Changes in temperature affect several characteristics of
materials such as their physical state, weight, dimension and
mechanical and electrical properties, which may be measured by
one or more thermal analysis techniques. Consequently, thermal
analysis techniques are widely used in the development,
production and characterization of materials in various
industries such as plastics, chemicals, automobiles,
pharmaceuticals and electronics.
Rheometry instruments complement thermal
analyzers in characterizing materials. Rheology characterizes
the flow properties of materials and measures their viscosity,
elasticity and deformation under different types of
“loading” or conditions. The information obtained
under such conditions provides insight to a material’s
behavior during manufacturing, transport, usage and storage.
The Company sells, supports and services these
products offering through TAI, headquartered in New Castle,
Delaware. This division operates independently from the Waters
Division though several of its overseas offices are situated in
Waters facilities. TAI has dedicated field sales and service
operations and service
4
Thermal analysis and rheometry instruments are
heavily used in material testing laboratories and in many cases
provide information useful in predicting the suitability of
polymers and viscous liquids for various industrial, consumer
goods and health care products. As with HPLC, a range of
instrumentation is available with increasing levels of sample
handling and information processing automation. In addition,
systems and accompanying software packages can be tailored for
specific applications. For example, the Q-Series
TM
family of differential scanning calorimeters include a range of
instruments from basic dedicated analyzers to more expensive
systems that can accommodate robotic sample handlers and a
variety of sample cells and temperature control features for
analyzing a broad range of materials. In 2002, TAI introduced a
new dynamic mechanical analyzer (“DMA”), the
Q800
TM
DMA. In 2003, TAI introduced two new
DMA’s, the Q400
TM
DMA and the Q600
TM
DMA. Additionally, in the first quarter of 2003, TAI expanded
its Rheology product line through the acquisition of Rheometrics
Scientific, Inc. (“Rheometrics”). Within 2003,
the Rheometrics product line was successfully integrated within
the TA Instruments Division.
Customers
The Company has a broad and diversified customer
base that includes pharmaceutical accounts, other industrial
accounts, universities and government agencies. The
pharmaceutical segment represents the Company’s largest
sector and includes multinational pharmaceutical companies,
generic drug manufacturers and biotechnology companies. The
Company’s other industrial customers include chemical
manufacturers, polymer manufacturers, food and beverage
companies and environmental testing laboratories. The Company
also sells to various universities and government agencies
worldwide. The Company’s technical support staff work
closely with its customers in developing and implementing
applications that meet their full range of analytical
requirements.
The Company does not rely on any single customer
or one group of customers for a material portion of its sales.
During fiscal years 2003 and 2002, no single customer accounted
for more than 3% of the Company’s net sales.
Sales and Service
The Company has one of the largest sales and
service organizations in the industry focused exclusively on
HPLC, MS and thermal analysis markets. Across these
technologies, using respective specialized sales and service
forces, the Company serves its customer base with approximately
1,530 field representatives in 97 sales offices throughout
the world. The sales representatives have direct responsibility
for account relationships, while service representatives work in
the field to install instruments and minimize instrument
downtime for customers. Technical support representatives work
directly with customers, helping them to develop applications
and procedures. The Company provides customers with
comprehensive product literature and also makes consumable
products available through a dedicated catalog.
Manufacturing
The Company provides high quality HPLC products
by controlling each stage of production of its instruments and
columns. The Company assembles most of its HPLC instruments at
its facility in Milford, Massachusetts, where it performs
machining, wiring, assembly and testing. The Milford facility
employs manufacturing techniques that are expected to meet the
strict ISO 9002 quality manufacturing standards and FDA mandated
Good Manufacturing Practices. The Company outsources
manufacturing of certain electronic components such as
computers, monitors and circuit boards to outside vendors that
can meet the Company’s quality requirements.
The Company manufactures its HPLC columns at its
facilities in Taunton, Massachusetts and Wexford, Ireland,
where it processes, sizes and treats silica and polymer media
that are packed into columns, solid phase extraction cartridges
and bulk shipping containers. The Wexford facility also
manufactures and distributes certain data, instruments and
software components for the Company’s HPLC, MS and thermal
5
The Company manufactures most of its MS products
at its facilities in Manchester, England, Cheshire, England and
Wexford, Ireland. Certain components or modules of the
Company’s MS instruments are manufactured by outside
long-standing contractors. Each stage of this supply chain is
closely monitored by the Company to maintain its high quality
and performance standards. The instruments, components or
modules are then returned to the Company’s facilities where
its engineers perform final assembly, calibrations to customer
specifications and quality control procedures.
Thermal analysis products are manufactured at the
Company’s New Castle, Delaware facility and rheology
products are manufactured at the Company’s New Castle,
Delaware and Leatherhead, England facilities. Similar to MS,
certain elements of TAI’s products are manufactured by
outside contractors and are then returned to the Company’s
facilities for final assembly, calibration and quality control.
Research and Development
The Company maintains an active research and
development program focused on the development and
commercialization of products which both complement and update
the existing product offering. The Company’s research and
development expenditures for 2003, 2002 and 2001, were
$59.2 million, $51.9 million and $46.6 million,
respectively. Nearly all of the current HPLC products of the
Company have been developed at the Company’s main research
and development center located in Milford, Massachusetts, with
input and feedback from the Company’s extensive field
organizations. The majority of the MS products have been
developed at facilities in England and nearly all of the current
thermal analysis products have been developed at the
Company’s research and development center in New Castle,
Delaware. At December 31, 2003, there were approximately
500 employees involved in the Company’s research and
development efforts. The Company has increased research and
development expenses relating to acquisitions and the
Company’s continued commitment to invest significantly in
new product development and existing product enhancements.
Despite the Company’s active research and development
programs, there can be no assurances that the Company’s
product development and commercialization efforts will be
successful or that the products developed by the Company will be
accepted by the marketplace.
Employees
The Company employed approximately 3,900
employees, with 48% located in the United States, and 3,600
employees, with 51% located in the United States at
December 31, 2003 and 2002, respectively. The increase of
8% over 2002 is primarily due to the acquisitions of Rheometrics
and Creon. The Company considers its employee relations, in
general, to be good, and the Company’s employees are not
represented by any unions. The Company believes that its future
success depends, in a large part, upon its continued ability to
attract and retain highly skilled employees. During 2002, the
Company announced and commenced a restructuring in its Micromass
and HPLC organizations. The employment of approximately 55
people was terminated as a result of this organization
integration of which all had left the Company as of
December 31, 2003.
Competition
The analytical instrument and systems market is
highly competitive. The Company encounters competition from
several worldwide instrument manufacturers in both domestic and
foreign markets for each of its three technologies. The Company
competes in its markets primarily on the basis of instrument
performance, reliability and service and, to a lesser extent,
price. Some competitors have instrument businesses that are more
diversified than the Company’s business, but are typically
less focused on the Company’s chosen markets. Some
competitors have greater financial and other resources than the
Company.
In the markets served by HPLC and MS, the
Company’s principal competitors include: Applied
BioSystems, Inc., Agilent Technologies, Inc., Thermo
Electron Corporation, Varian, Inc., Shimadzu Corporation
and Bruker BioSciences Corporation. In the markets served by
TAI, the Company’s principal competitors
6
The market for consumable HPLC products,
including separation columns, is also highly competitive but is
more fragmented than the analytical instruments market. The
Company encounters competition in the consumable columns market
from chemical companies that produce column chemicals and small
specialized companies that pack and distribute columns. The
Company believes that it is one of the few suppliers that
process silica, packs columns, and distributes its own product.
The Company competes in this market on the basis of
reproducibility, reputation and performance, and, to a lesser
extent, price. The Company’s principal competitors for
consumable products include Phenomenex, Supelco Inc., Agilent
Technologies, Inc., Alltech International
Holdings, Inc. and Merck and Co., Inc.
Patents, Trademarks and Licenses
The Company owns a number of United States and
foreign patents and has patent applications pending in the
United States and abroad. Certain technology and software are
licensed from third parties. The Company also owns a number of
trademarks. The Company’s patents, trademarks and licenses
are viewed as valuable assets to its operations. However, no one
patent or group of patents, or trademark or license is, in and
of itself, essential to the Company such that its loss would
materially affect the Company’s business as a whole.
Environmental Matters
The Company is subject to federal, state and
local laws, regulations and ordinances that (i) govern
activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes,
and (ii) impose liability for the costs of cleaning up, and
certain damages resulting from sites of past spills, disposals
or other releases of hazardous substances. The Company believes
that it currently conducts its operations, and in the past has
operated its business, in substantial compliance with applicable
environmental laws. From time to time, operations of the Company
have resulted or may result in noncompliance with or liability
for cleanup pursuant to environmental laws. In July 2003, the
Company entered into a settlement agreement (the
“Environmental Settlement Agreement”) with the
Commonwealth of Massachusetts, acting by and through the
Attorney General and the Department of Environmental
Protection (“DEP”), with respect to alleged
non-compliance with state environmental laws at its Taunton,
Massachusetts facility. Pursuant to the terms of a final
judgment entered in the Superior Court of the Commonwealth on
July 10, 2003, the Company paid a civil penalty of
$5.9 million. In addition, the Company agreed to conduct a
Supplemental Environmental Project in the amount of
$0.6 million, comprised of investments in capital
infrastructure, to study the effects of bio-filtration on
certain air emissions from the Taunton facility and for the
purchase of equipment in connection therewith. Pursuant to the
terms of the Environmental Settlement Agreement, the Company
also agreed to undertake a variety of actions to ensure that air
emissions from the facility do not exceed certain limits and
that the facility is brought into full compliance with all
applicable environmental regulations. The Company does not
currently anticipate any material adverse effect on its
operations, financial condition or competitive position as a
result of its efforts to comply with environmental laws.
Available Information
The Company files all required reports with the
Securities and Exchange Commission (“SEC”). The public
may read and copy any materials the Company files with the SEC
at the SEC’s Public Reference Room at 450 Fifth
Street, N.W., Washington, DC 20549. The public may obtain
information of the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
The Company is an electronic filer and the SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. The address of the SEC
electronic filing web-site is http://www.sec.gov. The Company
also makes available free of charge on its web-site its annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports as soon as reasonably practicable after such material is
7
Forward-Looking Statements
Certain of the statements in this Form 10-K
and the documents incorporated in this form are forward-looking
statements, including statements regarding, among other items,
(i) the impact of the Company’s new products,
(ii) the Company’s growth strategies, including its
intention to make acquisitions and introduce new products,
(iii) anticipated trends in the Company’s business and
(iv) the Company’s ability to continue to control
costs and maintain quality. You can identify these
forward-looking statements by the use of the words
“believes”, “anticipates”,
“plans”, “expects”, “may”,
“will”, “would”, “intends”,
“estimates” and similar expressions, whether in the
negative or affirmative. These statements are subject to various
risks and uncertainties, many of which are outside the control
of the Company, including (i) changes in the HPLC, MS and
thermal analysis portions of the analytical instrument
marketplace as a result of economic or regulatory influences,
(ii) general changes in the economy or marketplace
including currency fluctuations, in particular with regard to
the Euro, British pound and Japanese yen, (iii) changes in
the competitive marketplace, including obsolescence resulting
from the introduction of technically advanced new products and
pricing changes by the Company’s competitors, (iv) the
ability of the Company to generate increased sales and
profitability from new product introductions, (v) the
ability of the Company to replace or increase the amount of its
existing revolving credit agreement in the event the need of a
credit facility is required, (vi) the reduction in capital
spending of pharmaceutical customers, (vii) the loss of
intellectual property rights in the Company’s research and
development efforts, (viii) the short term effect on sales
and operating expenses as a result of the recent combination of
the Waters HPLC and Micromass sales, service and distribution
organizations, as well as additional risk factors set forth
below. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the
forward-looking statements, whether because of these factors or
for other reasons. The Company does not assume any obligations
to update any forward-looking statements.
Risk Factors
Competition and the Analytical Instrument
Market:
Additionally, the market may, from time to time,
experience low sales growth. Approximately 53% of the
Company’s net sales in 2003 were to the worldwide
pharmaceutical industry, which may be periodically subject to
unfavorable market conditions and consolidations. Unfavorable
industry conditions could have a material adverse effect on the
Company’s results of operations.
Risk of Disruption:
8
Restructuring and Other Unusual
Charges:
In January 2004, the Company initiated a
restructuring effort to realign its personnel between various
support functions and various field, sales and service
organizations. As a result, approximately 80 employees are to be
terminated, primarily in the U.S., in the first quarter of 2004.
A similar number of new employees are to be hired in various
geographies around the world, primarily in sales and service
functions with the goal of increasing sales. The Company expects
to record a restructuring charge of approximately
$2.0 million in the first quarter of 2004.
Foreign Operations and Exchange
Rates:
Additionally, the U.S. dollar value of the
Company’s net sales varies with currency exchange rate
fluctuations. Significant increases in the value of the
U.S. dollar relative to certain foreign currencies could
have a material adverse effect on the Company’s results of
operations.
Reliance on Key Management:
Protection of Intellectual Property:
Reliance on Customer Demand:
9
Reliance on Suppliers:
Reliance on Outside Manufacturers:
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Item 2: Properties
Waters operates 19 United States facilities and
84 international facilities, including field offices. In 2003,
the Company purchased additional land in Milford, Massachusetts,
providing the Company with an additional 13.7 acres for
future anticipated growth. The Company believes its facilities
are suitable and adequate for its current production level and
for reasonable growth over the next two to three years. The
Company’s primary facilities are summarized in the table
below.
Primary
Facility Locations
Location
Function (1)
Owned/Leased
Square Feet (000’s)
D
Leased
30
M, R, S, A
Owned
492
M
Owned
32
S, D, A
Leased
36
S, A
Leased
64
S, A
Leased
6
S, A
Leased
24
M, R, S
Owned/ Leased
35
(2)
M, R, S, D, A
Leased
86
M, R, S, D, A
Leased
10
S, A
Leased
77
M, R, S
Leased
28
M, R, S, D, A
Leased
123
S, A
Leased
16
M, R
Leased
7
| (1) | M = Manufacturing; R = Research; S = Sales and service; D = Distribution; A = Administration |
| (2) | In January 2003, the Company purchased its Wexford, Ireland facility. |
The Company operates and maintains 13 field offices in the United States and 71 field offices abroad in addition to sales offices in the primary facilities listed above. The Company’s field office locations are listed below.
10
Field Office Locations (3)
_______________
United States
International
Tustin, CA
Wood Dale, IL
Mt Lakes, NJ
Cary, NC
Parsippany, NJ
Bellaire, TX
Dublin, CA
Ann Arbor, MI
Irvine, CA
Schaumburg, IL
Columbia, MD
Huntingdon, PA
Piscataway, NJ
Australia
Austria
Belgium
Brazil
Canada
Czech Republic
Denmark
Finland
France
Germany
Hong Kong
Hungary
India
Ireland
Italy
Japan
Korea
Mexico
Netherlands
Norway
People’s Republic of China
Poland
Puerto Rico
Russia
Spain
Sweden
Switzerland
Taiwan
United Kingdom
| (3) | The Company operates more than one office within certain states and foreign countries. |
Item 3: Legal Proceedings
Applera Corporation:
In March 2002, the Company was informed of a jury’s finding that the Quattro Ultima with Mass Transit ion tunnel technology infringes the patent. The same jury found that the infringement was not willful and determined damages in the amount of $47.5 million. The Court entered an injunction in which the Company is enjoined from making, using and selling in the U.S. the Quattro Ultima triple quadrupole mass spectrometer incorporating features of the patent.
In March 2003, the Court’s decision was affirmed on appeal. In April 2003, the Company paid total damages and interest of approximately $53.7 million to the Plaintiffs. These instruments are manufactured in the United Kingdom and shipments to the rest of the world outside of the United States are not subject to this litigation. Similar claims were asserted against the Company by the Plaintiffs in Japan and Canada.
The accrued patent litigation expenses of $19.9 million and $74.9 million recorded as of December 31, 2003 and December 31, 2002, respectively, in the consolidated balance sheets, is the Company’s best estimate of its exposure for this liability. During the year ended December 31, 2003, the Company recorded a $0.5 million pre-tax charge for additional liabilities associated with interest costs. During the year ended December 31, 2003, the Company paid damages and interest of $53.7 million, made legal payments of $0.4 million, and reversed approximately $0.9 million of interest as a credit to interest expense in the fourth quarter.
MDS, Inc. and Applied BioSystems/MDS Sciex Instruments filed a civil action against Micromass UK Limited, Waters Limited, wholly owned subsidiaries of the Company, and the Company, in the High Court of Justice, Chancery Division, Patents Court, UK on October 31, 2003. The case alleged that certain of the Company’s MS products infringe European Patent (UK) No. 0 373 835 (the “European Patent”). To the Company’s knowledge, the European Patent is owned by MDS, Inc. and licensed to a joint venture with Applied BioSystems/MDS Sciex Instruments. The Plaintiffs in this action were seeking an injunction against the Company to restrain it from infringing the European Patent and an unspecified award of damages.
11
Previously, in July 2002, the Company filed a civil action against Applera Corporation alleging patent infringement of U.S. Patent No. 5,304,798 owned by the Company. In November 2002, the University of Manitoba (the “University”) and Applera Corporation, its licensee, filed a civil action against the Company alleging patent infringement of U.S. Patent No. 6,331,702 owned by the University.
On March 2, 2004, the Company and MDS, Inc. through its Applied Biosystems/MDS Sciex Instruments partnership and Applied Biosystems entered into a settlement agreement (the “Applera Settlement Agreement”) with respect to the various civil actions pending against each of them, both in the United States and internationally. Stipulations of Dismissal or their foreign equivalents (the “Stipulations”) with respect to the disposal of all such actions have been submitted to the applicable courts and tribunals in each of the United States, the United Kingdom, Canada and Japan.
The Applera Settlement Agreement provides for the resolution of all patent infringement claims in the United States made by certain of the parties against the other and of international cases brought by MDS, Inc. and Applied Biosystems/MDS Sciex Instruments against the Company with respect to alleged infringements of those parties’ patents at issue in the United Kingdom, Canada and Japan.
In consideration of entering into the Applera Settlement Agreement and the Stipulations, the Company and MDS, Inc. and Applied Biosystems/MDS Sciex Instruments have entered into royalty paying license agreements cross licensing the use of the technology described in the parties’ respective patents at issue. In addition, the Company made a one-time payment to Applied Biosystems/MDS Sciex Instruments of $18.1 million on March 11, 2004, which is fully accrued at December 31, 2003.
Hewlett-Packard Company:
PerkinElmer Corporation:
On remand to the District Court in October 2002, a jury found PE liable to TAI for damages of $13.3 million and found TAI did not infringe the PE patent. In May 2003, the District Court entered judgment on the jury’s verdict in favor of the Company. PE has appealed the judgment with respect to TAI’s non-infringement of the PE patent. As of December 31, 2003, no gain has been recorded and all litigation costs have been expensed as incurred.
12
Other:
Viscotek Corporation (“Viscotek”) filed a civil action against the Company in the Federal District Court for the Southern District of Texas, Houston Division, alleging that one option offered by the Company with a high temperature gel permeation chromatography instrument is an infringement of two of its patents. These patents are owned by E.I. DuPont de Nemours and Company (“DuPont”) and claimed to be exclusively licensed to Viscotek. DuPont is not a party to the suit. On January 16, 2004, a jury returned a verdict finding that the Company had not infringed Viscotek’s patents. Judgment has not been entered on the jury’s verdict and further post trial motions and appeals by Viscotek may preclude such entry. The Company believes it should prevail either through judgment or appeal and that any outcome of the proceedings will not be material to the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5:
Market
for Registrant’s Common Equity and Related Stockholder
Matters
Equity compensation plans information is
incorporated by reference from Part III, Item 12,
Security Ownership of Certain Beneficial Owners and Management,
of this document, and should be considered an integral part of
Item 5. The Company’s Common Stock is registered under
the Securities Exchange Act of 1934 and is listed on the
New York Stock Exchange under the symbol WAT. As of
March 12, 2004, the Company had approximately 286 common
stockholders of record. The Company has not declared or paid any
dividends on its Common Stock in the past three years and does
not plan to pay dividends in the foreseeable future.
The quarterly range of high and low sales prices
for the Common Stock as reported by the New York Stock
Exchange is as follows:
13
Price Range
For the Quarter Ended
High
Low
$
39.25
$
25.50
29.95
22.70
27.25
17.86
28.50
19.35
24.50
19.83
31.05
20.26
32.35
26.33
33.42
27.50
Table of Contents
Item 6:
Selected
Financial Data
Reference is made to information contained in the
section entitled “Selected Financial Data” on
page 68 of this Form 10-K, included in Item 8,
Financial Statements and Supplementary Data
Item 7:
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Financial Overview:
Sales grew by 8% in 2003 and by 4% in 2002.
Excluding currency effects, sales remained flat in 2003 and grew
2% in 2002. In 2003, HPLC and thermal analysis sales grew by
approximately 5% and 11%, respectively, while MS declined
approximately 18% excluding the Inorganic business, which was
sold in March 2003. Operating income for 2003 and 2002 was
$219.2 million and $196.4 million, respectively. The
increase of $22.8 million or 12% for the year is primarily
attributable to an increase in gross profit, a decrease in
litigation provisions from $7.9 million to
$1.5 million and a decrease in restructuring and other
unusual charges, net associated with the integration of the
worldwide HPLC and MS sales, service and support organizations
from $7.4 million to $0.9 million. In addition, in
2002 the Company recorded a $2.4 million charge for an
other-than-temporary impairment of a long-lived asset, for which
there was no such charge in 2003. Offsetting the increase in
operating income is the loss on sale of the inorganic MS product
line of $5.0 million, a charge for the expensed in-process
research and development of $6.0 million and increased
research and development expenses relating to acquisitions and
the Company’s continued commitment to invest significantly
in new product development and existing product enhancements.
The Company completed the $200 million stock
repurchase program during 2003 by purchasing $100.6 million
of the Company’s common stock. On May 6, 2003 the
Company’s Board of Directors authorized the Company to
repurchase up to an additional $400 million in outstanding
common shares over a two-year period. The Company believes that
the share repurchase program is beneficial to shareholders by
increasing earnings per share via reducing the outstanding
number of shares through open market purchases. The Company
believes it has the resources to fund this effort as well as to
meet on-going operational cash flow needs and pursue acquisition
opportunities in the future. As of December 31, 2003,
7,540 shares had been purchased under the 2003 plan for
$224.0 million. In the aggregate, the Company repurchased
11,939 shares of its common stock for $324.6 million
during 2003. The Company had net borrowings at the end of 2003
of $246.3 million, primarily relating to borrowings in the
U.S. under the Company’s credit facility and term loan
facility for the stock repurchases.
In April 2003, the Company paid
$53.7 million for damages and interest relating to the
Applera patent litigation. Similar claims have been asserted
against the Company in other countries and there is a
possibility that claims may be made with respect to other
products in the MS line.
During 2003, approximately 55% of the
Company’s combined net sales were derived from operations
outside the United States. The Company believes that the
geographic diversity of its sales reduces its dependence on any
particular region. The U.S. dollar value of these revenues
varies with currency exchange fluctuations, and such
fluctuations can affect the Company’s results from period
to period.
Year Ended December 31, 2003 Compared to
Year Ended December 31, 2002
Net Sales:
With respect to the Company’s performance by
product line (excluding the effects of currency translation),
HPLC sales overall grew approximately 5%. In 2003, HPLC
chemistry grew 11% primarily as a result of continued strength
in sales related to pharmaceutical production. HPLC service
sales grew 14% over
14
MS sales declined approximately 18% in 2003,
excluding the impact of the sale of the inorganic product line.
The decline in sales over 2002 was across most geographic areas,
primarily due to the impact of the Applera patent litigation,
reduced MS instrument prices and a decline in pharmaceutical
capital spending. Sales to customers working on proteomics
applications in the pharmaceutical industry, government and
academic sector and biotech all experienced declines in
instrument purchases in 2003. We believe that our sales decline
is a result of a temporary market decline in 2003 as well as a
loss of market share to competing technologies that resulted in
the overall 18% sales decline in MS. Service revenue for the MS
product line accounted for approximately 19% of total MS revenue
in 2003 compared to 12% in 2002, and grew approximately 27%
during this period. The growth in MS service revenue as a
percentage of overall MS revenue was primarily due to the
decline in MS instrument revenue, which is attributed to reduced
demand from proteomics customers.
Sales for thermal analysis products grew 20% in
2003, excluding the impact of the acquired rheology business.
The growth of this business is geographically broad-based with
increased spending by core industrial chemical and
pharmaceutical companies. The impact of sales in 2003 from the
rheology business acquisition added an additional 16% to the
thermal analysis business growth. TAI service revenue was
approximately 26% of total TAI revenue. Compared to 2002, TAI
service revenue grew by approximately 41% primarily as a result
of providing service to a larger installed base of instruments
and the Rheometrics acquisition.
Gross Profit:
Selling, General, and Administrative
Expenses:
15
Research and Development Expenses:
Goodwill and Purchased Intangibles
Amortization:
Litigation Provisions:
Loss on Sale of Business:
Impairment of Long-Lived Asset:
Restructuring and Other Unusual Charges,
net:
During 2003, the Company reversed approximately
$1.9 million in restructuring reserves, primarily
attributable to distribution and facility settlements being less
than previously estimated and the retention of certain employees
previously selected for employment termination. There were no
such reversals in 2002.
The Company has included in the consolidated
balance sheet in other long-term liabilities approximately
$1.1 million and $1.8 million at December 31,
2003 and 2002, respectively, for non-cancelable lease
obligations with a portion to be paid out extending to 2012. The
remaining $1.5 million and $3.7 million of the
liability is included in other current liabilities in the
consolidated balance sheet at December 31, 2003 and 2002,
respectively.
16
The following is a rollforward of the
Company’s HPLC and MS integration restructuring liability
(in thousands):
The amount of expected annual cost savings is
approximately $6.0 million. The Company began realizing
savings of approximately $1.5 million per quarter beginning
in the second quarter of 2003. The Company believes that there
were no material increases in other expenses or reductions in
revenues as a result of this restructuring. The annual cost
savings is comprised of head count reductions of approximately
$4.2 million, reductions in related travel, promotional and
other expenses of approximately $1.6 million and facility
closures of approximately $0.2 million.
The Company also recorded an unrelated
restructuring provision of $0.1 million at its TAI
subsidiary for severance and other related costs in 2003. There
were no such charges in 2002.
Expensed In-Process Research and
Development:
Management determined the valuation of the
IPR&D using a number of factors, including engaging a third
party valuation firm to provide an independent appraisal. The
value was based primarily on the discounted cash flow method.
This valuation included consideration of (i) the stage of
completion of each of the projects, (ii) the technological
feasibility of each of the projects, (iii) whether the
projects had an alternative future use, and (iv) the
estimated future residual cash flows that could be generated
from the various projects and technologies over their respective
projected economic lives.
The primary basis for determining the
technological feasibility of these projects was whether the
product has met predetermined design specifications and complex
functionality. As of the acquisition date, none of the IPR&D
projects had reached predetermined design specifications and
complex functionality. In assessing the technological
feasibility of a project, consideration was also given to the
level of complexity in future technological hurdles that each
project had to overcome. As of the acquisition date, the Company
estimated the E Lab notebook to be 90% complete and the
automatic LC-MS dereplication system to be 85% complete.
Future residual cash flows that could be
generated from each of the projects were determined based upon
management’s estimate of future revenue and expected
profitability of the various products and technologies involved.
These projected cash flows were then discounted to their present
values taking into account management’s estimate of future
expenses that would be necessary to bring the projects to
completion. The discount rates include a rate of return, which
accounts for the time value of money, as well as risk factors
that reflect the economic risk that the cash flows projected may
not be realized. The cash flows were discounted at discount
rates ranging from 55% to 60% per annum, depending on the
project’s stage of completion and the type of complex
functionality needed. This discounted cash flow methodology for
the various projects included in the purchased IPR&D
resulted in a total valuation of $6.0 million. Although
work on the projects related to the IPR&D continued after
the acquisition, the amount of the purchase price allocated to
IPR&D was written
17
Other Income (Expense), Net:
Interest Expense:
Interest Income:
Provision for Income Taxes:
Cumulative Effect of Change in Accounting
Principle:
18
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
Net Sales:
Sales grew by 4% in 2002 and by 8% in 2001.
Excluding currency effects, sales grew 2% in 2002 and 10% in
2001. Sales growth, before currency effects, in both years
reflected increased customer demand for new products. In both
years, sales growth was primarily driven by a combination of the
replacement of existing instruments, increased service revenues
from a larger installed instrument base and the sales of new
instruments and consumables to customers to address their
increased sample testing needs. In addition, sales growth before
currency effects in 2001 reflected increased demand for new MS
products such as the Q-Tof Ultima
TM
used in drug and
life science research. In 2002, Waters’ growth was driven
primarily by improved HPLC instrument sales outside of the
United States and increased global demand for HPLC consumables
and services. HPLC instrument sales outside of the United States
were driven by new Alliance
TM
HPLC configurations
introduced in early 2002. Product line sales growth in 2002
before the effects of currency was 7% for HPLC, offset by a
decline of 8% for MS, and growth of 3% for TAI. Sales for MS
systems were adversely impacted by the effect of on-going patent
litigation in the United States. As a result of this litigation,
the Company withdrew the Quattro Ultima
TM
triple
quadrupole MS and versions of the Q-Tof Ultima
TM
,
configurations from the US market effective mid-March 2002. The
Company estimates that total MS sales in 2002 were reduced by
approximately $35 million as a result of this litigation.
Sales of high performance triple quadrupole instruments (Quattro
Ultima
TM
and its predecessor) in the United States in
2001 were approximately $20 million. The Q-Tof
Ultima
TM
was first shipped in mid-2001 and 2001 sales
in the United States were approximately $20 million.
Sales growth for HPLC was driven by relatively
healthy life science and pharmaceutical demand in Europe and new
business associated with recent economic modernization in
Eastern Europe. However, this growth was somewhat offset by flat
sales growth in the United States. The weakness in demand
experienced in the United States was primarily related to
reduced order volume from large pharmaceutical accounts during
the fourth quarter.
TAI’s sales growth was largely due to the
success of its newly introduced Q-Series
TM
differential scanning calorimeter (DSC) systems and thermal
gravimetric analysis systems (TGA).
For the HPLC business, service revenue grew 19%
in 2002 and was approximately 25% of total HPLC revenue in 2002
compared to 23% of revenue in 2001. The growth of service
revenue was geographically broad-based and was driven by
increased demand from large multi-national customers for service
plans to maintain a higher percentage of their installed base
and newly purchased Waters instruments. Chromatography
consumables account for approximately 18% of overall HPLC sales
and grew by approximately 1% in 2002. However, the consumables
business in 2001 included a bulk media chromatography supply
contract that terminated in early 2002. The growth of the
chromatography business, without considering sales of this bulk
media in the prior year, was approximately 10%. Chromatography
consumable growth was driven by increased utilization of
existing HPLC equipment and by the successful launch of a new
line of chromatography columns and sample preparation devices.
The Company’s MS product line was affected
in the U.S. by the March 2002 unfavorable patent litigation
ruling involving sales of certain MS products. Service revenue
accounted for approximately 17% of total MS revenue in 2002
compared to 15% in 2001, and grew approximately 11% during this
period. The growth in MS service revenue as a percentage of
overall MS revenue was primarily due to the decline in MS
instrument revenue, which is attributed to the Applera
litigation.
TAI service revenue was approximately 9% of total
TAI revenue. Compared to 2001, TAI service revenue grew by
approximately 18% primarily as a result of providing service to
a larger installed base of instruments.
19
Gross Profit:
Selling, General, and Administrative
Expenses:
Research and Development Expenses:
Goodwill and Purchased Technology
Amortization:
Litigation Provisions:
20
Impairment of Long-Lived Asset:
Restructuring and Other Unusual
Charges:
The Company has included in the consolidated
balance sheet in other long-term liabilities approximately
$1.8 million at December 31, 2002, for non-cancelable
lease obligations with a portion to be paid out extending to
2012. The remaining $3.7 million of the liability is
included in other current liabilities in the consolidated
balance sheet at December 31, 2002.
The following table provides additional
information about the 2002 restructuring and other unusual
charges (in thousands):
The amount of expected annual cost savings was
approximately $6.0 million. The Company believes that there
were no material increases in other expenses or reductions in
revenues as a result of this restructuring. The annual cost
savings is comprised of head count reductions of approximately
$4.2 million, reductions in related travel, promotional and
other expenses of approximately $1.6 million and facility
closures of approximately $0.2 million.
Other Income (Expense), Net:
Interest Expense:
Interest Income:
21
Provision for Income Taxes:
Cumulative Effect of Change in Accounting
Principle:
Liquidity and Capital Resources
During 2003, net cash provided by the
Company’s operating activities was $152.8 million,
primarily as a result of net income for 2003 and adding back
depreciation of $22.0 million, amortization of intangible
assets of $11.9 million, loss on sale of business of
$5.0 million, tax benefits related to stock option
exercises of $17.6 million, expensing of in-process
research and development of $6.0 million and changes in
working capital needs primarily accounts payable and accrued
expenses. During 2003, the Company paid approximately
$59.6 million in connection with both the Applera patent
litigation and the DEP settlement. Excluding the effects of
currency translation and the Rheometrics and Creon acquisitions,
accounts receivable decreased approximately $7.2 million
due to improved collection efforts at the end of 2003 compared
to 2002. Days-sales-outstanding stood at 71 days at
December 31, 2003 and 2002, respectively. Within
liabilities, a decrease in accounts payable and other current
liabilities used $31.0 million, primarily as income and
other tax liabilities, and annual incentive payments were made.
The Company completed its $200 million stock
repurchase program during 2003 by purchasing $100.6 million
of the Company’s common stock. On May 6, 2003 the
Company’s Board of Directors authorized the Company to
repurchase up to an additional $400 million in outstanding
common shares over a two-year period. The Company believes that
the share repurchase program is beneficial to shareholders by
increasing earnings per share via reducing the outstanding
number of shares through open market purchases. The Company
believes it has the resources to fund this effort as well as to
pursue acquisition opportunities in the future. As of
December 31, 2003, 7,540 shares had been purchased
under the 2003 plan for $224.0 million. In the aggregate,
the Company repurchased 11,939 shares of its common stock
for $324.6 million during 2003. The Company had net
borrowings at the end of 2003 of $246.3 million, primarily
relating to borrowings in the U.S. under the Company’s
credit facility and term loan facility for the stock repurchases.
In December 2003, the Company amended its
existing $250.0 million Senior Revolving Credit Agreement
dated February 2002 by closing on a $125.0 million Add-On
Term Loan Facility. The applicable interest to be charged
changed from being based on the ratio of debt to total
capitalization to debt to EBITDA. Loans under the amended Senior
Revolving Credit Agreement will bear interest for each quarter
at a floating rate equal to, at the Company’s option,
1) the applicable LIBOR rate plus a varying margin between
0.60% and 1.50% or 2) prime rate. Other uses of cash flow
during the 2003 were $35.2 million for acquisitions
(Note 5) and $34.6 million for property, plant and
equipment and software capitalization investments. From
financing activities, the Company received $27.8 million of
proceeds from the exercise of stock options and the purchase of
shares pursuant to the employee stock purchase plans.
The Company believes that the existing cash and
cash equivalent balance of $356.8 million and expected cash
flow from operating activities together with borrowings
available from its credit facility will be sufficient to fund
working capital, capital spending requirements, authorized share
repurchase amounts and any adverse final determination of
ongoing litigation for at least the next twelve months.
Management believes its financial position, along with expected
future cash flows from earnings based on historical trends and
the ability to raise funds from a number of financing
alternatives and external sources, will be sufficient to meet
future operating and investing needs beyond twelve months. The
Company also held approximately $49.9 million of restricted
cash at December 31, 2002 in connection with the standby
letter of credit issued by the Company for the
22
Commitments:
The Company licenses certain technology and
software from third parties, which expire at various dates
through 2008. Fees paid for licenses was approximately
$2.9 million in 2003, $5.4 million in 2002, and
$4.0 million in 2001. Future minimum licenses payable under
existing license agreements as of December 31, 2003 are
$0.8 million, $0.4 million, and immaterial for 2004,
2005 and 2008 and thereafter, respectively.
Contractual Obligations and Commercial
Commitments
The following is a summary of the Company’s
commitments as of December 31, 2003 (in thousands):
From time to time, the Company and its
subsidiaries are involved in various litigation matters arising
in the ordinary course of business. The Company believes it has
meritorious arguments and any outcome, either individually or in
the aggregate, with the exception of the current litigation
described in Note 12, Patent Litigation and Note 13,
Environmental Contingency, will not be material to the financial
position or results of operations.
The Company paid $43.2 million in the first
quarter of 2004 for the NuGenesis acquisition. This is described
in more detail in Note 22, Subsequent Events.
During fiscal year 2004, the Company expects to
contribute $10.0 million to the Company’s retirement
plans.
The Company is not aware of any undisclosed risks
and uncertainties, including but not limited to product
technical obsolescence, regulatory compliance, protection of
intellectual property rights, changes in pharmaceutical industry
spending, competitive advantages, current and pending
litigation, and changes in foreign exchanges rates, that are
reasonably likely to occur and could materially and negatively
affect the Company’s existing cash balance or its ability
to borrow funds from its credit facility. The Company also
believes there are no provisions in the new credit facility, its
real estate leases, and supplier and collaborative agreements
that would accelerate payments, require additional collateral or
impair its ability to continue to enter into critical
23
Critical Accounting Policies and
Estimates
Summary:
Revenue Recognition:
Product shipments, including those for
demonstration or evaluation, and service contracts are not
recorded as revenues until a valid purchase order or master
agreement is received specifying fixed terms and prices.
Revenues are adjusted accordingly for changes in contract terms
or if collectibility is not reasonably assured. The
Company’s method of revenue recognition for certain
products requiring installation is in accordance with Staff
Accounting Bulletin (“SAB”) 104, “Revenue
Recognition in Financial Statements.” Accordingly, the
larger of the contractual cash holdback or the fair value of the
installation service is deferred when the product is shipped and
revenue is recognized as a multiple element arrangement when
installation is complete. The Company determines the fair value
of installation based upon a number of factors, including hourly
service billing rates, installation hours and amounts charged by
third parties. The Company believes that this amount
approximates the amount that a third party would charge for the
installation effort.
Loss Provisions on Accounts Receivable and
Inventory:
24
The Company values all of its inventories at the
lower of cost or market on a first-in, first-out basis
(“FIFO”). The Company estimates revisions to its
inventory valuations based on technical obsolescence, historical
demand, projections of future demand including that in the
Company’s current backlog of orders, and industry and
market conditions. If actual future demand or market conditions
are less favorable than those projected by management,
additional write-downs may be required. The Company’s
inventory balance at December 31, 2003 was
$128.8 million, net of write-downs to net realizable value
of $15.1 million.
Valuation of Equity Investments:
Long-Lived Assets, Intangible Assets and
Goodwill:
When the Company determines that the carrying
value of intangibles, long-lived assets and related goodwill may
not be recoverable based upon the existence of one or more of
the above indicators, it measures any impairment based on a
projected discounted cash flow method using a discount rate
determined by management to be commensurate with the risk
inherent in the Company’s current business model. Net
intangible assets, long-lived assets, and goodwill amounted to
$376.9 million as of December 31, 2003. In 2002,
SFAS 142, Goodwill and Other Intangible Assets, became
effective and as a result, the Company ceased amortization of
approximately $163.5 million of goodwill as of
December 31, 2001. The Company had recorded approximately
$4.0 million of amortization on these amounts during 2001.
In lieu of amortization, the Company is required to perform
annual impairment reviews of its goodwill. The Company performed
its annual review during 2003 and currently does not expect to
record an impairment charge in the foreseeable future. However,
there can be no assurance that at the time future reviews are
completed, a material impairment charge will not be recorded.
Warranty:
25
Income Taxes:
The Company has realized significant income tax
benefits associated with the exercise of its nonqualified stock
options. The corresponding credit was to additional
paid-in-capital. Because of the outstanding stock options, the
Company believes that it is more likely than not that the
U.S. deferred tax assets will not be realized. Therefore, a
valuation allowance has reduced to zero all the deferred tax
assets relating to U.S. income.
Litigation:
With respect to the claims referenced in
Item 3, management of the Company to date has been able to
make both of these determinations, and thus has recorded charges
with respect to the claims described under the headings
“Applera Corporation” and “Hewlett-Packard
Company.” As developments occur in these matters and
additional information becomes available, management of the
Company will reassess the probability of any losses and of their
range, which may result in its recording charges or additional
charges, which could materially impact the Company’s
results of operation or financial position.
Recent Accounting Standards Changes
In December 2003, the Financial Accounting
Standards Board (“FASB”) issued revised FASB Statement
No. 132, “Employers’ Disclosures about Pensions
and Other Postretirement Benefits.” The revised standard
provides additional required disclosures for pensions and other
postretirement benefit plans and is designed to improve
disclosure transparency in financial statements. The revised
standard replaces existing pension disclosure requirements. The
revised SFAS 132 is effective, with some exceptions, for
fiscal years ending after December 15, 2003.
In December 2003, the SEC issued Staff Accounting
Bulletin (“SAB”) No. 104, “Revenue
Recognition”, which supersedes SAB No. 101,
“Revenue Recognition in Financial Statements.” SAB
No. 104 rescinds accounting guidance in SAB No. 101
related to multiple-element arrangements as this guidance has
been superseded as a result of the issuance of EITF 00-21,
“Accounting for Revenue Arrangements with Multiple
Deliverables.” The adoption of SAB No. 104 did not
have a material impact on our financial position or results of
operations.
In January 2003, the FASB issued FIN 46,
“Consolidation of Variable Interest Entities.” This
interpretation clarifies the application of Accounting Research
Bulletin No. 51, “Consolidated Financial
Statements,” relating to consolidation of certain entities.
FIN 46 requires identification of the Company’s
participation in variable interest entities (“VIE”),
which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit them
to operate on a stand alone basis, or whose equity
26
In December 2003, the FASB issued a revision to
FIN 46 (“FIN 46R”) to address various
technical corrections and implementation issues that have arisen
since its issuance. The provisions of FIN 46R are effective
for financial periods ending after March 15, 2004, thus the
Company will implement the new provisions effective
March 31, 2004. As FIN 46R was recently issued and
contains provisions that the accounting profession continues to
analyze, the Company’s assessment of the impact of
FIN 46R on all VIEs with which it is involved is ongoing.
However, at this time and based on management’s current
interpretation, the Company does not believe that the
implementation of FIN 46R will have a material impact on
the Company’s Consolidated financial statements, earnings
or capital resources.
In May 2003, the FASB issued
SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity.” SFAS 150 established standards for how to
classify and measure certain financial instruments with
characteristics of both liabilities and equity. The provisions
of SFAS 150 were effective for financial instruments
entered into or modified after May 31, 2003. The
application of SFAS 150 did not have a material impact on
the Company’s financial position, results of operations, or
cash flows.
In April 2003, the FASB issued SFAS 149,
“Amendment of Statement 133 on Derivative Instruments
and Hedging Activities.” SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS 133,
“Accounting for Derivative Instruments and Hedging
Activities.” The changes in SFAS 149 improve financial
reporting by requiring that contracts with similar
characteristics be accounted for similarly. SFAS 149 is
effective, with some exceptions, for contracts entered into or
modified after June 30, 2003. The application of
SFAS 149 did not have a material impact on the
Company’s financial position, results of operations, or
cash flows.
In November 2002, the Emerging Issues Task Force
(“EITF”) reached a consensus on EITF Issue 00-21,
“Accounting for Revenue Arrangements with Multiple
Deliverables.” EITF Issue 00-21 provides guidance on
how to determine when an arrangement that involves multiple
revenue-generating activities or deliverables should be divided
into separate units of accounting for revenue recognition
purposes, and if this division is required, how the arrangement
consideration should be allocated among the separate units of
accounting. The guidance in the consensus is effective for
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue 00-21 did
not have a material effect on the Company’s financial
position, results of operations, or cash flows.
Table of Contents
Table of Contents
Table of Contents
Balance
Balance
December 31,
Reserve
December 31,
2002
Charges
Utilization
Reversals
2003
$
1,655
$
1,553
$
(2,672
)
$
(505
)
$
31
2,388
—
(60
)
(391
)
1,937
1,350
400
(325
)
(950
)
475
78
661
(568
)
(8
)
163
$
5,471
$
2,614
$
(3,625
)
$
(1,854
)
$
2,606
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Balance
Balance
December 31,
December 31,
2001
Charges
Payments
2002
$
—
$
2,210
$
(555
)
$
1,655
—
2,400
(12
)
2,388
—
1,350
—
1,350
—
1,444
(1,366
)
78
$
—
$
7,404
$
(1,933
)
$
5,471
Table of Contents
Table of Contents
Payments Due by Year
Contractual Obligations
Total
2004
2005
2006
2007
After 2007
$
125,000
$
—
$
20,000
$
20,000
$
85,000
$
—
84,910
18,270
14,892
11,503
8,567
31,678
350
—
350
—
—
—
$
210,260
$
18,270
$
35,242
$
31,503
$
93,567
$
31,678
Amount of Commitments Expiration Per Period
Other Commercial Commitments
Total
2004
2005
2006
2007
After 2007
$
2,284
$
2,273
$
11
$
—
$
—
$
—
Table of Contents
Table of Contents
•
significant underperformance relative to expected
historical or projected future operating results;
•
significant negative industry or economic
trends; and
•
significant changes or developments in strategic
technological collaborations or legal matters which affect the
Company’s capitalized patent, trademark and intellectual
properties such as licenses.
Table of Contents
Table of Contents
| Item 7a: | Quantitative and Qualitative Disclosures About Market Risk |
The Company is exposed to financial risk in several areas including changes in foreign exchange rates and interest rates. The Company attempts to minimize its exposures by using certain financial instruments, for purposes other than trading, in accordance with the Company’s overall risk management guidelines. Further information regarding the Company’s accounting policies for financial instruments and disclosures of financial instruments can be found in Notes 2 and 10 to the Company’s consolidated financial statements.
Foreign Exchange
The Company has operations in various countries and currencies throughout the world, with approximately 29% of its sales denominated in Euros, 9% in Yen and smaller sales exposures in other currencies. As a result, the Company’s financial position, results of operations and cash flows can be affected by fluctuations in foreign
27
During 2003, the Company also opened forward foreign exchange contracts in British pounds. For the year ended December 31, 2003, the Company recorded realized losses of $3.3 million in accumulated other comprehensive income (loss) relating to forward foreign exchange contracts in British pounds that were entered in to and closed in 2003. As of December 31, 2003, the Company had no open forward foreign exchange contracts in British pounds. At December 31, 2002, the Company held forward foreign exchange contracts in British pounds with notional amounts totaling $40.0 million and terms of forty-five days. For the year ended December 31, 2002, the Company recorded unrealized gains of $0.3 million in accumulated other comprehensive income (loss) relating to these forward foreign exchange contracts.
Assuming a hypothetical adverse change of 10% in year-end exchange rates (a weakening of the U.S. dollar), the fair market value of the debt swap agreements as of December 31, 2003 would decrease by $2.5 million.
The Company also enters into forward foreign exchange contracts, principally to hedge the impact of currency fluctuations on certain intercompany balances. Principal hedged currencies include the Euro and British pound. The periods of these forward contracts typically range from one to three months and have varying notional amounts which are intended to be consistent with changes in intercompany balances. Gains and losses on these forward contracts are recorded in selling, general and administrative expenses in the consolidated statement of operations. At December 31, 2003 and December 31, 2002, the Company held forward foreign exchange contracts with notional amounts totaling approximately $32.0 million and $69.0 million, respectively.
Interest Rates
The Company is exposed to the risk of interest rate fluctuations when borrowing in connection with its credit agreement. As a result, the Company may periodically attempt to minimize its interest rate exposures by using certain financial instruments such as interest swap agreements for purposes other than trading. At December 31, 2003 and 2002, there were no outstanding interest swap agreements.
The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. The Company’s cash equivalents represent highly liquid investments, with original maturities of 90 days or less, in repurchase agreements and money market funds. Cash equivalents are convertible to a known amount of cash and carry an insignificant risk of change in value. The Company periodically maintained balances in various operating accounts in excess of federally insured limits.
28
| Item 8: | Financial Statements and Supplementary Data |
Report of Independent Auditors
To the Board of Directors and Stockholders of Waters Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ equity and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Waters Corporation and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for patent related costs in 2002. Also discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for goodwill to conform with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” in 2002.
| /s/ PricewaterhouseCoopers LLP | |
|
|
|
| PricewaterhouseCoopers LLP |
Boston, Massachusetts
29
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2003
2002
(In thousands,
except per share data)
Assets
$
356,781
$
263,312
—
49,944
214,260
201,094
128,810
130,241
15,548
13,341
715,399
657,932
108,162
100,329
72,164
60,066
196,556
167,878
38,580
29,035
$
1,130,861
$
1,015,240
Liabilities and Stockholders’
Equity
$
121,309
$
7,486
43,884
45,199
19,802
21,322
55,923
48,508
14,025
16,053
42,638
44,345
8,255
9,686
11,051
9,562
20,747
80,830
40,887
36,708
378,521
319,699
125,000
—
28,863
23,516
8,000
6,715
540,384
349,930
—
—
1,367
1,322
289,046
251,203
678,529
507,638
(423,874
)
(99,296
)
45,409
4,443
590,477
665,310
$
1,130,861
$
1,015,240
The accompanying notes are an integral part of the consolidated financial statements.
30
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
Year Ended December 31,
2003
2002
2001
(In thousands, except per share data)
$
723,151
$
697,266
$
696,613
235,054
192,701
162,595
958,205
889,967
859,208
285,752
273,166
273,854
112,096
100,302
88,077
397,848
373,468
361,931
560,357
516,499
497,277
264,252
246,816
219,007
59,242
51,923
46,602
4,242
3,600
7,141
1,500
7,900
75,000
5,031
—
—
—
2,445
—
918
7,404
—
6,000
—
—
219,172
196,411
149,527
(250
)
(5,997
)
(7,066
)
(2,367
)
(2,480
)
(1,258
)
7,131
7,477
6,223
223,686
195,411
147,426
52,795
43,193
32,883
170,891
152,218
114,543
—
(4,506
)
—
$
170,891
$
147,712
$
114,543
$
1.39
$
1.17
$
0.88
—
(0.03
)
—
$
1.39
$
1.13
$
0.88
123,189
130,489
130,559
$
1.34
$
1.12
$
0.83
—
(0.03
)
—
$
1.34
$
1.09
$
0.83
127,579
135,762
137,509
The accompanying notes are an integral part of the consolidated financial statements.
31
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Year Ended December 31,
2003
2002
2001
(In thousands)
$
170,891
$
147,712
$
114,543
—
4,506
—
5,031
—
—
6,000
—
—
(188
)
749
491
918
2,646
569
250
16,121
7,066
(5,926
)
(756
)
1,841
21,983
26,044
20,638
11,865
11,150
13,313
17,582
7,033
12,739
11,973
(2,019
)
(20,584
)
3,628
(4,575
)
(17,595
)
(242
)
383
1,181
(2,456
)
(5,791
)
(10,659
)
(30,005
)
5,163
(19,132
)
3,277
(727
)
9,594
(60,120
)
5,830
75,000
2,544
5,951
145
157,005
219,420
189,150
(34,586
)
(37,965
)
(42,408
)
—
(14,500
)
(4,000
)
(35,204
)
(5,851
)
(2,580
)
1,183
—
—
49,944
(49,944
)
—
—
—
723
(18,663
)
(108,260
)
(48,265
)
32
Year Ended December 31,
2003
2002
2001
(In thousands)
238,823
1,751
(3,739
)
(436
)
(827
)
—
27,824
11,276
9,018
(324,578
)
(99,296
)
—
(5,273
)
(1,423
)
6,803
(63,640
)
(88,519
)
12,082
18,767
13,873
(1,678
)
93,469
36,514
151,289
263,312
226,798
75,509
$
356,781
$
263,312
$
226,798
$
39,353
$
35,878
$
36,619
$
3,457
$
491
$
756
The accompanying notes are an integral part of the consolidated financial statements.
33
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY AND COMPREHENSIVE INCOME
Accumulated
Number of
Additional
Deferred
Other
Total
Statement of
Common
Common
Paid-in
Stock Option
Retained
Treasury
Comprehensive
Stockholders’
Comprehensive
Shares
Stock
Capital
Compensation
Earnings
Stock
Income (Loss)
Equity
Income
(In thousands)
129,811
$
1,298
$
211,161
$
—
$
245,383
$
—
$
(6,061
)
$
451,781
—
—
—
—
114,543
—
—
114,543
$
114,543
(7,473
)
(7,473
)
(7,473
)
—
—
—
—
—
5,070
5,070
5,070
—
—
—
—
—
—
(4,679
)
(4,679
)
(4,679
)
—
—
—
—
—
746
746
746
—
—
—
—
—
—
(6,336
)
(6,336
)
(6,336
)
Comprehensive income
$
108,207
61
1
2,228
—
—
—
—
2,229
1,046
10
6,779
—
—
—
—
6,789
—
—
12,739
—
—
—
—
12,739
130,918
$
1,309
$
232,907
$
—
$
359,926
$
—
$
(12,397
)
$
581,745
—
—
—
—
147,712
—
—
147,712
$
147,712
26,489
26,489
26,489
—
—
—
—
—
(495
)
(495
)
(495
)
—
—
—
—
—
—
(9,189
)
(9,189
)
(9,189
)
—
—
—
—
—
35
35
35
—
—
—
—
—
—
16,840
16,840
16,840
$
164,552
88
1
2,318
—
—
—
—
2,319
1,176
12
8,945
—
—
—
—
8,957
—
—
7,033
—
—
—
—
7,033
—
—
—
—
—
(99,296
)
—
(99,296
)
132,182
$
1,322
$
251,203
$
—
$
507,638
$
(99,296
)
$
4,443
$
665,310
—
—
—
—
170,891
—
—
170,891
$
170,891
40,443
40,443
40,443
—
—
—
—
—
(1,121
)
(1,121
)
(1,121
)
—
—
—
—
—
—
116
116
116
—
—
—
—
—
1,528
1,528
1,528
—
—
—
—
—
—
40,966
40,966
40,966
$
211,857
95
1
2,196
—
—
—
—
2,197
4,431
44
25,583
—
—
—
—
25,627
—
—
17,582
—
—
—
—
17,582
—
—
(7,518
)
—
—
—
—
(7,518
)
—
—
—
—
—
(324,578
)
—
(324,578
)
136,708
$
1,367
$
289,046
$
—
$
678,529
$
(423,874
)
$
45,409
$
590,477
The accompanying notes are an integral part of the consolidated financial statements.
34
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Waters Corporation (“Waters” or the
“Company”), an analytical instrument manufacturer,
manufactures and distributes, through its Waters Division, high
performance liquid chromatography (“HPLC”)
instruments, chromatography columns and other consumables, and
related service, as well as mass spectrometry (“MS”)
instruments, which are complementary products that can be
integrated and used along with other analytical instruments,
especially HPLC. HPLC, the largest product segment of the
analytical instrument market, is utilized in a broad range of
industries to detect, identify, monitor and measure the
chemical, physical and biological composition of materials, and
to purify a full range of compounds. MS instruments are used in
drug discovery and development, including clinical trial
testing, the analysis of proteins in disease processes (known as
“proteomics”) and environmental testing. Through its
TA Instruments Division (“TAI”), the Company designs,
manufactures and sells thermal analysis and rheology instruments
which are used in predicting the suitability of polymers and
viscous liquids for various industrial, consumer goods and
health care products. In the third quarter of fiscal year 2003,
the Company completed the integration of the HPLC and MS
worldwide sales, service and support organizations. Accordingly,
the Micromass operating segment (“Micromass”) has been
integrated into the Waters operating segment. As discussed in
Note 20 to the consolidated financial statements, the
Company has two operating segments, Waters Division and TAI,
which have been aggregated into one reporting segment for
financial statement purposes.
Use of Estimates
The preparation of consolidated financial
statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent
liabilities. On an on-going basis, Waters evaluates its
estimates, including those related to revenue recognition,
product returns and allowances, bad debts, inventory valuation,
equity investments, goodwill and intangible assets, income
taxes, warranty and installation provisions, contingencies and
litigation. Waters bases its estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual amounts may differ from these estimates under
different assumptions or conditions.
Risks and Uncertainties
The Company is subject to risks common to
companies in the analytical instrument industry, including, but
not limited to, development by the Company or its competitors of
new technological innovations, dependence on key personnel,
protection of proprietary technology, and compliance with
regulations of the U.S. Food and Drug Administration and
similar foreign regulatory authorities and agencies.
Reclassification
Certain amounts from prior years have been
reclassified in the accompanying financial statements in order
to be consistent with the current year’s classifications.
In particular, the Company reclassified field service expenses
associated with service revenues from selling, general and
administrative expenses to cost of sales in 2002. For the years
ended December 31, 2002 and 2001 the amount of costs
reclassified to cost of sales were $58.4 million and
$50.7 million, respectively, and the gross profit as a
percentage of sales decreased 6.6% and 5.9%, for each period.
This change was primarily a result of the integration of the
Company’s HPLC and MS worldwide sales, service and support
organizations and to align the Company’s reporting with the
majority of other companies in the same industry. In the first
quarter of 2003, the Company reclassified all MS and thermal
analysis demonstration (“demo”) inventory from
property, plant and equipment, net, to inventories.
35
At December 31, 2002 the amount of demo
inventory reclassified to inventories was $18.7 million.
The primary reason for this change was to consistently classify
demo inventory across product lines.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries, most of which are
wholly owned. The Company consolidates entities in which it owns
or controls fifty percent or more of the voting shares. All
material intercompany balances and transactions have been
eliminated.
Translation of Foreign Currencies
For most of the Company’s foreign
operations, assets and liabilities are translated into
U.S. dollars at exchange rates prevailing on the balance
sheet date while revenues and expenses are translated at average
exchange rates prevailing during the period. Any resulting
translation gains or losses are included in accumulated other
comprehensive income (loss) in the consolidated balance sheets.
The Company’s net sales derived from operations outside the
United States were 55% in 2003, 62% in 2002 and 57% in 2001.
Gains and losses from foreign currency transactions are included
in net income in the consolidated statements of operations and
were not material for the years presented.
Cash and Cash Equivalents
Cash equivalents primarily represent highly
liquid investments, with original maturities of 90 days or
less, in repurchase agreements and money market funds which are
convertible to a known amount of cash and carry an insignificant
risk of change in value. The Company has periodically maintained
balances in various operating accounts in excess of federally
insured limits.
Restricted Cash
At December 31, 2002, restricted cash was
$49.9 million, which represented credit support for a
standby letter of credit issued securing damages awarded plus
interest with respect to the Applera patent litigation
(Note 12). In April 2003, the Company made a payment of
$53.7 million for damages and interest relating to this
patent litigation and, as a result, the Company is no longer
required to maintain a restricted cash balance.
Concentration of Credit Risk
The Company sells its products and services to a
significant number of large and small customers throughout the
world, with net sales to the pharmaceutical industry of
approximately 53% in 2003, 57% in 2002 and 63% in 2001. None of
the Company’s individual customers accounted for more than
3% of annual Company sales in 2003, 2002 and 2001. The Company
performs continuing credit evaluations of its customers and
generally does not require collateral, but in certain
circumstances may require letters of credit or deposits.
Historically, the Company has not experienced significant bad
debt losses.
Inventory
The Company values all of its inventories at the
lower of cost or market on a first-in, first-out basis
(“FIFO”).
Income Taxes
Deferred income taxes are recognized for
temporary differences between financial statement and income tax
basis of assets and liabilities using tax rates in effect for
the years in which the differences are expected to reverse. A
valuation allowance is provided to offset any net deferred tax
assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be
realized.
36
Property, Plant and Equipment
Property, plant and equipment is recorded at
cost. Expenditures for maintenance and repairs are charged to
expense while the costs of significant improvements are
capitalized. Depreciation is provided using the straight-line
method over the following estimated useful lives: buildings and
improvements — thirty years, leasehold
improvements — the shorter of fifteen years or life of
lease, and production and other equipment — three to
ten years. Upon retirement or sale, the cost of the assets
disposed of and the related accumulated depreciation are
eliminated from the balance sheet and related gains or losses
are reflected in the statement of operations.
Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company
adopted the Statement of Financial Accounting Standards
(“SFAS”) 142, “Goodwill and Other Intangible
Assets” and no longer amortizes goodwill. Under the
transition provisions of SFAS 142, there was no goodwill
impairment at January 1, 2002. The Company tests for
goodwill impairment using a fair value approach at the reporting
unit level annually, or earlier if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
Additionally, the Company has elected to make January 1 the
annual impairment assessment date for all reporting units.
SFAS 142 defines a reporting unit as an operating segment,
or one level below an operating segment, if discrete financial
information is prepared and reviewed by management. Goodwill is
allocated to the reporting units at the time of acquisition.
Under the impairment test, if a reporting unit’s carrying
amount exceeds its estimated fair value, goodwill impairment is
recognized to the extent that the carrying amount of goodwill
exceeds the implied fair value of the goodwill. The fair value
of reporting units were estimated using a discounted cash flows
technique which includes certain management assumptions such as
estimated future cash flows, estimated growth rates and discount
rates. During fiscal year 2001, goodwill was amortized on a
straight-line basis.
For the year ended December 31, 2001 the
Company’s goodwill amortization expense was approximately
$4.0 million. Goodwill amortization expense per basic
common share and per diluted common share for the year ended
December 31, 2001 would have been $0.03. Pro forma net
income for the year ended December 31, 2001 would have been
$117.6 million, excluding goodwill amortization expense at
the Company’s effective tax rate of 24%. Reported net
income for the year ended December 31, 2001 was
$114.5 million. Pro forma net income per basic common share
and pro forma net income per diluted common share for the year
ended December 31, 2001 would have been $0.90 and $0.85,
respectively. Reported net income per basic common share and net
income per diluted common share for the year ended
December 31, 2001 was $0.88 and $0.83, respectively.
The Company’s intangible assets include
purchased technology, capitalized software development costs, as
discussed below, costs associated with acquiring Company
patents, trademarks and intellectual properties, such as
licenses, and debt issuance costs. Purchased intangibles are
recorded at their fair market values as of the acquisition date
and amortized over their estimated useful lives ranging from two
to fifteen years. Other intangibles are amortized over a period
ranging from three to fifteen years. Debt issuance costs are
amortized over the life of the related debt using the effective
interest method.
Software Development Costs
The Company capitalizes software development
costs for products offered for sale in accordance with
SFAS 86. Capitalized costs are amortized to cost of sales
over the period of economic benefit, which approximates a
straight-line basis over the estimated useful lives of the
related software products, generally three to five years.
The Company capitalizes internal software
development costs in accordance with Statement of Position
(“SOP”) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
Capitalized internal software development costs are amortized
over the period of economic benefit which
37
approximates a straight-line basis over ten
years. For the years ended December 31, 2003 and 2002,
capitalized internal software included in property, plant and
equipment totaled $1.7 million and $2.1 million net of
accumulated amortization of $2.1 million and
$1.7 million respectively.
Change in Accounting for Patent Related
Costs
In the second quarter of 2002, the Company
changed its method of accounting for legal costs associated with
litigating patents effective January 1, 2002. Prior to the
change, the Company capitalized these patent costs and amortized
them over the estimated remaining economic life of the patent.
Under the new method, these costs are expensed as incurred. The
Company believes that this change is preferable because it will
provide a better comparison with the Company’s industry
peers, the majority of which expense these costs as incurred.
The $4.5 million cumulative effect of the change on prior
years (after reduction for income taxes of $1.3 million) is
included as a charge to net income as of January 1, 2002.
The effect of the change for the year ended December 31,
2002 was to decrease income before cumulative effect of change
in accounting principle approximately $2.8 million or
$0.02 per diluted share and net income $7.3 million or
$0.05 per diluted share.
Pro forma net income for the year ended
December 31, 2001 would have been $112.5 million had
the change in accounting for patent related costs occurred at
the beginning of 2001. Reported net income for the year ended
December 31, 2001 was $114.5 million. Pro forma net
income per basic common share and pro forma net income per
diluted common share for the year ended December 31, 2001
would have been $0.86 and $0.82, respectively. Reported net
income per basic common share and net income per diluted common
share for the year ended December 31, 2001 was $0.88 and
$0.83, respectively. The pro forma amounts reflect the effect of
retroactive application of this change had the new method been
in effect for all periods presented.
Investments
The Company accounts for its investments that
represent less than twenty percent ownership using
SFAS 115, “Accounting for Certain Investments in Debt
and Equity Securities.” This standard requires that certain
debt and equity securities be adjusted to market value at the
end of each accounting period. Unrealized market gains and
losses are charged to earnings if the securities are traded for
short-term profit. Otherwise, these securities are considered
available-for-sale investments and unrealized gains and losses
are charged or credited to other comprehensive income (loss) in
stockholders’ equity. Realized gains and losses on sales of
investments are included in the consolidated statements of
operations.
Investments for which the Company does not have
the ability to exercise significant influence and for which
there is not a readily determinable market value are accounted
for under the cost method of accounting. The Company
periodically evaluates the carrying value of its investments
accounted for under the cost method of accounting and carries
them at the lower of cost or estimated net realizable value. For
investments in which the Company owns or controls between twenty
and forty-nine percent of the voting shares, or over which it
exerts significant influence over operating and financial
policies, the equity method of accounting is used. The
Company’s share of net income or losses of equity
investments is included in the consolidated statements of
operations and was not material in any period presented. All
investments at December 31, 2003 and 2002 are included in
other assets.
Asset Impairments
The Company reviews its long-lived assets for
impairment in accordance with SFAS 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.”
Whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company evaluates
the fair value of the asset, relying on a number of factors
including but not limited to operating results, business plans,
economic projections and anticipated future cash flows. Any
change in the carrying amount of an asset as a result of the
Company’s evaluation is separately identified in the
consolidated statements of operations.
38
Stockholders’ Equity
On August 9, 2002, the Board of Directors
approved the adoption of a stock purchase rights plan where a
dividend of one fractional preferred share purchase right (a
“Right”) was declared for each outstanding share of
common stock, par value $0.01 per share, of the Company.
The dividend was paid on August 27, 2002 to the
stockholders of record on that date. The Rights, which expire on
August 27, 2012, become exercisable only under certain
conditions. When they first become exercisable, each Right will
entitle its holder to buy from Waters one one-hundredth of a
share of new Series A Junior Participating Preferred Stock
(authorized limit of 4,000) for $120.00. When a person or group
actually has acquired 15% or more of Waters’ common stock,
the Rights will then become exercisable for a number of shares
of Waters’ common stock with a market value of twice the
exercise price ($120.00) of each Right. In addition, the Rights
will then become exercisable for a number of shares of common
stock of the acquiring company with a market value of twice the
exercise price per Right. The Board of Directors may redeem the
Rights at a price of $0.001 per Right up until 10 days
following a public announcement that any person or group has
acquired 15% or more of the Company’s common stock.
On June 25, 2002, the Board of Directors
authorized the Company to repurchase up to $200 million of
its outstanding common shares over a one-year period. During the
years ended December 31, 2003 and 2002, the Company
purchased 4,399 shares of its common stock for
$100.6 million and 4,078 shares of its common stock
for $99.3 million, respectively. The total shares purchased
under this program were 8,477 thus completing its
$200.0 million stock buyback program.
On May 6, 2003, the Company’s Board of
Directors authorized the Company to repurchase up to
$400 million of its outstanding common shares over a
two-year period. During the year ended December 31, 2003,
the Company purchased 7,540 shares of its common stock for
$224.0 million. At December 31, 2003, the Company had
borrowings outstanding under its credit facility of
$236.5 million principally to finance share repurchases.
In the aggregate, the Company has repurchased
11,939 shares of its common stock for $324.6 million
during the year ended December 31, 2003. The Company’s
share repurchase program is beneficial to shareholders by
increasing earnings per share via reducing the outstanding
number of shares through open market purchases.
Hedge Transactions
The Company records its hedge transactions in
accordance with SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities”, as amended, which
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. All derivatives,
whether designated in hedging relationships or not, are required
to be recorded on the balance sheet at fair value as either
assets or liabilities. If the derivative is designated as a fair
value hedge, the changes in the fair value of the derivative and
of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a
cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in other comprehensive
income (“OCI”) and are recognized in earnings when the
hedged item affects earnings; ineffective portions of changes in
fair value are recognized in earnings.
The Company currently uses derivative instruments
to manage exposures to foreign currency risks. The
Company’s objectives for holding derivatives are to
minimize foreign currency risk using the most effective methods
to eliminate or reduce the impact of foreign currency exposure.
The Company documents all relationships between hedging
instruments and hedged items, and links all derivatives
designated as fair value, cash flow or net investment hedges to
specific assets and liabilities on the balance sheet or to
specific forecasted transactions. The Company also assesses and
documents, both at the hedges’ inception and on an ongoing
basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair
values or cash flows associated with the hedged items.
39
The Company has operations in various countries
and currencies throughout the world. As a result, the
Company’s financial position, results of operations and
cash flows are affected by fluctuations in foreign currency
exchange rates. The Company uses debt swap agreements and
forward foreign exchange contracts to partially mitigate such
effects, and these agreements are designated as foreign currency
hedges of a net investment in foreign operations. The debt swap
agreements effectively swap higher U.S. dollar variable
rate borrowings for lower variable rate borrowings denominated
in the respective currencies. During 2003 and 2002, the Company
opened and subsequently closed debt swap agreements in Japanese
yen. In December 2003, the Company entered into new debt swap
agreements in Japanese yen with notional amounts totaling
$25.0 million, with terms of three months and an interest
rate of 0.06%. For the year ended December 31, 2003, the
Company recorded cumulative net pre-tax gains of
$1.6 million in OCI, which consisted of realized gains of
$1.3 million relating to the closed debt swap agreements
and unrealized gains of $0.3 million relating to the
Japanese yen swap agreements, both of which partially offset
hedged foreign exchange impacts. At December 31, 2002, the
Company held debt swap agreements in Japanese yen with notional
amounts totaling $25.0 million, with terms of three months
and an interest rate of 0.07%. For the year ended
December 31, 2002, the Company recorded cumulative net
pre-tax gains of $1.0 million in OCI, which consisted of
realized losses of $1.4 million and unrealized gains of
$0.4 million. At December 31, 2001, the Company held
debt swap agreements in Japanese yen with notional amounts
totaling $27.0 million, with terms of three months and an
interest rate of 0.15%. For the year ended December 31,
2001, the Company recorded cumulative net pre-tax gains of
$7.8 million in OCI, which consisted of realized gains of
$6.8 million and unrealized gains of $1.0 million. In
December 2002, the Company opened forward foreign exchange
contracts in British pounds with notional amounts totaling
$40.0 million and terms of forty-five days. For the years
ended December 31, 2003 and 2002, the Company recorded
realized losses of $3.3 million and unrealized gains of
$0.3 million, respectively, in OCI relating to these
forward foreign exchange contracts.
The Company also enters into forward foreign
exchange contracts, not designated as cash flow hedging
instruments under SFAS 133, principally to hedge the impact
of currency fluctuations on certain intercompany balances.
Principal hedged currencies include the euro and British pound.
The periods of these forward contracts typically range from one
to three months and have varying notional amounts which are
intended to be consistent with changes in intercompany balances.
Gains and losses on these forward contracts are recorded in
selling, general and administrative expenses in the consolidated
statements of operations. Foreign currency gains and losses from
currency fluctuations on intercompany balances and these forward
contracts were $3.4 million in 2003 and not material for
2002 and 2001. At December 31, 2003 and December 31,
2002, the Company held forward foreign exchange contracts with
notional amounts totaling approximately $32.0 million and
$69.0 million, respectively.
Revenue Recognition
Sales of products and services are generally
recorded based on product shipment and performance of service,
respectively. Product shipments, including those for
demonstration or evaluation, and service contracts are not
recorded as revenues until a valid purchase order or master
agreement is received specifying fixed terms and prices.
Proceeds received in advance of product shipment or performance
of service are recorded as deferred revenue in the consolidated
balance sheets. Shipping and handling costs are included in cost
of sales net of amounts invoiced to the customer per the order.
The Company’s method of revenue recognition
for certain products requiring installation is in accordance
with Staff Accounting Bulletin (“SAB”) 104,
“Revenue Recognition in Financial Statements.”
Accordingly, the larger of the contractual cash holdback or the
fair value of the installation service is deferred when the
product is shipped and revenue is recognized as a multiple
element arrangement when installation is complete. The Company
determines the fair value of installation based on several
factors, including hourly service, billing rates, installation
hours and amounts charged by third parties.
The Company recognizes product revenue when legal
title has transferred and risk of loss passes to the customer.
The Company generally structures its sales arrangements as FOB
shipping point or international
40
equivalent and accordingly, recognizes revenue
upon shipment. In some cases, FOB destination based shipping
terms are included in sales arrangements in which cases revenue
is recognized when the products arrive at the customer site.
Returns and customer credits are infrequent and
recorded as a reduction to sales. Rights of return are generally
not included in sales arrangements. Revenue associated with
products that contain specific customer acceptance criteria is
not recognized before the customer acceptance criteria is
satisfied. Discounts from list prices are recorded as a
reduction to sales.
Nearly all of the Company’s instruments
contain embedded operating system and data management software,
which is included in the purchase price. Software is also sold
separately and revenue is recognized upon shipment under the
provisions of SOP 97-2, “Software Revenue
Recognition,” as no significant post-delivery obligations
remain. Software upgrades are typically sold as part of a
service contract with revenue recognized ratably over the term
of the service contract.
The Company assists customers in obtaining
financing with an independent third-party leasing company with
respect to certain product sales. Revenue is generally
recognized upon product shipment under these arrangements. The
Company receives payment from the leasing company shortly after
shipment, provided delivery and credit documentation meets
contractual criteria. The customer is obligated to pay the
leasing company but Waters retains some credit risk if the
customer is unable to pay. Accordingly, the Company reduces
revenue equal to pre-established loss-pool criteria, including
contracts with recourse. Waters credit risk is significantly
reduced through loss-pool limitations and re-marketing rights in
the event of a default.
Product Warranty Costs
The Company accrues estimated product warranty
costs at the time of sale which are included in cost of sales in
the consolidated statements of operations. While the Company
engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its
component supplies, the Company warranty obligation is affected
by product failure rates, material usage and service delivery
costs incurred in correcting a product failure. The amount of
the accrued warranty liability is based on historical
information such as past experience, product failure rates,
number of units repaired and estimated cost of material and
labor. The liability is reviewed for reasonableness at least
quarterly.
The following is a rollforward of the
Company’s accrued warranty liability for the year ended
December 31, 2003 (in thousands):
Advertising Costs
All advertising costs are expensed as incurred
and included in selling, general and administrative expenses in
the consolidated statements of operations. Advertising expenses
for 2003, 2002 and 2001 were $9.6 million,
$8.3 million and $7.6 million, respectively.
Research and Development Expenses
Research and development expenses are comprised
of costs incurred in performing research and development
activities including salaries and benefits, facilities costs,
overhead costs, contract services and other outside costs.
Research and development expenses are expensed as incurred.
41
Expensed In-Process Research and Developments
Expenses
Costs to acquire in-process research and
development (“IPR&D”) projects and technologies,
which have not reached technological feasibility at the date of
acquisition and have no alternative future use, are expensed as
incurred (see Note 7).
Stock-Based Compensation
The Company has five stock-based compensation
plans, which are described in Note 16. The Company uses the
intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion 25, “Accounting for Stock Issued
to Employees,” and related interpretations, including
Interpretation 44, “Accounting for Certain Transactions
Involving Stock Compensation,” for its plans. Accordingly,
no compensation expense has been recognized for its fixed
employee stock option plans and its employee stock purchase plan
since all stock based compensation awards are granted at the
current fair value of the Company’s common stock as of the
date of the award
.
The following table illustrates the effect on net
income and earnings per share had the Company applied the fair
value recognition provisions of SFAS 123 for the
Company’s five stock-based compensation plans.
The fair value of each option grant under
SFAS 123 was estimated on the date of grant using the
Black-Scholes option-pricing model. Relevant data are described
below (options issued are in thousands):
Income Per Share
In accordance with SFAS 128, “Earnings
Per Share,” the Company presents two earnings per share
(“EPS”) amounts. Income per basic common share is
based on income available to common shareholders and the
weighted average number of common shares outstanding during the
periods presented. Income per diluted common share includes
additional dilution from potential common stock, such as stock
issuable pursuant to the exercise of stock options outstanding.
42
Comprehensive Income
The Company accounts for comprehensive income in
accordance with SFAS 130, “Reporting Comprehensive
Income.” The statement establishes standards for reporting
and displaying comprehensive income and its components in a full
set of general-purpose financial statements. The statement
requires that all components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements.
Recent Accounting Standards Changes
In December 2003, the Financial Accounting
Standards Board (“FASB”) issued revised FASB Statement
No. 132, “Employers’ Disclosures about Pensions
and Other Postretirement Benefits.” The revised standard
provides additional required disclosures for pensions and other
postretirement benefit plans and is designed to improve
disclosure transparency in financial statements. The revised
standard replaces existing pension disclosure requirements. The
revised SFAS 132 is effective, with some exceptions, for
fiscal years ending after December 15, 2003. It does not
change the measurement or recognition of those plans.
In December 2003, the SEC issued Staff Accounting
Bulletin (“SAB”) No. 104, “Revenue
Recognition”, which supersedes SAB No. 101,
“Revenue Recognition in Financial Statements.” SAB
No. 104 rescinds accounting guidance in SAB No. 101
related to multiple-element arrangements as this guidance has
been superseded as a result of the issuance of EITF 00-21,
“Accounting for Revenue Arrangements with Multiple
Deliverables.” The adoption of SAB No. 104 did not
have a material impact on our financial position or results of
operations.
In January 2003, the FASB issued FASB
Interpretations (“FIN”) No. 46
“Consolidation of Variable Interest Entities, an
interpretation of ARB 51.” FIN No. 46 provides
guidance on the identification of entities for which control is
achieved through means other than through voting rights called
“variable interest entities” or “VIEs” and
how to determine when and which business enterprise should
consolidate the VIE (the “primary beneficiary”). This
new model for consolidation applies to an entity in which either
(1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is
insufficient to finance that entity’s activities without
receiving additional subordinated financial support from other
parties. In addition, FIN No. 46 requires that both the
primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. The
adoption of FIN No. 46 did not have a material impact on
our financial position or results of operations.
In December 2003, the FASB issued a revision to
FIN 46 (“FIN 46R”) to address various
technical corrections and implementation issues that have arisen
since its issuance. The provisions of FIN 46R are effective
for financial periods ending after March 15, 2004, thus the
Company will implement the new provisions effective
March 31, 2004. As FIN 46R was recently issued and
contains provisions that the accounting profession continues to
analyze, the Company’s assessment of the impact of
FIN 46R on all VIEs with which it is involved is ongoing.
However, at this time and based on management’s current
interpretation, the Company does not believe that the
implementation of FIN 46R will have a material impact on
the Company’s Consolidated financial statements, earnings
or capital resources.
In May 2003, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 150,
“Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.”
SFAS 150 established standards for how to classify and
measure certain financial instruments with characteristics of
both liabilities and equity. The provisions of SFAS 150
were effective for financial instruments entered into or
modified after May 31, 2003. The application of
SFAS 150 did not have a material impact on the
Company’s financial position, results of operations, or
cash flows.
In April 2003, the FASB issued SFAS 149,
“Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities
43
under SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities.” The changes
in SFAS 149 improve financial reporting by requiring that
contracts with similar characteristics be accounted for
similarly. SFAS 149 is effective, with some exceptions, for
contracts entered into or modified after June 30, 2003. The
application of SFAS 149 did not have a material impact on
the Company’s financial position, results of operations, or
cash flows.
In November 2002, the Emerging Issues Task Force
(“EITF”) reached a consensus on EITF Issue 00-21,
“Accounting for Revenue Arrangements with Multiple
Deliverables.” EITF Issue 00-21 provides guidance on how to
determine when an arrangement that involves multiple
revenue-generating activities or deliverables should be divided
into separate units of accounting for revenue recognition
purposes, and if this division is required, how the arrangement
consideration should be allocated among the separate units of
accounting. The guidance in the consensus is effective for
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue 00-21 did
not have a material effect on the Company’s financial
position, results of operations, or cash flows.
3 Inventories
Inventories are classified as follows (in
thousands):
4 Property, Plant
and Equipment
Property, plant and equipment consists of the
following (in thousands):
5 Business
Investments
In November 2000 and February 2002, the Company
made minority equity investments in
GeneProt
TM
, Inc. (“GeneProt”), a
privately held company, of $3.6 million and
$10.0 million, respectively. The investment in GeneProt is
accounted for under the cost method of accounting. To the
Company’s knowledge, due to changes in GeneProt’s
ability to generate enough commercial interest to expand its
business in the U.S. market, the Company recorded pre-tax
charges of $12.6 million to other income (expense) in
the consolidated statements of operations during the year ended
December, 31, 2002, for an other-than-temporary impairment
of its investment in GeneProt. The investment in GeneProt was
approximately $1.0 million at December 31, 2003 and
2002, and is included in other assets. In connection with
GeneProt’s canceled order of up to $20.0 million
44
of mass spectrometry equipment, related systems
and services, the Company received approximately
$7.7 million from GeneProt as a cancellation fee, which is
recorded in other income (expense) in the consolidated
statements of operations for the year ended December 31,
2002.
In June 2000, the Company formed a strategic
alliance with Variagenics, Inc. (“Variagenics”),
a publicly traded company, to develop and commercialize genetic
variance reagent kits for use in the clinical development of
pharmaceutical products. Variagenics was considered a leader in
applying genetic variance information to the drug development
process. In July 2000, the Company paid Variagenics
$7.5 million for a minority common stock equity ownership
and $3.0 million for a license to manufacture and sell
reagents, and warrants to purchase common stock. The warrants to
purchase Variagenics common stock are exercisable at
$14 per share for a period of 5 years. The warrants
were valued at approximately $0.7 million using the
Black-Scholes model. The investment in Variagenics is included
in other assets and carried at fair value with unrealized gains
and losses reported as a separate component of other
comprehensive income (loss). During 2002 and 2001, the Company
recorded a $1.0 million and $6.4 million charge,
respectively, to other income (expense), in the consolidated
statements of operations, for an other than temporary impairment
of the equity investment and warrants resulting from Variagenics
public stock price declines. In the fourth quarter of 2002, the
license with Variagenics described above was deemed fully
impaired as the technology collaboration program ceased, and the
Company abandoned the technology and the Company recorded a
$2.4 million charge to impairment of long-lived intangible
asset in the consolidated statements of operations. The license
was being amortized on a straight-line basis over its useful
life of 15 years. On January 31, 2003 Variagenics was
merged with Hyseq Pharmaceuticals and is now named
Nuvelo, Inc. (“Nuvelo”). The carrying amount,
which approximates market value, of the investment was
approximately $3.2 million and $0.8 million at
December 31, 2003 and 2002, respectively.
Other minority equity investments made during
2003 and 2002 were $1.8 million and $4.5 million,
respectively. Excluding the effects of currency, sales to these
entities during 2003 and 2002 were approximately
$1.4 million and $7.0 million, respectively.
During 2003 and 2002, the Company recorded a
$0.3 million and $0.1 million charge, respectively, to
other income (expense) in the consolidated statements of
operations for the impairment of certain other equity
investments. At December 31, 2003, no other investments and
long-lived assets were determined to be impaired.
6 Acquisitions
Creon:
In July 2003, the Company acquired, effective
July 1, 2003, all of the capital stock of Creon, a Company
headquartered in Cologne, Germany, for approximately
$16.3 million in cash. Creon specializes in Laboratory
Information Management Software (“LIMS”) solutions.
The acquisition of Creon was accounted for under
the purchase method of accounting and the results of operations
of Creon have been included in the consolidated results of the
Company from the acquisition date. The purchase price of the
acquisition was allocated to tangible and intangible assets and
assumed liabilities based on their estimated fair values. In
conjunction with the acquisition, the Company recorded a charge
of $6.0 million for the write-off of acquired in-process
research and development. The technological feasibility of
in-process research and development projects had not been
established at the date of acquisition and they had no
alternative future use. The Company has allocated
$4.4 million of the purchase price to intangible assets
comprised of customer lists and other purchased intangibles. The
excess purchase price of $5.6 million after this allocation
has been accounted for as goodwill.
The following represents the pro forma results of
the ongoing operations for Waters and Creon as though the
acquisition of Creon had occurred at the beginning of each
period shown (in thousands, except per share data). The pro
forma results exclude expensed in-process research and
development. The pro forma
45
information however, is not necessarily
indicative of the results that would have resulted had the
acquisition occurred at the beginning of the periods presented,
nor is it necessarily indicative of future results.
The Company considered a number of factors to
determine the purchase price allocation, including engaging a
third party valuation firm to independently appraise the fair
value of certain assets acquired. The following table presents
the fair values of assets and liabilities recorded in connection
with the Creon acquisition (in thousands):
Rheometrics:
On January 15, 2003, the Company acquired
the worldwide rheology business of Rheometrics for approximately
$16.5 million in cash. This transaction was accounted for
under the purchase method of accounting and the results of
operations of Rheometrics have been included in the consolidated
results of the Company from the acquisition date. This business
has been integrated into existing worldwide TAI operations. The
purchase price of the acquisition was allocated to tangible and
intangible assets and assumed liabilities based on their
estimated fair values. The Company has allocated
$5.5 million of the purchase price to intangible
46
assets comprised of customer lists, trademarks
and other purchased intangibles. The excess purchase price of
$15.0 million after this allocation has been accounted for
as goodwill.
The Company considered a number of factors to
determine the purchase price allocation, including engaging a
third party valuation firm to independently appraise the fair
value of certain assets acquired. The following table presents
the fair values of assets and liabilities recorded in connection
with the Rheometrics acquisition (in thousands):
The Company recorded approximately
$4.1 million in purchase accounting liabilities relating to
the Rheometrics acquisition. The purchase accounting liabilities
included $1.2 million for severance costs for approximately
65 employees, of which 64 employees were terminated as of
December 31, 2003, and $0.9 million in facilities
related costs for three facilities, all of which have been
closed as of December 31, 2003.
The following is a rollforward of the Rheometrics
acquisition schedule of amounts accrued under purchase
accounting and related utilization (in thousands):
Korea:
In February 2003, the Company acquired the
remaining 30% of its Korean distributor for approximately
$2.5 million. The Company now owns 100% of its Korean
distributor. The purchase price of the acquisition has been
allocated to goodwill.
The pro forma effects of the Rheometrics and
Korea acquisitions are immaterial.
During 2002 and 2001, the Company made business
acquisitions totaling $5.9 million and $2.6 million,
respectively. The business acquisitions were accounted for under
the purchase method of accounting and the results of operations
of the acquired companies have been included in the consolidated
results of the Company from the acquisition date. The purchase
price of the acquisitions have been allocated to tangible and
intangible
47
assets and any assumed liabilities based on
respective fair market values. Any excess purchase price after
this allocation has been accounted for as goodwill. With respect
to the 2002 acquisitions, the Company allocated approximately
$2.6 million of the purchase price to customer contracts
and non-compete covenants. Fixed assets and intangible assets
are being amortized over their expected useful lives.
7 Expensed
In-Process Research and Development
In connection with the acquisition of Creon, the
Company wrote-off the fair value of purchased IPR&D of
various projects for the development of new products and
technologies in the amount of $6.0 million. The amount was
determined by identifying research projects for which
technological feasibility had not been established and had no
alternative future uses. As of the acquisition date, there were
four projects that met the above criteria. The significant
IPR&D projects identified consist of the E Lab notebook
and the automatic LC-MS dereplication system. The IPR&D
charges associated with these projects were $4.5 million
and $0.8 million, respectively.
Management determined the valuation of the
IPR&D using a number of factors, including engaging a third
party valuation firm to provide an independent appraisal. The
value was based primarily on the discounted cash flow method.
This valuation included consideration of (i) the stage of
completion of each of the projects, (ii) the technological
feasibility of each of the projects, (iii) whether the
projects had an alternative future use, and (iv) the
estimated future residual cash flows that could be generated
from the various projects and technologies over their respective
projected economic lives.
The primary basis for determining the
technological feasibility of these projects was whether the
product has met predetermined design specifications and complex
functionality. As of the acquisition date, the IPR&D
projects had not reached predetermined design specifications and
complex functionality. In assessing the technological
feasibility of a project, consideration was also given to the
level of complexity in future technological hurdles that each
project had to overcome.
Future residual cash flows that could be
generated from each of the projects were determined based upon
management’s estimate of future revenue and expected
profitability of the various products and technologies involved.
These projected cash flows were then discounted to their present
values taking into account management’s estimate of future
expenses that would be necessary to bring the projects to
completion. The discount rates include a rate of return, which
accounts for the time value of money, as well as risk factors
that reflect the economic risk that the cash flows projected may
not be realized. The cash flows were discounted at discount
rates ranging from 55% to 60% per annum, depending on the
project’s stage of completion and the type of complex
functionality needed. This discounted cash flow methodology for
the various projects included in the purchased IPR&D
resulted in a total valuation of $6.0 million. Although
work on the projects related to the IPR&D continued after
the acquisition, the amount of the purchase price allocated to
IPR&D was written off because the projects underlying the
IPR&D that was being developed were not considered
technologically feasible as of the acquisition date. As of
December 31, 2003, the IPR&D projects still had not
reached technological feasibility. The expected remaining costs
to complete these projects are not considered material to the
Company and there are currently no expected material variations
between projected results from the projects versus those at the
time of the acquisition. The Company expects the projects to be
completed within the next twelve months.
8 Divestiture of
Business
On March 26, 2003, the Company sold the net
assets of its mass spectrometry inorganic product line for
approximately $1.2 million in cash and the balance in notes
receivable. Assets sold included inventory and certain accounts
receivable, and liabilities assumed by the acquirer consisted of
deferred service revenue and advance payment obligations, and
warranty and installation obligations. The Company recorded a
loss on
48
disposal of approximately $5.0 million,
including severance costs of approximately $0.3 million.
This business generated sales of approximately
$14.0 million per year with no significant effects to
earnings per share results.
9 Goodwill and
Other Intangibles
The carrying amount of goodwill was
$196.6 million and $167.9 million at December 31,
2003 and 2002, respectively. The increase of $28.7 million
is attributable to the Company’s three acquisitions
(Note 6) during the period of approximately
$23.1 million and currency translation adjustments of
approximately $5.6 million.
The Company’s intangible assets included in
the consolidated balance sheets are detailed as follows (in
thousands):
During the year ended December 31, 2003, the
Company retired approximately $4.4 million in fully
amortized purchased intangibles and $3.7 million in fully
amortized other intangibles, that were no longer in use.
For the years ended December 31, 2003, 2002
and 2001 amortization expense for intangible assets was
$11.9 million, $11.2 million, and $13.3 million,
respectively. Amortization expense for intangible assets is
estimated to be approximately $12.5 million for each of the
next five years. At December 31, 2003 and 2002, intangible
assets above reflect the change in accounting for patent related
costs as discussed in Note 2.
10 Debt
In February 2002, the Company entered into an
agreement (“Credit Agreement”) that provided for a
$250.0 million line of credit, unsecured in nature and an
expiration date in February 2007. Loans under the Credit
Agreement bore interest for each calendar quarter at an annual
rate equal to, at the Company’s option, 1) the
applicable LIBOR rate plus a varying margin between 0.60% and
1.50% or 2) prime rate.
In December 2003, the Company amended its
existing $250.0 million Credit Agreement (“Amended
Credit Agreement”) dated February 2002 by closing on a
$125.0 million Add-On Term Loan Facility (“Term
Loan”). Proceeds from the Term Loan will be used to repay
borrowings under the Credit Agreement, repurchase stock and for
general corporate purposes. The applicable interest changed from
being based on the ratio of debt to total capitalization to debt
to EBITDA. Loans under the Amended Credit Agreement will bear
interest for each quarter at a floating rate equal to, at the
Company’s option, 1) the applicable LIBOR rate plus a
varying margin between 0.60% and 1.50% or 2) prime rate. At
December 31, 2003, the interest rates, with respect to the
Amended Credit Agreement and Term Loan, ranged from 1.78% to
1.95%. At December 31, 2002, there were no borrowings under
this facility. There have been no material changes to the
remaining terms and conditions.
The credit facility in place through February
2002 provided a $450.0 million line of credit. Loans under
the facility bore interest for each calendar quarter at an
annual rate equal to, at the Company’s option, 1) the
applicable LIBOR rate plus a varying margin between 0.30% and
1.00% or 2) prime rate. Margins on LIBOR borrowings varied
with the Company’s financial performance. Borrowings were
collateralized by substantially
49
all of the Company’s assets. The Company was
also required to meet certain covenants, none of which was
considered restrictive to operations.
At December 31, 2003, the Company had
borrowings under the $250.0 million Amended Credit
Agreement of $100.0 million and an amount available to
borrow of $147.7 million, after outstanding letters of
credit. At December 31, 2003, the $125.0 million Term
Loan was fully drawn. At December 31, 2002, the Company had
no aggregate borrowings outstanding under the Credit Agreement
and had amounts available to borrow of $248.0 million,
after outstanding letters of credit.
The Company, and its foreign subsidiaries, also
had available short-term lines of credit, totaling
$96.0 million at December 31, 2003 and
$84.1 million at December 31, 2002. At
December 31, 2003 and 2002, related short-term borrowings
were $21.3 million at a weighted average interest rate of
2.11% and $7.5 million at a weighted average interest rate
of 2.78%, respectively.
50
Income tax data for the years ended
December 31, 2003, 2002 and 2001 follow in the tables below
(in thousands):
51
The income tax benefits associated with
nonqualified stock option compensation expense recognized for
tax purposes and credited to additional paid-in capital were
$17.6 million, $7.0 million and $12.7 million for
the years ended December 31, 2003, 2002 and 2001,
respectively. The deferred tax benefit of net operating losses
and credits is broken out as follows: $51.9 million
($148.3 million pre-tax) in U.S. operating loss
carryforwards that begin to expire in 2020; $52.0 million
in foreign tax credits, of which $33.1 million expire in
2004; $3.6 million in research and development credits that
begin to expire in 2009; $0.9 million in alternative
minimum income tax credits with no expiration date; and
$2.6 million ($8.8 million pre-tax) in foreign net
operating losses with no expiration date. Because of the
outstanding stock options, which the Company anticipates will
result in net operating loses well into the future, the Company
believes that it is more likely than not that the
U.S. deferred tax benefit of $128.3 million will not
be realized, therefore, a valuation allowance has reduced to
zero all the deferred tax benefit relating to U.S. income.
The deferred tax liabilities relate primarily to the
U.S. To the extent that the deferred tax assets relate to
stock option deductions, the resultant benefits, if and when
realized, will be credited to stockholders’ equity. During
the year ended December 31, 2003, the Company received an
alternative minimum income tax refund of $0.2 million,
resulting from a net operating loss carryback.
Net deferred tax assets included in other current
assets totaled $4.5 million and $2.6 million at
December 31, 2003 and 2002, respectively. Net deferred tax
liabilities included in other liabilities totaled
$9.3 million at December 31, 2003 and there were no
such liabilities at December 31, 2002.
The Company’s effective tax rate for the
years ended December 31, 2003, 2002 and 2001 were 23.6%,
22.1% and 22.3%, respectively. The Company’s effective tax
rate benefited primarily from the preferential tax rate of 10%
afforded by its Irish operations. The Irish rate will increase
to 12.5% in 2011. The effect of the
52
Irish operation is a benefit of approximately
$23.0 million or $0.19 per share for the year ended
December 31, 2003. The results of the balance of foreign
operations had an insignificant impact on the Company’s
effective tax rate.
At December 31, 2003, there were unremitted
earnings of foreign subsidiaries of approximately
$644.3 million. The Company has not provided
U.S. income taxes or foreign withholding taxes on these
earnings as it is the Company’s intention to permanently
reinvest the earnings outside the U.S. It is not
practicable to estimate the amount of additional tax that might
be payable if such earnings were remitted to the U.S.
12 Patent
Litigation
Applera Corporation:
PE Corporation (since renamed Applera
Corporation), MDS, Inc. and Applied Biosystems/MDS Sciex
(“the Plaintiffs”) filed a civil action against
Micromass UK Limited and Micromass, Inc., wholly owned
subsidiaries of the Company, in the U.S. District Court for
the District of Delaware (“the Court”) on
February 18, 2000. The Plaintiffs alleged that the Quattro
Ultima triple quadrupole mass spectrometer infringes
U.S. Patent No. 4,963,736 (“the patent”).
The patent is owned by MDS, Inc. and licensed to a joint venture
with Applied Biosystems/MDS Sciex Instruments.
In March 2002, the Company was informed of a
jury’s finding that the Quattro Ultima with Mass Transit
ion tunnel technology infringes the patent. The same jury found
that the infringement was not willful and determined damages in
the amount of $47.5 million. The Court entered an
injunction in which the Company is enjoined from making, using
and selling in the U.S. the Quattro Ultima triple quadrupole
mass spectrometer incorporating features of the patent.
In March 2003, the Court’s decision was
affirmed on appeal. In April 2003, the Company paid total
damages and interest of approximately $53.7 million to the
Plaintiffs. These instruments are manufactured in the United
Kingdom and shipments to the rest of the world outside the
United States are not subject to this litigation. Similar claims
were asserted against the Company by the Plaintiffs in Japan and
Canada.
The accrued patent litigation expenses of
$19.9 million and $74.9 million recorded as of
December 31, 2003 and December 31, 2002, respectively,
in the consolidated balance sheets, is the Company’s best
estimate of its exposure for this liability. During the year
ended December 31, 2003, the Company recorded a
$0.5 million pre-tax charge for additional liabilities
associated with interest costs. During the year ended
December 31, 2003, the Company paid damages and interest of
$53.7 million, made legal expense payments of
$0.4 million, and reversed approximately $0.9 million
of interest as a credit to interest expense in the fourth
quarter.
MDS, Inc. and Applied Biosystems/MDS Sciex
Instruments filed a civil action against Micromass UK Limited,
Waters Limited, wholly owned subsidiaries of the Company, and
the Company, in the High Court of Justice, Chancery Division,
Patents Courts, UK on October 31, 2003. The case alleged
that certain of the Company’s MS products infringe European
Patent (UK) No. 0 373 835 (the “European
Patent”). To the Company’s knowledge, the European
patent is owned by MDS, Inc. and licensed to a joint venture
with Applied Biosystems/MDS Sciex Instruments. The Plaintiffs in
this action were seeking an injunction against the Company to
restrain it from infringing the European Patent and an
unspecified award of damages.
Previously, in July 2002, the Company filed a
civil action against Applera Corporation alleging patent
infringement of U.S. Patent No. 5,304,798 owned by the
Company. In November 2002, the University of Manitoba (the
’‘University”) and Applera Corporation, its
licensee, filed a civil action against the Company alleging
patent infringement of U.S. Patent No. 6,331,702 owned by
the University. (See March 2004 update in Note 22.)
53
Hewlett-Packard Company:
The Company filed suit in the United States
against Hewlett-Packard Company and Hewlett-Packard GmbH
(collectively, “HP”), seeking a declaration that
certain products sold under the mark “Alliance” do not
constitute an infringement of one or more patents owned by HP or
its foreign subsidiaries (the “HP patents”). The
action in the United States was dismissed for lack of
controversy. Actions seeking revocation or nullification of
foreign HP patents were filed by the Company in Germany, France
and England. A German patent tribunal found the HP German patent
to be valid. In Germany, France and England, HP and its
successor, Agilent Technologies Deutschland GmbH, have brought
an action alleging that certain features of the Alliance pump
may infringe the HP patents. In England, the Court of Appeal has
found the HP patent valid and infringed. The Company’s
petitions for leave to appeal to the House of Lords have been
denied. In France, the Paris District Court has found the HP
patent valid and infringed by the Alliance pump. The Company has
appealed the French decision. A German court has found the
patent infringed. The Company has appealed the German decision.
The Company recorded a provision in the quarter ended
June 30, 2002 for estimated damages incurred with respect
to this ongoing litigation. This provision represents
management’s best estimate of the probable and reasonably
estimable loss related to this litigation.
PerkinElmer Corporation:
The Company, through its subsidiary TAI, asserted
a claim against The PerkinElmer Corporation (“PE”)
alleging patent infringement of three patents owned by TAI (the
“TAI patents”). PE counterclaimed for infringement of
a patent owned by PE (the “PE patent”). The
U.S. District Court for the District of Delaware granted
judgment as a matter of law in favor of TAI and enjoined PE from
infringing the TAI patents. PE appealed the District Court
judgment in favor of TAI to the federal appellate court. The
District Court’s judgment, with respect to PE’s
infringement of the TAI patents, was affirmed. The District
Court’s judgment with respect to TAI’s
non-infringement of the PE patent was reversed and remanded to
the District Court for further proceedings.
On remand to the District Court in
October 2002, a jury found PE liable to TAI for damages of
$13.3 million and found TAI did not infringe the PE patent.
In May 2003, the District Court entered judgment on the
jury’s verdict in favor of the Company. PE has appealed the
judgment with respect to TAI’s non-infringement of the PE
patent. As of December 31, 2003, no gain has been recorded
and all litigation costs have been expensed as incurred.
Other:
Cohesive Technologies, Inc.
(“Cohesive”) has brought three suits against the
Company in the U.S. District Court of Massachusetts. Cohesive
alleges that several products of the Company, which are part of
a much larger product line, are an infringement of two Cohesive
U.S. Patents. The Company has denied infringement of such
patents and has asserted several defenses. Two of the products
alleged to be an infringement are now obsolete and are no longer
sold in the United States. During the fourth quarter of 2001, a
jury returned a verdict in one of the suits finding the Company
liable for infringement of one of the two patents. The Company
intends to continue to vigorously defend its position. Judgment
has not been entered on the jury’s verdict and further
proceedings may preclude such entry. The Company believes it has
meritorious positions and should prevail either through judgment
or on appeal, although the outcome is not certain. The Company
believes that any outcome of the proceedings will not be
material to the Company.
Viscotek Corporation (“Viscotek”) filed
a civil action against the Company in the Federal District Court
for the Southern District of Texas, Houston Division, alleging
that one option offered by the Company with a high temperature
gel permeation chromatography instrument is an infringement of
two of its patents. These patents are owned by E.I. DuPont
de Nemours and Company (“DuPont”) and claimed to
be exclusively licensed to Viscotek. DuPont is not a party to
the suit. On January 16, 2004, a jury returned a verdict
finding that the Company had not infringed Viscotek’s
patents. Judgment has not been entered on the jury’s verdict
54
and further post trial motions and appeals by
Viscotek may preclude such entry. The Company believes it should
prevail either through judgment or appeal and that any outcome
of the proceedings will not be material to the Company.
13 Environmental
Contingency
In July 2003, the Company entered into a
settlement agreement (the “Environmental Settlement
Agreement”) with the Commonwealth of Massachusetts, acting
by and through the Attorney General and the Department of
Environmental Protection, with respect to alleged non-compliance
with state environmental laws at its Taunton, Massachusetts
facility. Pursuant to the terms of a final judgment entered in
the Superior Court of the Commonwealth on July 10, 2003,
the Company paid a civil penalty of $5.9 million. In
addition, the Company has agreed to conduct a Supplemental
Environmental Project in the amount of $0.6 million,
comprised of investments in capital infrastructure, to study the
effects of bio-filtration on certain air emissions from the
Taunton facility and for the purchase of equipment in connection
therewith. Pursuant to the terms of the Environmental Settlement
Agreement, the Company has also agreed to undertake a variety of
actions to ensure that air emissions from the facility do not
exceed certain limits and that the facility is brought into full
compliance with all applicable environmental regulations.
14 Restructuring
and Other Unusual Charges
In July 2002, the Company took action to
restructure and combine its field sales, service and
distribution of its Micromass and HPLC operations. The objective
of this integration is to leverage the strengths of both
divisions and align and reduce operating expenses. The
integration efforts impacted the U.S., Canada, continental
Europe and the United Kingdom. Approximately 55 employees were
to be terminated, of which all had left the Company as of
December 31, 2003. In addition, the Company committed to
closing four sales and distribution facilities, of which one was
closed by December 31, 2003. The Company is in various
stages of terminating distributor contracts, of which two were
closed by December 31, 2003.
The Company recorded $2.6 million of charges
for the year ended December 31, 2003 and $7.4 million
for the year ended December 31, 2002, for restructuring and
other directly related incremental charges relating to its
integration of the worldwide HPLC and MS sales, service and
support organizations. The charge for the year ended
December 31, 2003 includes severance costs for 13 people,
distributor termination costs and other directly related
incremental costs of this integration effort. The charge for the
year ended December 31, 2002 includes severance costs for
42 people, contract cancellation fees, non-cancelable lease
obligations and other directly related incremental costs.
During the year ended December 31, 2003, the
Company reversed approximately $1.9 million in
restructuring reserves, primarily attributable to facility
closure and distributor termination costs being less than
previously estimated and the retention of certain employees
previously selected for termination. There were no such
reversals in 2002.
The Company has included in the consolidated
balance sheet in other long-term liabilities approximately
$1.5 million and $1.8 million at December 31,
2003 and 2002, respectively, for non-cancelable lease
obligations with a portion to be paid extending out to 2012. The
remaining $1.1 million and $3.7 of the liability is
included in other current liabilities in the consolidated
balance sheet at December 31, 2003 and 2002, respectively.
55
The following is a rollforward of the
Company’s HPLC and MS integration restructuring liability
(in thousands):
The Company also recorded an unrelated
restructuring provision of $0.1 million at its TAI
subsidiary for severance and other related costs in the year
ended December 31, 2003. There were no such charges for the
year ended December 31, 2002.
15 Other
Commitments and Contingencies
Lease agreements, expiring at various dates
through 2019, cover buildings, office equipment and automobiles.
Rental expense was approximately $19.6 million in 2003,
$13.9 million in 2002 and $12.4 million in 2001.
Future minimum rents payable as of December 31, 2003 under
non-cancelable leases with initial terms exceeding one year are
as follows (in thousands):
The Company licenses certain technology and
software from third parties, which expire at various dates
through 2008. Fees paid for licenses were approximately
$2.9 million in 2003, $5.4 million in 2002, and
$4.0 million in 2001. Future minimum licenses payable under
existing license agreements as of December 31, 2003 are
$0.8 million, $0.4 million, for the years ended
December 31, 2004 and 2005, respectively, and are
immaterial for the year ended December 31, 2006 and
thereafter.
From time to time, the Company and its
subsidiaries are involved in various litigation matters arising
in the ordinary course of business. The Company believes it has
meritorious arguments and any outcome, either individually or in
the aggregate, with the exception of the current litigation
described in Note 12, Patent Litigation and Note 13,
Environmental Contingency, will not be material to the financial
position or results of operations.
The Company enters into standard indemnification
agreements in its ordinary course of business. Pursuant to these
agreements, the Company indemnifies, holds harmless, and agrees
to reimburse the indemnified party for losses suffered or
incurred by the indemnified party, generally our business
partners or customers, in connection with patent, copyright or
other intellectual property infringement claims by any third
party with respect to our current products, as well as claims
relating to property damage or personal injury resulting from
the performance of services by us or our subcontractors. The
maximum potential amount of future payments we could be required
to make under these indemnification agreements is unlimited.
Historically, our costs to defend lawsuits or settle claims
relating to such indemnity agreements have been minimal and we
accordingly believe the estimated fair value of these agreements
is immaterial.
56
16 Stock Option
and Purchase Plans
Stock Option Plans
On May 7, 1996, the Company’s
shareholders approved the 1996 Long-Term Incentive Plan
(“1996 Plan”), which provides for the granting of
4,000 shares of Common Stock, in the form of incentive or
non-qualified stock options, stock appreciation rights
(“SARs”), restricted stock or other types of awards.
Under the 1996 Plan, the exercise price for stock options may
not be less than the fair market value of the underlying stock
at the date of grant. On May 7, 2002 and May 12, 1998,
the Company’s shareholders approved an additional 5,750 and
8,000 shares, respectively, of Common Stock for issue under
the 1996 Plan. The 1996 Plan is scheduled to terminate on
May 7, 2006, unless extended for a period of up to five
years by action of the Board of Directors. Options generally
will expire no later than ten years after the date on which they
are granted and will become exercisable as directed by the
Compensation Committee of the Board of Directors. A SAR may be
granted alone or in conjunction with an option or other award.
Except for stock options, no SARs, restricted stock or other
types of awards were outstanding as of December 31, 2003.
The Company’s 1994 Stock Option Plan
(”1994 Plan”) provided for the granting of 20,141
options to purchase shares of Common Stock to certain key
employees of the Company. The exercise price of the options was
determined by a committee of the Board of Directors of the
Company. Options granted have a term of ten years and vest in
five equal installments on the first five anniversaries after
the grant.
On May 7, 1996, the Company’s
shareholders approved the 1996 Non-Employee Director Deferred
Compensation Plan (“Deferred Compensation Plan”) and
the 1996 Non-Employee Director Stock Option Plan (“Director
Stock Option Plan”). Under the Deferred Compensation Plan,
outside directors may elect to defer their fees and credit such
fees to either a cash account which earns interest at a
market-based rate or to a common stock unit account, for which
four hundred thousand shares of Common Stock have been reserved.
Under the Director Stock Option Plan, each outside director will
receive an annual option to purchase four thousand shares of
Common Stock. Two hundred thousand shares of Common Stock may be
issued under the plan. Options have a term of ten years and,
with the exception of options granted in 1996, which vest in one
year, vest in five equal installments on the first five
anniversaries following the date of grant and have option prices
no less than fair market value at the date of grant.
On November 20, 2003, the Company’s
shareholders approved the 2003 Equity Incentive Plan (“2003
Plan”). The 2003 Plan replaced the 1996 Plan, the Director
Stock Option Plan and the 1994 Plan, under all of which
5,697 shares remained available for granting in the form of
incentive or non-qualified stock options, SARs, restricted stock
or other types of awards. Under the 2003 Plan the exercise price
for stock options may not be less than the fair market value of
the underlying stock at the date of grant. The 2003 Plan is
scheduled to terminate on March 4, 2013. Options generally
will expire no later than 10 years after the date on which
they are granted and will become exercisable as directed by the
Compensation Committee of the Board of Directors. A SAR may be
granted alone or in conjunction with an option or other award.
Shares of restricted stock shall be issued under the 2003 Plan
for such consideration as is determined by the Compensation
Committee of the Board of Directors. No award of restricted
stock shall have a restriction period of less than three years
except as may be recommended by the Compensation Committee of
the Board of Directors, or with respect to any award of
restricted stock which provides solely for a performance-based
risk of forfeiture so long as such award has a restriction
period of at least one year. Except for stock options, no SARs
or other types of awards were outstanding as of
December 31, 2003.
57
The following table details the weighted average
remaining contractual life of options outstanding at
December 31, 2003 by range of exercise prices (in
thousands, except per share data):
The following table summarizes stock option
activity for the plans (in thousands, except per share data):
Options exercisable at December 31, 2003,
2002 and 2001 were 9,080, 11,950 and 11,329, respectively. The
weighted average exercise prices of options exercisable at
December 31, 2003, 2002 and 2001 were $19.48, $12.63 and
$9.14, respectively. Available stock options for grant at
December 31, 2003 were 4,056.
Employee Stock Purchase Plan
On February 26, 1996, the Company adopted
the 1996 Employee Stock Purchase Plan under which eligible
employees may contribute up to 15% of their earnings toward the
quarterly purchase of the Company’s Common Stock. The plan
makes available 1,000 shares of the Company’s Common
Stock commencing October 1, 1996. As of December 31,
2003, approximately 549 shares have been issued under the
plan. Each plan period lasts three months beginning on
January 1, April 1, July 1 and October 1 of
each year. The purchase price for each share of stock is the
lesser of 90% of the market price on the first day of the plan
period or 100% of the market price on the last day of the plan
period. No compensation expense is recorded in connection with
the plan.
58
17 Earnings per
Share
Basic and diluted EPS calculations are detailed
as follows (in thousands, except per share data):
For the years ended December 31, 2003, 2002
and 2001, the Company had 5,512, 3,802 and 1,688 stock option
securities that were antidilutive, respectively, due to having a
higher exercise prices than the average price during the period.
These securities were not included in the computation of diluted
EPS. The effect of dilutive securities was calculated using the
treasury stock method.
59
Comprehensive income details follow (in
thousands):
As described in Note 5 of these financial
statements, the Company reclassified the unrealized loss on its
investment in Variagenics, Inc. to other income
(expense) in the consolidated statements of operations in
2002 and 2001. The $0.7 million unrealized loss on
investments, net of tax, in Variagenics at December 31,
2000 has been included in the asset impairment charge recorded
in other expense in the consolidated statements of operations
for 2001.
The Company has two retirement plans for
U.S. employees: the Waters Employee Investment Plan, a
defined contribution plan, and the Waters Retirement Plan, a
defined benefit cash balance plan.
U.S. employees are eligible to participate
in the Waters Employee Investment Plan after one month of
service. Employees may contribute from 1% to 30% of eligible pay
on a pre-tax basis. After one year of service, the Company makes
a matching contribution of 50% for contributions up to 6% of
eligible pay. Employees are 100% vested in employee and company
matching contributions. For the years ended December 31,
2003, 2002 and 2001, the Company’s matching contributions
amounted to $2.9 million, $2.7 million and
$2.4 million, respectively.
U.S. employees are eligible to participate
in the Waters Retirement Plan after one year of service.
Annually, the Company credits each employee’s account as a
percentage of eligible pay based on years of service. In
addition, each employee’s account is credited for
investment returns at the beginning of each year for the prior
year at the average 12 month Treasury Bill rate plus
0.5%, limited to a minimum rate of 5% and a maximum rate of 10%.
An employee does not vest until the completion of five years of
service at which time the employee becomes 100% vested.
60
The net periodic pension cost under SFAS 87,
Employers’ Accounting for Pensions, is made up of several
components that reflect different aspects of the Company’s
financial arrangements as well as the cost of benefits earned by
employees. These components are determined using the projected
unit credit actuarial cost method and are based on certain
actuarial assumptions. The Company’s accounting policy is
to reflect in the projected benefit obligation all benefit
changes to which the Company is committed as of the current
valuation date; use a market-related value of assets to
determine pension expense; amortize increases in prior service
costs on a straight-line basis over the expected future service
of active participants as of the date such costs are first
recognized; and amortize cumulative actuarial gains and losses
in excess of 10% of the larger of the market-related value of
plan assets and the projected benefit obligation over the
expected future service of active participants.
Summary data for the Waters Retirement Plan are
presented in the following tables, using the measurement date of
December 31, 2003 (in thousands):
61
The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the Waters
Retirement Plan were approximately $56.0 million,
$50.2 million and $37.3 million, respectively, at
December 31, 2003 and $43.8 million,
$39.5 million and $24.4 million, respectively, at
December 31, 2002.
The Company sponsors various
non-U.S. retirement plans. Accrued pension costs for these
plans included in current accrued retirement plan contributions
at December 31, 2003 and 2002 were approximately
$1.1 million and $1.0 million, respectively. Accrued
pension costs for these plans included in long-term portion of
post retirement benefits at December 31, 2003 and 2002 were
approximately $11.3 million and $9.4 million,
respectively. Prepaid pension costs for these plans included in
other assets totaled $1.8 million and $1.5 million at
December 31, 2003 and 2002, respectively. The projected
benefit obligation and fair value of plan assets for the
significant plans were approximately $17.1 million and
$7.0 million, respectively, at December 31, 2003 and
$13.8 million and $5.2 million, respectively, at
December 31, 2002.
The Company also sponsors other unfunded employee
benefit plans in the U.S., including a post-retirement health
care plan, which provides reimbursement for medical expenses and
is contributory. The Company’s accrued post-retirement
benefit obligation for this plan was $3.1 million and
$3.0 million at December 31, 2003 and 2002,
respectively, and is included in long-term portion of post
retirement benefits in the consolidated balance sheets.
The Company also maintains an unfunded
Supplemental Executive Retirement Plan (“SERP”), which
is nonqualified and restores the benefits under the Waters
Retirement Plan that are limited by IRS benefit and compensation
maximums. The Company’s accrued post-retirement benefit
obligation for this plan was $2.3 million and
$2.0 million at December 31, 2003 and 2002,
respectively, and is included in long-term portion of post
retirement benefits in the consolidated balance sheets. Also
included in the long-term portion of post retirement benefits is
$12.2 million and $9.1 million at December 31,
2003 and 2002, respectively, relating to the liability
associated with the SERP plan assets.
62
The retirement plan’s investment policy was
last amended in September 2002 to include the following asset
allocation guidelines:
Prior to September 2002, the asset allocation
targets were 72% equity and 28% fixed income. The rebalancing
towards the new targets is accomplished through the investment
of future contributions.
The asset allocation policy was developed in
consideration of the following long-term investment objectives:
achieving a return on assets consistent with the investment
policy, maximizing portfolio returns with at least a return of
2.5% above the one-year Treasury Bill rate, and achieving
portfolio returns which exceeds the average return for similarly
invested funds.
The Company increased its allocation to debt
securities during 2003 from 26% to 32% based on the new target
allocation. The increase in fixed income securities will help
better match the interest rate sensitivity of the pension
liabilities and limit the risk associated with equity funds.
Within the equity portfolio, investments are diversified among
capitalization and style. Up to 20% of the equity portfolio may
be invested in financial markets outside of the United States.
The Company does not invest in its own stock within the pension
assets.
The Company prohibits the following types of
assets or transactions: short selling, margin transactions,
commodities and future contracts, private placements, options
and letter stock.
To develop the expected long-term rate of return
on assets assumption, the Company considered the historical
returns and the future expectations for returns for each asset
class, as well as the target asset allocation of the pension
portfolio and historical expenses paid by the plan. This
resulted in the selection of the 8.00% long-term rate of return
on assets assumption, net of expenses paid by the plan.
During fiscal year 2004, the Company expects to
contribute $10.0 million to the plan.
20 Business
Segment Information
SFAS 131, “Disclosures about Segments
of an Enterprise and Related Information,” establishes
standards for reporting information about operating segments in
annual financial statements and requires selected information
for those segments to be presented in interim financial reports
of public business enterprises. It also establishes standards
for related disclosures about products and service, geographic
areas and major customers. The Company evaluated its business
activities that are regularly reviewed by the chief
decision-makers for which separate discrete financial
information is available.
In the third quarter of fiscal year 2003, the
Company completed the integration of the HPLC and MS worldwide
sales, service and support organizations. Accordingly, the
Micromass operating segment (“Micromass”) has been
integrated into the Waters operating segment.
63
Waters is in the business of manufacturing and
distributing HPLC instruments, columns, other consumables and
mass spectrometry instruments that can be integrated and used
along with other analytical instruments. TAI is in the business
of manufacturing and distributing thermal analysis and rheology
instruments. The Company’s two operating segments have
similar economic characteristics, product processes, products
and services, types and classes of customers, methods of
distribution, and regulatory environments. Because of these
similarities, the two segments have been aggregated into one
reporting segment for financial statement purposes. Please refer
to the consolidated financial statements for financial
information regarding the one reportable segment of the Company.
Geographic information is presented below (in
thousands):
The United States category includes Puerto Rico.
The Other category includes Canada, South America,
Australia, India, Eastern Europe and Central Europe. Net
revenues are attributable to geographic areas based on the
region of origin. None of the Company’s individual
customers account for more than 3% of annual Company sales.
Long-lived assets information is presented below
(in thousands):
The United States category includes Puerto Rico.
The Other category includes Canada, South America,
Australia, India, Eastern Europe and Central Europe.
Long-lived assets exclude goodwill and other intangible assets.
64
21 Unaudited
Quarterly Results
The Company’s unaudited quarterly results
are summarized below (in thousands, except per share data):
65
The Company experiences a seasonal increase in
sales in the fourth quarter, as a result of purchasing habits on
capital goods of customers that tend to exhaust their spending
budgets by calendar year-end. Selling, general and expenses were
lower in the first quarters of 2003 and 2002 compared to other
quarters in respective calendar years due to foreign currency
translation, lower spending in marketing programs and lower
costs such as sales commissions and incentive plans directly
related to sales volume. In addition, expenses are traditionally
higher in the second quarter of each year as this is the
Company’s annual payroll merit increase period.
66
22 Subsequent
Events
In January 2004, the Company initiated a
restructuring effort to realign its personnel between various
support functions and various field, sales and service
organizations. As a result, approximately 80 employees are
to be terminated, primarily in the U.S., in the first quarter of
2004. A similar number of new employees are to be hired in
various geographies around the world, primarily in sales and
service functions with the goal of increasing sales. The Company
expects to record a restructuring charge of approximately
$2.0 million in the first quarter of 2004.
In the first quarter of 2004, the Company
acquired 100% of the Common Stock of NuGenesis Technologies
Corporation for approximately $43.2 million in cash. This
transaction will be accounted for under the purchase method of
accounting. During the first quarter of 2004, the Company will
record each acquired asset and liability assumed at its fair
value, which is subject to future adjustment when appraisals or
other valuation data have been obtained.
On March 2, 2004, the Company and MDS, Inc.
through its Applied Biosystems/MDS Sciex Instruments partnership
and Applied Biosystems entered into a settlement agreement (the
“Applera Settlement Agreement”) with respect to the
various civil actions pending against each of them, both in the
United States and internationally. Stipulations of Dismissal or
their foreign equivalents (the “Stipulations”) with
respect to the disposal of all such actions have been submitted
to the applicable courts and tribunals in each of the United
States, the United Kingdom, Canada and Japan.
The Applera Settlement Agreement provides for the
resolution of all patent infringement claims in the United
States made by certain of the parties against the other and of
international cases brought by MDS, Inc. and Applied
Biosystems/MDS Sciex Instruments against the Company with
respect to alleged infringements of those parties’ patents
at issue in the United Kingdom, Canada and Japan.
In consideration of entering into the Applera
Settlement Agreement and the Stipulations, the Company and MDS,
Inc. and Applied Biosystems/MDS Sciex Instruments have entered
into royalty paying license agreements cross licensing the use
of the technology described in the parties’ respective
patents at issue. In addition, the Company made a one-time
payment to Applied Biosystems/MDS Sciex Instruments of
$18.1 million on March 11, 2004, which is fully
accrued at December 31, 2003.
67
SELECTED FINANCIAL DATA
68
1
Description of Business, Organization and
Basis of Presentation
2
Summary of Significant Accounting
Policies
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Balance at
Accruals for
Settlements
Balance at
Beginning of Period
warranties
made
End of Period
$
9,562
$
15,611
$
(14,122
)
$
11,051
$
10,100
$
18,586
$
(19,124
)
$
9,562
Table of Contents
Compensation Expense — Fair Value Method
(in thousands, except per share data)
2003
2002
2001
$
170,891
$
147,712
$
114,543
(25,999
)
(25,222
)
(18,954
)
$
144,892
$
122,490
$
95,589
$
1.39
$
1.13
$
0.88
$
1.18
$
0.94
$
0.73
$
1.34
$
1.09
$
0.83
$
1.14
$
0.90
$
0.70
Options Issued and Significant Assumptions Used to Estimate Option Fair Values
2003
2002
2001
2,104
1,602
2,251
4.1
%
3.3
%
5.5
%
7.5
7.5
7.5
.541
.561
.565
0
0
0
Weighted Average Exercise Price and Fair Values of Options on the Date of Grant
2003
2002
2001
$
31.60
$
21.74
$
36.73
$
20.13
$
13.28
$
23.79
Table of Contents
Table of Contents
December 31
2003
2002
$
41,768
$
44,629
14,031
16,544
73,011
69,068
$
128,810
$
130,241
December 31
2003
2002
$
5,536
$
3,945
59,264
51,302
168,394
143,310
6,372
4,452
239,566
203,009
(131,404
)
(102,680
)
$
108,162
$
100,329
Table of Contents
Table of Contents
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2003
2002
2001
$
962,500
$
896,855
$
866,229
176,391
150,107
113,203
176,391
145,601
113,203
1.43
1.15
0.87
1.43
1.12
0.87
1.38
1.11
0.82
1.38
1.07
0.82
$
2,201
145
2,500
74
5,552
4,421
371
15,264
4,175
748
4,923
6,000
$
16,341
Table of Contents
$
3,932
1,784
15,007
5,450
679
26,852
3,046
6,408
885
10,339
$
16,513
Balance
December 31,
Amounts
Utilization
2003
$
1,200
$
(1,143
)
$
57
785
(490
)
295
653
(586
)
67
900
(694
)
206
562
(554
)
8
$
4,100
$
(3,467
)
$
633
Table of Contents
Table of Contents
December 31, 2003
December 31, 2002
Weighted-Average
Weighted-Average
Gross Carrying
Accumulated
Amortization
Gross Carrying
Accumulated
Amortization
Amount
Amortization
Period
Amount
Amortization
Period
$
54,676
$
25,532
11 years
$
46,060
$
23,917
12 years
53,879
26,215
3 years
43,904
19,054
3 years
12,965
2,546
10 years
10,410
1,178
10 years
6,737
1,800
8 years
8,601
4,760
7 years
$
128,257
$
56,093
7 years
$
108,975
$
48,909
8 years
Table of Contents
Table of Contents
11
Income Taxes
Year Ended December 31
2003
2002
2001
$
55,580
$
17,604
$
48,677
168,106
177,807
98,749
$
223,686
$
195,411
$
147,426
$
46,008
$
46,527
$
31,680
6,787
(3,334
)
1,203
$
52,795
$
43,193
$
32,883
$
20,077
$
4,413
$
13,303
2,066
1,379
1,592
30,652
37,401
17,988
$
52,795
$
43,193
$
32,883
$
78,290
$
68,394
$
51,599
(2,665
)
(2,275
)
(2,283
)
1,343
896
1,035
—
—
(711
)
(23,811
)
(23,885
)
(16,875
)
(362
)
63
118
$
52,795
$
43,193
$
32,883
Table of Contents
Year Ended December 31
2003
2002
$
111,020
$
90,231
9,022
10,156
7,844
9,587
8,135
8,579
2,620
2,560
4,575
6,972
4,728
5,032
147,944
133,117
(128,280
)
(107,628
)
19,664
25,489
(12,022
)
(12,824
)
(1,816
)
—
(7,518
)
(7,129
)
(3,111
)
(2,980
)
(24,467
)
(22,933
)
$
(4,803
)
$
2,556
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Balance
Reserve
Balance
December 31, 2002
Charges
Utilization
Reversals
December 31, 2003
$
1,655
$
1,553
$
(2,672
)
$
(505
)
$
31
2,388
—
(60
)
(391
)
1,937
1,350
400
(325
)
(950
)
475
78
661
(568
)
(8
)
163
$
5,471
$
2,614
$
(3,625
)
$
(1,854
)
$
2,606
$
18,270
14,892
11,503
8,567
31,678
Table of Contents
Table of Contents
Weighted
Remaining
Weighted
Exercise
Number of Shares
Average
Contractual Life of
Number of Shares
Average
Price Range
Outstanding
Exercise Price
Options Outstanding
Exercisable
Exercise Price
$ 1.02 to $ 2.00
22
$
1.02
1.0 years
22
$
1.02
$ 2.01 to $ 5.00
3,189
$
3.95
0.7 years
3,189
$
3.95
$ 5.01 to $10.00
559
$
8.56
2.4 years
559
$
8.56
$10.01 to $15.00
948
$
10.69
3.9 years
948
$
10.69
$15.01 to $20.00
1,266
$
19.68
4.9 years
1,266
$
19.68
$20.01 to $30.00
3,111
$
22.35
7.5 years
1,435
$
22.82
$30.01 to $40.00
3,982
$
34.21
8.9 years
766
$
36.27
$40.01 to $80.97
1,459
$
71.44
6.6 years
895
$
71.41
14,538
$
24.93
5.6 years
9,080
$
19.48
Weighted Average
Number of Shares
Price Per Share
Exercise Price
16,091
$1.02 to $72.06
$
15.84
2,251
$28.23 to $80.97
$
36.73
(1,046
)
$1.02 to $23.06
$
6.51
(100
)
$8.56 to $72.06
$
44.22
17,196
$1.02 to $80.97
$
18.98
1,602
$21.39 to $38.41
$
21.74
(1,176
)
$1.02 to $23.06
$
7.62
(295
)
$8.05 to $72.06
$
38.37
17,327
$1.02 to $80.97
$
19.68
2,104
$21.05 to $32.12
$
31.60
(4,431
)
$1.02 to $23.06
$
5.78
(462
)
$19.69 to $72.06
$
41.69
14,538
$1.02 to $80.97
$
24.93
Table of Contents
Year Ended 2003
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
$
170,891
123,189
$
1.39
2,993
1,397
$
170,891
127,579
$
1.34
Year Ended 2002
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
$
152,218
130,489
$
1.17
5,042
231
$
152,218
135,762
$
1.12
Year Ended 2001
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
$
114,543
130,559
$
0.88
6,782
168
$
114,543
137,509
$
0.83
Table of Contents
18
Comprehensive Income
Year Ended December 31
2003
2002
2001
$
170,891
$
147,712
$
114,543
62,219
40,752
(11,497
)
21,776
14,263
(4,024
)
40,443
26,489
(7,473
)
(1,724
)
(762
)
7,800
(603
)
(267
)
2,730
(1,121
)
(495
)
5,070
39,322
25,994
(2,403
)
116
(9,189
)
(4,679
)
2,351
54
1,148
823
19
402
1,528
35
746
40,966
16,840
(6,336
)
$
211,857
$
164,552
$
108,207
19
Retirement Plans
Table of Contents
Reconciliation of Projected Benefit Obligation
2003
2002
$
43,801
$
34,139
4,339
3,480
3,231
2,757
410
637
4,910
3,834
(717
)
(1,046
)
$
55,974
$
43,801
Reconciliation of Fair Value of Assets
2003
2002
$
24,364
$
23,716
6,160
(3,279
)
7,078
4,336
(717
)
(1,046
)
410
637
$
37,295
$
24,364
Reconciliation of Funded Status, December 31
2003
2002
$
(55,974
)
$
(43,801
)
37,295
24,364
(18,679
)
(19,437
)
(830
)
(928
)
20,329
19,143
$
820
$
(1,222
)
$
(12,932
)
$
(15,090
)
13,752
13,868
$
820
$
(1,222
)
Table of Contents
Components of Net Periodic Pension Cost, Year Ended December 31
2003
2002
2001
$
4,339
$
3,480
$
2,994
3,231
2,757
2,305
(2,829
)
(2,833
)
(2,540
)
(99
)
(99
)
(99
)
394
22
—
$
5,036
$
3,327
$
2,660
Reconciliation of Accrued Pension Cost
2003
2002
2001
$
(15,090
)
$
(6,910
)
$
(2,836
)
(5,036
)
(3,327
)
(2,660
)
7,078
4,336
3,265
116
(9,189
)
(4,679
)
$
(12,932
)
$
(15,090
)
$
(6,910
)
Asset Disclosure, December 31
2003
2002
66
%
64
%
32
%
26
%
2
%
10
%
100
%
100
%
Table of Contents
Asset Class, December 31
Policy Target
Range
60
%
40% — 80
%
40
%
20% — 60
%
0
%
0% — 20
%
Weighted-Average Assumptions for benefit obligations, December 31
2003
2002
6.00
%
6.75
%
4.75
%
4.75
%
Weighted-Average Assumptions for expense calculation, December 31
2003
2002
6.75
%
7.25
%
8.00
%
9.00
%
4.75
%
4.75
%
Table of Contents
Year Ended December 31,
2003
2002
2001
$
670,112
$
570,138
$
582,675
276,114
396,779
383,120
87,827
68,285
63,281
70,967
46,316
40,561
106,765
77,384
73,951
(253,580
)
(268,935
)
(284,380
)
$
958,205
$
889,967
$
859,208
December 31,
2003
2002
$
78,526
$
79,479
26,659
18,268
732
539
311
435
1,934
1,608
$
108,162
$
100,329
Table of Contents
First
Second
Third
Fourth
2003
Quarter
Quarter
Quarter
Quarter
Total
$
220,999
$
231,752
$
230,381
$
275,073
$
958,205
94,211
95,488
95,045
113,104
397,848
126,788
136,264
135,336
161,969
560,357
61,611
68,679
66,743
67,219
264,252
13,560
13,790
15,106
16,786
59,242
1,028
1,027
1,179
1,008
4,242
1,500
—
—
—
1,500
5,031
—
—
—
5,031
1,214
—
(135
)
(161
)
918
—
—
5,160
840
6,000
42,844
52,768
47,283
76,277
219,172
—
—
—
(250
)
(250
)
(1,071
)
255
(312
)
(1,239
)
(2,367
)
1,896
1,649
1,862
1,724
7,131
43,669
54,672
48,833
76,512
223,686
9,692
12,574
12,419
18,110
52,795
$
33,977
$
42,098
$
36,414
$
58,402
$
170,891
$
0.27
$
0.34
$
0.30
$
0.48
$
1.39
126,308
123,610
122,240
120,961
123,189
$
0.26
$
0.33
$
0.29
$
0.47
$
1.34
130,785
128,252
126,709
124,784
127,579
Table of Contents
First
Second
Third
Fourth
2002
Quarter
Quarter
Quarter
Quarter
Total
$
200,341
$
217,192
$
216,045
$
256,389
$
889,967
84,634
90,600
89,832
108,402
373,468
115,707
126,592
126,213
147,987
516,499
55,716
65,421
62,759
62,920
246,816
12,280
12,643
13,576
13,424
51,923
915
922
860
903
3,600
2,800
—
—
5,100
7,900
—
—
—
2,445
2,445
—
—
—
7,404
7,404
43,996
47,606
49,018
55,791
196,411
—
116
—
(6,113
)
(5,997
)
(242
)
(429
)
(216
)
(1,593
)
(2,480
)
1,620
1,929
1,877
2,051
7,477
45,374
49,222
50,679
50,136
195,411
10,324
11,321
11,656
9,892
43,193
35,050
37,901
39,023
40,244
152,218
(4,506
)
—
—
—
(4,506
)
$
30,544
$
37,901
$
39,023
$
40,244
$
147,712
$
0.27
$
0.29
$
0.30
$
0.31
$
1.17
(0.03
)
—
—
—
(0.03
)
$
0.23
$
0.29
$
0.30
$
0.31
$
1.13
131,029
131,510
130,788
128,752
130,489
$
0.26
$
0.28
$
0.29
$
0.30
$
1.12
(0.03
)
—
—
—
(0.03
)
$
0.22
$
0.28
$
0.29
$
0.30
$
1.09
137,188
136,778
135,483
133,573
135,762
Table of Contents
Table of Contents
2003
2002*
2001
2000
1999
In thousands, except per share and employees data
$
958,205
$
889,967
$
859,208
$
795,071
$
704,400
$
223,686
$
195,411
$
147,426
$
210,962
$
167,561
$
170,891
$
152,218
$
114,543
$
156,113
$
122,318
—
(4,506
)
(1)
—
(10,771
)
(2)
—
170,891
147,712
114,543
145,342
122,318
—
—
—
—
442
$
170,891
$
147,712
$
114,543
$
145,342
$
121,876
$
1.39
$
1.17
$
0.88
$
1.22
$
0.99
—
(0.03
)
—
(0.08
)
—
$
1.39
$
1.13
$
0.88
$
1.14
$
0.99
123,189
130,489
130,559
127,568
123,013
$
1.34
$
1.12
$
0.83
$
1.14
$
0.92
—
(0.03
)
—
(0.08
)
—
$
1.34
$
1.09
$
0.83
$
1.06
$
0.92
127,579
135,762
137,509
136,743
132,632
$
356,781
$
263,312
$
226,798
$
75,509
$
3,803
$
336,878
$
338,233
$
241,738
$
126,015
$
49,489
$
1,130,861
$
1,015,240
$
886,911
$
692,345
$
586,345
$
225,000
$
—
$
—
$
—
$
91,080
$
590,477
$
665,310
$
581,745
$
451,781
$
292,162
3,894
3,587
3,483
3,158
2,968
*
As a result of the adoption of Statement of
Financial Accounting Standards 142, Goodwill and Other
Intangible Assets, goodwill is no longer amortized commencing
January 1, 2002. Goodwill amortization expense was
approximately $3.6 million, $3.4 million and $3.8 for
the years ended December 31, 2001, 2000, and 1999,
respectively. See Note 2 to the consolidated financial
statements.
(1)
In the second quarter of 2002, the Company
changed its method of accounting for legal costs associated with
litigating patents effective January 1, 2002. As a result,
the Company recorded a cumulative effect of changes in
accounting principles of $4.5 million, net of tax.
(2)
Effective January 1, 2000, the Company
changed its method of revenue recognition for certain products
requiring installation in accordance with SAB 101,
“Revenue Recognition in Financial Statements.” As a
result, the Company recorded a cumulative effect of changes in
accounting principles of $10.8 million, net of tax.
Table of Contents
| Item 9: | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9a: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms
(b) Changes in Internal Controls
No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal year ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART III
Item 10:
Directors
and Executive Officers of the Registrant
a. Information concerning the
Registrant’s directors (including with respect to the audit
committee of the Company’s Board of Directors) is set forth
in the Proxy Statement under the headings “Election of
Directors,” “Directors Meetings and Compensation”
and “Report of the Audit Committee of the Board of
Directors.” Such information is incorporated herein by
reference.
Executive Officers of the Registrant
Officers of the Company are elected annually by
the Board of Directors and hold office at the discretion of the
Board of Directors. The following person s serve as executive
officers of the Company:
Douglas A. Berthiaume, 55, has served as Chairman
of the Board of Directors of the Company since February 1996 and
has served as Chief Executive Officer and a Director of the
Company since August 1994. Mr. Berthiaume also served as
President of the Company from August 1994 to January 2002. In
March 2003, Mr. Berthiaume once again became President of
the Company. From 1990 to 1994, Mr. Berthiaume served as
President of the Waters Chromatography Division of Millipore.
Mr. Berthiaume is the Chairman of the Children’s
Hospital Trust Board, and a Director of the Children’s
Hospital Medical Center, Genzyme Corporation, and University of
Massachusetts Amherst Foundation.
Arthur G. Caputo, 52, became an Executive Vice
President in March 2003 and has served as President of the
Waters Division since January 2002. Previously, he was the
Senior Vice President, Worldwide Sales and Marketing of the
Company since August 1994. He joined the Predecessor in October
1977 and held a number of positions in sales within the
Predecessor and Millipore. Previous roles include Senior Vice
President and General Manager of Millipore’s North American
Business Operations responsible for establishing the Millipore
North American Sales Subsidiary and General Manager of
Waters’ North American field sales, support and marketing
functions.
69
Brian K. Mazar, 46, Senior Vice President, Human
Resources, has directed Human Resources since August 1994. He
joined the Predecessor in 1991 as Director of Human Resources
with responsibility for worldwide human resources functions.
From 1986 to 1991, Mr. Mazar was Director of Human
Resources of GeneTrak Systems. Prior thereto, Mr. Mazar
worked at Exxon Corporation and Corning, Inc.
John R. Nelson, 60, became Executive Vice
President and Chief Technology Officer of the Company in March
2003. Previously, he was Senior Vice President, Research,
Development and Engineering since August 1994. He joined the
Predecessor in August 1976 and has held a variety of positions
in marketing as well as research and development, including Vice
President Waters Research Development and Engineering, Senior
Vice President Worldwide Marketing Operations and Senior Vice
President of Product Development. Mr. Nelson is also
responsible for the Company’s TAI operations.
John Ornell, 46, became Vice President, Finance
and Administration and Chief Financial Officer in June 2001. He
joined Waters in 1990 and most recently was Vice President,
Operations. During his years at Waters, he has also been Vice
President of Manufacturing and Engineering, had responsibility
for Operations Finance and Distribution and had a senior role in
the successful implementation of the Company’s worldwide
business systems.
Mark T. Beaudouin, 49, became Vice President,
General Counsel and Secretary of the Company in April, 2003.
Prior to joining Waters, he served as Senior Vice President,
General Counsel and Secretary of PAREXEL International
Corporation, a bio/pharmaceutical services company from January
2000 to April 2003. Previously, from May 1985 to January 2000,
Mr. Beaudouin served in several senior legal management
positions including Vice President, General Counsel and
Secretary of BC International, Inc., a development stage
biotechnology company, First Senior Vice President, General
Counsel and Secretary of J. Baker, Inc., a diversified
retail company and General Counsel and Secretary of
GenRad, Inc., a high technology test equipment manufacturer.
b. Information required by Item 405 of
Regulation S-K is set forth in the Proxy Statement under
the heading “Section 16(A) Beneficial Ownership
Reporting Compliance.” Such information is incorporated
herein by reference.
c. The Company has adopted a Code of
Business Conduct and Ethics (“the Code”) that applies
to all of the Company’s employees (including its executive
officers) and directors. The Code has been distributed to all
employees of the Company as of December 15, 2003. In
addition, the Code is available on the Company’s website,
www.waters.com, under the caption About Waters > Corporate
Information > Corporate Governance. The Company intends to
satisfy the disclosure requirement regarding any waiver of a
provision of the Code of Business Conduct and Ethics applicable
to any executive officer or director, by posting such
information on such website. The Company shall provide to any
person without charge, upon request, a copy of the Code. Any
such request must be made in writing to the Secretary of the
Company, c/o Waters Corporation, 34 Maple Street,
Milford, MA 01757.
d. The Company’s corporate governance
guidelines and the charters of the audit committee, compensation
committee, and nominating and corporate governance committee of
the Board of Directors are available on the Company’s
website, www.waters.com, under the caption About Waters >
Corporate Information > Corporate Governance. The Company
shall provide to any person without charge, upon request, a copy
of any of the foregoing materials. Any such request must be made
in writing to the Secretary of the Company, c/o Waters
Corporation, 34 Maple Street, Milford, MA 01757.
e. Our Chief Executive Officer has [has
certified that he] is not aware of any violation by the Company
of the New York Stock Exchange corporate governance listing
standards.
Item 11:
Executive
Compensation
Except for the Equity Compensation Plan
information set forth below, the information called for by this
Item is incorporated by reference to the information under the
caption “Security Ownership of Certain Beneficial Owners
and Management” appearing in the Proxy Statement.
70
Equity Compensation Plan Information
The following table provides information as of
December 31, 2003 about our common stock that may be issued
upon the exercise of options, warrants, and rights under our
existing equity compensation plans (in thousands):
Table of Contents
Table of Contents
A
B
C
Number of Securities
Number of Securities
Weighted-average
Remaining Available for
to be Issued Upon
Exercise Price of
Future Issuance under
Exercise of
Outstanding
Equity Compensation
Outstanding Options,
Options, Warrants
Plans (excluding securities
Warrants and Rights
and Rights
reflected in column (A)
14,538
$
24.93
4,056
—
not applicable
451
14,538
$
24.93
4,507
| Item 12: | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners.” Such information is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is set forth in the Proxy Statement under the heading “Certain Relationships and Related Transactions.” Such information is incorporated herein by reference.
Item 14: Principal Accountant Fees and Services
Information concerning certain relationships and related transactions is set forth in the Proxy Statement under the heading “Report of the Audit Committee of the Board of Directors.” Such information is incorporated herein by reference.
71
PART IV
Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
| The consolidated financial statements of the Company and its subsidiaries are filed as part of this Form 10-K and are set forth on pages 30 to 67. The report of PricewaterhouseCoopers LLP, Independent Auditors, dated January 28, 2004, except as to Note 22 which is as of March 12, 2004, is set forth on page 29 of this Form 10-K. |
(2) Financial Statement Schedules:
WATERS CORPORATION AND SUBSIDIARIES
(3) Exhibits:
Balance at
Balance at
Beginning of Period
Additions
Deductions
End of Period
$
5,826
$
847
$
(1,035
)
$
5,638
$
5,077
$
1,454
$
(705
)
$
5,826
$
4,586
$
1,240
$
(749
)
$
5,077
Exhibit
Number
Description of Document
2.1
Agreement for the Sale and Purchase of Micromass
Limited dated as of September 12, 1997, between Micromass
Limited, Schroder UK Buy-Out Fund III Trust I and
Others, Waters Corporation and Waters Technologies Corporation.
Incorporated by reference to the Registrant’s Report on
Form 8-K, filed on October 8, 1997 and amended on
December 5, 1997.
3.1
Second Amended and Restated Certificate of
Incorporation of Waters Corporation. (1)
3.11
Certificate of Amendment of Second Amended and
Restated Certificate of Incorporation of Waters Corporation, as
amended May 12, 1999. (3)
3.12
Certificate of Amendment of Second Amended and
Restated Certificate of Incorporation of Waters Corporation, as
amended July 27, 2000. (6)
3.13
Certificate of Amendment of Second Amended and
Restated Certificate of Incorporation of Waters Corporation, as
amended May 25, 2001. (8)
3.2
Amended and Restated Bylaws of Waters
Corporation, as amended to date. (1)
10.1
Credit Agreement, dated as of February 12,
2002 among Waters Corporation, Bankers Trust Company and other
Lenders party thereto. (9)
10.2
Credit Agreement Amendment, dated as of
July 25, 2003 among Waters Corporation, Deutsche Bank Trust
Company Americas (formerly known as Bankers Trust Company) and
other Lenders party thereto. (13)
10.3
Waters Corporation Second Amended and Restated
1996 Long-Term Performance Incentive Plan. (5)
10.31
First Amendment to the Waters Corporation Second
Amended and Restated 1996 Long-Term Performance Incentive
Plan. (10)
10.4
Waters Corporation 1996 Employee Stock Purchase
Plan. Incorporated by reference to Exhibit B of the 1996
Proxy Statement.
72
Exhibit
Number
Description of Document
10.41
December 1999 Amendment to the Waters Corporation
1996 Employee Stock Purchase Plan. (4)
10.42
March 2000 Amendment to the Waters Corporation
1996 Employee Stock Purchase Plan. (4)
10.43
June 1999 Amendment to the Waters Corporation
1996 Employee Stock Purchase Plan. (7)
10.44
July 2000 Amendment to the Waters Corporation
1996 Employee Stock Purchase Plan. (7)
10.5
Waters Corporation 1996 Non-Employee Director
Deferred Compensation Plan. Incorporated by reference to
Exhibit C of the 1996 Proxy Statement.
10.51
First Amendment to the Waters Corporation 1996
Non-Employee Director Deferred Compensation Plan. (5)
10.6
Waters Corporation Amended and Restated 1996
Non-Employee Director Stock Option Plan. (5)
10.7
Agreement and Plan of Merger among Waters
Corporation, TAI Merger Sub, Inc. and
TA Instruments, Inc. dated as of March 28, 1996.
Incorporated by reference to the Registrant’s Report on
Form 8-K dated March 29, 1996.
10.8
Offer to Purchase and Consent Solicitation
Statement, dated March 7, 1996, of Waters Technologies
Corporation. Incorporated by reference to the Registrant’s
Report on Form 8-K dated March 11, 1996.
10.9
WCD Investors, Inc. Amended and Restated
1994 Stock Option Plan (including Form of Amended and Restated
Stock Option Agreement). (2)
10.91
Amendment to the WCD Investors, Inc. Amended
and Restated 1994 Stock Option Plan. (5)
10.10
Waters Corporation Retirement Plan. (2)
10.11
Registration Rights Agreement made as of
August 18, 1994, by and among WCD Investors, Inc., AEA
Investors, Inc., certain investment funds controlled by
Bain Capital, Inc. and other stockholders of Waters
Corporation. (2)
10.12
Form of Indemnification Agreement, dated as of
August 18, 1994, between WCD Investors, Inc. and its
directors and executive officers. (2)
10.13
Form of Management Subscription Agreement, dated
as of August 18, 1994, between
WCD Investors, Inc. and certain members of
management.(2)
10.14
1999 Management Incentive Plan. (3)
10.15
Rights Agreement, dated as of August 9, 2002
between Waters Corporation and EquiServe Trust Company, N.A. as
Rights Agent. (11)
10.16
Change of Control/ Severance Agreement, dated as
of April 1, 2003 between Waters Corporation and Mark T.
Beaudouin. (12)
10.17
First Amendment to the Waters Corporation 2003
Equity Incentive Plan
10.18
Amended and Restated Credit Agreement, dated as
of December 17, 2003 among Waters Corporation, Deutsche
Bank Trust Company Americas (formerly known as Bankers Trust
Company) and other Lenders party thereto.
21.1
Subsidiaries of Waters Corporation.
23.1
Consent of PricewaterhouseCoopers LLP
31.1
Chief Executive Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Chief Financial Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Chief Executive Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Chief Financial Officer Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
| (1) | Incorporated by reference to the Registrant’s Report on Form 10-K dated March 29, 1996. |
| (2) | Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-3810). |
73
| (3) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated August 11, 1999. |
| (4) | Incorporated by reference to the Registrant’s Report on Form 10-K dated March 30, 2000. |
| (5) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated May 8, 2000. |
| (6) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated August 8, 2000. |
| (7) | Incorporated by reference to the Registrant’s Report on Form 10-K dated March 27, 2001. |
| (8) | Incorporated by reference to the Registrant’s Report on Form 10-K dated March 28, 2002. |
| (9) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated April 26, 2002. |
| (10) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated August 12, 2002. |
| (11) | Incorporated by reference to the Registrant’s Report on Form 8-A dated August 27, 2002. |
| (12) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated May 15, 2003. |
| (13) | Incorporated by reference to the Registrant’s Report on Form 10-Q dated August 14, 2003. |
(b) Reports on Form 8-K.
In a Form 8-K furnished to the SEC on October 22, 2003, the Registrant reported under Item 9 “Regulation FD Disclosure” and Item 12 “Disclosure Results of Operations and Financial Condition” a press release in which it announced its financial results for the quarterly period ended September 30, 2003, supplementary disclosure of free cash flow and excerpts from its financial results conference call held on October 22, 2003.
(c) See Item 15 (a) (3) above.
(d) Not Applicable.
74
SIGNATURES AND CERTIFICATIONS
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.
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the
capacities indicated on March 12, 2004.
WATERS CORPORATION
/s/ JOHN ORNELL
John Ornell
Vice President, Finance
and Administration and Chief Financial
Officer
/s/ DOUGLAS A. BERTHIAUME
Douglas A. Berthiaume
Chairman of the Board of Directors, President
and
Chief Executive Officer (principal executive officer)
/s/ JOHN ORNELL
John Ornell
Vice President, Finance and
Administration and Chief Financial Officer
(principal financial officer and principal
accounting officer)
/s/ JOSHUA BEKENSTEIN
Joshua Bekenstein
Director
/s/ DR. MICHAEL J. BERENDT
Dr. Michael J. Berendt
Director
/s/ PHILIP CALDWELL
Philip Caldwell
Director
/s/ EDWARD CONARD
Edward Conard
Director
/s/ DR. LAURIE H. GLIMCHER
Dr. Laurie H. Glimcher
Director
/s/ WILLIAM J. MILLER
William J. Miller
Director
/s/ THOMAS P. SALICE
Thomas P. Salice
Director
75
Exhibit 10.17
FIRST AMENDMENT
TO THE
WATERS CORPORATION 2003 EQUITY INCENTIVE PLAN
WHEREAS, Waters Corporation (the "Company") has established and maintains an equity incentive plan for the benefit of certain employees, consultants and directors of the Company entitled the Waters Corporation 2003 Equity Incentive Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan;
NOW THEREFORE, in accordance with the power of amendment contained in
Section 13 of the Plan, the Plan is hereby amended, effective as of December 11,
2003, as follows:
1. Section 7.1(g) of the Plan is hereby amended to read in its entirety as follows:
"(g) Method of Exercise. An Option may be exercised by the Optionee giving written notice, in the manner provided in Section 14, specifying the number of shares with respect to which the Option is then being exercised. The notice shall be accompanied by payment in the form of cash or check payable to the order of the Company in an amount equal to the exercise price of the shares to be purchased or, to the extent not prohibited by applicable law and if the Committee had so authorized on the grant of an Incentive Option or on or after grant of a Nonstatutory Option (and subject to such conditions), if any, as the Committee may deem necessary to avoid adverse accounting effects to the Company) by delivery to the Company of shares of Common Stock having a Market Value equal to the exercise price of the shares to be purchased. To the extent permitted by applicable law, payment of any exercise price may also be made through and under the terms and conditions of any formal cashless exercise program authorized by the Company entailing the sale of the Stock subject to an Option in a brokered transaction (other than to the Company). Receipt by the Company of such notice and payment in any authorized or combination of authorized means shall constitute the exercise of the Option. Within thirty (30) days thereafter but subject to the remaining provisions of the Plan, the Company shall deliver or cause to be delivered to the Optionee or his agent a certificate or certificates for the number of shares then being purchased. Such shares shall be fully paid and nonassessable."
2. Section 7.2(d) of the Plan is hereby amended to read in its entirety as follows:
"(d) Restrictions and Restriction Period. During the Restriction Period applicable to shares of Restricted Stock, such shares shall be subject to limitations on transferability and a Risk of Forfeiture arising on the basis of such conditions related to the performance of services, Company or Affiliate performance or otherwise as the Committee may determine and provide for in the applicable Award Agreement. No Award of Restricted Stock shall have a Restriction Period of less than 3 years except: (i) as may be recommended by the Committee and approved by the Board or (ii) with respect to any Award of Restricted Stock which provides solely for a performance-based Risk of Forfeiture, so long as such Award has a Restriction Period of at least 1 year. Notwithstanding the foregoing, the Committee may recommend, subject to
Board approval, the issuance of a Restricted Stock Award having a Restriction Period of less than 1 year (in the case of an Award of Restricted Stock which provides solely for a performance-based Risk of Forfeiture) or 3 years (with respect to all other Awards of Restricted Stock), up to a maximum of 5% of the shares reserved for issuance pursuant to the Plan. Any Risk of Forfeiture applicable to an Award of Restricted Stock may be waived or terminated, or the Restriction Period shortened, by the Committee in connection with such extraordinary circumstances as it deems appropriate."
IN WITNESS WHEREOF, the Company has caused this amendment to be signed on its behalf by its duly authorized representative this 11th day of December, 2003.
WATERS CORPORATION
/s/ Brian K. Mazar ----------------------------------- By: Brian K. Mazar Its: Senior Vice President, Human Resources |
EXHIBIT 10.18
CREDIT AGREEMENT
among
WATERS CORPORATION,
VARIOUS LENDERS,
DEUTSCHE BANK TRUST COMPANY AMERICAS
(f/k/a Bankers Trust Company),
as ADMINISTRATIVE AGENT,
JPMORGAN CHASE BANK,
as a RCF CO-SYNDICATION AGENT,
a TLF CO-LEAD ARRANGER and a RCF CO-ARRANGER
FLEET NATIONAL BANK,
as a TLF CO-SYNDICATION AGENT, a RCF CO-SYNDICATION AGENT,
a TLF CO-ARRANGER and a RCF CO-ARRANGER,
ABN AMRO BANK N.V.,
as a TLF CO-SYNDICATION AGENT, a RCF CO-SYNDICATION AGENT,
a TLF CO-ARRANGER and a RCF CO-ARRANGER,
THE BANK OF NEW YORK,
as a RCF CO-SYNDICATION AGENT and a RCF CO-ARRANGER,
CITIZENS BANK OF MASSACHUSETTS,
as a TLF CO-SYNDICATION AGENT,
a TLF CO-ARRANGER and a RCF CO-ARRANGER
AND
BARCLAYS BANK PLC,
as RCF SENIOR MANAGING AGENT and a TLF CO-ARRANGER
Dated as of February 12, 2002 and amended and restated as of December 17, 2003
DEUTSCHE BANK SECURITIES INC.
(f/k/a Deutsche Banc Alex. Brown, Inc.),
as LEAD ARRANGER and BOOK RUNNER
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit.................................................................. 1
1.01. The Commitments............................................................................ 1
1.02. Minimum Amount of Each Borrowing........................................................... 3
1.03. Notice of Borrowing........................................................................ 4
1.04. Disbursement of Funds...................................................................... 4
1.05. Notes...................................................................................... 5
1.06. Conversions................................................................................ 7
1.07. Pro Rata Borrowings........................................................................ 7
1.08. Interest................................................................................... 7
1.09. Interest Periods........................................................................... 8
1.10. Increased Costs, Illegality, etc........................................................... 9
1.11. Compensation............................................................................... 11
1.12. Change of Lending Office................................................................... 12
1.13. Replacement of Lenders..................................................................... 12
SECTION 2. Letters of Credit........................................................................... 13
2.01. Letters of Credit.......................................................................... 13
2.02. Minimum Stated Amount...................................................................... 14
2.03. Letter of Credit Requests.................................................................. 14
2.04. Letter of Credit Participations............................................................ 15
2.05. Agreement to Repay Letter of Credit Drawings............................................... 17
2.06. Increased Costs............................................................................ 18
SECTION 3. Commitment Commission; Fees; Reductions of Commitment....................................... 18
3.01. Fees....................................................................................... 18
3.02. Optional Commitment Reductions............................................................. 19
3.03. Mandatory Reduction of Commitments......................................................... 20
SECTION 4. Prepayments; Payments; Taxes................................................................ 20
4.01. Voluntary Prepayments...................................................................... 20
4.02. Mandatory Repayments and Cash Collateralizations........................................... 21
4.03. Method and Place of Payment................................................................ 23
4.04. Net Payments............................................................................... 23
SECTION 5. Conditions Precedent to the Restatement Effective Date...................................... 25
5.01. Execution of Agreement; Notes.............................................................. 25
5.02. Officer's Certificate...................................................................... 25
5.03. Opinions of Counsel........................................................................ 25
5.04. Corporate Documents; Proceedings; etc...................................................... 25
5.05. Existing Credit Agreement.................................................................. 26
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5.06. Guaranties................................................................................. 26
5.07. Adverse Change; Governmental Approvals; etc................................................ 26
5.08. Litigation................................................................................. 27
5.09. Financial Statements....................................................................... 27
5.10. Fees, etc.................................................................................. 27
SECTION 6. Conditions Precedent to All Credit Events................................................... 27
6.01. Restatement Effective Date................................................................. 27
6.02. No Default; Representations and Warranties................................................. 27
6.03. Notice of Borrowing; Letter of Credit Request.............................................. 27
SECTION 7. Representations, Warranties and Agreements.................................................. 28
7.01. Corporate Status........................................................................... 28
7.02. Corporate Power and Authority.............................................................. 28
7.03. No Violation............................................................................... 28
7.04. Governmental Approvals..................................................................... 29
7.05. Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc....... 29
7.06. Litigation................................................................................. 29
7.07. True and Complete Disclosure............................................................... 29
7.08. Use of Proceeds; Margin Regulations........................................................ 30
7.09. Tax Returns and Payments................................................................... 30
7.10. Compliance with ERISA...................................................................... 30
7.11. Properties................................................................................. 31
7.12. Subsidiaries............................................................................... 31
7.13. Compliance with Statutes, etc.............................................................. 31
7.14. Investment Company Act..................................................................... 31
7.15. Public Utility Holding Company Act......................................................... 31
7.16. Environmental Matters...................................................................... 31
7.17. Labor Relations............................................................................ 32
7.18. Patents, Licenses, Franchises and Formulas................................................. 32
SECTION 8. Affirmative Covenants....................................................................... 32
8.01. Information Covenants...................................................................... 32
8.02. Books, Records and Inspections............................................................. 34
8.03. Maintenance of Insurance................................................................... 34
8.04. Corporate Franchises....................................................................... 34
8.05. Compliance with Statutes, etc.............................................................. 34
8.06. ERISA...................................................................................... 34
8.07. End of Fiscal Years; Fiscal Quarters....................................................... 35
8.08. Payment of Taxes........................................................................... 36
8.09. Additional Subsidiary Guarantors........................................................... 36
SECTION 9. Negative Covenants.......................................................................... 36
9.01. Liens...................................................................................... 36
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9.02. Fundamental Changes........................................................................ 39
9.03. Asset Dispositions, Liquidation and Dissolution............................................ 39
9.04. Indebtedness............................................................................... 39
9.05. Advances, Investments and Loans............................................................ 41
9.06. Transactions with Affiliates............................................................... 43
9.07. Consolidated Leverage Ratio................................................................ 44
9.08. Minimum Interest Coverage Ratio............................................................ 44
9.09. Material Subsidiaries...................................................................... 44
9.10. Business................................................................................... 44
9.11. Limitation on Certain Restrictions on Subsidiaries......................................... 44
9.12. Limitation on Issuance of Capital Stock.................................................... 45
9.13. Special Provisions Relating to Waters Finance III.......................................... 45
SECTION 10. Events of Default.......................................................................... 45
10.01. Payments.................................................................................. 45
10.02. Representations, etc...................................................................... 45
10.03. Covenants................................................................................. 45
10.04. Default Under Other Agreements............................................................ 46
10.05. Bankruptcy, etc........................................................................... 46
10.06. ERISA..................................................................................... 46
10.07. Subsidiaries Guaranty..................................................................... 47
10.08. Judgments................................................................................. 47
10.09. Change of Control......................................................................... 47
SECTION 11. Definitions and Accounting Terms........................................................... 48
11.01. Defined Terms............................................................................. 48
SECTION 12. The Agents................................................................................. 66
12.01. Appointment............................................................................... 66
12.02. Nature of Duties.......................................................................... 67
12.03. Lack of Reliance on the Agents............................................................ 67
12.04. Certain Rights of the Agents.............................................................. 67
12.05. Reliance.................................................................................. 68
12.06. Indemnification........................................................................... 68
12.07. The Agents in Their Individual Capacity................................................... 68
12.08. Holders................................................................................... 68
12.09. Resignation............................................................................... 69
12.10. RCF Co-Syndication Agents; TLF Co-Syndication Agents; RCF Co-Arrangers; TLF Co-Arrangers;
TLF Co-Lead Arranger; RCF Senior Managing Agent; and Lead Arranger........................ 70
SECTION 13. Miscellaneous.............................................................................. 70
13.01. Payment of Expenses, etc.................................................................. 70
13.02. Right of Setoff........................................................................... 71
13.03. Notices................................................................................... 71
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13.04. Benefit of Agreement...................................................................... 71 13.05. No Waiver; Remedies Cumulative............................................................ 73 13.06. Payments Pro Rata......................................................................... 74 13.07. Calculations; Computations................................................................ 74 13.08. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.................... 75 13.09. Counterparts.............................................................................. 76 13.10. Effectiveness............................................................................. 76 13.11. Headings Descriptive...................................................................... 76 13.12. Amendment or Waiver; etc.................................................................. 77 13.13. Survival.................................................................................. 78 13.14. Domicile of Loans......................................................................... 78 13.15. Confidentiality........................................................................... 78 13.16. Register.................................................................................. 80 13.17. Judgment Currency......................................................................... 80 |
CREDIT AGREEMENT, dated as of February 12, 2002 and amended and restated as of December 17, 2003, among WATERS CORPORATION, a Delaware corporation (the "Borrower"), the Lenders party hereto from time to time, and DEUTSCHE BANK TRUST COMPANY AMERICAS (f/k/a Bankers Trust Company), as Administrative Agent (in such capacity, the "Administrative Agent") (all capitalized terms used herein and defined in Section 11 are used herein as therein defined).
W I T N E S S E T H:
WHEREAS, the Borrower, the Existing Lenders and DBTCA, as Administrative Agent, are parties to a Credit Agreement, dated as of February 12, 2002 (as the same has been amended, modified or supplemented to, but not including, the Restatement Effective Date, the "Existing Credit Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing Credit Agreement in its entirety in the form of this Agreement subject to and on the terms and conditions set forth herein and the Lenders are willing to make available to the Borrower the respective credit facilities provided herein;
NOW, THEREFORE, the Borrower, the Lenders and the Administrative Agent agree that, on the Restatement Effective Date, the Existing Credit Agreement shall be and is hereby amended and restated in its entirety as follows:
SECTION 1. Amount and Terms of Credit.
1.01. The Commitments. (a) (I) On the Restatement Effective
Date, the Existing Revolving Loans made by each Existing Lender to the Borrower
pursuant to the Existing Credit Agreement and outstanding on the Restatement
Effective Date (immediately prior to giving effect thereto) shall be continued,
and shall remain outstanding, as Borrowings of Revolving Loans hereunder, and
(II) subject to and upon the terms and conditions set forth herein, each Lender
with a Revolving Commitment severally agrees to make, at any time and from time
to time on and after the Restatement Effective Date and prior to the Maturity
Date, one or more additional revolving loans (together with the Existing
Revolving Loans continued pursuant to preceding clause (I), the "Revolving
Loans" and each a "Revolving Loan") to the Borrower, which Revolving Loans (i)
shall be denominated in Dollars, (ii) shall, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that except as otherwise specifically provided in Section
1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be
of the same Type, (iii) may be repaid and reborrowed in accordance with the
provisions hereof, (iv) shall not exceed for any Lender at any time outstanding
that aggregate principal amount which, when added to the product of (x) such
Lender's RF Percentage and (y) the sum of (1) the aggregate amount of all Letter
of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (2) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Revolving Commitment
of such Lender at such time and (v) shall not exceed for all Lenders at any time
outstanding that aggregate principal amount which, when added to (x) the
aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid
Drawings which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such time and
(y) the aggregate principal amount of all Swingline Loans (exclusive of
Swingline Loans which are repaid with the proceeds of, and simultaneously with
the incurrence of, the respective incurrence of Revolving Loans) then
outstanding, equals the Total Revolving Commitment at such time.
(b) (I) On the Restatement Effective Date, the Existing Swingline Loans made by the Swingline Lender to the Borrower pursuant to the Existing Credit Agreement and outstanding on the Restatement Effective Date (immediately prior to giving effect thereto) shall be continued, and remain outstanding, as Borrowings of Swingline Loans hereunder, and (II) subject to and upon the terms and conditions set forth herein, the Swingline Lender agrees to make, at any time and from time to time on and after the Restatement Effective Date and prior to the Swingline Expiry Date, one or more additional revolving loans (together with the Existing Swingline Loans continued pursuant to preceding clause (I), the "Swingline Loans" and each a "Swingline Loan") to the Borrower, which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans then outstanding and the Letter of Credit Outstandings at such time, an amount equal to the Total Revolving Commitment at such time and (iv) shall not exceed at any time outstanding the Maximum Swingline Amount. Notwithstanding anything to the contrary contained in this Section 1.01(b), (i) the Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrower to eliminate the Swingline Lender's risk with respect to the Defaulting Lender's or Lenders' participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender's or Lenders' RF Percentage of the outstanding Swingline Loans and (ii) the Swingline Lender shall not make any Swingline Loan after it has received written notice from the Borrower or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice (A) of rescission of all such notices from the party or parties originally delivering such notice or notices or (B) of the waiver of such Default or Event of Default by the Required Lenders.
(c) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the RF Lenders that its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 10.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 10), in which case a Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by the RF Lenders (without giving effect to any reductions thereto pursuant to the last paragraph of Section 10) pro rata based on each RF Lender's RF Percentage (determined before giving effect to any termination of the Total Revolving Commitment pursuant to the last paragraph of Section 10) and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline Lender for such outstanding Swingline Loans. Each RF Lender
hereby irrevocably agrees to make Revolving Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding that (i) the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 6 are then satisfied, (iii) whether a Default or an Event of Default has occurred or then exists, (iv) the date of such Mandatory Borrowing and (v) the amount of the Total Revolving Commitment at such time. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each RF Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such participations in the outstanding Swingline Loans as shall be necessary to cause the RF Lenders to share in such Swingline Loans ratably based upon their respective RF Percentages (determined before giving effect to any termination of the Total Revolving Commitment pursuant to the last paragraph of Section 10), provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is required to be purchased and, to the extent attributable to the purchased participation, shall be payable to the participant from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing RF Lender shall be required to pay the Swingline Lender interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the overnight Federal Funds Rate for the first three days and at the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter.
(d) Subject to and upon the terms and conditions set
forth herein, each Lender with a Term Loan Commitment severally agrees to make,
on the Restatement Effective Date, a term loan or term loans (each, a "Term
Loan" and, collectively, the "Term Loans") to the Borrower, which Term Loans,
(i) shall be denominated in Dollars, (ii) shall, at the option of the Borrower,
be incurred and maintained as, and/or converted into, Base Rate Loans or
Eurodollar Loans, provided that except as otherwise specifically provided in
Section 1.10(b), all Term Loans made as part of the same Borrowing shall at all
times consist of Term Loans of the same Type, (iii) shall not exceed for any
Lender, in initial principal amount, that amount which equals the Term Loan
Commitment of such Lender as in effect on the Restatement Effective Date (before
giving effect to any reduction thereto on such date pursuant to Section 3.03(c))
and (iv) shall be made pursuant to a single drawing on the Restatement Effective
Date. Once repaid, Term Loans may not be reborrowed.
1.02. Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of Loans shall be not less than the respective Minimum Borrowing Amount applicable thereto; provided that Mandatory Borrowings shall be made in the amounts required by Section 1.01(c). More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than eight Borrowings of Eurodollar Loans.
1.03. Notice of Borrowing. (a) Whenever the Borrower desires to incur Loans hereunder (excluding Borrowings of Swingline Loans and Revolving Loans incurred pursuant to Mandatory Borrowings), an Authorized Representative of the Borrower shall give the Administrative Agent at the Notice Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Base Rate Loan and at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Eurodollar Loan to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and shall be given by an Authorized Representative of the Borrower in the form of Exhibit A-1, appropriately completed to specify (i) the Facility under which such Borrowing is being made, (ii) the aggregate principal amount of the Loans to be made pursuant to such Borrowing, (iii) the date of such Borrowing (which shall be a Business Day), and (iv) whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Lender which is required to make Loans under the Facility specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Lender's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to make a Borrowing of Swingline Loans hereunder, an Authorized Representative of the Borrower shall give the Swingline Lender not later than 12:00 Noon (New York time) on the date that a Swingline Loan is to be made written notice (or telephonic notice promptly confirmed in writing) of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and shall specify in each case (A) the date of Borrowing and (B) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(c), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 1.01(c).
(c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of any Borrowing, conversion or prepayment of Loans, the Administrative Agent or the Swingline Lender, as the case may be, may act without liability upon the basis of telephonic notice of such Borrowing, conversion or prepayment, believed by the Administrative Agent or the Swingline Lender, as the case may be, in good faith to be from an Authorized Representative of the Borrower prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice of such Borrowing, conversion or prepayment.
1.04. Disbursement of Funds. Except as otherwise specifically provided in the immediately succeeding sentence, no later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, not later than 2:00 P.M. (New York time) on the date specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than 12:00 Noon (New York time) on the date specified in
Section 1.01(c)), each Lender with a Commitment under the respective Facility will make available its pro rata portion of each Borrowing to be made on such date (or in the case of Swingline Loans, the Swingline Lender shall make available the full amount thereof). All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office, and the Administrative Agent will, except in the case of Revolving Loans made pursuant to a Mandatory Borrowing, make available to the Borrower at the Payment Office the aggregate of the amounts so made available by the Lenders. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent such Lender's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower to immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Lender, the overnight Federal Funds Rate for the first three days and at the interest rate otherwise applicable to such Loans for each day thereafter and (ii) if recovered from the Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Lender from its obligation to make Loans hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any failure by such Lender to make Loans hereunder.
1.05. Notes. (a) Subject to the provisions of Section 1.05(f), the Borrower's obligation to pay the principal of, and interest on, the Loans made by each Lender shall be evidenced in the Register maintained by the Administrative Agent pursuant to Section 13.16 and shall, if requested by such Lender, also be evidenced (i) if Revolving Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-1, with blanks appropriately completed in conformity herewith (each a "Revolving Note" and, collectively, the "Revolving Notes"), (ii) if Swingline Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-2, with blanks appropriately completed in conformity herewith (the "Swingline Note") and (iii) if Term Loans, by a promissory note duly executed and delivered by the Borrower substantially in the form of Exhibit B-3, with blanks appropriately completed in conformity herewith (each a "Term Note" and, collectively, the "Term Notes").
(b) The Revolving Note issued to each RF Lender requesting same shall (i) be executed by the Borrower, (ii) be payable to such RF Lender or its registered assigns and be dated the Restatement Effective Date (or if issued thereafter, the date of issuance), (iii) be in a stated principal amount equal to the Revolving Commitment of such RF Lender (or, if issued after the termination thereof, be in a stated principal amount equal to the outstanding Revolving
Loans of such RF Lender at such time) and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(c) The Swingline Note issued to the Swingline Lender (if requested) shall (i) be executed by the Borrower, (ii) be payable to the Swingline Lender or its registered assigns and be dated the Restatement Effective Date, (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of the outstanding Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.
(d) The Term Note issued to each Lender that has
requested same and that has a Term Loan Commitment or outstanding Term Loans
shall (i) be executed by the Borrower, (ii) be payable to such Lender or its
registered assigns and be dated the Restatement Effective Date (or if issued
thereafter, the date of issuance), (iii) be in a stated principal amount equal
to the principal amount of Term Loans made by such Lender (or, if issued after
the Restatement Effective Date, be in a stated principal amount equal to the
outstanding Term Loans of such Lender at such time) and be payable in the
principal amount of the outstanding Term Loans evidenced thereby, (iv) mature on
the Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided
in Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(e) Each Lender 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 any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation or endorsement shall not affect the Borrower's obligations in respect of such Loans.
(f) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, Notes shall only be delivered to Lenders which at any time (or from time to time) specifically request the delivery of such Notes. No failure of any Lender to request or obtain a Note evidencing its Loans to the Borrower shall affect or in any manner impair the obligations of the Borrower to pay the Loans (and all related Obligations) which would otherwise be evidenced thereby in accordance with the requirements of this Agreement, and shall not in any way affect the guaranties therefor provided pursuant to the various Credit Documents. Any Lender which does not have a Note evidencing its outstanding Loans shall in no event be required to make the notations otherwise described in preceding clause (e) of this Section 1.05. At any time when any Lender requests the delivery of a Note to evidence any of its Loans, the
Borrower shall promptly execute and deliver to the respective Lender the requested Note or Notes in the appropriate amount or amounts to evidence such Loans.
1.06. Conversions. The Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least the applicable
Minimum Borrowing Amount of the outstanding principal amount of the Loans (other
than Swingline Loans which at all times shall be maintained as Base Rate Loans)
owing pursuant to a single Facility into a Borrowing or Borrowings (under the
same Facility) of another Type of Loan, provided that (i) except as otherwise
provided in Section 1.10(b), Eurodollar Loans may be converted into Base Rate
Loans only on the last day of an Interest Period applicable thereto and no
partial conversion of Eurodollar Loans shall reduce the outstanding principal
amount of such Eurodollar Loans made pursuant to a single Borrowing to less than
the Minimum Borrowing Amount applicable thereto, (ii) unless the Required
Lenders otherwise agree, Base Rate Loans may only be converted into Eurodollar
Loans if no Default or Event of Default is in existence on the date of the
conversion, (iii) no conversion pursuant to this Section 1.06 shall result in a
greater number of Borrowings of Eurodollar Loans than is permitted under Section
1.02 and (iv) Swingline Loans may not be converted pursuant to this Section
1.06. Each such conversion shall be effected by the Borrower by giving the
Administrative Agent at the Notice Office prior to 12:00 Noon (New York time) at
least three Business Days' prior notice (each a "Notice of
Conversion/Continuation") in the form of Exhibit A-2, appropriately completed to
specify the Loans to be so converted, the Borrowing or Borrowings pursuant to
which such Loans were made and, if to be converted into Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Lender prompt notice of any such proposed conversion affecting
any of its Loans.
1.07. Pro Rata Borrowings. All Borrowings of Term Loans and Revolving Loans under this Agreement shall be incurred from the Lenders pro rata on the basis of their Term Loan Commitments or Revolving Commitments, as the case may be, provided that each Mandatory Borrowing shall be incurred from the RF Lenders pro rata on the basis of their RF Percentages. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.
1.08. Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan or (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Borrower until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurodollar Loan or (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Eurodollar Rate for such Interest Period.
(c) Overdue principal and interest in respect of each
Loan shall, in each case, bear interest at a rate per annum equal to the greater
of (x) the rate which is 2% in excess of the rate then borne by such Loans and
(y) the rate which is 2% in excess of the rate otherwise applicable to Base Rate
Loans from time to time, and all other overdue amounts payable hereunder and
under any other Credit Document shall bear interest at a rate per annum equal to
the rate which is 2% in excess of the rate applicable to Base Rate Loans from
time to time. Interest which accrues under this Section 1.08(c) shall be payable
by the Borrower on demand.
(d) Accrued (and theretofore unpaid) interest shall be
payable (i) in respect of each Base Rate Loan (x) quarterly in arrears on each
Quarterly Payment Date, (y) in the case of a repayment in full of all
outstanding Base Rate Loans, on the date of such repayment or prepayment, and
(z) at maturity (whether by acceleration or otherwise) and, after such maturity,
on demand, and (ii) in respect of each Eurodollar Loan (x) 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 (y) on any repayment or prepayment (on
the amount repaid or prepaid), at maturity (whether by acceleration or
otherwise) and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative Agent shall determine the Eurodollar Rate for the respective Interest Period or Interest Periods and shall promptly notify the Borrower and the Lenders thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto.
1.09. Interest Periods. At the time the Borrower gives any Notice of Borrowing or Notice of Conversion/Continuation in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Borrower shall have the right to elect, by having an Authorized Representative of the Borrower give the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower, be a one, two, three or six-month period, provided that:
(i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan 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;
(iv) 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, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;
(v) unless the Required Lenders otherwise agree, no Interest Period may be selected at any time when a Default or an Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing of Eurodollar Loans shall be selected which extends beyond the Maturity Date; and
(vii) no Interest Period in respect of any Borrowing of Term Loans shall be selected which extends beyond any date upon which a Term Loan Scheduled Repayment will be required to be made under Section 4.02(b), if the aggregate principal amount of Term Loans which have Interest Periods which will expire after such date will be in excess of the aggregate principal amount of such Term Loans then outstanding less the aggregate amount of such Term Loan Scheduled Repayment.
If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period.
1.10. Increased Costs, Illegality, etc. (a) In the event that any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any changes arising after the Original Effective Date 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 such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the Original Effective Date in any applicable law or governmental rule, regulation, order, guideline or request (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, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Lender of the principal of or interest on the Loans or the Notes or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending
office is located or any subdivision thereof or therein), or (B) 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 since the Original Effective Date affecting such Lender or the interbank Eurodollar market or the position of such Lender in such market; or
(iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Original Effective Date which materially and adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the
Administrative Agent, in the case of clause (i) above) shall promptly give
notice (by telephone confirmed in writing) to the Borrower and, except in the
case of clause (i) above, to the Administrative Agent of such determination
(which notice the Administrative Agent shall promptly transmit to each of the
other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans
shall no longer be available until such time as the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such
notice by the Administrative Agent no longer exist, and any Notice of Borrowing
or Notice of Conversion/Continuation given by the Borrower with respect to
Eurodollar Loans which have not yet been incurred (including by way of
conversion) shall be deemed rescinded by the Borrower, (y) in the case of clause
(ii) above, the Borrower agrees to pay to such Lender, upon written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as shall be required to compensate such Lender
for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to such Lender,
showing the basis for the calculation thereof, submitted to the Borrower by such
Lender in good faith shall, absent manifest error, be final and conclusive and
binding on all the parties hereto) and (z) in the case of clause (iii) above,
the Borrower shall take one of the actions specified in Section 1.10(b) as
promptly as possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by
the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may
(and in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Lender
or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if
the affected Eurodollar Loan is then outstanding, upon at least three Business
Days' written notice to the Administrative Agent, require the affected Lender to
convert such Eurodollar Loan into a Base Rate Loan, provided that if more than
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 1.10(b).
(c) If at any time after the Original Effective Date any Lender determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by the NAIC, any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender based on the existence of such Lender's Commitments hereunder or its obligations hereunder, then the Borrower agrees to pay to such Lender, upon its written demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give written notice thereof to the Borrower, which notice shall show the basis for calculation of such additional amounts.
(d) Notwithstanding anything to the contrary contained in the last sentence of clause (a) of this Section 1.10, unless a Lender gives notice to the Borrower pursuant to such sentence that the Borrower is obligated to pay additional amounts to compensate such Lender for any increased costs or reductions in amounts received or receivable hereunder (as described in sub-clause (a)(ii) of this Section 1.10) within 180 days after the later of (x) the date such Lender incurs the respective increased costs or reduction in the amounts received or receivable hereunder and (y) the date such Lender has actual knowledge of its incurrence of the respective increased costs or reduction in the amounts received or receivable hereunder, such Lender shall only be entitled to be compensated for any such amount by the Borrower pursuant to such sentence to the extent that any such amounts are incurred or suffered on or after the date which occurs 180 days prior to such Lender giving notice to the Borrower that it is obligated to pay the respective amounts pursuant to such sentence; provided, however, that if the circumstances giving rise to such claims have a retroactive effect, such 180-day period shall be extended to include the period of such retroactive effect. This Section 1.10(d) shall have no applicability to any other Section of this Agreement.
1.11. Compensation. The Borrower agrees to compensate each
Lender, 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 such Lender to fund its Eurodollar Loans but excluding any loss of
anticipated profit) which such Lender may sustain: (i) if for any reason (other
than a default by such Lender or the Administrative Agent) a Borrowing of, or
conversion from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether
or not withdrawn by the Borrower or deemed withdrawn pursuant to Section
1.10(a)); (ii) if any repayment (including any repayment made pursuant to
Section 4.02 or as a result of an acceleration of the Loans pursuant to Section
10) or conversion of any of its Eurodollar Loans occurs on a date which is not
the last day of an Interest Period
with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans 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 any Note held by such Lender or (y) any election made pursuant to Section 1.10(b).
1.12. Change of Lending Office. Each Lender agrees that upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or Section 4.04 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender provided in Sections 1.10, 2.06 and 4.04.
1.13. Replacement of Lenders. (x) If any Lender becomes a
Defaulting Lender or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings, (y) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or
Section 4.04 with respect to any Lender which results in such Lender charging to
the Borrower increased costs in excess of those being generally charged by the
other Lenders or (z) as provided in Section 13.12(b) in the case of certain
refusals by a Lender to consent to certain proposed changes, waivers, discharges
or terminations with respect to this Agreement which have been approved by the
Required Lenders, the Borrower shall have the right, if no Default or Event of
Default will exist immediately after giving effect to the respective
replacement, to replace such Lender (the "Replaced Lender") with one or more
other Eligible Transferee or Transferees, none of whom shall constitute a
Defaulting Lender at the time of such replacement (collectively, the
"Replacement Lender") reasonably acceptable to the Administrative Agent,
provided that (i) at the time of any replacement pursuant to this Section 1.13,
the Replacement Lender shall enter into one or more Assignment and Assumption
Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to
said Section 13.04(b) to be paid by the Replacement Lender) pursuant to which
the Replacement Lender shall acquire all of the Commitments and outstanding
Loans (or, in the case of the replacement of only (a) the Revolving Commitment,
the Revolving Commitment and outstanding Revolving Loans and participations in
Letters of Credit and (b) Term Loans, the outstanding Term Loans) of, and in
each case (except for the replacement of only outstanding Term Loans of the
respective Lender) participations in Letters of Credit by, the Replaced Lender
and, in connection therewith, shall pay to (x) the Replaced Lender in respect
thereof an amount equal to the sum of (A) an amount equal to the principal of,
and all accrued interest on, all outstanding Loans (or, in the case of the
replacement of only (I) the Revolving Commitment, the outstanding Revolving
Loans or (II) the Term Loans, the outstanding Term Loans) of the Replaced
Lender, (B) except in the case of the replacement of only outstanding Term Loans
of a Replaced Lender, an amount equal to all Unpaid Drawings that have been
funded by (and not reimbursed to) such Replaced Lender, together with all then
unpaid interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to
Section 3.01, (y) except in the case of the replacement of only outstanding Term
Loans of a Replaced Lender, each Issuing Lender an amount equal to such Replaced
Lender's RF Percentage of any
Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender to such Issuing Lender and (z) in the case of any replacement of Revolving Commitments, the Swingline Lender an amount equal to such Replaced Lender's RF Percentage of any Mandatory Borrowing to the extent such amount was not theretofore funded by such Replaced Lender to the Swingline Lender, and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Notes executed by the Borrower, the Replacement Lender shall become a Lender hereunder and, unless the Replaced Lender continues to have any outstanding Term Loans or a Revolving Commitment hereunder, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such Replaced Lender.
SECTION 2. Letters of Credit.
2.01. Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Borrower may request that any Issuing Lender issue, at any time and from time to time on and after the Restatement Effective Date and prior to the Maturity Date, for the account of the Borrower and for the benefit of (x) any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Obligations, an irrevocable standby letter of credit, in a form customarily used by such Issuing Lender or in such other form as has been approved by such Issuing Lender and (y) sellers of goods to the Borrower or any of its Subsidiaries, an irrevocable trade letter of credit, in a form customarily used by such Issuing Lender or in such other form as has been approved by such Issuing Lender (each such letter of credit, a "Letter of Credit" and, collectively, the "Letters of Credit"). All Letters of Credit shall be denominated in Dollars or an Alternate Currency and shall be issued on a sight basis only. It is acknowledged and agreed that each of the letters of credit which were issued (or deemed issued) under the Existing Credit Agreement and which remain outstanding on the Restatement Effective Date and are set forth on Schedule III (each such letter of credit, an "Existing Letter of Credit" and, collectively, the "Existing Letters of Credit") shall, from and after the Restatement Effective Date, constitute a Letter of Credit for all purposes of this Agreement and shall, for purposes of Sections 2.04 and 3.01, be deemed issued on the Restatement Effective Date. The Stated Amount of each Existing Letter of Credit and the expiry date therefor, each as in effect on the Restatement Effective Date, is set forth on Schedule III.
(b) Subject to and upon the terms and conditions set forth herein, each Issuing Lender agrees that it will, at any time and from time to time on or after the Restatement Effective Date and prior to the tenth day prior to the Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Borrower one or more Letters of Credit as is permitted to exist pursuant to this Agreement without giving rise to a Default or Event of Default hereunder, provided that the respective Issuing Lender shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance:
(i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Lender from issuing such Letter of Credit or any requirement of law applicable to such Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Lender shall prohibit, or request that such Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Lender with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Lender is not otherwise compensated), in any such case not in effect on the Original Effective Date, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuing Lender as of the Original Effective Date and which such Issuing Lender in good faith deems material to it; or
(ii) such Issuing Lender shall have received notice from any Lender prior to the issuance of such Letter of Credit of the type described in the second sentence of Section 2.03(b).
(c) Notwithstanding the foregoing, (i) no Letter of
Credit shall be issued the Stated Amount of which, when added to the Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date
of, and prior to the issuance of, the respective Letter of Credit) at such time
would exceed either (x) $25,000,000 or (y) when added to the aggregate principal
amount of all Revolving Loans then outstanding and Swingline Loans then
outstanding, an amount equal to the Total Revolving Commitment at such time, and
(ii) each Letter of Credit shall by its terms terminate on or before (A) in the
case of standby Letters of Credit (other than Letters of Credit supporting
Foreign Subsidiary Working Capital Indebtedness), the earlier of (x) the date
which occurs twelve months after the date of the issuance thereof (although any
such Letter of Credit may be extendible for successive periods of up to twelve
months, but not beyond the tenth Business Day prior to the Maturity Date, on
terms acceptable to the Issuing Lender thereof) and (y) the tenth Business Day
prior to the Maturity Date, (B) in the case of standby Letters of Credit
supporting Foreign Subsidiary Working Capital Indebtedness, the earlier of (x)
three years from the issuance of such standby Letter of Credit and (y) the tenth
Business Day prior to the Maturity Date and (C) in the case of trade Letters of
Credit, the earlier of (x) the date which occurs 180 days after the date of the
issuance thereof and (y) the date which is 30 Business Days prior to the
Maturity Date.
2.02. Minimum Stated Amount. The Stated Amount of each Letter of Credit shall not be less than $100,000 or such lesser amount as is acceptable to the respective Issuing Lender.
2.03. Letter of Credit Requests. (a) Whenever the Borrower desires that a Letter of Credit be issued hereunder for its account, the Borrower shall have (x) executed and delivered to the Administrative Agent and the respective Issuing Lender at least three Business Days prior to the issuance thereof (or such shorter period as may be acceptable to the respective Issuing Lender), a Letter of Credit Request in the form of Exhibit C attached hereto (each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless the respective Issuing Lender has received notice from any Lender before it issues a Letter of Credit that one or more of the conditions specified in Section 6 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Lender may issue the requested Letter of Credit for the account of the Borrower in accordance with such Issuing Lender's usual and customary practices. Upon the issuance of, or modification or amendment to, any standby Letter of Credit, the Issuing Lender thereof shall notify the Administrative Agent and the Borrower, in writing, of such issuance, modification or amendment and such notice shall be accompanied by a copy of such Letter of Credit, or modification or amendment thereto, as the case may be. Upon receipt of such notice, the Administrative Agent shall promptly notify each RF Lender, in writing of such issuance, modification or amendment. With respect to trade Letters of Credit, the Issuing Lender shall on the first Business Day of each week provide the Administrative Agent with a written report detailing the aggregate daily outstanding trade Letters of Credit for the previous week. Notwithstanding anything to the contrary contained in this Agreement, in the event that a Lender Default exists with respect to an RF Lender, no Issuing Lender shall be required to issue any Letter of Credit unless such Issuing Lender has entered into arrangements satisfactory to it and the Borrower to eliminate such Issuing Lender's risk with respect to the participation in Letters of Credit by such Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender's or Lenders' RF Percentage or RF Percentages of the Letter of Credit Outstandings.
2.04. Letter of Credit Participations. (a) Immediately upon
the issuance by any Issuing Lender of any Letter of Credit, such Issuing Lender
shall be deemed to have sold and transferred to each RF Lender, other than such
Issuing Lender (each such RF Lender, in its capacity under this Section 2.04, a
"Participant"), and each such Participant shall be deemed irrevocably and
unconditionally to have purchased and received from such Issuing Lender, without
recourse or warranty, an undivided interest and participation, to the extent of
such Participant's RF Percentage, in such Letter of Credit and each drawing or
payment made thereunder and the obligations of the Borrower under this Agreement
with respect thereto, and any security therefor or guaranty pertaining thereto.
Upon any change in the Revolving Commitments or RF Percentages of the Lenders
pursuant to Section 1.13, 3.02 or 13.04, it is hereby agreed that, with respect
to all outstanding Letters of Credit and Unpaid Drawings with respect thereto,
there shall be an automatic adjustment to the participations pursuant to this
Section 2.04 to reflect the new RF Percentages of the assignor and assignee
Lender or of all Lenders, as the case may be.
(b) In determining whether to pay under any Letter of Credit, such Issuing Lender shall have no obligation relative to the other RF Lenders other than to confirm that any documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Lender under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final and non-appealable proceeding, shall not create for such Issuing Lender any resulting liability to the Borrower or any Lender.
(c) In the event that any Issuing Lender makes any payment under any Letter of Credit issued by it and the Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 2.05(a), such Issuing Lender shall promptly notify the Administrative Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Lender the amount of such Participant's RF Percentage of such unreimbursed payment in Dollars and in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to such Issuing Lender in Dollars such Participant's RF Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its RF Percentage of the amount of such payment available to such Issuing Lender, such Participant agrees to pay to such Issuing Lender, forthwith on demand, such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Lender at the overnight Federal Funds Rate for the first three days and at the interest rate applicable to Base Rate Loans for each day thereafter. The failure of any Participant to make available to such Issuing Lender its RF Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Lender its RF Percentage of any payment with respect to any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Lender such other Participant's RF Percentage of any such payment.
(d) Whenever any Issuing Lender receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Lender shall pay to each Participant which has paid its RF Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations.
(e) Upon the request of any Participant, the Administrative Agent shall deliver to such Participant copies of any standby Letters of Credit or modifications or amendments thereto and such other documentation as may be reasonably requested by such Participant.
(f) The obligations of the Participants to make payments to each Issuing Lender with respect to Letters of Credit issued by such Issuing Lender shall be irrevocable and not subject to any qualification or exception whatsoever (the respective Issuing Lender's only obligation being to confirm that any documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit) and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between any Borrower and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
2.05. Agreement to Repay Letter of Credit Drawings. (a) The Borrower hereby agrees to reimburse the respective Issuing Lender, by making payment in Dollars to the Administrative Agent at the Payment Office in immediately available funds for the account of such Issuing Lender, for any payment or disbursement made by such Issuing Lender under any Letter of Credit (each such amount so paid until reimbursed, an "Unpaid Drawing"), within one Business Day following the Administrative Agent's notice to the Borrower of such payment or disbursement (provided that any such notice shall be deemed to have been given on a certain day only if given before 10:00 A.M. (New York time) on such day), with interest on the amount so paid or disbursed by such Issuing Lender, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Lender was reimbursed by the Borrower therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin, provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the second Business Day following notice by the Issuing Lender to the Borrower of such payment or disbursement, interest shall thereafter accrue on the amounts so paid or disbursed by such Issuing Lender (and until reimbursed by the Borrower) at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin plus 2%, in each such case, with interest to be payable by the Borrower on demand.
(b) The obligations of the Borrower under this Section 2.05 to reimburse the respective Issuing Lender with respect to drawings on Letters of Credit (including interest thereon) (each, a "Drawing") shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any Lender (including in its capacity as issuer of the Letter of Credit or as Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Issuing Lender's only obligation to the Borrower being to confirm that any documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Lender under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or
willful misconduct, as determined by a court of competent jurisdiction in a final and non-appealable proceeding, shall not create for such Issuing Lender any resulting liability to the Borrower.
2.06. Increased Costs. If at any time after the Original
Effective Date, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by the NAIC or by any governmental authority charged with
the interpretation or administration thereof, or compliance by any Issuing
Lender or any Participant with any request or directive by any such authority
(whether or not having the force of law), or any change in generally acceptable
accounting principles, shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by any Issuing Lender or participated in by any Participant, or
(ii) impose on any Issuing Lender or any Participant any other conditions
relating, directly or indirectly, to this Agreement, any Letter of Credit; and
the result of any of the foregoing is to increase the cost to any Issuing Lender
or any Participant of issuing, maintaining or participating in any Letter of
Credit or reduce the amount of any sum received or receivable by any Issuing
Lender or any Participant hereunder or reduce the rate of return on its capital
with respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or net profits of such Issuing Lender
or such Participant pursuant to the laws of the jurisdiction in which it is
organized or in which its principal office or applicable lending office is
located or any subdivision thereof or therein), then, upon demand to the
Borrower by such Issuing Lender or any Participant (a copy of which demand shall
be sent by such Issuing Lender or such Participant to the Administrative Agent)
the Borrower agrees to pay to such Issuing Lender or such Participant such
additional amount or amounts as will compensate such Lender for such increased
cost or reduction in the amount receivable or reduction on the rate of return on
its capital. Any Issuing Lender or any Participant, upon determining that any
additional amounts will be payable pursuant to this Section 2.06, will give
prompt written notice thereof to the Borrower, which notice shall include a
certificate submitted to the Borrower by such Issuing Lender or such Participant
(a copy of which certificate shall be sent by such Issuing Lender or such
Participant to the Administrative Agent) setting forth in reasonable detail the
basis for the calculation of such additional amount or amounts necessary to
compensate such Issuing Lender or such Participant. The certificate required to
be delivered pursuant to this Section 2.06 shall, and absent manifest error, be
final and conclusive and binding on the Borrower.
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
3.01. Fees. (a) The Borrower agrees to pay to the Administrative Agent for distribution to each RF Lender that is a Non-Defaulting Lender a commitment commission (the "Commitment Commission") for the period from the Restatement Effective Date to but excluding the Maturity Date (or such earlier date as the Total Revolving Commitment shall have been terminated), computed at a rate per annum equal to the Applicable Commitment Commission Percentage on the Unutilized Revolving Commitment of such Non-Defaulting Lender as in effect from time to time. Accrued Commitment Commission shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Maturity Date or such earlier date upon which the Total Revolving Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent for pro rata distribution to each RF Lender that is a Non-Defaulting Lender (based on each such Lender's respective RF Percentage) a fee in respect of each Letter of Credit (the "Letter of Credit Fee") for the period from and including the date of issuance of such Letter of Credit to and including the date of termination or expiration of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin as in effect from time to time with respect to Eurodollar Loans on the daily Stated Amount of each such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day on or after the termination of the Total Revolving Commitment upon which no Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to the respective Issuing Lender, for its own account, a facing fee in respect of each Letter of Credit issued by it hereunder (the "Facing Fee") for the period from and including the date of issuance of such standby Letter of Credit to and including the date of termination or expiration of such Letter of Credit, computed at a rate per annum equal to 1/4 of 1% on the daily Stated Amount of such Letter of Credit, provided that in any event the minimum amount of Facing Fees payable in any twelve-month period for each Letter of Credit shall be not less than $500; it being agreed that, on the date of issuance of any Letter of Credit and on each anniversary thereof prior to the termination or expiration of such Letter of Credit, if $500 will exceed the amount of Facing Fees that will accrue with respect to such Letter of Credit for the immediately succeeding twelve-month period, the full $500 shall be payable on the date of issuance of such Letter of Credit and on each such anniversary thereof. Except as otherwise provided in the proviso to the immediately preceding sentence, accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the date upon which the Total Revolving Commitment has been terminated and all Letters of Credit have been terminated in accordance with their terms.
(d) The Borrower agrees to pay, upon each drawing under, issuance of, or amendment to any Letter of Credit, such amount as shall at the time of such event be the administrative charge and out-of-pocket expenses which the respective Issuing Lender customarily imposes in connection with such occurrence with respect to letters of credit issued by it.
(e) The Borrower agrees to pay to the Administrative Agent, for its own account, such other fees as have been agreed to in writing by the Borrower and the Administrative Agent.
3.02. Optional Commitment Reductions. (a) Upon three Business Days' prior notice from an Authorized Representative of the Borrower to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, at any time or from time to time, without premium or penalty, to terminate the Total Unutilized Revolving Commitment in whole or reduce it in part, pursuant to this Section 3.02(a), in an integral multiple of $10,000,000, provided that each such reduction shall apply proportionately to permanently reduce the Revolving Commitment of each Lender.
(b) In the event of certain refusals by a Lender as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders, the Borrower may, subject to compliance with the requirements of said Section 13.12(b), upon five Business Days' written notice to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders) terminate the entire Revolving Commitment of such Lender so long as all Loans, together with accrued and unpaid interest, Fees and all other amounts, owing to such Lender (but excluding amounts, if any, owing in respect of any Term Loans which are maintained by such Lender, if such Term Loans are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with the effectiveness of such termination pursuant to Section 4.01(b) (at which time Schedule I shall be deemed modified to reflect such changed amounts), and at such time, unless the Lender continues to have outstanding Term Loans hereunder, such Lender shall no longer constitute a "Lender" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such repaid Lender.
3.03. Mandatory Reduction of Commitments. (a) The Total Commitment (and the Commitments of each Lender) shall terminate in its entirety on December 19, 2003 unless the Restatement Effective Date has occurred on or prior to such date and in the event of such termination all parties hereto hereby agree that this Agreement shall cease to be of any force or effect and the Existing Credit Agreement shall continue to be effective (including all commitments to extend credit thereunder in accordance with the terms thereof).
(b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Commitment (and the Revolving Commitment of each Lender) shall terminate in its entirety on the Maturity Date.
(c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Term Loan Commitment (and the Term Loan Commitment of each Lender) shall terminate in its entirety on the Restatement Effective Date (after giving effect to the incurrence of Term Loans on such date).
SECTION 4. Prepayments; Payments; Taxes.
4.01. Voluntary Prepayments. (a) The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) an Authorized Representative of the Borrower shall give the Administrative Agent prior to 12:00 Noon (New York time) at the Notice Office (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of the Borrower's intent to prepay Base Rate Loans (or same day notice in the case of Swingline Loans provided such notice is given prior to 11:00 A.M. (New York time)) and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay Eurodollar Loans, which notice (x) shall specify whether Term Loans, Revolving Loans or Swingline Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made and (y) except in the case of a prepayment of Swingline Loans, shall be promptly transmitted by the Administrative Agent to each of the Lenders; (ii) (x)
each partial prepayment of Revolving Loans pursuant to this Section 4.01(a)
shall be in an aggregate principal amount of at least $1,000,000, (y) each
partial prepayment of Swingline Loans pursuant to this Section 4.01(a) shall be
in an aggregate principal amount of at least $100,000 and (z) each partial
prepayment of Term Loans pursuant to this Section 4.01(a) shall be in an
aggregate principal amount of at least $1,000,000, provided that, in each case,
if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing
shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to
an amount less than the Minimum Borrowing Amount applicable thereto, then such
Borrowing may not be continued as a Borrowing of Eurodollar Loans and any
election of an Interest Period with respect thereto given by the Borrower shall
have no force or effect; (iii) each prepayment of Term Loans pursuant to this
Section 4.01(a) shall be applied to reduce the then remaining Term Loan
Scheduled Repayments in direct order of maturity; and (iv) each prepayment in
respect of any Loans made pursuant to a Borrowing shall be applied pro rata
among such Loans being so repaid, provided that at the Borrowers' election in
connection with any prepayment of Revolving Loans pursuant to this Section
4.01(a), such prepayment shall not, so long as no Default or Event of Default
then exists, be applied to the prepayment of Revolving Loans of a Defaulting
Lender.
(b) In the event of certain refusals by a Lender as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders, the Borrower may, upon five Business Days' written notice by an Authorized Representative of the Borrower to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders) repay all Loans, together with accrued and unpaid interest, Fees and other amounts (including, without limitation, all obligations under Section 1.11), then owing to such Lender (or, at the Borrower's discretion, owing to such Lender solely with respect to the Loans which gave rise to the need to obtain such Lender's individual consent) in accordance with, and subject to the requirements of, said Section 13.12(b) so long as (A) in the case of the repayment of Revolving Loans of any Lender pursuant to this Section 4.01(b), the Revolving Commitment of such Lender is terminated concurrently with such repayment pursuant to Section 3.02(b) (at which time Schedule I shall be deemed modified to reflect the changed Revolving Commitments) and (B) the consents required by Section 13.12(b) in connection with the repayment pursuant to this clause (b) have been obtained. Each prepayment of any Term Loans pursuant to this Section 4.01(b) shall be applied (except to the extent such Term Loans are being replaced pursuant to Section 1.13) to reduce the then remaining Term Loan Scheduled Repayments on a pro rata basis (based upon the then remaining unpaid principal amounts of such Term Loan Scheduled Repayments after giving effect to all prior reductions thereto).
4.02. Mandatory Repayments and Cash Collateralizations. (a) On any day on which the sum of (i) the aggregate outstanding principal amount of all Revolving Loans (after giving effect to all other repayments thereof on such date), (ii) the aggregate principal amount of all Swingline Loans (after giving effect to all other repayments thereof on such date) and (iii) the aggregate amount of all Letter of Credit Outstandings (after giving effect to all other repayments thereof on such date) exceeds Total Revolving Commitment as then in effect, the Borrower agrees to prepay on such day the principal of Swingline Loans and, after the Swingline Loans have been repaid in full, Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans, the aggregate amount of the Letter of Credit Outstandings exceeds the Total Revolving Commitment as then in
effect, the Borrower agrees to pay to the Administrative Agent at the Payment Office on such date an amount of cash and/or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash and/or Cash Equivalents to be held as security for all obligations of the Borrower to Lenders hereunder in a cash collateral account to be established by the Administrative Agent on terms reasonably satisfactory to the Administrative Agent.
(b) In addition to any other mandatory repayments pursuant to this Section 4.02, on each date set forth below, the Borrower shall be required to repay that principal amount of Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced in amount as provided in Sections 4.01(a) and 4.01(b), a "Term Loan Scheduled Repayment"):
Date Amount
---- ------
March 31, 2005 $5,000,000
June 30, 2005 $5,000,000
September 30, 2005 $5,000,000
December 31, 2005 $5,000,000
March 31, 2006 $5,000,000
June 30, 2006 $5,000,000
September 30, 2006 $5,000,000
December 31, 2006 $5,000,000
Maturity Date $85,000,000
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(c) In addition to any other mandatory repayments
pursuant to this Section 4.02, on each date on or after the Restatement
Effective Date upon which any of the Borrower's Subsidiaries receives any cash
proceeds from any incurrence by such Subsidiary of Indebtedness pursuant to
Section 9.04(iii)(B), an amount equal to 100% of the Net Debt Proceeds received
by such Subsidiary from such incurrence of Indebtedness shall be applied (1)
first, as a mandatory repayment of the then outstanding principal amount of Term
Loans and (2) second, to the extent in excess of the amount required to be
applied pursuant to the preceding clause (1), as a mandatory repayment of the
then outstanding principal amount of Revolving Loans. Any amounts to be applied
to repay principal of outstanding Term Loans pursuant to this Section 4.02(c)
shall be applied to reduce the then remaining Term Loan Scheduled Repayments on
a pro rata basis (based upon the then remaining principal amounts of such Term
Loan Scheduled Repayments after giving effect to all prior reductions thereto).
(d) In addition to any other mandatory repayments required pursuant to this Section 4.02, (i) all then outstanding Revolving Loans and Term Loans shall be repaid in full on the Maturity Date and (ii) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date.
(e) With respect to each repayment of Loans required by
Section 4.02, the Borrower may designate the Types of Loans of the respective
Facility which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings pursuant to which made, provided that: (i)
repayments of Eurodollar Loans pursuant to Section 4.02(a) may only be made on
the last day of an Interest Period applicable thereto unless all Eurodollar
Loans of the respective Facility with Interest Periods ending on such date of
required repayment and all Base Rate Loans of the respective Facility have been
paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, then such Borrowing shall be converted at the end of the then current
Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of
Loans made pursuant to a Borrowing shall be applied pro rata among such Loans.
In the absence of a designation by the Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion with a view, but no obligation, to minimize
breakage costs owing under Section 1.11.
4.03. Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note shall be made to the Administrative Agent for the account of the Lender or Lenders entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office. Any payments received by the Administrative Agent after such time shall be deemed to have been received on the next Business Day. Whenever any payment to be made hereunder or under any Note 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 at the applicable rate during such extension.
4.04. 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 4.04(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 a Lender 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 such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imports, 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 any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located or under
the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located and for any withholding or similar taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes 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 each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as
such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to
the Borrower and the Administrative Agent on or prior to the Restatement
Effective Date, or in the case of a Lender that is an assignee or transferee of
an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the
respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Lender, (i) two accurate and complete original signed copies of Internal Revenue
Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under
an income tax treaty) (or successor forms) certifying to such Lender's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Note, or (ii)
if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to a complete exemption under an income tax treaty)
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8BEN (with respect to the portfolio interest exemption) (or successor
form) certifying to such Lender's entitlement to a complete exemption from
United States withholding tax with respect to payments of interest to be made
under this Agreement and under any Note. In addition, each Lender agrees that
from time to time after the Original Effective Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits
of any income tax treaty), or Form W-8BEN (with respect to the portfolio
interest exemption) and a Section 4.04(b)(ii) Certificate, as the case may be,
and such other forms as may be required in order to confirm or establish the
entitlement of such Lender to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify the Borrower and the Administrative Agent
of its inability to deliver any such Form or Certificate, in which case such
Lender shall not be required to deliver any such Form or Certificate pursuant to
this Section 4.04(b). Notwithstanding anything to the contrary contained in
Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Lender which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that
such Lender has not provided to the Borrower
U.S. Internal Revenue Service Forms that establish a complete exemption from
such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Lender
in respect of income or similar taxes imposed by the United States if (I) such
Lender has not provided to the Borrower the Internal Revenue Service Forms
required to be provided to the Borrower pursuant to this Section 4.04(b) or (II)
in the case of a payment, other than interest, to a Lender described in clause
(ii) above, to the extent that such forms do not establish a complete exemption
from withholding of such taxes. Notwithstanding anything to the contrary
contained in the preceding sentence or elsewhere in this Section 4.04 and except
as set forth in Section 13.04(b), the Borrower agrees to pay additional amounts
and to indemnify each Lender in the manner set forth in Section 4.04(a) (without
regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by it as described
in the immediately preceding sentence as a result of any changes that are
effective after the Original Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar Taxes.
SECTION 5. Conditions Precedent to the Restatement Effective Date. The occurrence of the Restatement Effective Date pursuant to Section 13.10 is subject to the satisfaction of the following conditions:
5.01. Execution of Agreement; Notes. On or prior to the Restatement Effective Date (i) this Agreement shall have been executed and delivered as provided in Section 13.10 and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Lenders that has requested same the appropriate Revolving Note or Term Note, as the case may be, in each case executed by the Borrower and to the Swingline Lender, to the extent the Swingline Lender has requested same, the Swingline Note executed by the Borrower, in each case, in the amount, maturity and as otherwise provided herein.
5.02. Officer's Certificate. On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date, and signed on behalf of the Borrower by an Authorized Representative, stating that all conditions in Sections 5.05, 5.07(b) and 6.02 have been satisfied on such date.
5.03. Opinions of Counsel. On the Restatement Effective Date, the Administrative Agent shall have received from Bingham McCutchen LLP, special counsel to the Credit Parties, an opinion addressed to the Agents and each of the Lenders and dated the Restatement Effective Date covering the matters set forth in Exhibit E and such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request.
5.04. Corporate Documents; Proceedings; etc. (a) On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date, signed by an Authorized Representative of each Credit Party, and attested to by another Authorized Representative of such Credit Party, in the form of Exhibit F with appropriate insertions, together with copies of the certificate of incorporation and by-laws (or equivalent organizational documents) of such Credit Party, (or, if such organizational documents have not been amended, modified or supplemented since the Original Effective Date such certificate shall
certify that there have been no amendments, modifications or supplements to such organizational documents since the Original Effective Date), and the resolutions of such Credit Party referred to in such certificate, and the foregoing shall be in form and substance reasonably acceptable to the Administrative Agent.
(b) All corporate, partnership, limited liability company and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be in form and substance reasonably satisfactory to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all documents and papers, including governmental approvals, good standing certificates and bring-down telegrams, if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities.
5.05. Existing Credit Agreement. On the Restatement Effective Date, all Existing Letters of Credit shall have been terminated or continued as Letters of Credit hereunder (as contemplated by Sections 2.01(a) and 13.10(d)) and all interest, fees and other amounts that have accrued and remain, as of the Restatement Effective Date, unpaid under the Existing Credit Agreement shall have been paid in full (including, without limitation, amounts payable pursuant to Section 1.11 of the Existing Credit Agreement, accrued and unpaid commitment fees, letter of credit fees and facing fees).
5.06. Guaranties. On the Restatement Effective Date each Subsidiary Guarantor shall have duly authorized, executed and delivered to the Administrative Agent a Guaranty Acknowledgment in the form of Exhibit G (the "Guaranty Acknowledgment") and the Guaranty Acknowledgment shall be in full force and effect.
5.07. Adverse Change; Governmental Approvals; etc. (a) Since December 31, 2002, nothing shall have occurred (and neither the Administrative Agent nor any Lender shall have become aware of any facts or conditions not previously known) which the Administrative Agent or the Required Lenders shall determine could reasonably be expected to have a Material Adverse Effect.
(b) On or prior to the Restatement Effective Date, all necessary governmental (domestic and foreign) and third party approvals and/or consents in connection with the transactions contemplated by the Credit Documents and otherwise referred to herein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the transactions contemplated by the Credit Documents. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the making of any Loan, issuance of any Letter of Credit or the consummation of the transactions contemplated by the Credit Documents.
5.08. Litigation. On the Restatement Effective Date, no litigation by any entity (private or governmental) shall be pending or threatened with respect to this Agreement, any other Credit Document or any other documentation executed in connection herewith and therewith or the transactions contemplated hereby and thereby, or which the Administrative Agent or the Required Lenders shall determine has had, or could reasonably be expected to have, a Material Adverse Effect.
5.09. Financial Statements. On or prior to the Restatement Effective Date, the Administrative Agent shall have received true and correct copies of the historical financial statements referred to in Section 7.05(a), which historical financial statements shall be in form and substance satisfactory to the Administrative Agent and the Required Lenders.
5.10. Fees, etc. On the Restatement Effective Date, all costs, fees and expenses (including, without limitation, legal fees and expenses) payable to the Agents and the Lenders shall have been paid to the extent due.
SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Lender to make Loans (including Loans made on the Restatement Effective Date but excluding Mandatory Borrowings made thereafter, which shall be made as provided in Section 1.01(c)), and the obligation of an Issuing Lender to issue any Letter of Credit, is subject, at the time of each such Credit Event, to the satisfaction of the following conditions:
6.01. Restatement Effective Date. The Restatement Effective Date shall have occurred.
6.02. No Default; Representations and Warranties. At the time
of each such Credit Event and also 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 other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date). 6.03. Notice of Borrowing; Letter of
Credit Request. (a) Prior to the making of each Loan (excluding Swingline
Loans), the Administrative Agent shall have received the notice required by
Section 1.03(a). Prior to the making of each Swingline Loan, the Swingline
Lender shall have received the notice required by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Lender shall have received a Letter of Credit Request meeting the requirements of Section 2.03.
The acceptance of the benefit of each Credit Event shall constitute a representation and warranty by the Borrower to the Administrative Agent and each of the Lenders that all the conditions specified in Section 5 (with respect to Credit Events on the Restatement Effective Date) and in this Section 6 (with respect to Credit Events to occur on or after the Restatement Effective Date) and applicable to such Credit Event exist as of that time. All of the Notes, certificates, legal
opinions and other documents and papers referred to in Section 5 and in this
Section 6, unless otherwise specified, shall be delivered to the Administrative
Agent at the Notice Office for the account of each of the Lenders and, except
for the Notes, in sufficient counterparts or copies for each of the Lenders and
shall be in form and substance reasonably satisfactory to the Lenders.
SECTION 7. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, the Borrower makes the following representations, warranties and agreements, in each case after giving effect to the occurrence of the Restatement Effective Date, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct in all material respects on and as of the Restatement Effective Date and on the date of each such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).
7.01. Corporate Status. The Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation, limited
liability company or partnership, as the case may be, in good standing under the
laws of the jurisdiction of its organization, (ii) has the corporate, limited
liability company or partnership power and authority, as the case may be, to own
its property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where the conduct of its
business requires such qualifications, except, in the case of preceding clauses
(i), (ii) and (iii), for failures which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
7.02. Corporate Power and Authority. Each Credit Party has the corporate, limited liability company or partnership power and authority, as the case may be, to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is party and has taken all necessary corporate, limited liability company or partnership action, as the case may be, to authorize the execution, delivery and performance by it of each of such Credit Documents. Each Credit Party has duly executed and delivered each of the Credit Documents to which it is party, and each of such Credit Documents constitutes the legal, valid and binding obligation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).
7.03. No Violation. Neither the execution, delivery or performance by any Credit Party of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree 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 properties or assets of the
Borrower or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which the Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate or Articles of Incorporation or By-Laws (or equivalent organizational documents) of the Borrower or any of its Subsidiaries.
7.04. Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with or exemption by, any 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 such Credit Document.
7.05. Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) The consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal years ended December 31, 2002 and the interim nine-month period ended September 30, 2003, and the related consolidated statements of income, cash flow and shareholders' equity of the Borrower for the fiscal year or nine-month period ended on such dates, as the case may be, copies of which have been furnished to the Lenders prior to the Restatement Effective Date, present fairly the financial condition of the Borrower and its Subsidiaries at the date of such balance sheets and the results of the operations of the Borrower and its Subsidiaries for the periods covered thereby. All of the foregoing financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied (except, in the case of the aforementioned interim financial statements, for normal year-end audit adjustments and the absence of footnotes).
(b) Since December 31, 2002, there has been no Material Adverse Effect.
(c) Except as fully disclosed in the financial statements
referred to in Section 7.05(a), there were as of the Restatement Effective Date
no liabilities or obligations with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in the
aggregate, could reasonably be expected to be material to the Borrower and its
Subsidiaries taken as a whole. As of the Restatement Effective Date, the
Borrower is not aware of any basis for the assertion against it or any of its
Subsidiaries of any material liability or obligation of any nature whatsoever
that is not fully disclosed in the financial statements delivered pursuant to
Section 5.09.
7.06. Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened (i) with respect to any Credit Document or (ii) that could reasonably be expected to have a Material Adverse Effect.
7.07. True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of the Borrower or any of its Subsidiaries in writing to any Agent or any Lender (including, without limitation, all factual information contained in the Credit Documents) for purposes of or in connection with this Agreement, the other Credit Documents
or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Borrower or any of its Subsidiaries in writing to any Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided.
7.08. Use of Proceeds; Margin Regulations. (a) All proceeds of Loans shall be used (i) to pay fees and expenses incurred in connection with this Agreement, (ii) to finance, in part, repurchases of the Borrower's outstanding common stock from time to time and (iii) for the Borrower's and its Subsidiaries' ongoing working capital and general corporate purposes (including capital expenditures, acquisitions and the repayment of Indebtedness).
(b) Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System. At the time of each Credit Event and after giving effect thereto (including after giving effect to the application of proceeds therefrom), no more than 25% of the value of the assets of the Borrower, or of the Borrower and its Subsidiaries taken as a whole, will constitute Margin Stock. For the purpose of making the calculations pursuant to the preceding sentence, Treasury Stock shall be deemed not to be an asset of the Borrower or any of its Subsidiaries.
7.09. Tax Returns and Payments. The Borrower and each of its Subsidiaries has timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods, with the appropriate taxing authority, all Federal, state, foreign and other material returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the Borrower and its Subsidiaries. Each of the Borrower and each of its Subsidiaries has paid all taxes and assessments payable by it which have become due, other than those contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles. There is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Borrower, threatened by any authority regarding any taxes relating to the Borrower or its Subsidiaries which could reasonably be expected to have a Material Adverse Effect.
7.10. Compliance with ERISA. (a) Each Plan is in substantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan; to the knowledge of the Borrower, no Multiemployer Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency, or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither the Borrower nor any of its Subsidiaries nor any ERISA Affiliate has incurred any liability to or on account of a Plan and/or a Multiemployer Plan pursuant to Section 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or investment of assets of any Plan (other than routine claims for benefits) is pending, expected or threatened; no condition exists which presents a risk to the Borrower or any of its Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of a Plan and/or a Multiemployer Plan pursuant to the
foregoing provisions of ERISA and the Code; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower, its Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan ended prior to the date of the most recent Credit Event, could not reasonably be expected to have a Material Adverse Effect.
(b) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. Neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the Borrower's most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities.
7.11. Properties. The Borrower and each of its Subsidiaries has good and valid title to all material properties owned by them, including all property reflected in the balance sheets referred to in Sections 7.05(a) (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business or otherwise as permitted hereunder), free and clear of all Liens other than Permitted Liens.
7.12. Subsidiaries. As of the Restatement Effective Date (i) Schedule IV sets forth an organizational chart of the Borrower and its Subsidiaries displaying the direct and indirect (if any) owner of, and its ownership percentage in, each such Subsidiary, and (ii) the Borrower has no Subsidiaries other than those Subsidiaries listed on such Schedule IV.
7.13. Compliance with Statutes, etc. The Borrower and each of its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their business and the ownership of their property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
7.14. Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.
7.15. Public Utility Holding Company Act. Neither the Borrower nor any of its Subsidiaries is 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.
7.16. Environmental Matters. Except to the extent that any
matter described below in this Section 7.16, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect,
(i) the Borrower and each of its Subsidiaries is in compliance with all
applicable Environmental Laws and the requirements of any permits
required under such Environmental Laws; (ii) there are no pending or, to the knowledge of the Borrower, threatened Environmental Claims against the Borrower or any of its Subsidiaries or any Real Property presently or formerly owned, leased or operated by the Borrower or any of its Subsidiaries; and (iii) there are no facts, circumstances, or conditions relating to the past or present business or operations of the Borrower or any of its Subsidiaries (including the disposal of any wastes, hazardous substances or other materials), or to any Real Property presently or formerly owned, leased or operated by the Borrower or any of its Subsidiaries, that could reasonably be expected to give rise to any claim, proceeding or action under any Environmental Laws.
7.17. Labor Relations. Neither the Borrower nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against any of them, before the National Labor Relations Board, and no material grievance or material arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries and (iii) to the knowledge of the Borrower, no union representation proceeding pending with respect to the employees of the Borrower or any of its Subsidiaries, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect. 7.18. Patents, Licenses, Franchises and Formulas. The Borrower and its Subsidiaries own all material patents, trademarks, permits, service marks, trade names, copyrights, licenses, franchises and formulas, or rights with respect to the foregoing, and have obtained assignments of all leases and other rights of whatever nature, reasonably necessary for the present conduct of their business, without any known conflict with the rights of others which, or the failure to obtain which, as the case may be, either individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 8. Affirmative Covenants. The Borrower hereby covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings (in each case together with interest thereon), Fees and all other Obligations (other than indemnities described in Section 13.13 which are not then due and payable) incurred hereunder and thereunder, are paid in full:
8.01. Information Covenants. The Borrower will furnish to each Lender:
(a) Quarterly Financial Statements. As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, (i) the consolidated balance sheets of the Borrower and its Subsidiaries, in each case, as at the end of such quarterly period and the related consolidated statements of income, cash flow and shareholders' equity for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, in each case setting forth
comparative figures for the corresponding quarterly accounting period in the prior fiscal year and (ii) management's discussion and analysis of the important operational and financial developments during such quarterly period (it being understood and agreed that the delivery of such management's discussion and analysis as contained in the Borrower's quarterly report on Form 10-Q shall satisfy the requirement contained in this clause (ii)).
(b) Annual Financial Statements. Within 90 days after the close of each fiscal year of the Borrower, (i) the consolidated balance sheets of the Borrower and its Subsidiaries, in each case, as at the end of such fiscal year and the related consolidated statements of income, cash flow and shareholders' equity for such fiscal year setting forth comparative figures for the preceding fiscal year and certified by PricewaterhouseCoopers LLC or such other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that in the course of its regular audit of the financial statements of the Borrower and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and (ii) management's discussion and analysis of the important operational and financial developments during such fiscal year (it being understood and agreed that the delivery of such management's discussion and analysis as contained in the Borrower's annual report on Form 10-K shall satisfy the requirement contained in this clause (ii)).
(c) Officer's Certificates. At the time of the delivery of the financial statements provided for in Section 8.01(a) and (b), a certificate of an Authorized Representative of the Borrower to the effect that, to the best of such Authorized Representative's knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall set forth the calculations required to establish whether the Borrower was in compliance with the provisions of Sections 9.01, 9.02, 9.04, 9.05, 9.07, 9.08 and 9.09 at the end of such fiscal quarter or year, as the case may be.
(d) Notice of Default or Litigation. Promptly, and in any event within three Business Days after an executive officer of the Borrower obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default, (ii) any litigation or governmental investigation or proceeding pending against the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or (iii) any other development that has had, or could reasonably be expected to have, a Material Adverse Effect.
(e) Other Reports and Filings. Promptly, copies of all financial information, proxy materials and other information and reports, if any, which the Borrower or any of its Subsidiaries shall file with the Securities and Exchange Commission or any successor thereto (the "SEC") or deliver to holders of its Indebtedness (or any trustee, agent or other representative therefor) pursuant to the terms of the documentation governing such Indebtedness.
(f) Debt Rating. Promptly upon, and in any event within three Business Days after, an Authorized Representative of the Borrower obtains knowledge of any change by Moody's or S&P in the Debt Rating, notice of such change.
(g) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the Borrower or any of its Subsidiaries as any Agent or Lender may reasonably request in writing.
8.02. Books, Records and Inspections. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit officers and designated representatives of any Agent or any Lender to visit and inspect, after reasonable notice during regular business hours and under guidance of officers of the Borrower or such Subsidiary, any of the properties of the Borrower or such Subsidiary, and to examine the books of account of the Borrower or such Subsidiary and discuss the affairs, finances and accounts of the Borrower or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as such Agent or such Lender may request.
8.03. Maintenance of Insurance. The Borrower will, and will cause each of its Subsidiaries to, maintain insurance on all its property in at least such amounts and against at least such risks and with such deductibles or self-insured retentions as is consistent and in accordance with industry practice.
8.04. Corporate Franchises. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 8.04 shall prevent (i) sales of assets, mergers or other transactions by or among the Borrower or any of its Subsidiaries in accordance with Section 9.02 and 9.03 or (ii) the withdrawal by the Borrower or any of the Subsidiaries of its qualification as a foreign corporation or the failure to qualify as a foreign corporation in any jurisdiction which would not in any way materially and adversely affect the Lenders, and where such withdrawal or failure or amendment, as the case may be, could not reasonably be expected to have a Material Adverse Effect.
8.05. Compliance with Statutes, etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders (including, without limitation, any Environmental Laws) of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
8.06. ERISA. As soon as possible and, in any event, within 30 days after the Borrower or any of its Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to the Administrative Agent, and
the Administrative Agent shall promptly forward to each Lender, a certificate of
an Authorized Representative of the Borrower setting forth details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, such
Subsidiary, the ERISA Affiliate, the PBGC, or a Plan participant or the Plan
administrator with respect thereto: (i) that a Reportable Event has occurred;
(ii) that an accumulated funding deficiency has been incurred or an application
is likely to be or has been made to the Secretary of the Treasury for a waiver
or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan and/or a Multiemployer Plan; (iii) that a
Plan and/or Multiemployer Plan has been or is reasonably expected to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; (iv) that a Plan and/or a Multiemployer Plan has an Unfunded Current
Liability giving rise to a lien under ERISA or the Code; (v) that proceedings
are likely to be or have been instituted or notice has been given to terminate
or appoint a trustee to administer a Plan and/or a Multiemployer Plan; (vi) that
a proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan if material in amount; (vii)
that the Borrower, any of its Subsidiaries or any ERISA Affiliate will or is
reasonably expected to incur any liability (including any indirect, contingent
or secondary liability) to or on account of the termination of or withdrawal
from a Plan and/or Multiemployer Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan and/or Multiemployer Plan
under Section 401(a)(29) of the Code which could reasonably be expected to have
a Material Adverse Effect; or that the Borrower or any Subsidiary is reasonably
expected to incur any liability pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any employee pension benefit plan (as defined in Section 3(2) of
ERISA) which liability, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. Upon request, the Borrower will
deliver to each of the Lenders a complete copy of the annual report (Form 5500)
of each Plan required to be filed with the Internal Revenue Service. In addition
to any certificates or notices delivered to the Lenders pursuant to the first
sentence hereof, copies of such annual reports and any material notices received
by the Borrower or any of its Subsidiaries or any ERISA Affiliate with respect
to any Plan and/or Multiemployer Plan and/or Foreign Pension Plan shall be
delivered to the Lenders no later than 30 days after the date such report has
been requested or such notice has been received by the Borrower, such Subsidiary
or such ERISA Affiliate, as applicable. The Borrower and each of its applicable
Subsidiaries shall ensure that all Foreign Pension Plans administered by it or
into which it makes payments obtains or retains (as applicable) registered
status under and as required by applicable law and is administered in a timely
manner in all respects in compliance with all applicable laws except where the
failure to do any of the foregoing could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Affect.
8.07. End of Fiscal Years; Fiscal Quarters. The Borrower will cause (i) each of its, and each of its Subsidiaries' fiscal years to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries' fiscal quarters to end on each March 31, June 30, September 30 and December 31.
8.08. Payment of Taxes. The Borrower will pay and discharge, or cause to be paid and discharged, and will cause each of its Subsidiaries to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any material properties belonging to it, in each case on a timely basis and prior to the date on which penalties attach thereto and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries; provided that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles.
8.09. Additional Subsidiary Guarantors. Unless the Required Lenders otherwise agree, the Borrower agrees to cause each of its Wholly-Owned Domestic Subsidiaries that are acquired or created after the Restatement Effective Date to promptly (and in any event within 10 Business Days of such acquisition or creation) execute and deliver a counterpart of the Subsidiaries Guaranty.
SECTION 9. Negative Covenants. The Borrower covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment (and the Commitment of each Lender) and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings (in each case together with interest thereon), Fees and all other Obligations (other than indemnities described in Section 13.03 which are not then due and payable) incurred hereunder and thereunder, are paid in full:
9.01. Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Borrower or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that (i) for the purposes of this Section 9.01, Treasury Stock to the extent constituting Margin Stock shall be deemed not to be assets of the Borrower or any of its Subsidiaries and (ii) the provisions of this Section 9.01 shall not prevent the creation, incurrence, filing, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"):
(i) incipient Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles;
(ii) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the
Borrowers' or such Subsidiary's property or assets or materially impair the use thereof in the operation of the business of the Borrower or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Restatement Effective Date
which are listed, and the property subject thereto described, in
Schedule V, plus renewals and extensions of such Liens, provided that
(x) the aggregate principal amount of the Indebtedness, if any, secured
by such Liens does not increase from that amount outstanding at the
time of any such renewal or extension and (y) any such renewal or
extension does not encumber any additional assets or properties of the
Borrower or any of its Subsidiaries;
(iv) (a) licenses, leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Borrower and its Subsidiaries taken as a whole, (b) Liens arising from precautionary UCC financing statements regarding operating leases and (c) statutory and common law landlords' liens under leases to which the Borrower or any of its Subsidiaries is a party;
(v) Liens upon assets subject to Capitalized Lease
Obligations of the Borrower and its Subsidiaries, provided that (x) the
aggregate outstanding amount of such Capitalized Lease Obligations of
the Borrower and its Subsidiaries, and of Foreign Subsidiaries of the
Borrower, as the case may be, secured by Liens permitted by this clause
(v) shall not at any time exceed the amount of Capitalized Lease
Obligations of such respective Persons permitted to be outstanding
pursuant to Section 9.04(vii), (y) such Liens only serve to secure the
payment of Indebtedness arising under such Capitalized Lease Obligation
and (z) the Lien encumbering the asset giving rise to the Capitalized
Lease Obligation does not encumber any other asset of the Borrower or
any of its Subsidiaries;
(vi) Liens placed upon assets used in the ordinary course of business of the Borrower or any of its Subsidiaries at the time of acquisition or new construction thereof by the Borrower or any such Subsidiary or within 180 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price and/or construction costs thereof, plus renewals or extensions of such Liens, provided that (x) the aggregate outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries, and of Foreign Subsidiaries of the Borrower, as the case may be, secured by Liens permitted by this clause (vi) shall not at any time exceed the amount of Indebtedness of such respective Persons permitted to be outstanding pursuant to Section 9.04(vii) and (y) in all events, the Lien encumbering the assets so acquired or newly constructed does not encumber any other asset of the Borrower or such Subsidiary;
(vii) Liens existing on specific assets at the time acquired by the Borrower or any of its Subsidiaries or on assets of a Person at the time such Person is acquired by the Borrower or any of its Subsidiaries (together with Liens securing any extensions, renewals or refinancings of the Indebtedness secured thereby to the extent not increasing the outstanding principal amount thereof or extending to any other asset of the Borrower or its Subsidiaries), provided that (i) no such Liens were created at the time of or in
contemplation of the acquisition of such assets or Person by the Borrower and/or its Subsidiaries, (ii) in the case of any such acquisition of a Person, any Lien attaches only to a specific asset of such Person and not assets of such Person generally and (iii) the Indebtedness secured by any such Lien does not exceed 100% of the fair market value of the asset to which such Lien attaches, determined at the time of the acquisition of such asset or Person in good faith by the Borrower or its Subsidiary;
(viii) easements, rights-of-way, restrictions (including zoning restrictions), encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies, in each case whether now or hereafter in existence, not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;
(ix) Liens arising out of the existence of judgments or awards not constituting an Event of Default under Section 10.09;
(x) any interest or title of a lessor, sublessor, licensee or licensor under any lease or license agreement permitted by this Agreement;
(xi) Liens (other than any Lien imposed by ERISA) incurred in the ordinary course of business of the Borrower or any of its Subsidiaries in connection with workers' compensation, unemployment insurance and other social security legislation;
(xii) Liens (x) to secure the performance by the Borrower or any of its Subsidiaries of tenders, statutory obligations, surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (y) to secure the performance by the Borrower or any of its Subsidiaries of leases of Real Property, to the extent incurred or made in the ordinary course of business consistent with past practices;
(xiii) Liens in favor of customs and revenue authorities arising as a matter of law to secure the payment of customs duties in connection with the importation of goods;
(xiv) Liens on any assets of a Foreign Subsidiary securing Indebtedness otherwise permitted to be incurred by such Foreign Subsidiary pursuant to Section 9.04;
(xv) Liens on capital stock, equity interests or securities held by the Borrower or any of its Subsidiaries arising from "lock-up" or similar arrangements restricting the disposition thereof in connection with any public offering of any such stock, equity interests or securities; and
(xv) Liens not otherwise permitted by the foregoing clauses (i) through (xvi) to the extent attaching to properties and assets of the Borrower and its Domestic Subsidiaries with an aggregate fair value not in excess of $25,000,000 at any time.
9.02. Fundamental Changes. The Borrower will not, and will not permit any of its Material Subsidiaries to, consolidate with, merge into, or sell all or substantially all of the assets of the Borrower or any Material Subsidiary (whether in a single transaction or in a series of related transactions) to any other Person or permit any other Person to merge into the Borrower or any of its Material Subsidiaries, except that: the Borrower or any of its Material Subsidiaries may merge or consolidate with one another or any other Person so long as (i) both before and immediately after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing, (ii) in the case of a merger or consolidation involving the Borrower, the Borrower is the surviving Person, (iii) in the case of a merger or consolidation involving a Subsidiary Guarantor, the Subsidiary Guarantor is the surviving Person (unless the respective Subsidiary Guarantor is merging into or consolidating with the Borrower (in which case the Borrower will be the survivor thereof)), (iv) in the case of a merger or consolidation involving a Material Subsidiary, the Material Subsidiary is the surviving Person (unless the respective Material Subsidiary is merging into or consolidating with the Borrower or a Subsidiary Guarantor (in which case the Borrower or the respective Subsidiary Guarantor, as the case may be, will be the survivor thereof)) and (v) in the case of a merger or consolidation with or involving a Material Subsidiary or any third Person, such merger or consolidation, as the case may be, is consummated pursuant to an arm's length transaction and the Borrower or the Subsidiary receives at least fair market value therefor (as determined in good faith by the Borrower or such Subsidiary, as the case may be).
9.03. Asset Dispositions, Liquidation and Dissolution. The Borrower will not, and will not permit any of its Subsidiaries to, sell, liquidate, dissolve or otherwise dispose of the assets or equity interests of any Material Subsidiary, except that the Borrower and its Subsidiaries may sell or otherwise dispose of the assets or equity interests of any Material Subsidiary so long as (i) both before and immediately after giving effect to such sale or other disposition no Default or Event of Default shall have occurred and be continuing and (ii) each such sale or other disposition is in an arm's-length transaction and the Borrower or its Subsidiary receives at least fair market value therefor (as determined in good faith by the Borrower or such Subsidiary, as the case may be).
9.04. Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents;
(ii) Permitted Indebtedness;
(iii) (A) Subsidiaries of the Borrower may incur Indebtedness in an aggregate outstanding principal amount not to exceed $45,000,000 at any time, provided that both before and immediately after giving effect to each incurrence of such Indebtedness no Default or Event of Default shall have occurred and be continuing and (B) in addition to the Indebtedness permitted under preceding clause (A), Foreign Subsidiaries of the Borrower may incur Indebtedness for borrowed money, provided that (x) both before and immediately after giving effect to each incurrence of such Indebtedness, no Default or Event of Default shall have occurred and be continuing, (y) 100% of the Net Debt
Proceeds of each such incurrence of Indebtedness are applied in accordance with Sections 4.02(c) and (z) the aggregate principal amount of all such Indebtedness incurred pursuant to this clause (B) since the Restatement Effective Date shall not exceed $55,000,000;
(iv) Indebtedness outstanding on the Restatement Effective Date shall be permitted to the extent the same is listed on Schedule VI, together with any refinancings or renewals thereof, in each case so long as no additional obligors or guarantors, or security, is provided in connection with the respective such renewal or refinancing and so long as the principal amount is not increased as a result thereof;
(v) accrued expenses and current trade accounts payable incurred in the ordinary course of business;
(vi) Indebtedness under Interest Rate Protection Agreements entered into with respect to other Indebtedness permitted under this Section 9.04 so long as the entering into of such Interest Rate Protection Agreements are bona fide hedging activities and are not for speculative purposes;
(vii) Indebtedness of the Borrower or any of its
Subsidiaries evidenced by Capitalized Lease Obligations secured by
Liens permitted under Section 9.01(v), and Indebtedness secured by
Liens permitted under Section 9.01(vi), provided that (x) in no event
shall the Foreign Subsidiaries of the Borrower be permitted to have
outstanding at any time more than $25,000,000 of Capitalized Lease
Obligations and other Indebtedness pursuant to this clause (vii) and
(y) the aggregate principal amount of Capitalized Lease Obligations and
other Indebtedness of the Borrower and all of its Subsidiaries
permitted by this clause (vii) shall not exceed $35,000,000;
(viii) Indebtedness of the Borrower and its Subsidiaries under Other Hedging Agreements providing protection to the Borrower or any of its Subsidiaries against fluctuations in currency values or commodity prices in connection with the Borrower's or any of its Subsidiaries' operations so long as the entering into of such Other Hedging Agreements are bona fide hedging activities and not for speculative purposes;
(ix) Indebtedness arising from Investments permitted under Sections 9.05(xv), (xvi), (xvii), (xx), (xxi) and (xxii);
(x) Indebtedness in respect of bid, performance, advance payment or surety bonds entered into in the ordinary course of business consistent with past practices; and
(xi) Contingent Obligations of the Borrower or any of its Subsidiaries (a) as a guarantor of the lessee under any lease not prohibited hereunder pursuant to which the Borrower or any of its Subsidiaries is the lessee, (b) as a guarantor of Indebtedness of the Borrower or a Subsidiary, provided that such Indebtedness is otherwise permitted hereunder and (c) consisting of guarantees of lease payments owing by its customers in connection with vendor financing programs under which products of the Borrower and/or its Subsidiaries are sold to third party financing institutions which lease such products to such customers, provided that (1) the aggregate amount of such guarantees of the Foreign Subsidiaries of the Borrower outstanding at any time pursuant to this clause (c) shall not
exceed $10,000,000 and (2) the aggregate amount of all such guarantees of the Borrower and all of its Subsidiaries outstanding at any time pursuant to this clause (c) shall not exceed $25,000,000.
9.05. Advances, Investments and Loans. The Borrower will not, and will not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (each an "Investment" and, collectively, the "Investments") except:
(i) the Borrower and any of its Subsidiaries may acquire and hold cash and Cash Equivalents;
(ii) the Borrower and any of its Subsidiaries may acquire and hold receivables owing to such Person (including, without limitation, notes evidencing such receivables), if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such Subsidiary;
(iii) the Borrower and any of its Subsidiaries may acquire and own Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;
(iv) Interest Rate Protection Agreements entered into in compliance with Section 9.04(vi) shall be permitted;
(v) Investments in existence on the Restatement Effective Date and listed on Schedule VII, and other Investments received in exchange for or upon conversion of any such scheduled Investments, shall be permitted, but without giving effect to any other additions thereto or replacements thereof;
(vi) deposits made in the ordinary course of business consistent with past practices to secure the performance of leases shall be permitted;
(vii) loans and advances by the Borrower and any of its Subsidiaries to its employees in an aggregate outstanding principal amount not to exceed $5,000,000 shall be permitted;
(viii) Other Hedging Agreements entered into in compliance with Section 9.04(viii) shall be permitted;
(ix) the Borrower and any of its Subsidiaries may capitalize or forgive any Indebtedness owed to such Person by a Foreign Subsidiary and outstanding under clause (v) of this Section 9.05;
(x) so long as both before and immediately after giving effect thereto no Event of Default exists, the Borrower and its Subsidiaries may acquire assets and Persons (in whole or in part) operating within the businesses contemplated by Section 9.10;
(xi) the Borrower and any of its Subsidiaries may acquire and hold promissory notes issued by purchasers in connection with sales of other assets not otherwise prohibited by this Agreement;
(xii) the Borrower and any of its Domestic Subsidiaries may make and hold Investments in their respective Foreign Subsidiaries to the extent such Investments arise from the sale of inventory in the ordinary course of business by such Person to such Foreign Subsidiaries for resale by such Foreign Subsidiaries (including any Investments resulting from the extension of the payment terms with respect to such sales);
(xiii) the Borrower and any of its Subsidiaries may hold additional Investments in their respective Subsidiaries to the extent such Investments reflect an increase in the value of such Subsidiaries;
(xiv) any Foreign Subsidiary may make capital contributions to the capital of any of its Subsidiaries;
(xv) the Foreign Subsidiaries of the Borrower may make intercompany loans and advances to one another;
(xvi) loans and advances made by Foreign Subsidiaries to the Borrower or any of its Domestic Subsidiaries so long as such loans and advances are expressly subordinated to the Obligations in a manner satisfactory to the Administrative Agent;
(xvii) the Borrower may acquire and hold obligations of one or more officers or other employees of the Borrower or any of its Subsidiaries in connection with such officers' or employees' acquisition of shares of the Borrower's common stock so long as no cash is paid by the Borrower or any of its Subsidiaries in connection with the acquisition of any such obligations;
(xviii) the Borrower may make equity contributions to the capital of any of its Domestic Subsidiaries, and any Domestic Subsidiary may make equity contributions to the capital of any of its Domestic Subsidiaries;
(xix) the Borrower and the Domestic Subsidiaries may make intercompany loans and advances to one another, provided that any such loan or advance made by a Domestic Subsidiary that is not a Subsidiary Guarantor to the Borrower or a Subsidiary Guarantor shall be expressly subordinated to the Obligations in a manner satisfactory to the Administrative Agent;
(xx) the Borrower and its Domestic Subsidiaries may make Investments in Foreign Subsidiaries of the Borrower, provided that from and after such time when the aggregate amount of Investments made pursuant to this clause (xx) since the Restatement Effective Date exceeds $50,000,000, the Borrower or the respective Domestic Subsidiary
making such Investment shall be required to pledge (concurrently with the making of any such additional Investment in excess of $50,000,000) to the Administrative Agent (as security for the payment and performance of the Obligations hereunder and pursuant to a pledge agreement in form and substance satisfactory to the Administrative Agent) the equity interests of the respective Foreign Subsidiary in which such Investment is made that are owned by the Borrower or such Domestic Subsidiary, as the case may be, provided further, however, that unless there is a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder providing that a pledge of the type described above would not cause any undistributed earning of the respective Foreign Subsidiary to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, in no event shall the Borrower or its Domestic Subsidiary (as the case may be) be required, pursuant to this Agreement or any such pledge agreement, to pledge to the Administrative Agent more than 65% of the total combined voting power of all classes of capital stock of the respective Foreign Subsidiary;
(xxi) the Borrower may repurchase outstanding shares of its outstanding capital stock;
(xxii) the Borrower or any of its Subsidiaries may make Investments in any Foreign Subsidiary, provided that (x) the aggregate outstanding amount of Investments made pursuant to this clause (xxii) shall not exceed $75,000,000 and (y) within two Business Days following the making of any such Investment the Foreign Subsidiary in which such Investment was made shall have repaid to the Person that made such Investment the full amount thereof (whether by means of repayment, redemption, dividend or otherwise); and
(xxiii) in addition to investments permitted by clauses (i) through (xxii) above, the Borrower and its Subsidiaries may make additional Investments to or in a Person in an aggregate amount for all Investments made pursuant to this clause (xxiii) not to exceed $5,000,000 at any time outstanding (determined without regard to any write-downs or write-offs thereof), net of cash repayments of principal in the case of loans and cash equity returns (whether as a dividend or redemption) in the case of equity investments.
9.06. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate of the Borrower or any of its Subsidiaries, other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would reasonably be obtained by the Borrower or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except:
(i) transactions between or among the Borrower and/or one or more Subsidiaries of the Borrower and not involving any non-Subsidiary Affiliate of the Borrower shall be permitted;
(ii) customary fees may be paid to non-officer directors of the Borrower and its Subsidiaries;
(iii) the Borrower and its Subsidiaries may enter into employment arrangements with respect to the procurement of services with their respective officers and employees in the ordinary course of business; and
(iv) the Borrower and its Domestic Subsidiaries may make payments under the Tax Allocation Agreement.
9.07. Consolidated Leverage Ratio. The Borrower will not permit the Consolidated Leverage Ratio at any time to be greater than 2.50:1.00.
9.08. Minimum Interest Coverage Ratio. The Borrower will not permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters (taken as one accounting period), starting with the period ending December 31, 2003, to be less than 5.00:1.00.
9.09. Material Subsidiaries. (a) The Borrower will not at any time allow the Net Book Value of the assets directly owned by the Borrower and its Material Subsidiaries(1) to constitute less than 85% of the aggregate Net Book Value of the consolidated assets of the Borrower and all of its Subsidiaries.
(b) The Borrower will not allow the Combined EBITDA of the Borrower and its Material Subsidiaries for any period of four consecutive fiscal quarters (taken as one accounting period), starting with the period ending December 31, 2003, to constitute less than 85% of the Consolidated EBITDA of the Borrower and all of its Subsidiaries for such period.
9.10. Business. (a) The Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than substantially the same lines of business in which they are engaged on the Original Effective Date and reasonable extensions thereof and other businesses that are complimentary or reasonably related thereto.
(b) Notwithstanding the foregoing or anything else in this Agreement to the contrary, Waters Finance III will not engage in any business or own any significant assets or have any material liabilities, provided that Waters Finance III may engage in those activities that are incidental to (x) the maintenance of its existence in compliance with applicable law and (y) legal, tax and accounting matters in connection with any of the foregoing activities.
9.11. Limitation on Certain Restrictions on Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (x) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the Borrower or any of its Subsidiaries, (y) make loans or advances to the Borrower or any of its Subsidiaries or (z) transfer any of its properties or assets to the Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) other
Indebtedness permitted pursuant to Section 9.04, in each case so long as the encumbrances and restrictions contained therein are not more restrictive than those contained in this Agreement, (iv) holders of Permitted Liens may restrict the transfer of any assets subject thereto, (v) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or of any Subsidiary of the Borrower, and (vi) customary provisions restricting assignment of any licensing agreement entered into by the Borrower or any of its Subsidiaries in the ordinary course of business.
9.12. Limitation on Issuance of Capital Stock. (a) The Borrower will not issue (i) any Preferred Stock other than Qualified Preferred Stock or (ii) any redeemable common stock other than common stock that is redeemable at the sole option of the Borrower.
(b) The Borrower shall not permit any of its Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and additional issuances which do not decrease the percentage ownership of the Borrower or any of its Subsidiaries in any class of the capital stock of such Subsidiaries, (iii) to qualify directors to the extent required by applicable law, and (iv) for issuances by newly created or acquired Subsidiaries in accordance with the terms of this Agreement.
9.13. Special Provisions Relating to Waters Finance III. Notwithstanding the foregoing or anything else in this Agreement to the contrary, in no event shall the Borrower or any of its Subsidiaries (i) make any Investments in Waters Finance III or (ii) sell, transfer or dispose of any assets to Waters Finance III.
SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"):
10.01. Payments. The Borrower shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any Unpaid Drawings or interest on any Loan or Note, or any Fees or any other amounts owing hereunder or thereunder; or
10.02. Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or
10.03. Covenants. The Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(d)(i), 8.07, 8.09 or Section 9 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to the Borrower by the Administrative
Agent or any Lender; or
10.04. Default Under Other Agreements. (i) The Borrower or any of its Subsidiaries shall default in any payment of any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (ii) the Borrower or any of its Subsidiaries shall default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity; or (iii) any Indebtedness (other than the Obligations) of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or required to be prepaid other than (x) by a regularly scheduled required repayment or (y) as a mandatory prepayment (unless such required prepayment or mandatory prepayment results from a default thereunder or an event of the type that constitutes an Event of Default), prior to the stated maturity thereof, provided that it shall not be a Default or Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) through (iii), inclusive, is at least $15,000,000; or
10.05. Bankruptcy, etc. The Borrower or any of its Subsidiaries 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 or any of its Subsidiaries and the petition is not controverted within 30 days, or 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 any of its Subsidiaries, or the Borrower or any of its Subsidiaries commences any other proceeding under any 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 any of its Subsidiaries, or there is commenced against the Borrower or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days, or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries 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 or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or
10.06. ERISA. (a) Any Plan and/or Multiemployer 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 and/or Multiemployer Plan shall have had or is likely to have a trustee appointed to administer such Plan and/or Multiemployer Plan pursuant to Section 4042 of ERISA, any Plan and/or Multiemployer Plan shall have been or is reasonably expected to be terminated or to be the subject of termination proceedings under Section 4042 of ERISA, any Plan and/or Multiemployer Plan shall have an Unfunded Current Liability, a contribution required to be made to a Plan, Multiemployer Plan and/or Foreign Pension Plan has not been timely made, the
Borrower or any of its Subsidiaries or any ERISA Affiliate have incurred or is
reasonably expected to incur a liability to or on account of a Plan and/or
Multiemployer 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, or the Borrower or any of its Subsidiaries have incurred or are
reasonably expected to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) which provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or employee pension benefit plans (as defined in
Section 3(2) of ERISA) or Foreign Pension Plans; (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; (c) and in
each case in clauses (a) and (b) above, such lien, security interest or
liability, individually, or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect; or
10.07. Subsidiaries Guaranty. The Subsidiaries Guaranty or any provision thereof shall cease to be in full force or effect as to any Subsidiary Guarantor, or any Subsidiary Guarantor or Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under the Subsidiaries Guaranty, or any Subsidiary Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Subsidiaries Guaranty; or
10.08. Judgments. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate for the Borrower and its Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and the aggregate amount of all such judgments exceeds $15,000,000; or
10.09. Change of Control. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Lenders, shall by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of any Agent, any Lender or the holder of any Note to enforce its claims against any Credit Party (provided that, if an Event of Default specified in Section 10.05 shall occur with respect to the Borrower, the result of which would occur upon the giving of such written notice by the Administrative Agent to the Borrower as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately and any Commitment Commission and other Fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder 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 each Credit Party; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to the Borrower, it will pay) to the Administrative Agent at the Payment Office such additional amount of cash, to be
held as security by the Administrative Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Borrower then outstanding; and (v) apply any cash collateral held for the benefit of the Lenders pursuant to Section 4.02 to repay outstanding Obligations.
SECTION 11. Definitions and Accounting Terms.
11.01. Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Administrative Agent" shall mean DBTCA, in its capacity as Administrative Agent for the Lenders hereunder, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09.
"AEA" shall mean AEA Investors Inc.
"Affiliate" shall mean, with respect to any Person, any other Person (including, for purposes of Section 9.06 only, all directors, officers and partners of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 9.06, an Affiliate of the Borrower shall include any Person that directly or indirectly owns more than 10% of any class of the capital stock of the Borrower and any officer or director of the Borrower or any such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
"Agents" shall mean and include (i) the Administrative Agent,
(ii) for the purposes of Section 12 only, each RCF Co-Syndication Agent, each
TLF Co-Syndication Agent, each TLF Co-Arranger, each RCF Co-Arranger, the TLF
Co-Lead Arranger and the RCF Senior Managing Agent and (iii) for purposes of
Sections 12, 13.01, 13.12 and 13.15 only, the Lead Arranger.
"Agreement" shall mean this Credit Agreement, as modified, supplemented, amended, restated (including any amendment and restatement hereof), extended, renewed or replaced from time to time.
"Alternate Currency" shall mean, with respect to any Letter of Credit, Euros, British Pounds Sterling and Japanese Yen, and any other currency other than Dollars which is approved by the Issuing Lender with respect to such Letter of Credit and the Administrative Agent prior to the issuance of such Letter of Credit.
"Applicable Commitment Commission Percentage" and "Applicable
Margin" for any day during the respective Applicable Period shall mean (i) at
all times when there is not a Debt Rating issued by both Moody's and S&P (x)
with respect to Commitment Commission, the respective percentage per annum set
forth below under the column "Applicable Commitment Commission Percentage" and
(y) with respect to Loans, the respective percentage per annum set forth below
under the appropriate column below in this clause (i) and, in the case of
preceding
clauses (x) and (y), opposite the respective Level (i.e., Level 1, Level 2, Level 3, Level 4 or Level 5, as the case may be) indicated to have been achieved on the applicable Test Date (as shown in the respective officer's certificate delivered pursuant to Section 8.01(c) or the first proviso below):
Applicable Commitment
Commission Percentage
Loans maintained as (in respect of
Loans maintained as Base Rate Loans and Unutilized Revolving
Level Consolidated Leverage Ratio Eurodollar Loans Swingline Loans Commitments)
----- --------------------------- ---------------- --------------- ------------
5 Equal to or greater than 1.50% 0.50% 0.250%
2.00:1.00
4 Equal to or greater than
1.50:1.00, but less than 1.25% 0.25% 0.175%
2.00:1.00
3 Equal to or greater
than 1.00:1.00, but 1.00% 0.00% 0.150%
less than 1.50:1.00
2 Equal to or greater
than 0.50:1.00, but 0.75% 0.00% 0.125%
less than 1.00:1.00
1 Less than 0.50:1.00 0.60% 0.00% 0.125%
|
; provided, however, that if the Borrower fails to deliver the financial
statements required to be delivered pursuant to Section 8.01(a) or (b)
(accompanied by the officer's certificate required to be delivered pursuant to
Section 8.01(c) showing the applicable Consolidated Leverage Ratio on the
relevant Test Date) on or prior to the respective date required by such
Sections, then Level 5 pricing shall apply until such time, if any, as the
financial statements required as set forth above and the accompanying officer's
certificate have been delivered showing the pricing for the respective
Applicable Period is at a level which is less than Level 5 (it being understood
that, in the case of any late delivery of the financial statements and officer's
certificate as so required, any reduction in the Applicable Commitment
Commission Percentage or the Applicable Margin shall apply only from and after
the date of the delivery of the complying financial statements and officer's
certificate); provided further, that Level 2 pricing shall apply for the period
from the Restatement Effective Date through, but not including, the first Start
Date after the Restatement Effective Date; and
(ii) at all times when there is a Debt Rating issued by both Moody's and S&P (x) with respect to Commitment Commission, the respective percentage per annum set forth below under the column "Applicable Commitment Commission Percentage" and (y) with respect to Loans, the respective percentage per annum set forth below under the appropriate column below and in the case of preceding clauses (x) and (y), opposite the respective Level (i.e., Level 1, Level 2, Level 3, Level 4 or Level 5, as the case may be) that is currently then in effect based on the Debt Ratings:
Applicable Commitment
Commission Percentage
Loans maintained as (in respect of
Loans maintained as Base Rate Loans and Unutilized Revolving
Level Debt Rating Eurodollar Loans Swingline Loans Commitments)
----- ----------- ---------------- --------------- ------------
5 Ba1 or BB+ or lower 1.50% 0.50% 0.250%
4 Baa3 or BBB- 1.25% 0.25% 0.175%
3 Baa2 or BBB 1.00% 0.00% 0.150%
2 Baa1 or BBB+ 0.75% 0.00% 0.125%
1 A3 or A- or higher 0.60% 0.00% 0.100%
|
; provided that (a) in making the foregoing determinations, in the case of a split Debt Rating the higher Debt Rating shall apply and (b) any change in the Applicable Margin or the Applicable Commitment Commission pursuant to this clause (ii) due to a change in the Debt Rating shall be effective on the effective date of such change in the applicable Debt Rating.
"Applicable Period" shall mean, with respect to determinations made pursuant to clause (i) of the definition of Applicable Commitment Commission Percentage and Applicable Margin appearing in this Section 11.01, each period which shall commence on a date on which financial statements are delivered pursuant to Section 8.01(a) or (b), as the case may be, and which shall end on the date of actual delivery of the next financial statements pursuant to Section 8.01(a) or (b), as the case may be; provided that in the event that the Borrower does not deliver such next financial statements pursuant to Section 8.01(a) or (b), as the case may be, the Applicable Commitment Commission Percentage and Applicable Margin for the respective Applicable Period shall be subject to the first proviso contained in clause (i) of such definition.
"Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit H (appropriately completed).
"Authorized Representative" shall mean, with respect to (i) delivering Notices of Borrowing, Notices of Conversion/Continuation, Letter of Credit Requests and similar notices, any person or persons that has or have been authorized by the board of directors of the Borrower to deliver such notices pursuant to this Agreement and that has or have appropriate signature cards on file with the Administrative Agent, the Swingline Lender and each Issuing Lender; (ii) delivering financial information and officer's certificates pursuant to this Agreement, any financial officer of the respective Credit Party and (iii) any other matter in connection with this Agreement or any other Credit Document, any officer (or a person or persons so designated by any two officers) of the respective Credit Party.
"Bain Capital" shall mean Bain Capital, Inc.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Rate" shall mean the higher of (x) the Prime Lending Rate and (y) 1/2 of 1% in excess of the overnight Federal Funds Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each other Loan designated or deemed designated as such by the Borrower at the time of the incurrence thereof or conversion thereto.
"Borrower" shall have the meaning provided in the first paragraph of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan under a single Facility from all the Lenders having Commitments under the respective Facility on a pro rata basis (or from the Swingline Lender in the case of Swingline Loans) on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period; provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York interbank Eurodollar market.
"Capitalized Lease Obligations" of any Person shall mean all rental obligations which, in accordance with generally accepted accounting principles in the United States, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having maturities
of not more than one year from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof, the District of Columbia or any foreign
jurisdiction having capital, surplus and undivided profits aggregating in excess
of $200,000,000, with maturities of not more than one year from the date of
acquisition by such Person, (iii) repurchase obligations with a term of not more
than 90 days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(ii) above, (iv) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by S&P or at least
P-1 or the equivalent thereof by Moody's and in each case maturing not more than
one year after the date of acquisition by such Person and (v) investments in
money market funds substantially all of whose assets are comprised of securities
of the types described in clauses (i) through (iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. Section 9601 et seq.
"Change of Control" shall mean either of the following: (i) any Person or "group" (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as in effect on the date hereof), other than AEA, Bain Capital and/or their respective Related Parties and management of the Borrower, shall (A) have acquired beneficial ownership of 30% or more on a fully diluted basis of the economic and voting interest in the Borrower's capital stock or (B) have obtained the power (whether or not exercised) to elect a majority of the Borrower's directors or (ii) the first date on which Continuing Directors shall cease to constitute a majority of the board of directors of the Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provision of the Code, amendatory thereof, supplemental thereto or substituted therefor.
"Combined EBITDA" shall mean, with respect to the Borrower and its Material Subsidiaries for any period, the Consolidated EBITDA of the Borrower and such Material Subsidiaries for such period determined on a combined basis rather than on a consolidated basis.
"Commitment" shall mean any of the commitments of any Lender,
i.e., whether the Term Loan Commitment or the Revolving Commitment.
"Commitment Commission" shall have the meaning provided in
Section 3.01(a).
"Consolidated Debt" shall mean, at any time, all Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis, but excluding any Indebtedness incurred by any Foreign Subsidiaries for their working capital purposes to the extent that such Indebtedness is supported by a Letter of Credit.
"Consolidated EBIT" shall mean, for any period, Consolidated Net Income for such period, before (i) total interest expense of the Borrower and its Subsidiaries for such period determined on a consolidated basis and (ii) provision for taxes based on income that were included and arriving at Consolidated Net Income for such period and without giving effect to (x) any extraordinary gains or losses and (y) any gains or losses from sales of assets other than inventory sold in the ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT, adjusted by adding thereto the amount of all amortization of intangibles and depreciation, in each case that were deducted in arriving at Consolidated EBIT for such period.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the ratio of Consolidated EBITDA for such period to Consolidated Interest Expense for such period.
"Consolidated Interest Expense" shall mean, for any period, the total consolidated interest expense of the Borrower and its Subsidiaries for such period (calculated without regard to any limitations on the payment thereof) plus, without duplication, that portion of Capitalized Lease Obligations of the Borrower and its Subsidiaries representing the interest factor for such period; provided that the amortization of deferred financing and legal and accounting costs, administrative agent fees (in each case) with respect to this Agreement shall be excluded from Consolidated Interest Expense to the extent same would otherwise have been included therein.
"Consolidated Leverage Ratio" shall mean, at any time, the ratio of Consolidated Debt at such time to Consolidated EBITDA for the most recently ended four fiscal quarters (taken as one accounting period).
"Consolidated Net Income" shall mean, for any period, the net
after tax income of the Borrower and its Subsidiaries determined on a
consolidated basis (after any deduction for minority interests); provided that
in determining Consolidated Net Income (i) the net income of any Person that is
not a Subsidiary of the Borrower or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the Borrower or a Subsidiary thereof, (ii) the net
income of any Subsidiary of the Borrower shall be excluded to the extent that
the declaration or payment of dividends and distributions by that Subsidiary of
net income is not at the date of determination permitted by operation of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary or its stockholders and
(iii) the net income of any Person acquired by the Borrower or any of its
Subsidiaries in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made (or, if less, the maximum
amount of such primary obligation for which such Person may be liable pursuant
to the terms of the instrument evidencing such Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
"Continuing Directors" shall mean the directors of the Borrower on the Restatement Effective Date and each other director if such director's nomination for election to the board of directors of the Borrower is recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, the Subsidiaries
Guaranty and, after the execution and delivery thereof pursuant to the terms of
this Agreement, each Note and the Guaranty Acknowledgement and, after the
execution and delivery thereof, each additional guaranty executed pursuant to
Section 8.09.
"Credit Event" shall mean the making of any Loan or the issuance of any Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary Guarantor.
"DBTCA" shall mean Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company), in its individual capacity.
"Debt Rating" shall mean, on any date, each of the ratings most recently publicly announced by Moody's and S&P for the Borrower's senior unsecured long-term Indebtedness.
"Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a Lender Default is in effect.
"Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States.
"Domestic Subsidiary" shall mean (i) each Subsidiary of the Borrower other than Waters Finance III that is incorporated under the laws of the United States, any State or territory thereof or the District of Columbia; and (ii) each Subsidiary of the Borrower (other than Micromass Holdings Ltd.) that is incorporated or organized outside the United States, any State or territory thereof or the District of Columbia but which is treated as a partnership wholly-owned by the Borrower or a Domestic Subsidiary thereof or a disregarded entity pursuant to the provisions of Treasury Regulations Section 301.7701-3, provided that no such Subsidiary of the Borrower which is a Subsidiary of a Foreign Subsidiary that is not treated as provided above in this clause (ii) shall constitute a "Domestic Subsidiary" pursuant to this clause (ii).
"Drawing" shall have the meaning provided in Section 2.05(b).
"Eligible Transferee" shall mean and include a commercial bank, a financial institution, any fund that regularly invests in bank loans or other "accredited investor" (as defined in Regulation D of the Securities Act) but in any event excluding the Borrower and its Subsidiaries.
"Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief in connection with alleged injury or threat of injury to health, safety or the environment due to the presence of Hazardous Materials.
"Environmental Law" means any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on the Borrower or any
of its Subsidiaries, relating to the environment, employee health and safety or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C.
Section 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C.
Section 1801 et seq.; the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq. (to the extent it regulates occupational exposure to Hazardous
Materials); and any state and local or foreign counterparts or equivalents, in
each case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and 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 or any Subsidiary of 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 or (ii) as a result of the Borrower
or any Subsidiary of the Borrower being or having been a general partner of such
person.
"Eurodollar Loan" shall mean each Loan designated as such by the Borrower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean with respect to each Interest Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100 of 1%) of the offered quotation to first-class banks in the New York interbank Eurodollar market by DBTCA for U.S. dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of DBTCA for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, determined as of
10:00 A.M. (New York time) on the Interest Determination Date for 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 10.
"Existing Credit Agreement" shall have the meaning provided in the recitals of this Agreement.
"Existing Lender" shall mean each "Lender" under and as defined in the Existing Credit Agreement.
"Existing Letters of Credit" shall have the meaning provided in Section 2.01(a).
"Existing Revolving Loans" shall mean each "Revolving Loan" under and as defined in the Existing Credit Agreement.
"Existing Swingline Loans" shall mean each "Swingline Loan" under and as defined in the Existing Credit Agreement.
"Facility" shall mean the respective credit facility utilized in making Loans hereunder, with there being two separate Facilities, i.e., Term Loan credit facility and the Revolving Loan credit facility.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01.
"Foreign Pension Plan" means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiary residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean, as to any Person, each Subsidiary of such Person which is not a Domestic Subsidiary.
"Foreign Subsidiary Working Capital Indebtedness" shall mean Indebtedness of Foreign Subsidiaries of the Borrower under lines of credit extended by third Persons to such Foreign Subsidiaries the proceeds of which Indebtedness are used for such Foreign Subsidiaries' working capital purposes.
"Guaranty Acknowledgement" shall have the meaning provided in
Section 5.06.
"Hazardous Materials" means (a) any petroleum 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 any level of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority under Environmental Laws.
"Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person (to the extent of the value of the respective property), (iv) the aggregate amount required to be capitalized under leases under which such Person is the lessee, (v) all obligations of such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection Agreement, Other Hedging Agreement or under any similar type of agreement.
"Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Lender" shall mean DBTCA (which for purposes of this definition also shall include any banking affiliate of DBTCA) and any other Lender which at the request of the Borrower and with the consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing Letters of Credit pursuant to Section 2. On the Restatement Effective Date the sole Issuing Lender is DBTCA.
"Judgment Currency" shall have the meaning provided in Section 13.17.
"Judgment Currency Conversion Date" shall have the meaning provided in Section 13.17.
"L/C Supportable Obligations" shall mean obligations of the Borrower or its Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations, and all other obligations not otherwise prohibited by the terms of this Agreement.
"Lead Arranger" shall mean Deutsche Bank Securities Inc., in its individual capacity.
"Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures.
"Lender" shall mean each financial institution listed on
Schedule I, as well as any Person which becomes a "Lender" hereunder pursuant to
Section 1.13 or 13.04(b).
"Lender Default" shall mean (i) the refusal (which has not been retracted) or the failure of a Lender to make available its portion of any Borrowing (including any Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Lender having notified in writing the Borrower and/or the Administrative Agent that it does not intend to comply with its obligations under Section 1.01 or Section 2, in the case of either clause (i) or (ii) above as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the
UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing).
"Loan" shall mean each Revolving Loan, each Swingline Loan and each Term Loan.
"Majority Lenders" of any Facility shall mean those Non-Defaulting Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations of the other Facilities under this Agreement were repaid in full and all Commitments with respect thereto were terminated.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(c).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean (i) a material adverse
effect on the business, property, assets, operations, liabilities, financial
condition or prospects of the Borrower and its Subsidiaries taken as a whole or
(ii) a material adverse effect (x) on the rights or remedies of the Lenders or
any Agent hereunder or under any other Credit Document or (y) on the ability of
the Credit Parties taken as a whole to perform their obligations to the Lenders
or any Agent hereunder or under any other Credit Document.
"Material Subsidiary" shall mean each Subsidiary Guarantor and each other Subsidiary of the Borrower listed on Schedule VIII as same may be updated from time to time with the consent of the Administrative Agent and the Borrower.
"Maturity Date" shall mean February 12, 2007.
"Maximum Swingline Amount" shall mean $15,000,000.
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans, $1,000,000, (ii) for Swingline Loans, $250,000 and (iii) for Term Loans, $5,000,000.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an ERISA Affiliate and each such plan for the five year period immediately following the latest date on which the Borrower, any Subsidiaries of the Borrower or any ERISA Affiliates maintained, contributed to or had an obligation to contribute to such plan.
"NAIC" shall mean the National Association of Insurance Commissioners.
"Net Book Value" of any assets of the Borrower or any of its Subsidiaries shall mean the net book value of such assets after giving effect to intercompany eliminations in connection with intercompany loans, investments, accounts payable and other similar intercompany events among the Borrower and its Subsidiaries.
"Net Debt Proceeds" shall mean, with respect to any incurrence of Indebtedness for borrowed money, the cash proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) received by the respective Person from the respective incurrence of such Indebtedness.
"Non-Defaulting Lender" shall mean and include each Lender other than a Defaulting Lender.
"Note" shall mean each Revolving Note, each Term Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03(a).
"Notice of Conversion/Continuation" shall have the meaning provided in Section 1.06.
"Notice Office" shall mean the office of the Administrative Agent located at 90 Hudson Street, Fifth Floor, Jersey City, New Jersey 07302, Attention: Robert Telesca, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to any Agent, any Issuing Lender or any Lender pursuant to the terms of this Agreement or any other Credit Document.
"Original Effective Date" shall mean the "Effective Date" under, and as defined in, the Existing Credit Agreement.
"Other Hedging Agreements" shall mean any foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency or commodity values.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Administrative Agent located at 90 Hudson Street, Fifth Floor, Jersey City, New Jersey 07302, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Indebtedness" shall mean any unsecured Indebtedness for borrowed money incurred by the Borrower (which may be, but shall not be required to be, guaranteed on an unsecured basis by one or more Subsidiary Guarantors), so long as (i) both before and immediately after giving effect to the incurrence of such Indebtedness no Default or Event of Default shall have occurred and be continuing, (ii) based on calculations made by the Borrower, the Borrower shall be in compliance with the financial covenant contained in Section 9.07, both immediately before and after giving effect to each incurrence of such Indebtedness, (iii) within five Business Days prior to the incurrence of any such Indebtedness, the Borrower shall furnish to the Administrative Agent for distribution to each of the Lenders (x) all documentation
evidencing or relating to such Indebtedness and (y) an officer's certificate from the chief financial officer or treasurer of the Borrower certifying to the best of such officer's knowledge as to compliance with the requirements of the preceding clauses (i) and (ii) and containing the pro forma calculations required by the preceding clauses (i) and (ii), (iv) the terms and conditions (including without limitation maturity, mandatory repayments, representations and warranties, covenants and defaults), in the reasonable opinion of the Administrative Agent, are no more restrictive or onerous on the Borrower or any of its Subsidiaries than those set forth in this Agreement and (v) such Indebtedness (and any guarantees thereof) shall rank pari passu or junior to the Obligations hereunder and the Guaranteed Obligations under (and as defined in) the Subsidiaries Guaranty, as the case may be.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"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 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 a Subsidiary of the
Borrower or an ERISA Affiliate and each such plan for the five year period
immediately following the latest date on which the Borrower, a Subsidiary of the
Borrower or an ERISA Affiliate maintained, contributed or had an obligation to
contribute to such plan.
"Preferred Stock," as applied to the capital stock of any Person, means capital stock of such Person of any class or classes (however designed) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of capital stock of any other class of such Person, and shall include any Qualified Preferred Stock.
"Prime Lending Rate" shall mean the rate which DBTCA announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. DBTCA may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.
"Qualified Preferred Stock" means any Preferred Stock of the Borrower, the express terms of which shall provide that dividends thereon shall not be required to be paid in cash at any time that such cash payment would be prohibited by the terms of this Agreement or result in a Default or Event of Default hereunder, and in either case which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (including an event which would constitute a Change of Control), cannot mature and is not mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and is not redeemable, or required to be repurchased, at the sole option of the holder thereof (including, without limitation, upon the occurrence of an event which would constitute a Change of Control), in whole or in part, on or prior to the first anniversary of the Maturity Date.
"Quarterly Payment Date" shall mean the last Business Day of each February, May, August and November, occurring after the Restatement Effective Date.
"RCF Co-Arrangers" shall mean each of ABN AMRO Bank N.V., The Bank of New York, Citizens Bank of Massachusetts, Fleet National Bank, and jpmorgan Chase Bank, in each case in its individual capacity.
"RCF Co-Syndication Agents" shall mean each of ABN AMRO Bank N.V., The Bank of New York, Fleet National Bank, and jpmorgan Chase Bank, in each case in its individual capacity.
"RCF Senior Managing Agent" shall mean Barclays Bank PLC, in its individual capacity.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds.
"Register" shall have the meaning provided in Section 13.16.
"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 T" shall mean Regulation T 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.
"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.
"Regulation X" shall mean Regulation X 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.
"Related Party" shall mean (i) in the case of AEA, the executive employees, stockholders, directors and officers of AEA on the Original Effective Date and (a) trusts for the benefit of such Persons or the spouses, issue, parents or other relatives of such Persons, (b) entities controlling or controlled by such Persons and (c) in the event of the death of any such individual Person, heirs or testamentary legatees of such Person and (ii) in the case of Bain Capital, (a) any stockholder or partner of Bain Capital on the Original Effective Date or (b) any Affiliate of Bain Capital, provided that for purposes of the definition of "Change of Control", the term Related Party shall not include (x) any portfolio company of either Bain Capital or any Affiliate of Bain Capital or (y) any officer or director of the Borrower or any of its Subsidiaries that is not also a partner or stockholder of Bain Capital on the Original Effective Date.
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in
Section 1.13.
"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 subsection .22, .23, .25, .27, or .28 of PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum of whose outstanding Term Loans and Revolving Commitments (or after the termination thereof, outstanding Revolving Loans and RF Percentage of outstanding Swingline Loans and Letter of Credit Outstandings) represent greater than 50% of the sum of (i) all outstanding Term Loans of Non-Defaulting Lenders and (ii) the Total Revolving Commitment less the Revolving Commitments of all Defaulting Lenders (or, if the Total Revolving Commitment has been terminated, the sum of the then total outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate RF Percentages of all Non-Defaulting Lenders of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time).
"Restatement Effective Date" shall have the meaning provided in Section 13.10.
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan" shall have the meaning provided in Section 1.01(a).
"Revolving Commitment" shall mean, for each Lender, the amount
set forth opposite such Lender's name in Schedule I hereto directly below the
column entitled "Revolving Commitment," as same may be (x) reduced from time to
time and/or terminated pursuant to Sections 3.02, 3.03 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Lender pursuant to
Section 1.13 or 13.04(b).
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"RF Lender" shall mean each Lender with a Revolving Commitment and/or outstanding Revolving Loans.
"RF Percentage" of any Lender at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Commitment of such Lender at such time and the denominator of which is the Total Revolving Commitment at such time, provided that if the RF Percentage of any Lender is to be determined after the Total Revolving Commitment has been terminated, then the RF Percentages of the Lenders shall be determined immediately prior (and without giving effect) to such termination.
"S&P" shall mean Standard & Poor's Rating Services.
"SEC" shall have the meaning provided in Section 8.01(e).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b)(ii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Spot Exchange Rate" shall have the meaning provided in
Section 13.07(c).
"Start Date" shall mean the first day of any Applicable Period.
"Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met).
"Subsidiaries Guaranty" shall mean the Subsidiaries Guaranty, dated as of February 12, 2002, executed by the Subsidiary Guarantors party thereto pursuant to the requirements of the Existing Credit Agreement, as such Subsidiaries Guaranty is in effect on the Restatement Effective Date and as the same may be subsequently amended, modified or supplemented in accordance with the terms hereof and thereof.
"Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean each Wholly-Owned Domestic Subsidiary of the Borrower.
"Swingline Expiry Date" shall mean the date which is five Business Days prior to the Maturity Date.
"Swingline Lender" shall mean DBTCA.
"Swingline Loan" shall have the meaning provided in Section 1.01(b).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Tax Allocation Agreement" shall mean the Tax Sharing Agreement, dated as of August 18, 1994, among the Borrower and its Domestic Subsidiaries, as modified, amended or supplemented through the Restatement Effective Date.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(d).
"Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I hereto directly below the column entitled "Term Loan Commitment," as same may be (x) terminated pursuant to Section 3.03 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b).
"Term Loan Facility" shall mean the Facility utilized in making Term Loans hereunder.
"Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(b).
"Term Note" shall have the meaning provided in Section 1.05(a)
"Test Date" shall mean, with respect to any Applicable Period, the last day of the most recent fiscal quarter or fiscal year, as the case may be, ended immediately prior to the Start Date with respect to such Applicable Period.
"TLF Co-Syndication Agents" shall mean each of ABN AMRO Bank N.V., Citizens Bank of Massachusetts and Fleet National Bank, in each case in its individual capacity.
"TLF Co-Arranger" shall mean Barclays Bank PLC, Fleet National Bank, ABN AMRO Bank N.V. and Citizens Bank of Massachusetts, in each case in its individual capacity.
"TLF Co-Lead Arranger" shall mean JPMorgan Chase Bank, in its individual capacity.
"Total Commitment" shall mean, at any time, the sum of the Commitments of each of the Lenders.
"Total Revolving Commitment" shall mean, at any time, the sum of the Revolving Commitments of each of the Lenders at such time.
"Total Term Loan Commitment" shall mean, at any time, the sum of the Term Loan Commitments of each of the Lenders at such time.
"Total Unutilized Revolving Commitment" shall mean, at any time, an amount equal to the remainder of (i) the Total Revolving Commitment then in effect, less (ii) the sum of the aggregate principal amount of Revolving Loans and Swingline Loans outstanding plus the then aggregate amount of Letter of Credit Outstandings.
"Treasury Stock" shall mean the Borrower's common stock held by the Borrower in treasury.
"Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated benefits under the Plan as of the close of its most recent plan year each 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.
"United States" and "U.S." shall each mean the United States of America.
"Unpaid Drawing" shall have the meaning provided for in
Section 2.05(a).
"Unutilized Revolving Commitment" with respect to any Lender, at any time, shall mean such Lender's Revolving Commitment at such time less the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such Lender and (ii) such Lender's RF Percentage of the Letter of Credit Outstandings at such time.
"Voting Stock" shall mean, as to any Person, any class or classes of capital stock of such Person pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such Person.
"Waters Finance III" shall mean Waters Finance III LLC, a Delaware, limited liability company.
"Wholly-Owned Domestic Subsidiary" of any Person shall mean each Wholly-Owned Subsidiary of such Person which is also a Domestic Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time.
SECTION 12. The Agents.
12.01. Appointment. The Lenders hereby designate DBTCA as
Administrative Agent to act as specified herein and in the other Credit
Documents. The Lenders hereby designate (i) Fleet National Bank, ABN AMRO Bank
N.V., JPMorgan Chase Bank and The Bank of New York as RCF Co-Syndication Agents,
(ii) Fleet National Bank, ABN AMRO Bank N.V., Citizens Bank of Massachusetts,
JPMorgan Chase Bank and The Bank of New York as RCF Co-Arrangers, (iii) Fleet
National Bank, ABN AMRO Bank N.V. and Citizens Bank of Massachusetts as TLF
Co-Syndication Agents, (iv) Barclays Bank PLC, Fleet National Bank, ABN AMRO
Bank N.V. and Citizens Bank of Massachusetts, as TLF Co-Arrangers (v) Barclays
Bank PLC, as RCF Senior Managing Agent, (vi) JPMorgan Chase Bank, as TLF Co-Lead
Arranger, and (vii) Deutsche Bank Securities Inc., as Lead Arranger, in each
case, to act as specified herein and in the other Credit Documents. Each Lender
hereby irrevocably authorizes,
and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, each Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of each Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Each Agent may perform any of their duties hereunder by or through their respective officers, directors, agents, employees or affiliates.
12.02. Nature of Duties. The Agents shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents. No Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision). The duties of the Agents shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein.
12.03. Lack of Reliance on the Agents. Independently and without reliance upon any Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent nor any of its affiliates or any of its officers, directors, agents or employees shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrower and its Subsidiaries or the existence or possible existence of any Default or Event of Default.
12.04. Certain Rights of the Agents. If any Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and such Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender nor any holder of any Note shall have any
right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.
12.05. Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype, facsimile or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent (which may be counsel for the Credit Parties).
12.06. Indemnification. To the extent that any Agent is not reimbursed and indemnified by the Borrower, each Lender will reimburse and indemnify such Agent, in proportion to its "percentage" as used in determining the Required Lenders (determined as if there were no Defaulting Lenders) for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).
12.07. The Agents in Their Individual Capacity. With respect to its obligation to make Loans and participate in Letters of Credit under this Agreement, each Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "Majority Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower, or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.
12.08. Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.
12.09. Resignation. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrower and the Lenders. Any such resignation by an Administrative Agent hereunder shall also constitute its resignation as an Issuing Lender (if applicable) or the Swingline Lender, in which case upon the effectiveness of such resignation in accordance with this Section 12.09 the resigning Administrative Agent (x) shall not be required to issue any further Letters of Credit or make any additional Swingline Loans hereunder and (y) shall maintain all of its rights as an Issuing Lender and the Swingline Lender, as the case may be, with respect to any Letters of Credit issued by it or Swingline Loans made by it, in each case prior to the effective date of such resignation. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders shall, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed and shall not be required at any time when an Event of Default exists), appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company.
(c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed and shall not be required at any time when an Event of Default exists), shall then appoint a commercial bank or trust company with capital and surplus of not less than $500,000,000 as successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been
appointed pursuant to clause (b) or (c) above by the 20th Business Day after the
date such notice of resignation was given by the Administrative Agent, the
Administrative Agent's resignation shall become effective and the Required
Lenders shall thereafter perform all the duties of the Administrative Agent
hereunder and/or under any other Credit Document until such time, if any, as the
Required Lenders appoint a successor Administrative Agent as provided in clause
(b) above.
(e) Each RCF Co-Syndication Agent, each TLF Co-Syndication Agent, each RCF Co-Arranger, each TLF Co-Arranger, the TLF Co-Lead Arranger, the RCF Senior Managing Agent and the Lead Arranger may resign from the performance of all of such respective Agent's functions and duties hereunder and/or under the other Credit Documents at any time by giving five Business Days' prior written notice to the Administrative Agent. Such resignation shall take effect on the fifth Business Day after the respective notice is given to the Administrative Agent.
(f) Upon a resignation of any Agent pursuant to this
Section 12.09, such Agent shall remain indemnified to the extent provided in
this Agreement and the other Credit Documents and the provisions of this Section
12 shall continue in effect for the benefit of such Agent for all of its actions
and inactions while serving as an Agent.
12.10. RCF Co-Syndication Agents; TLF Co-Syndication Agents; RCF Co-Arrangers; TLF Co-Arrangers; TLF Co-Lead Arranger; RCF Senior Managing Agent; and Lead Arranger. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall impose on any RCF Co-Syndication Agent, any TLF Co-Syndication Agent, any RCF Co-Arranger, any TLF Co-Arranger, any TLF Co-Lead Arranger; the RCF Senior Managing Agent or the Lead Arranger, in each case in such capacity, any duties or obligations.
SECTION 13. Miscellaneous.
13.01. Payment of Expenses, etc. The Borrower shall: (i)
whether or not the transactions contemplated herein are consummated, pay all
reasonable out-of-pocket costs and expenses of (x) the Administrative Agent
(including, without limitation, the reasonable fees and disbursements of White &
Case LLP) in connection with the preparation, execution and delivery of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, (y) each Agent in connection with its syndication efforts
with respect to this Agreement and (z) the Administrative Agent and, following
and during the continuation of an Event of Default, each of the Lenders in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel and
consultants for the Administrative Agent and, following and during the
continuation of an Event of Default, for each of the Lenders) in each case
promptly following receipt of a reasonably detailed invoice therefor; (ii) pay
and hold each of the Lenders harmless from and against any and all present and
future stamp, excise and other similar taxes with respect to the foregoing
matters and hold each of the Lenders 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 such Lender) to pay such taxes; and (iii)
indemnify each Agent and each Lender (including in its capacity as an Issuing
Lender), and each of their respective officers, directors, employees,
representatives, affiliates and agents from and hold each of them harmless
against any and all liabilities, obligations (including removal or remedial
actions), losses, damages, penalties, claims, actions, judgments, suits, costs,
expenses and disbursements (including reasonable attorneys' and consultants'
fees and disbursements) incurred by, imposed on or assessed against any of them
as a result of, or arising out of, or in any way related to, or by reason of,
(a) any investigation, litigation or other proceeding (whether or not any Agent
or any Lender is a party thereto) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any transactions contemplated herein or in any other Credit Document or the
exercise of any of their rights or remedies provided herein or in the other
Credit Documents, or (b) the actual or alleged presence of Hazardous Materials
in the air, surface water or groundwater or on the surface or subsurface of any
Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries, the generation, storage, transportation, handling or disposal of
Hazardous Materials at any location, whether or not owned or operated by the
Borrower or any of its Subsidiaries, the non-compliance of any Real Property
with foreign, federal, state and local laws, regulations, and ordinances
(including applicable permits thereunder) applicable to any Real Property, or
any Environmental Claim asserted against the Borrower, any of its Subsidiaries,
or any Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries, including, in each case, without limitation, the reasonable fees
and disbursements of counsel and other consultants incurred in connection
with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified (as determined by a court of competent jurisdiction in a final and non-appealable decision)). To the extent that the undertaking to indemnify, pay or hold harmless any Agent or any Lender set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law.
13.02. 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, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the 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 such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of all Credit Parties to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.
13.03. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at the Borrower's address specified opposite its signature below; if to any other Credit Party, at such Credit Party's address set forth in the Subsidiaries Guaranty; if to any Lender, at its address specified on Schedule II below; and if to the Administrative Agent, at the Notice Office; or, as to any Credit Party or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Lender, at such other address as shall be designated by such Lender in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Administrative Agent and the Borrower shall not be effective until received by the Administrative Agent or the Borrower, as the case may be.
13.04. 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, however, that the Borrower may not assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of all of the Lenders and, provided further, that although any Lender may transfer, assign or grant participations in its rights hereunder, such Lender shall remain a "Lender" for all
purposes hereunder (and may not transfer or assign all or any portion of its Commitments or outstanding Loans hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Lender" hereunder and, provided further, that no Lender shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan or Note or extend the expiry date of any Letter of Credit beyond the Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof) or (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender together with one or more other Lenders) may (x) assign all or a portion of its Commitments and related outstanding Obligations (or, if the Commitments with respect to the relevant Facility have terminated, outstanding Obligations) hereunder to (i) its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or to one or more other Lenders or (ii) in the case of any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans that is managed by the same investment advisor of such Lender or by an Affiliate of such investment advisor or (y) assign all, or if less than all, a portion equal to at least (I) in the case of Revolving Commitments (and related outstandings) $5,000,000 and (II) in the case of Term Loans $1,000,000, in each case in the aggregate for the assigning Lender or assigning Lenders, of such Commitments and related outstanding Obligations hereunder (or, if the Commitments with respect to the relevant Facility have terminated, outstanding Obligations) to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement, provided that (i) at such time Schedule I shall be deemed modified to reflect the Commitments and/or outstanding Loans, as the case may be, of such new Lender and of the existing Lenders, (ii) at the request of the assignee Lender, and upon surrender of the relevant Notes or the provision of a customary lost note indemnification agreement from the assignor or assignee Lender, as the case may be, new Notes will be issued, at the Borrowers' expense, to such new Lender and to the assigning Lender, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments and/or outstanding Loans, as the case may be, (iii) the consent of the Administrative Agent and (so long as no Default or Event of Default then exists and is continuing) the Borrower shall be required in connection with any such assignment pursuant to clause (y) above (each of which consents shall not be unreasonably withheld or delayed), (iv) in
the case of any assignment of Revolving Commitments and related outstanding
Obligations, the consent of each Issuing Lender shall be required (which consent
shall not be unreasonably withheld or delayed) and (v) the Administrative Agent
shall receive at the time of each such assignment, from the assigning or
assignee Lender, the payment of a non-refundable assignment fee of $3,500 and,
provided further, that such transfer or assignment will not be effective until
recorded by the Administrative Agent on the Register pursuant to Section 13.16
hereof. To the extent of any assignment pursuant to this Section 13.04(b), the
assigning Lender shall be relieved of its obligations hereunder with respect to
its assigned Commitments and outstanding Loans. At the time of each assignment
pursuant to this Section 13.04(b) to a Person which is not already a Lender
hereunder and which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall provide to the Borrower and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable a Section
4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an
assignment of all or any portion of a Lender's Commitments and related
outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would,
at the time of such assignment, result in increased costs under Section 1.10,
1.11 or 4.04 greater than those being charged by the respective assigning Lender
prior to such assignment, then the Borrower shall not be obligated to pay such
greater increased costs (although the Borrower shall be obligated to pay any
other increased costs of the type described above resulting from changes after
the date of the respective assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with the consent of the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to its trustee or to a collateral agent providing credit or credit support to such Lender in support of its obligations to its trustee or such collateral agent, as the case may be. No pledge pursuant to this clause (c) shall release the transferor Lender from any of its obligations hereunder.
13.05. No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower or any other Credit Party and any Agent or any Lender or the holder of any Note 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, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Agent or any Lender or the holder of any Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Agent or any Lender or the holder of any Note to any other or further action in any circumstances without notice or demand.
13.06. Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Lenders (other than any Lender that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Commission or other Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the Borrower to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
13.07. Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders), provided that except as otherwise specifically provided herein, all computations of Applicable Commitment Commission Percentage and the Applicable Margin, and all computations and all definitions (including accounting terms) used in determining compliance with Sections 9.07, 9.08 and 9.09, shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements referred to in Section 7.05(a).
(b) All computations of interest on Eurodollar Loans hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. All computations of interest on Base Rate Loans and computations of Fees hereunder shall be made on the basis of a year of 365/366 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or Fees are payable.
(c) All determinations of the Stated Amount of Letters of Credit and of the principal amount of Unpaid Drawings, in each case to the extent denominated in an Alternate Currency, shall be made by converting same into Dollars at (x) in the case of a determination of the Borrower's obligation to reimburse an Unpaid Drawing under a Letter of Credit denominated in an Alternate Currency, the spot exchange rate of the Issuing Lender of such Letter of Credit or (y) if the provisions of the foregoing clause (x) are not applicable, the "official" exchange rate (if applicable) or the spot exchange rate for the Alternate Currency in question calculated by the Administrative Agent (each such exchange rate, the "Spot Exchange Rate"). The Spot Exchange Rate used to make determinations of the Stated Amount of any Letter of Credit and any Unpaid Drawings for the purposes of Sections 1.01(a), 1.01(b), 2.01(c) and 4.02(a), shall be calculated (i) on the Restatement Effective Date, (y) on the first Business Day of each calendar month thereafter and (z) on such other day as the Administrative Agent may, in its sole discretion, consider appropriate. The Spot Exchange Rate used to make determinations of the Borrower's reimbursement obligations with respect to Unpaid Drawings (including, without limitation, pursuant to Sections 2.04 and 2.05) shall be determined using the Spot Exchange Rate as in effect on the date of the Issuing Lender's payment in respect of the Letter of Credit giving rise to the Unpaid Drawing.
13.08. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (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, IN EACH CASE WHICH ARE LOCATED IN THE COUNTY 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. THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER IT, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER IT. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST 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.
(c) 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.
13.09. 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 set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent.
13.10. Effectiveness. This Agreement shall become effective on the date (the "Restatement Effective Date") on which (i) the Borrower, each Existing Lender and each Lender with a Term Loan Commitment shall have executed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile) the same to the Administrative Agent at the Notice Office or, in the case of the Lenders, shall have given the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that same has been signed and mailed to it and (ii) each of the conditions contained in Section 5 are met to the satisfaction of the Administrative Agent and the Required Lenders. Unless the Administrative Agent has received actual notice from any Lender that the conditions contained in Section 5 have not been met to its reasonable satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Administrative Agent's good faith determination that the conditions described in clause (ii) of the immediately preceding sentence have been met, then the Restatement Effective Date shall have been deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the Restatement Effective Date shall not release the Borrower from any liability for failure to satisfy one or more of the applicable conditions contained in Section 5). The Administrative Agent will give the Borrower and each Lender prompt written notice of the occurrence of the Restatement Effective Date.
13.11. 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.
13.12. Amendment or Waiver; etc. (a) 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 respective Credit Parties party thereto
and the Required Lenders, provided that no such change, waiver, discharge or
termination shall, without the consent of each Lender (other than a Defaulting
Lender) (with Obligations being directly affected thereby in the case of
following clause (i)), (i) extend the final scheduled maturity of any Loan or
Note, or extend the stated maturity of, or any reimbursement obligation under,
any Letter of Credit beyond the Maturity Date, or reduce the rate or extend the
time of payment of interest or Fees (it being understood that any amendment or
modification to the financial definitions in this Agreement or to Section
13.07(a) shall not constitute a reduction in the rate of interest or Fees for
the purposes of this clause (i)), or reduce the principal amount thereof, or
reduce any reimbursement obligations under any Letter of Credit, (ii) amend,
modify or waive any provision of this Section 13.12 (except for technical
amendments with respect to additional extensions of credit under this Agreement
of the type which afford the protections to such additional extensions of credit
provided to the Term Loans and the Revolving Commitments on the Restatement
Effective Date), (iii) reduce the percentage specified in the definition of
Required Lenders (it being understood and agreed that, with the consent of the
Required Lenders, additional extensions of credit pursuant to this Agreement may
be included in the determination of the Required Lenders on substantially the
same basis as the Term Loans and the Revolving Commitments are included on the
Restatement Effective Date) or (iv) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement; provided
further, that no such change, waiver, discharge or termination shall (1)
increase the Commitment of any Lender over the amount thereof then in effect
without the consent of such Lender (it being understood and agreed that waivers
or modifications of conditions precedent, covenants (including, without
limitation, by means of modifications to the financial definitions or
modifications in the method of calculation of any financial covenants), Defaults
or Events of Default or of a mandatory reduction in the Total Commitment shall
not constitute an increase of the Commitment of any Lender, and that an increase
in the available portion of any Commitment of any Lender shall not constitute an
increase in the Commitment of such Lender), (2) without the consent of the
respective Issuing Lender or Issuing Lenders, amend, modify or waive any
provision of Section 2 with respect to Letters of Credit issued by it or alter
its rights or obligations with respect to Letters of Credit, (3) without the
consent of the Swingline Lender, amend, modify or waive any provision of
Sections 1.01(b) and (c) or alter its rights and obligations with respect to
Swingline Loans, (4) without the consent of each Agent affected thereby, amend,
modify or waive any provision of Section 12 as same applies to such Agent or any
other provision as same relates to the rights or obligations of such Agent or
(5) without the consent of the Majority Lenders with respect to Term Loan
Facility, amend, modify or waive any Term Loan Scheduled Repayment.
(b) If, in connection with any proposed change, waiver,
discharge or termination to any of the provisions of this Agreement as
contemplated by clauses (i) through (iv), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then the Borrower shall have the right, so long as all non-consenting
Lenders whose individual consent is required are treated as described in either
clauses (A) or (B) below, to either (A) replace each such non-consenting Lender
or Lenders with one or more Replacement Lenders pursuant to Section 1.13 so long
as at the time of such replacement, each such Replacement
Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Revolving Commitment (and repay such non-consenting Lender's outstanding Revolving Loans) and/or repay such non-consenting Lender's outstanding Term Loans, in each case, in accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless such Revolving Commitment is terminated, and Loans repaid, pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Revolving Commitment and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Lenders (determined before giving effect to the proposed action) shall specifically consent thereto, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Revolving Commitment or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.12(a).
13.13. Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06 shall, survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans.
13.14. Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.06 or 4.04 from those being charged by the respective Lender prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer).
13.15. Confidentiality. (a) Subject to the provisions of clauses (b) and (d) of this Section 13.15, each Lender agrees that it will not disclose without the prior consent of the Borrower (other than to its employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.15 to the same extent as such Lender) any information with respect to the Borrower or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document and which is designated by the Borrower to the Lenders in writing as confidential, provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Lender, (e) to any Agent, (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, provided that such prospective transferee agrees to be subject to the provisions contained in this Section 13.15 and (g) to the NAIC or any similar organization or any nationally recognized rating agency that requires access
to information about such Lender's investment portfolio in connection with ratings issued to such Lender.
(b) The Borrower hereby acknowledges and agrees that each Lender may share with any of its Affiliates any information related to the Borrower or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of the Borrower and its Subsidiaries), provided such Persons shall be subject to the provisions of this Section 13.15 to the same extent as such Lender.
(c) The Borrower hereby represents and acknowledges that, to the best of its knowledge, no Agent nor any Lender, nor any employees or agents of, or other persons affiliated with, any Agent or any Lender, have directly or indirectly made or provided any statement (oral or written) to the Borrower, any Credit Party or to any of their respective employees or agents, or other persons affiliated with or related to such Credit Party (or, so far as such Credit Party is aware, to any other Person), as to the potential tax consequences of this Agreement, any other Credit Document or any of the transactions contemplated hereby or thereby.
(d) No Agent nor any Lender provides accounting, tax or
legal advice. Notwithstanding any express or implied claims of exclusivity or
proprietary rights, each of the Borrower on behalf of itself and each other
Credit Party, each Agent and each Lender, in each case hereby agrees and
acknowledges that the Borrower, each Credit Party, each Agent and each Lender
(and each of their respective employees, representatives or other agents) are
authorized to disclose to any and all Persons, beginning immediately upon
commencement of their discussions and without limitation of any kind, the tax
treatment and tax structure of this Agreement, any other Credit Document or any
of the transactions contemplated hereby or thereby, and all materials of any
kind (including opinions or other tax analyses) that are provided to any Credit
Party, any Agent or any Lender relating to such tax treatment and tax structure.
In this regard, the Borrower on behalf of itself and each Credit Party, each
Agent and each Lender acknowledges and agrees that the disclosure of the tax
treatment and tax structure of this Agreement, any other Credit Document or any
of the transactions contemplated hereby or thereby is not limited in any way by
an express or implied understanding or agreement, oral or written (whether or
not such understanding or agreement is legally binding). For purposes of this
authorization, "tax" means United States Federal income tax, "tax treatment"
means the purported or claimed Federal income tax treatment of the transaction,
and "tax structure" means any fact that may be relevant to understanding the
purported or claimed Federal income tax treatment of the transaction. This
Section 13.15(d) is intended to reflect the understanding of the Borrower, each
Credit Party, each Agent and each Lender that this Agreement, each other Credit
Document and any of the transactions contemplated hereby or thereby is, in each
case not a "confidential transaction" as that phrase is used in Treasury
Regulation ss. 1.6011-4(b)(3)(i), and shall be interpreted in a manner
consistent therewith. Nothing herein is intended to imply that the Borrower or
any other Credit Party, any Agent or any Lender made or provided a statement,
oral or written, to, or for the benefit of, any such Person as to any potential
tax consequences that are related to, or may result from, this Agreement, any
other Credit Document or any of the transactions contemplated hereby or thereby.
13.16. Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 13.16, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.16.
13.17. Judgment Currency. (a) The Credit Parties' obligations
hereunder and under the other Credit Documents to make payments in Dollars shall
not be discharged or satisfied by any tender or recovery pursuant to any
judgment expressed in or converted into any currency other than Dollars, except
to the extent that such tender or recovery results in the effective receipt by
the Administrative Agent or the respective Lender of the full amount of Dollars
expressed to be payable to the Administrative Agent or such Lender under this
Agreement or the other Credit Documents. If for the purpose of obtaining or
enforcing judgment against any Credit Party in any court or in any jurisdiction,
it becomes necessary to convert into or from any currency other than Dollars
(such other currency being hereinafter referred to as the "Judgment Currency")
an amount due in Dollars, the conversion shall be made at the Spot Exchange Rate
thereof determined, in each case, on the day on which the judgment is given
(such Business Day being hereinafter referred to as the "Judgment Currency
Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrower covenants and agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of Dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate or exchange prevailing on the Judgment Currency Conversion Date.
(c) For the purposes of determining the Spot Exchange Rate or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of Dollars.
*****
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written.
Address:
WATERS CORPORATION
34 Maple Street
Milford, MA 01757-3696
Telephone: (508) 482-2314 By: /s/ John A. Ornell
Facsimile: (508) 482-2249 -----------------------------
Facsimile: (508) 482-2249 Name: John A. Ornell
Title: Vice President - Finance and
Attention: John E. Lynch Administration, Chief
Financial Officer, Assistant
Treasurer and Assistant
Secretary
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DEUTSCHE BANK TRUST COMPANY
AMERICAS, Individually and
as Administrative Agent
By: /s/ Scottye Lindsey
-------------------
Name: Scottye Lindsey
Title: Vice President
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ABN AMRO Bank N.V.
By: /s/ Alexander M. Blodi
----------------------
Name: Alexander M. Blodi
Title: Director
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ABN AMRO Bank N.V.
ALLIED IRISH BANKS P.L.C
THE GOVERNOR AND COMPANY OF THE BANK
OF IRELAND
The Bank of New York
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
BARCLAYS BANK PLC
Citizens Bank of Massachusetts
Fleet National Bank
HSBC Bank USA
MELLON BANK, N.A.
SOCIETE GENERALE
JPMorgan Chase Bank
KeyBank National Association
By: James A. Taylor
Name: James A. Taylor
Title: Vice President
SCHEDULE I Commitments
SCHEDULE II Lender Addresses
SCHEDULE III Existing Letters of Credit
SCHEDULE IV Subsidiaries
SCHEDULE V Existing Liens
SCHEDULE VI Existing Indebtedness
SCHEDULE VII Existing Investments
SCHEDULE VIII Material Subsidiaries
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Conversion/Continuation
EXHIBIT B-1 Revolving Note
EXHIBIT B-2 Swingline Note
EXHIBIT B-3 Term Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of Bingham McCutchen LLP, special counsel to
the Credit Parties
EXHIBIT F Officers' Certificate
EXHIBIT G Guaranty Acknowledgment
EXHIBIT H Assignment and Assumption Agreement
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Exhibit 21.1
WATERS CORPORATION AND SUBSIDIARIES
Waters Corporation (Delaware)
Waters Technologies Corporation (Delaware)
Waters Australia PTY LTD. (Australia)
Waters A/S (Denmark)
Waters AG (Switzerland)
Waters NV (Belgium)
Waters Cromatografia SA (Spain)
Waters SA de CV (Mexico)
Waters Comercial Ltda (Brazil)
Waters OY (Finland)
Waters Ges.MBH (Austria)
Waters Kft (Hungary)
Waters Sp.Zo.o (Poland)
Waters SA (France)
Micromass SA (France)
Waters GmbH (Germany)
Creon Lab Control AG
Creon Lab Control Srl (Romania)
Waters SpA (Italy)
Waters Sverige AB (Sweden)
Waters Limited (Canada)
TA Instruments-Waters LLC (Delaware)
TA Instruments, Inc. (Delaware)
Creon Lab Control Inc. (Delaware)
Waters France Holding Corp. (Delaware)
Waters Investments Limited (Delaware)
Waters India Pvt. Ltd.(India)
Esbee Wire Pvt. Ltd. (India)
Waters Asia Limited (Delaware)
Waters Korea (Korea)
Waters China Ltd. (Hong Kong)
Waters Int'l Trading Limited (China)
Nihon Waters Limited (Delaware)
Nihon Waters K.K. (Japan)
Rheometric Scientific F.E. Ltd
TA Instruments Japan, Inc. (Japan)
Microsep Proprietary Ltd (So. Africa) (24.5%)
Waters Investments Ltd. (Delaware) (continued)
Waters Finance I LLC
Waters Finance II LLC
Waters Finance IV LLC
Waters European Holdings LLP
Milford International Limited
Manchester International Limited
MM European Holdings LLP
Waters Finance III LLC
Waters Luxembourg SARL
Waters Tech. Holdings Ltd (Ireland)
Subsidiaries of Waters Luxembourg SARL
Micromass Holdings Ltd.
Waters Chromatography BV (Netherlands)
Waters Chromatography Europe BV (Netherlands)
Micromass Ltd. (UK)
Waters Ltd. (UK)
Phase Sep Ltd. (UK)
Phase Sep Eurl (France)
Longpure (UK)
Phase Sep. BV (Netherlands)
Micromass UK Ltd. (UK)
Micromass Investments Ltd. (UK)
Mass Analyser Prod Ltd. (UK)
Micromass International Ltd. (UK)
Micromass B.V. (Netherlands)
Micromass SA (Spain)
Micromass AB (Sweden)
TA Instruments Ltd. (UK)
Sandygrow Ltd. (Ireland)
Rodolfo Holding Ltd. (Ireland)
Milford Finance BV (Netherlands)
Waters Chromatography Ireland Ltd. (Ireland)
Waters Tech. Ireland Ltd. (Ireland)
* All subsidiaries are 100% owned unless otherwise indicated.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-110613, 333-92332, 333-60054, 333-81723, 333-18371) of Waters Corporation of our report dated January 28, 2004, except as to Note 22 which is as of March 12, 2004, relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 12, 2004
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas A. Berthiaume, the Chief Executive Officer of Waters Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Waters Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004
/s/ Douglas A. Berthiaume
-------------------------------------
Douglas A. Berthiaume
Chief Executive Officer
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Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Ornell,the Chief Financial Officer of Waters Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Waters Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e)for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2004
/s/ John Ornell
-------------------------------------
John Ornell
Chief Financial Officer
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Exhibit 32.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT Of 2002
The certification set forth below is hereby made solely for the purpose of satisfying the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and may not be relied upon or used for any other purposes.
In connection with the Annual Report of Waters Corporation (the
"Company") on Form 10-K for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Douglas
A. Berthiaume, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 12, 2004
By: /s/ Douglas A. Berthiaume
---------------------------------
Douglas A. Berthiaume
Chief Executive Officer
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Exhibit 32.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is hereby made solely for the purpose of satisfying the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and may not be relied upon or used for any other purposes.
In connection with the Annual Report of Waters Corporation (the
"Company") on Form 10-K for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), 1, John
Ornell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge: (1) the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 12, 2004
By: /s/ John Ornell
---------------------------------
John Ornell
Chief Financial Officer
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