FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-16167
MONSANTO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 43-1878297
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
(Address of principal executive offices)
(Zip Code)
(314) 694-1000
(Registrant's telephone number, including area code)
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.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at
Class August 9, 2002
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Common Stock, $0.01 par value 261,265,808 shares
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Statement of Consolidated Income (Loss) of Monsanto Company and subsidiaries for the three months and six months ended June 30, 2002, and June 30, 2001, the Condensed Statement of Consolidated Financial Position as of June 30, 2002, and Dec. 31, 2001, the Condensed Statement of Consolidated Cash Flows for the three months and six months ended June 30, 2002, and June 30, 2001, and related Notes to Consolidated Financial Statements follow. Unless otherwise indicated, "Monsanto," "Monsanto Company" and "the company" are used interchangeably to refer to Monsanto Company or to Monsanto Company and consolidated subsidiaries, as appropriate to the context. With respect to the time period prior to the separation of Monsanto's businesses from those of Pharmacia Corporation (Pharmacia) on Sept. 1, 2000, references to "Monsanto" or "the company" also refer to the agricultural division of Pharmacia. See Note 1 - Background and Basis of Presentation - of Notes to Consolidated Financial Statements for further details. Unless otherwise indicated, "earnings per share" and "per share" mean diluted earnings per share. In tables, all dollars are in millions, except share and per share amounts.
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (LOSS)
(Dollars in millions, except per share amounts)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $ 1,553 $ 2,011 $ 2,774 $ 3,317
Cost of Goods Sold 735 822 1,352 1,521
-------- -------- ------- -------
Gross Profit 818 1,189 1,422 1,796
Operating Expenses:
Selling, general and administrative expenses 237 315 532 622
Bad debt expense 164 3 167 6
Research and development expenses 137 136 256 270
Amortization and adjustments of goodwill -- 30 -- 61
Restructuring charges - net 57 31 57 52
-------- -------- -------- -------
Total Operating Expenses 595 515 1,012 1,011
Income From Operations 223 674 410 785
Interest Expense (20) (34) (38) (57)
Interest Income 5 9 9 13
Other Income (Expense) - net 7 (28) (36) (32)
-------- -------- -------- -------
Income Before Income Taxes and Cumulative Effect of Accounting
Change 215 621 345 709
Income tax provision (68) (232) (112) (265)
-------- -------- -------- -------
Income Before Cumulative Effect of Accounting Change 147 389 233 444
Cumulative effect of a change in accounting principle -
net of tax benefit of $162 -- -- (1,822) --
-------- -------- -------- -------
Net Income (Loss) $ 147 $ 389 $(1,589) $ 444
======== ======== ======== =======
Basic Earnings (Loss) per Share:
Income before cumulative effect of accounting change $ 0.56 $ 1.51 $ 0.90 $ 1.72
Cumulative effect of a change in accounting principle -- -- (7.01) --
-------- -------- -------- -------
Net Income (Loss) $ 0.56 $ 1.51 $ (6.11) $ 1.72
======== ======== ======== =======
Diluted Earnings (Loss) per Share:
Income before cumulative effect of accounting change $ 0.56 $ 1.47 $ 0.88 $ 1.68
Cumulative effect of a change in accounting principle -- -- (6.90) --
-------- -------- -------- -------
Net Income (Loss) $ 0.56 $ 1.47 $ (6.02) $ 1.68
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Weighted Average Shares Outstanding:
Basic 261.2 258.1 260.0 258.1
Diluted 264.3 263.5 263.8 263.5
Dividends per Share $ 0.12 $ 0.12 $ 0.24 $ 0.24
See the accompanying notes to consolidated financial statements.
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MONSANTO COMPANY AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Dollars in millions, except share amounts)
Unaudited
June 30, Dec. 31,
2002 2001
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ASSETS
Current Assets:
Cash and cash equivalents $ 277 $ 307
Trade receivables, net of allowances of $318 in 2002 and $177 in 2001 2,913 2,307
Miscellaneous receivables 485 449
Related-party loan receivable 16 30
Related-party receivable 13 44
Deferred tax assets 253 251
Inventories 1,239 1,357
Other current assets 43 52
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Total Current Assets 5,239 4,797
Property, Plant and Equipment - net 2,477 2,627
Goodwill - net 758 2,748
Other Intangible Assets - net 670 691
Other Assets 700 566
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Total Assets $ 9,844 $ 11,429
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LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Short-term debt $ 1,027 $ 563
Related-party short-term loan payable 194 254
Accounts payable 339 457
Related-party payable 19 87
Accrued liabilities 888 1,016
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Total Current Liabilities 2,467 2,377
Long-Term Debt 881 893
Postretirement and Other Liabilities 783 676
Shareowners' Equity:
Common stock (Authorized: 1,500,000,000 shares, par value $0.01)
Issued: 261,265,808 shares in 2002 and 258,112,408 in 2001 3 3
Additional contributed capital 8,055 8,056
Retained earnings (deficit) (1,478) 173
Accumulated other comprehensive loss (837) (716)
Reserve for ESOP debt retirement (30) (33)
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Total Shareowners' Equity 5,713 7,483
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Total Liabilities and Shareowners' Equity $ 9,844 $ 11,429
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See the accompanying notes to consolidated financial statements.
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MONSANTO COMPANY AND SUBSIDIARIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
Unaudited
Six Months Ended
June 30,
------------------------
2002 2001
Total Cash Required by Operations $(347) $(384)
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Cash Flows Provided (Required) by Investing Activities:
Property, plant and equipment purchases (101) (205)
Acquisitions and investments (60) (80)
Investment and property disposal proceeds 63 --
Loans with related-party 14 38
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Net Cash Flows Required by Investing Activities (84) (247)
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Cash Flows Provided (Required) by Financing Activities:
Net change in short-term financing 488 700
Loans from related-party (59) 148
Long-term debt proceeds 41 --
Long-term debt reductions (70) (58)
Stock option exercises 63 --
Dividend payments (62) (54)
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Cash Flows Provided by Financing Activities 401 736
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Net Increase (Decrease) in Cash and Cash Equivalents (30) 105
Cash and Cash Equivalents Beginning of Year 307 131
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Cash and Cash Equivalents at End of Period $ 277 $ 236
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The effect of exchange rate changes on cash and cash equivalents was not material. Cash payments for interest and taxes for the six months ended June 30, 2002, were $38 million and $27 million, respectively. Cash payments for interest and taxes for the six months ended June 30, 2001, were $54 million and $93 million, respectively.
Noncash transactions with Pharmacia during the six months ended June 30, 2002, included approximately $75 million, primarily associated with the assumed net pension liabilities and related deferred tax assets. (See Note 12 - Related-Party Transactions - for further details.) Noncash transactions with Pharmacia during the six months ended June 30, 2001 included approximately $20 million.
In connection with the acquisition of biotechnology intellectual property assets from Ceres, Inc. (Ceres) the company recorded intangible assets and the related obligations, in excess of amounts paid, of $35 million in noncash transactions in the second quarter of 2002. (See Note 5 - Goodwill and Other Intangible Assets - for further details.)
See the accompanying notes to consolidated financial statements.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
Note 1 - Basis of Presentation
Monsanto Company and its subsidiaries is a global provider of technology-based solutions and agricultural products for growers and downstream customers, such as grain processors and food companies. Monsanto produces leading seed brands, including DEKALB and ASGROW, and provides its seed partners with biotechnology traits for insect protection and herbicide tolerance. The company's herbicides, seeds, and related genetic trait products can be combined to provide growers with integrated solutions that help them produce higher-yield crops, while controlling weeds, insects and diseases more efficiently and cost effectively. The company also provides lawn and garden herbicide products for the residential market and animal agricultural products focused on improving dairy cow productivity and swine genetics.
Monsanto manages its business in two segments: Agricultural Productivity, and Seeds and Genomics. The Agricultural Productivity segment consists of the crop protection products, animal agriculture, lawn and garden herbicide products, and environmental technologies businesses. The Seeds and Genomics segment consists of the global seeds and related traits businesses, and genetic technology platforms.
In October 2000, Monsanto sold 38,033,000 shares of its common stock at $20 per share in an initial public offering (IPO). Subsequent to the IPO, Pharmacia owned 220 million shares of common stock, representing 84.2 percent ownership of Monsanto as of June 30, 2002. On Aug. 13, 2002, Pharmacia released its 220 million shares of Monsanto's common stock to Pharmacia's distribution agent for the purpose of completing a spinoff of Monsanto, via a tax-free dividend to Pharmacia's shareowners. The distribution is based upon a ratio of approximately 0.17 Monsanto shares for each share of Pharmacia common stock for which a Pharmacia shareowner was the holder of record at the close of business on July 29, 2002.
The accompanying consolidated financial statements have not been audited, but have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. This quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements as presented in Monsanto's annual report on Form 10-K for the year ended Dec. 31, 2001, and the quarterly report on Form 10-Q for the period ended March 31, 2002.
Financial information for the first six months of 2002 should not be annualized. Monsanto has historically generated the majority of its sales during the first half of the year, primarily because of the timing of the planting and growing season in the Northern Hemisphere.
Note 2 - New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) simultaneously approved SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, thereby eliminating the pooling-of-interests method. SFAS No. 141 also provides broader criteria for identifying which types of acquired intangible assets must be recognized separately from goodwill and those which must be included in goodwill. Monsanto adopted the provisions of SFAS No. 141 on Jan. 1, 2002, with the exception of the immediate requirement to use the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 also required the company to evaluate its existing goodwill and other intangible assets and to make any reclassifications necessary to conform with the new separation requirements at the date of adoption.
SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only method. Under SFAS No. 142, all goodwill amortization ceased effective Jan. 1, 2002. Monsanto's goodwill was tested for impairment in conjunction with a transitional goodwill impairment test performed in 2002 and will be tested at least annually thereafter. Under the new rules, Monsanto's recorded goodwill is tested for impairment at a level of reporting referred to as reporting units, which are components of the Agricultural Productivity and Seeds and Genomics reporting segments. See Note 5 - Goodwill and Other Intangible Assets - for further discussion of the transitional impairment test and additional details on Monsanto's goodwill and other intangible assets.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting for and reporting of costs and obligations associated with the retirement of tangible long-lived assets. This statement will become effective for Monsanto on Jan. 1, 2003. Monsanto has not yet determined the effect adoption of this standard will have on its consolidated financial position or its results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144, which was effective for Monsanto on Jan. 1, 2002, establishes an accounting model for long-lived assets to be disposed of by sale. It applies to all long-lived assets and discontinued operations. The adoption of SFAS No. 144 did not have a material effect on Monsanto's consolidated financial position or results of operations.
In April 2002, the FASB approved for issuance SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds, updates, clarifies and simplifies existing accounting pronouncements. Among other things, SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Under SFAS No. 145, the criteria in Accounting Principles Board (APB) No. 30 will now be used to classify those gains and losses. The adoption of SFAS No. 145 resulted in a reclassification of the extraordinary loss related to the extinguishment of Employee Stock Ownership (ESOP) debt recorded in the second quarter of 2001 ($2 million, net of taxes), to increase other expense - net ($4 million) and to decrease the income tax provision ($2 million). The adoption of the remaining provisions of SFAS No. 145 did not have a material effect on Monsanto's consolidated financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement will become effective for exit or disposal activities initiated after Dec. 31, 2002. Monsanto has not yet determined the effect adoption of this standard will have on its consolidated financial position or its results of operations.
Note 3 - Customer Financing Program
In the second quarter of 2002, Monsanto established a new $500 million revolving financing program for selected customers through a third-party specialty finance company. Under the financing program, Monsanto originates customer loans on behalf of the lender, a special purpose entity (SPE), pursuant to Monsanto's credit and other underwriting guidelines approved by the lender. Monsanto services the loans and provides a first loss guarantee of up to $100 million. Following origination, the lender transfers the loans to multi-seller commercial paper conduits through a non-consolidated qualifying special purpose entity (QSPE) in a transaction accounted for as a sale in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
Monsanto has no ownership interest in the lender, the QSPE or the loans. However, because Monsanto substantively originates through the SPE (that it consolidates) and partially guarantees and services the loans, Monsanto accounts for the program as the originator of the loans and the transferor selling the loans to the QSPE.
Monsanto records its guarantee liability at a value that approximates fair value (except that it does not discount credit losses because of the short term of the loans), primarily related to expected future credit losses. Monsanto does not recognize any servicing asset or liability because the servicing fee represents adequate compensation for the servicing activities. Discounts on the sale of the customer loans, and servicing revenues collected and earned were not significant for the quarter ended June 30, 2002.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
As of June 30, 2002, customer loans outstanding that were sold through the financing program totaled $63 million. Loans are considered delinquent when payments are 31 days past due. As of June 30, 2002, no loans sold through this financing program were delinquent. As of June 30, 2002, Monsanto's recorded guarantee liability was less than $1 million, based on the company's historical collection experience with these customers and the company's current assessment of credit exposure. Adverse changes in the actual loss rate would increase the liability.
Note 4 - Inventories
Components of inventories as of June 30, 2002, and Dec. 31, 2001, were
as follows:
June 30, Dec. 31,
2002 2001
--------------- ---------------
Finished Goods $ 579 $ 700
Goods In Process 349 357
Raw Materials and Supplies 340 329
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Inventories, at FIFO Cost 1,268 1,386
Excess of FIFO over LIFO Cost (29) (29)
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Total $ 1,239 $ 1,357
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Note 5 - Goodwill and Other Intangible Assets
As described in Note 2 - New Accounting Standards - Monsanto adopted SFAS No. 141 and SFAS No. 142 effective Jan. 1, 2002. The company has completed the SFAS No. 142 transitional goodwill impairment test, which resulted in a $2.0 billion pretax impairment charge. The first step of the transitional test, which compared the fair value of Monsanto's reporting units to their net book values (including goodwill), identified potential impairments in two reporting units. The second step of the transitional impairment test, which was completed in the second quarter, determined the $2.0 billion pretax ($1.8 billion aftertax) impairment. The resulting impairment charge was specific to the corn and wheat reporting units, relating to goodwill that resulted primarily from Monsanto's 1998 and, to a lesser extent, 1997 seed company acquisitions. Unanticipated delays in biotechnology acceptance and regulatory approvals, and a change in valuation method (from an undiscounted cash flow methodology under APB Opinion No. 17, Intangible Assets, to a discounted cash flow methodology required by SFAS No. 142) were the primary factors leading to the impairment. As required by SFAS No. 142, the transitional impairment charge was recorded as an accounting change in accordance with APB Opinion No. 20, Accounting Changes, effective Jan. 1, 2002. The impairment charge had no effect on Monsanto's liquidity or cash flow.
Changes in the net carrying amount of goodwill for the six months ended June 30, 2002, by segment, are as follows:
Agricultural Seeds and
Productivity Genomics Total
------------ --------- -----
Balance as of Jan. 1, 2002 $74 $ 2,669 $ 2,743
Transitional impairment charge -- (1,983) (1,983)
Effect of foreign currency translation adjustments -- (3) (3)
Additions 1 -- 1
--- ------- -------
Balance as of June 30, 2002 $75 $ 683 $ 758
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MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
Information regarding the company's other intangible assets is as
follows:
As of June 30, 2002 As of Jan. 1, 2002
------------------------------------ -------------------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
-------- ------------ --- -------- ------------ ---
Germplasm $ 601 $(286) $315 $ 602 $(251) $351
Acquired biotechnology
intellectual property 363 (119) 244 320 (101) 219
Trademarks 117 (23) 94 115 (19) 96
Other 46 (29) 17 53 (34) 19
--------- ------ ---- ------ ----- ----
Total $1,127 $(457) $670 $1,090 $(405) $685
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The acquired biotechnology intellectual property assets represent acquisitions and licenses, whereby Monsanto has acquired the rights to various research and discovery technologies encompassing enabling processes, data libraries and patents necessary to support the integrated genomics and biotechnology platforms. The increase in acquired biotechnology intellectual property from Jan. 1, 2002, to June 30, 2002, relates primarily to the previously announced collaboration with Ceres. This product discovery and development collaboration is focused on applying genomics technologies to provide improvements in and to accelerate the time to commercialization of certain agricultural crops. Under the collaboration, Monsanto has acquired rights to certain of Ceres' existing technologies in exchange for payments totaling $40 million over the next five years. This existing technology has a weighted-average useful life of 10 years. Ceres will also receive additional payments subject to meeting specified objectives for developing additional related technology, as part of its continuing commitment to genomics-based product discovery. Monsanto will also fund a jointly implemented research program and has made a minority equity investment in Ceres. Total payments to Ceres under the collaboration (subject to performance by Ceres) are expected to approximate $137 million over the next five years, plus potential royalties. Through June 30, 2002, Monsanto has made payments of approximately $28 million.
Upon adoption of SFAS No. 141 and SFAS No. 142, the classification of all identifiable and recognized intangible assets was reassessed, and any necessary reclassifications were made effective Jan. 1, 2002. Total amortization expense of other intangible assets for the three months ended June 30, 2002 and June 30, 2001 was $34 million and $29 million, respectively. Total amortization expense of other intangible assets for the six months ended June 30, 2002 and June 30, 2001 was $67 million and $59 million, respectively. Intangible asset amortization expense in the first six months of 2001 included $2 million related to intangible asset impairments, as discussed in Note 8 - Restructuring and Other Special Items.
Upon adoption of SFAS No. 142, the useful lives and residual values of all identifiable and recognized other intangible assets were reassessed, and any necessary prospective amortization period adjustments were made Jan. 1, 2002. SFAS No. 142 requires recognized intangible assets with definite useful lives to be amortized over their estimated lives and reviewed for impairment in accordance with SFAS No. 144.
Estimated intangible asset amortization expense for each of the five succeeding fiscal years is as follows:
Year ending Dec. 31, Amount
-------------------- ------
2002 $130
2003 130
2004 115
2005 95
2006 60
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SFAS No. 142 did not require prior periods to be restated. The following table sets forth on an aftertax pro forma basis what the earnings and earnings per share would have been if the provisions of SFAS No. 142 had been applied in 2001. Had the new accounting standard been adopted effective Jan. 1, 2001, Monsanto would not have recorded $30 million and $61 million of pretax goodwill amortization expense in the second quarter and first half of 2001, respectively, but pretax research and development expenses would have increased by $2 million and $4 million in the second quarter and first half of 2001, respectively, because of the reassessment
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
of useful lives and classifications. In addition and related to these changes, the income tax provision would have decreased by $18 million and $12 million for the second quarter and first half of 2001, respectively.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported Net Income (Loss) $ 147 $ 389 $(1,589) $ 444
Goodwill amortization, net of tax -- 42 -- 65
Effects of useful life adjustments, net of tax -- 4 -- 4
----- ----- ------- -----
Adjusted Net Income (Loss) $ 147 $ 435 $(1,589) 513
Cumulative effect of a change in accounting
principle, net of tax -- -- 1,822 --
----- ----- ------- -----
Adjusted Income Before Cumulative Effect of
Accounting Change $ 147 $ 435 $ 233 $ 513
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Basic Earnings (Loss) Per Share:
Reported Net Income (Loss) $0.56 $1.51 $ (6.11) $1.72
Goodwill amortization, net of tax -- 0.16 -- 0.25
Effects of useful life adjustments, net of tax -- 0.02 -- 0.02
----- ----- ------- -----
Adjusted Net Income (Loss) $0.56 $1.69 $ (6.11) $1.99
Cumulative effect of a change in accounting
principle, net of tax -- -- 7.01 --
----- ----- ------- -----
Adjusted Income Before Cumulative Effect of
Accounting Change $0.56 $1.69 $ 0.90 $1.99
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Diluted Earnings (Loss) Per Share:
Reported Net Income (Loss) $0.56 $1.47 $ (6.02) $1.68
Goodwill amortization, net of tax -- 0.16 -- 0.25
Effects of useful life adjustments, net of tax -- 0.01 -- 0.01
----- ----- ------- -----
Adjusted Net Income (Loss) $0.56 $1.64 $ (6.02) $1.94
Cumulative effect of a change in accounting
principle, net of tax -- -- 6.90 --
----- ----- ------ -----
Adjusted Income Before Cumulative Effect of
Accounting Change $0.56 $1.64 $ 0.88 $1.94
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Note 6 - Comprehensive Income (Loss)
Comprehensive income (loss) includes all non-shareowner changes in
equity and consists of net income (loss), foreign currency translation
adjustments, unrealized gains and losses on available-for-sale securities,
additional minimum pension liability adjustments and accumulated derivative
gains or losses on cash flow hedges not yet realized. Comprehensive income
(loss) for the three months ended June 30, 2002, and June 30, 2001, was $35
million and $320 million, respectively. Comprehensive income (loss) for the
six months ended June 30, 2002, and June 30, 2001, was $(1,710) million and
$205 million, respectively. The comprehensive loss for the six months ended
June 30, 2002, includes the cumulative effect of a change in accounting
principle.
Note 7 - Earnings (Loss) Per Share
On Oct. 23, 2000, Monsanto sold 38,033,000 shares of its common stock at $20 per share in an IPO. The company issued 10,000 restricted shares at the time of the IPO and an additional 45,000 restricted shares during 2001. In connection with the company's employee stock option plans, through June 30, 2002, approximately 3.2 million shares have been issued since the IPO. The majority of these shares were issued in the first half of 2002. Subsequent to the IPO, Pharmacia owned 220 million shares of common stock, representing 84.2 percent ownership of Monsanto as of June 30, 2002. On Aug. 13, 2002, Pharmacia released its 220 million shares of Monsanto's common stock to Pharmacia's distribution agent for the purpose of completing a spinoff of Monsanto, via a tax-free dividend to Pharmacia's shareowners. The distribution is based upon a ratio of approximately 0.17 Monsanto shares for each share of Pharmacia common stock for which a Pharmacia shareowner was the holder of record at the close of business on July 29, 2002.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
Basic earnings per share (EPS) for the three months and six months ended June 30, 2002, and June 30, 2001, were computed using the weighted-average number of common shares outstanding during the period (261.2 million and 260 million shares for the three months and six months ended June 30, 2002, respectively, and 258.1 million shares for both the three months and six months ended June 30, 2001). Diluted EPS for the three months and six months ended June 30, 2002, and June 30, 2001, were computed taking into account the effect of dilutive potential common shares (3.1 million and 3.8 million shares for the three months and six months ended June 30, 2002, respectively, and 5.4 million shares for both the three months and six months ended June 30, 2001). These dilutive potential common shares consist of outstanding stock options.
Note 8 - Restructuring and Other Special Items
The amounts related to the 2002 and 2000 restructuring plans were
recorded in the Statement of Consolidated Income (Loss) in the following
categories:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Cost of Goods Sold $ (9) $(10) $ (9) $(11)
Restructuring charges - net (57) (31) (57) (52)
Other Expense - net -- (6) -- (6)
----- ---- ---- ----
Income (Loss) Before Income Taxes (66) (47) (66) (69)
Income tax benefit 23 17 23 26
----- ---- ---- ----
Net Income (Loss) $ (43) $(30) $(43) $(43)
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2002 Restructuring Plan:
In April 2002, Monsanto's management approved a restructuring plan to further rationalize (i.e., consolidate or shutdown) facilities and reduce the work force. In connection with this plan, Monsanto recorded $66 million pretax ($43 million aftertax) of net charges in the second quarter of 2002. The pretax components of the restructuring for the three months and six months ended June 30, 2002 were as follows:
Three Months and
Six Months Ended
June 30, 2002
----------------
Work Force Reductions $23
Facility Closures / Exit Costs 16
Asset Impairments:
Property, plant and equipment - net 27
----
Total Pretax Charge $66
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These restructuring costs primarily relate to the closure of certain research sites and certain manufacturing sites, as well as work force reductions. The work force reductions include involuntary employee separation costs for approximately 450 employees worldwide, including positions in marketing, research and development, manufacturing and administration. The affected employees are entitled to receive severance benefits pursuant to established severance policies or by governmentally mandated labor regulations. Facility closures and other exit costs included expenses associated with contract terminations ($8 million), equipment dismantling and disposal ($4 million) and other shutdown costs ($4 million) resulting from the exit of certain research and manufacturing sites. The asset impairments related to property, plant and equipment. Cash payments to complete these restructuring actions will be funded from operations and are not expected to significantly affect the company's liquidity.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
Activities related to restructuring during the second quarter of 2002, were as follows:
Work Force Facility
Reductions Closures Total
Restructuring ---------- -------- -----
-------------
Additions $23 $16 $39
Costs charged against reserves (8) -- (8)
--- --- ---
June 30, 2002, reserve balance $15 $16 $31
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During the second quarter of 2002, approximately 195 former employees received cash severance payments totaling $8 million. The work force reduction payments for the remaining 255 employees associated with these actions will be completed by June 30, 2003.
2000 Restructuring Plan:
In 2000, Monsanto's management formulated a plan as part of the company's overall strategy to focus on certain key crops and streamline operations. In connection with this plan, Monsanto incurred $261 million of net charges in 2000. Restructuring and other special items, primarily associated with the implementation of this plan, were also recorded in 2001. These charges totaled $69 million pretax ($43 million aftertax) for the first six months of 2001, with $47 million ($30 million aftertax) recorded in the second quarter. The pretax components of the restructuring and other special items for the three months and six months ended June 30, 2001, were as follows:
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------- -------------
Work Force Reductions $ 5 $20
Facility Closures / Exit Costs 14 18
Asset Impairments:
Inventories 10 11
Other current assets 4 4
Property, plant and equipment - net 8 8
Other intangible assets - net -- 2
Other Special Items 6 6
---- ---
Total Pretax Charge $ 47 $69
==== ===
|
The work force reduction costs for the three months and six months ended June 30, 2001, included involuntary employee separation costs for approximately 110 and 230 employees worldwide, respectively, including positions in administration, manufacturing and research and development related to noncore programs. The affected employees are entitled to receive severance benefits pursuant to established severance policies or by governmentally mandated labor regulations. Facility closures and other exit costs included expenses associated with contract terminations, equipment dismantling and disposal and other shutdown costs resulting from the exit of certain research programs and noncore activities. The asset impairments related to property, plant and equipment, other current assets and other intangible assets. In addition, $10 million and $11 million related to the write-off of inventories was recorded within cost of goods sold for the three months and six months ended June 30, 2001, respectively. These employee reductions, asset dispositions and other exit activities will be substantially completed by Dec. 31, 2002. Cash payments to complete this restructuring plan will be funded from operations and are not expected to significantly affect the company's liquidity. The second quarter of 2001 also included a $6 million charge, recorded within other expense - net, for the impairment of an equity security due to adverse business developments of the investee.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
Activities related to restructuring and other special items for the six months ended June 30, 2001, were as follows:
Work Force Facility
Reductions Closures Total
Restructuring and Other Special Items --------- -------- -----
-------------------------------------
Jan. 1, 2002, reserve balance $ 35 $ 34 $ 69
Costs charged against reserves (23) (13) (36)
---- ---- ----
June 30, 2002, reserve balance $ 12 $ 26 $ 33
==== ==== ====
|
During the first two quarters of 2002, $3 million was paid to former employees whose involuntary termination benefits were recorded in 2001, but elected to defer payment until 2002. For the first two quarters of 2002, approximately 390 former employees received cash severance payments totaling $20 million. The work force reduction payments for the remaining 130 employees associated with this plan will be completed by the end of 2002. Exit costs of $13 million associated with contract terminations, equipment dismantling and disposal were also paid during the first half of 2002.
Note 9 - Commitments and Contingencies
Monsanto is defending and prosecuting litigation in its own name. In addition, Monsanto is defending and prosecuting certain cases that were brought in Pharmacia's name and for which Monsanto assumed responsibility upon the separation of its businesses from those of Pharmacia. Such matters relate to a variety of issues. Certain of the lawsuits and claims seek damages in very large amounts, or seek to restrict the company's business activities.
On March 20, 1998, a jury verdict was returned against Pharmacia in a lawsuit filed in the California Superior Court. The lawsuit was brought by Mycogen Corporation (Mycogen), Agrigenetics Inc., and Mycogen Plant Science Inc. claiming that Pharmacia delayed providing access to certain gene technology under a 1989 agreement with Lubrizol Genetics Inc., a company which Mycogen subsequently purchased. The jury awarded $174.9 million in future damages. This jury award was overturned on appeal by the California Court of Appeals. On Aug. 8, 2002, the California Supreme Court upheld the California Court of Appeals decision reversing the jury's verdict.
Although the results of litigation cannot be predicted with certainty, it is management's belief that the final outcome of the litigation discussed above will not have a material adverse effect on Monsanto's financial position, profitability or liquidity.
On Feb. 3, 2002, the new government in Argentina announced several reforms intended to stabilize the economic environment. The government's programs continue to evolve. It is unclear what effect existing and new regulations and conditions might have on the company's operations in Argentina. While the company has prepared its 2001 and 2002 financial statements relating to its Argentine operations on a U.S. dollar functional basis, the functional currency designation in Argentina may change based on future government economic reforms. The peso-to-U.S. dollar exchange rate was 3.625-to-1.00 as of Aug. 9, 2002.
In the second quarter of 2002, the company established an allowance of $154 million pretax for estimated uncollectible accounts receivable in Argentina. While the company cannot determine how government actions in Argentina will affect the outcome, it will aggressively pursue collection of the net outstanding receivables (which were approximately $270 million as of June 30, 2002) at full U.S. dollar value. However, the unfavorable market and economic conditions could have further negative impact on the company's collections, sales and earnings. In March 2002, the government issued a decree establishing a 20 percent export tax on agricultural exports and also ruled that the U.S. dollar-denominated contracts in agriculture markets entered into prior to Jan. 6, 2002, must be honored at the same exchange parity as the one obtained for exports of the agricultural products that contain the agricultural inputs. This decree was amended with the July 2, 2002, issuance of Resolution Number 143, which states that the future settlement of such contracts on farm inputs for corn and soybeans will be subject to a 25 percent reduction, including the 20 percent export tax discussed above, of the U.S. dollar price. Management's estimate of the potential impact of these decrees on the company's receivables has been included in the allowance for uncollectible receivables. The Argentine agricultural markets continue to be primarily export-oriented, and their export sales are generally denominated
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
in U.S. dollars. The exchange rate between the U.S. dollar and peso will continue to fluctuate as the company continues its collection efforts.
Year-to-date collections in Argentina are down approximately 20 percent, due primarily to the impact of the export taxes levied on agricultural exports. The company has been able to collect essentially all of its receivables that were secured with grain, net of export taxes. Also, a majority of the company's current sales in Argentina have been made for either cash or grain. Management believes that the actions it has taken thus far have reduced the risk related to the company's receivables.
In addition, the company's ability to repatriate funds from Argentina may be restricted and the company may also have additional exposures. For example, the company's sales, margins, and foreign-currency transactional gains/losses, may be adversely affected based on fluctuations in foreign-currency exchange rates and the level of inflation experienced.
Note 10 - Accounting for Derivative Instruments and Hedging Activities
Monsanto's business and activities expose it to a variety of market risks, including risks related to the effects of changes in commodity prices, foreign-currency exchange rates, interest rates, and to a lesser degree securities prices. These financial exposures are monitored and managed by the company as an integral part of its market risk management program. This risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets could have on operating results. Monsanto's overall objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures.
In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, all derivatives, whether designated in hedging relationships or not, are recognized in the Statement of Consolidated Financial Position at their fair value. At the time a derivative contract is entered into, Monsanto designates the derivative as: (1) a hedge of the fair value of a recognized asset or liability (a fair-value hedge); (2) a hedge of a forecasted transaction or of the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a cash-flow hedge); (3) a foreign-currency fair-value or cash-flow hedge (a foreign-currency hedge); (4) a foreign-currency hedge of the net investment in a foreign subsidiary; or (5) a derivative that does not qualify for hedge accounting treatment. From time to time, the company may also use natural gas swaps to manage energy input costs. There were no open gas swaps as of June 30, 2002. Monsanto does not use derivative financial instruments for trading purposes, nor does it engage in commodity or interest rate speculation.
Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded currently in earnings. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as a cash-flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive income (loss), until earnings are affected by the variability from cash flows of the hedged item. Any hedge ineffectiveness is included in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as a foreign-currency hedge are recorded in either current-period earnings or accumulated other comprehensive income (loss), depending on whether the hedging relationship satisfies the criteria for a fair-value or cash-flow hedge. Changes in the fair value of a derivative that is highly effective as, and that is designated as a foreign-currency hedge of the net investment in a foreign subsidiary are recorded in the accumulated foreign currency translation. Changes in the fair value of derivative instruments not designated as hedges are reported currently in earnings.
Fair-Value Hedges
Monsanto uses futures and option contracts to manage the value of the corn and soybean seed inventories that it buys from growers. Generally, the company hedges from 70 percent to 100 percent of the corn and soybean inventory value, depending upon the crop and grower pricing.
Interest rate swap agreements are used to reduce interest rate risks and to manage interest exposure. Monsanto uses interest rate swaps to convert its fixed-rate debt to variable-rate debt. The resulting cost of
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
funds may be lower or higher than it would have been if variable-rate debt had been issued directly. Under the interest rate swap contracts, the company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts, which is calculated based on an agreed-upon notional amount.
The difference between the carrying value and fair value of hedged items classified as fair-value hedges was offset by the change in fair value of the related derivatives. Accordingly, hedge ineffectiveness for fair-value hedges, determined in accordance with SFAS No. 133, had no effect on earnings for the three months or six months ended June 30, 2002, or June 30, 2001, respectively.
Cash-Flow Hedges
The company enters into contracts with a number of its seed growers to purchase their output at the market prices in effect when the individual growers elect to fix their contract prices. As a hedge against possible commodity price fluctuations, the company purchases futures and options contracts for corn and soybeans. The futures contracts hedge the commodity price paid for these commodity purchases while the options contracts limit the unfavorable effect that price changes could have on these purchases.
Monsanto recognized a net loss of $1 million in cost of goods sold for the six-month period ended June 30, 2002, which represented the ineffectiveness of all cash-flow hedges. For the three months and six months ended June 30, 2001, losses recorded in cost of goods sold totaled $1 million and $2 million, respectively. No cash-flow hedges were discontinued during the three months or six months ended June 30, 2001, or June 30, 2002.
As of June 30, 2002, $4 million of aftertax deferred net gains on derivative instruments accumulated in other comprehensive income (loss) are expected to be reclassified to earnings during the next 12 months. The actual sales of the inventory, which are expected to occur over the next 12 months, will necessitate the reclassification of the derivative losses into earnings. The maximum term over which the company is hedging exposures to the variability of cash flow (for all forecasted transactions, excluding interest payments) is 18 months.
In May 2002, the Company filed a shelf registration with the U.S. Securities and Exchange Commission (SEC) that allows the company to issue debt of up to $2 billion in the future. On June 26, 2002, the Company entered into a treasury rate lock agreement with several banks to hedge against changes in long-term interest rates on a portion of the planned debt issue. Monsanto has designated this rate lock agreement as a cash-flow hedge. Since this rate lock is designated as a cash-flow hedge, the changes in fair value, to the extent the swap is effective, are recognized in other comprehensive income until the hedged interest costs are recognized in earnings. As of June 30, 2002, the market value of this rate lock was a gain of $2 million. (See Note 13 - Subsequent Events - for further details.)
Foreign-Currency Hedges
Monsanto is exposed to currency exchange rate fluctuations related to certain intercompany and third-party transactions. The company sometimes purchases foreign-exchange options and forward-exchange contracts as hedges against anticipated sales and/or purchases denominated in foreign currencies. The company enters into these contracts to protect itself against the risk that the eventual dollar-net-cash flows will be adversely affected by changes in exchange rates. The company purchases foreign-currency exchange contracts to hedge the adverse effects that fluctuations in exchange rates may have on foreign-currency-denominated third-party and intercompany receivables and payables. Financial instruments are neither held nor issued by the company for trading purposes.
The company hedges a portion of its net investment in Brazilian subsidiaries. The change in the fair value of these hedges at June 30, 2002, was an accumulated foreign currency translation gain of $6 million included in accumulated other comprehensive income.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
Note 11 - Segment Information
Monsanto manages its business in two segments: Agricultural Productivity, and Seeds and Genomics. The Agricultural Productivity segment consists of crop protection products, animal agriculture, lawn and garden herbicide products, and environmental technologies businesses. The Seeds and Genomics segment consists of the global seeds and related traits businesses, and genetic technology platforms. Sales between segments were not significant. Segment data, as well as reconciliation of total Monsanto Company EBIT (earnings (loss) before cumulative effect of accounting change, interest and income taxes) to income before cumulative effect of accounting change for the three months and six months ended June 30, 2002, and June 30, 2001, is presented in the table that follows.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales:
Agricultural Productivity $1,339 $1,574 $1,975 $2,382
Seeds and Genomics 214 437 799 935
------ ------ ------ ------
Total Monsanto $1,553 $2,011 $2,774 $3,317
====== ====== ====== ======
EBIT:
Agricultural Productivity $ 426 $ 632 $ 457 $ 771
Seeds and Genomics (196) 14 (80) (18)
------ ------ ------ ------
Total Monsanto 230 646 374 753
Interest expense - net of interest income (15) (25) (29) (44)
Income tax provision (68) (232) (112) (265)
------ ------ ------ ------
Income Before Cumulative Effect of
Accounting Change $ 147 $ 389 $ 233 $ 446
====== ====== ====== ======
|
Note 12 - Related-Party Transactions
On Sept. 1, 2000, Monsanto entered into a master transition services agreement with Pharmacia, its majority shareowner. Some terms under this master agreement expired on Dec. 31, 2001. New terms were negotiated in 2002, which do not differ materially from previously agreed terms. These agreements will continue to be effective after Pharmacia's distribution of its ownership interest in Monsanto. Under these agreements, Monsanto provides certain administrative support services to Pharmacia, and Pharmacia primarily provides information technology support for Monsanto. In addition, the two companies pay various taxes, capital project costs and payroll charges that are associated with the business activities of the other. Monsanto and Pharmacia also rent research and office space from each other. Since Sept. 1, 2000, each party has charged the other entity rent based on a percentage of occupancy times the cost to operate the facilities. During the three months and six months ended June 30, 2002, Monsanto recognized expenses of $10 million and $18 million, respectively and recorded a reimbursement of $9 million and $22 million, respectively, for costs incurred on behalf of Pharmacia. During the three months and six months ended June 30, 2001, Monsanto recognized expenses of $16 million and $33 million, respectively, and recorded a reimbursement of $11 million and $23 million, respectively, for costs incurred on behalf of Pharmacia. As of June 30, 2002, and Dec. 31, 2001, the company had a net payable balance (excluding dividends payable) of $6 million and $43 million, respectively, with Pharmacia. Transition services, employee benefits, fees for treasury transactions, capital project costs, and information technology costs comprised the outstanding balances.
Since the IPO closing date, Pharmacia manages the loans and deposits of Monsanto's ex-U.S. subsidiaries. Effective June 30, 2001, certain Monsanto subsidiaries entered into an agency agreement to have a Pharmacia subsidiary act as their agent for certain ex-U.S. loans, which were previously reflected as related-party loans receivable and payable, and are now reflected as Monsanto intercompany transactions.
Pharmacia is the counterparty for some of Monsanto's foreign-currency exchange contracts. As of June 30, 2002, and Dec. 31, 2001, the fair value of the company's outstanding foreign-currency exchange contracts with Pharmacia was a gain of $2 million and a loss of $7 million, respectively. Fees were comparable to those that Monsanto would have incurred with a third party.
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (continued)
As of June 30, 2002, and Dec. 31, 2001, Monsanto was in a net borrowing position of $178 million and $224 million, respectively, with Pharmacia. Interest rates were comparable to those that Monsanto would have incurred with a third party. (See Note 13 - Subsequent Events - for further details.)
Monsanto and Pharmacia have separated their noncontributory pension plans into Monsanto-only and Pharmacia-only sponsored plans. Effective Jan. 1, 2002, the sponsorship of a plan, in which Monsanto and Pharmacia employees participated, was transferred from Pharmacia to Monsanto. The assets attributable to Pharmacia employees and former Pharmacia employees were transferred to a new Pharmacia-sponsored plan. The approximate fair value of assets, projected benefit obligation, accumulated benefit obligation, net pension liabilities, and related deferred tax assets assumed by Monsanto as of Jan. 1, 2002, were approximately $1.0 billion, $1.3 billion, $1.2 billion, $120 million, and $45 million, respectively. The net offset of the assumed net pension liabilities and related deferred tax assets was reflected as a reduction of additional contributed capital in the Statement of Consolidated Shareowners' Equity, as of Jan. 1, 2002.
On June 27, 2002, Monsanto declared a quarterly dividend of $0.12 per share and recorded a related dividend payable to Pharmacia of $26 million, which was recorded in accrued liabilities. The $26 million first quarter dividend was paid to Pharmacia during the second quarter of 2002.
Note 13 - Subsequent Events
On Aug. 9, 2002, Monsanto entered into an agreement with its underwriters to issue $600 million of 7-3/8% Senior Notes due Aug. 15, 2012. The transaction is scheduled to close on Aug. 14, 2002, and proceeds will be used to reduce commercial paper borrowings. Monsanto has also announced that it anticipates seeking additional long-term debt capital in the near future.
On Aug. 13, 2002, Monsanto repaid its outstanding short-term debt to Pharmacia and entered into a new short-term debt arrangement with Pharmacia for $150 million. This short-term debt is scheduled to mature on Nov. 15, 2002, or earlier to the extent that Monsanto receives proceeds from the issuance of additional debt or of equity.
When Monsanto entered into the agreement with its underwriters on Aug. 9, 2002, the company closed its position in the treasury rate lock agreement that is described in Note 10 - Accounting for Derivitive Instruments and Hedging Activities. The closing of this agreement resulted in a loss of $26 million, due to decreases in interest rates. As the rate lock agreement was designated a cash-flow hedge, this loss will be recorded in other comprehensive income until the hedged interest costs are recognized in earnings. (See Note 10 - Accounting for Derivative Instruments and Hedging Activities - for further details.)
Effective Aug. 13, 2002, Monsanto and Pharmacia entered into an agreement whereby Pharmacia will pay Monsanto approximately $40 million, and will transfer certain assets, as payment for certain of Monsanto's expenses relating to its separation from Pharmacia and to the spinoff of Monsanto by Pharmacia.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Monsanto Company and its subsidiaries is a leading global provider of agricultural products and integrated solutions for farmers. We make ROUNDUP herbicide and other crop protection products. We produce leading seed brands, including DEKALB and ASGROW, and we provide our seed partners with biotechnology traits for insect protection and herbicide tolerance. Our herbicides, seeds, and related genetic trait products can be combined to provide growers with integrated solutions that help them produce higher-yield crops, while controlling weeds, insects and diseases more efficiently and cost-effectively. We also provide lawn and garden herbicide products for the residential market and animal agricultural products focused on improving dairy cow productivity and swine genetics.
We manage our business in two segments: Agricultural Productivity, and Seeds and Genomics. The Agricultural Productivity segment consists of the crop protection products, animal agriculture, lawn and garden herbicide products, and environmental technologies businesses. The Seeds and Genomics segment consists of the global seeds and related traits businesses, and genetic technology platforms.
In October 2000, Monsanto sold approximately 38 million shares of its common stock at $20 per share in an initial public offering (IPO). Subsequent to the IPO, Pharmacia owned 220 million shares of common stock, representing 84.2 percent ownership of Monsanto as of June 30, 2002. On Aug. 13, 2002, Pharmacia released its 220 million shares of our common stock to Pharmacia's distribution agent for the purpose of completing a spinoff of Monsanto, via a tax-free dividend to Pharmacia's shareowners. The distribution is based upon a ratio of approximately 0.17 Monsanto shares for each share of Pharmacia common stock for which a Pharmacia shareowner was the holder of record at the close of business on July 29, 2002.
The primary operating performance measure for our two segments is
earnings (loss) before cumulative effect of accounting change, interest and
income taxes (EBIT). Our seed company acquisitions in 1998 and 1997
affected results by substantially increasing amortization expense
associated with intangible assets recorded at the time of acquisition. EBIT
in 2001 included amortization expense related to goodwill and other
intangible assets, a majority of which related to these seed company
acquisitions. However, since the adoption on Jan. 1, 2002 of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, we no longer amortize our goodwill. (See Note 2 - New
Accounting Standards - of Notes to Consolidated Financial Statements - for
further details.) Thus, EBIT in 2002 only reflects amortization related to
other intangible assets. Accordingly, management believes that earnings
(loss) before cumulative effect of accounting change, interest, income
taxes, depreciation and amortization (EBITDA) is an appropriate measure for
evaluating the operating performance of our business. EBITDA eliminates,
among other things, the effects of depreciation of tangible assets and
amortization of intangible assets, most of which resulted from the seed
company acquisitions accounted for under the purchase method of accounting.
The presentation of EBITDA is intended to supplement investors' understanding of our operating performance. EBITDA may not be comparable to other companies' EBITDA performance measures. EBITDA is not intended to replace net income (loss), cash flows, financial position, or comprehensive income (loss), as determined in accordance with accounting principles generally accepted in the United States.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with Monsanto's consolidated financial statements, the accompanying notes and the Quantitative and Qualitative Disclosures About Market Risk following this section. This quarterly report on Form 10-Q should be read in conjunction with Monsanto's annual report on Form 10-K for the year ended Dec. 31, 2001, and quarterly report on Form 10-Q for the period ended March 31, 2002. Financial information for the first six months of 2002 should not be annualized. Monsanto has historically generated the majority of its sales during the first half of the year, primarily because of the concentration of sales due to the timing of the planting and growing season in the Northern Hemisphere.
Unless otherwise indicated, "Monsanto," "Monsanto Company" and "the company", and references to "we", "our" and "us," are used interchangeably to refer to Monsanto Company or to Monsanto Company and consolidated subsidiaries, as appropriate to the context. With respect to the time period prior to the separation of Monsanto's businesses from those of Pharmacia on Sept. 1, 2000, references to "Monsanto" or "the company" also refer to the agricultural business of Pharmacia.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
See Note 1 - Background and Basis of Presentation - of Notes to Consolidated Financial Statements. Unless otherwise indicated, "earnings per share" and "per share" mean diluted earnings per share. In the tables, all dollar amounts are in millions, except for per share amounts. Trademarks owned or licensed by Monsanto or its subsidiaries are shown in all capital letters. Unless otherwise indicated, references to ROUNDUP herbicides mean ROUNDUP branded and other branded glyphosate-based herbicides excluding all lawn and garden herbicides; references to ROUNDUP and other glyphosate-based herbicides mean both branded and non-branded glyphosate-based herbicides, excluding all lawn and garden herbicide products.
Results of Operations - Second Quarter 2002 Compared with Second Quarter 2001
Net income declined to $147 million, or $0.56 per share, for the second quarter of 2002, compared with net income of $389 million, or $1.47 per share, for the second quarter 2001. The following factors affected the quarter-to-quarter comparison:
o Lower volumes and prices of ROUNDUP herbicides, particularly in the United States
o Establishment of a $154 million pretax bad debt reserve related to Argentine receivables
o Last year's change to a royalty system for our biotechnology traits, which shifted revenues from the second quarter of 2002 to the last half of 2001 and the first quarter of 2002
o Actions in 2002 to reduce risk in Latin America, due to continued economic and market uncertainties
o Higher-than-anticipated Latin America (primarily Brazil) corn seed returns in 2001
o Absence of goodwill amortization in 2002, as a result of adopting a new accounting standard
o Gain from sales of certain herbicide assets for use in certain ex-U.S. markets
o Slightly higher restructuring charges in 2002 when compared with 2001
Three Months Ended
June 30,
-----------------------
Total Monsanto Company and Subsidiaries: 2002 2001
---------------------------------------- ---- ----
Net sales $1,553 $2,011
====== ======
Income before cumulative effect of
accounting change $ 147 $ 389
Add: Interest expense - net of interest income 15 25
Income tax provision 68 232
------ ------
EBIT(1) 230 646
Add: Depreciation and amortization 119 132
------ ------
EBITDA(2) $ 349 $ 778
====== ======
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
Net sales declined 23 percent to $1.6 billion in the second quarter of 2002 from second quarter 2001 net sales of $2.0 billion. Sales from both the Agricultural Productivity and Seeds and Genomics segments declined due to a variety of factors. Wet spring weather conditions in key U.S. planting regions reduced sales of ROUNDUP herbicides, as did lower prices, partially reflecting the mix of products sold. Second quarter 2002 net sales were also negatively affected by our move from a technology fee system to a royalty system. Under this new business model, certain trait revenues that were previously recognized in the second quarter were recognized in the third and fourth quarters of the previous year and the first quarter of the current year.
We have begun to implement certain actions and changes to our business model to address the continued economic uncertainty and unfavorable market conditions in Latin America. These actions have affected and will continue to affect sales and EBIT in 2002, and are intended to reduce working capital levels and reduce our credit risk and exposure in Argentina and Brazil. In Argentina, we continue to sell primarily in cash or grain, which we expect will delay farmers' purchasing decisions and move sales even closer to the use season. In the second quarter, these actions reduced ROUNDUP sales in Argentina. Corn seed sales in Argentina also declined, as
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
we recorded additional return accruals in response to the declining corn market that has been affected by economic conditions and last year's flooding. Higher-than-anticipated returns of relatively high-priced corn seed in Latin America (primarily in Brazil) negatively affected second quarter sales in 2001. For a more detailed discussion of these and other factors affecting segment sales, see "Agricultural Productivity Segment" and "Seeds and Genomics Segment."
For the three-month period ended June 30, 2002, cost of goods sold declined 11 percent to $735 million from cost of goods sold of $822 million for the same period in 2001. The 11 percent cost of goods sold percentage decline is significantly less than the 23 percent sales percentage decline because of the relatively low cost of goods sold (and correspondingly relatively high gross profit) related to trait revenues. Therefore, the shift in trait revenues did not affect cost of goods sold to the same extent that it affected net sales. Gross profit declined 31 percent, to $818 million for the second quarter of 2002 from $1.2 billion for the second quarter of 2001. This gross profit decline reflects the sales declines discussed above. Gross profit as a percent of sales declined six percentage points, from 59 percent in the second quarter of 2001 to 53 percent during the same period this year. This decline was principally because of lower average ROUNDUP selling prices and the shift in relatively high-margin trait revenues to earlier quarters.
Selling, general and administrative (SG&A) expenses decreased 25 percent to $237 million for the second quarter of 2002, compared with $315 million for the same period in 2001. SG&A expenses as a percent of sales declined one percentage point from 16 percent to 15 percent. The decline in SG&A reflects lower employee-related costs and continued cost management efforts. SG&A expenses in 2002 also reflect an approximate $25 million reduction of costs stemming from our agreement to sell certain Monsanto herbicide assets to Nissan Chemical Industries, Ltd. (Nissan). The transaction, which closed in the second quarter of 2002, included the transfer of certain Monsanto herbicide product registrations and trademarks to Nissan for use in the Japanese market. The agreement also included the transfer of related labels, and certain other assets for use in Japan, as well as a long-term supply agreement whereby Monsanto will be the supplier of these herbicides to Nissan for at least five years. This arrangement continues our strategy of forming alliances with partners to serve farmers in certain geographic areas, while allowing Monsanto to focus its efforts in these areas on its seed business and biotechnology initiatives. Excluding the effect of the Nissan transaction, SG&A as a percent of sales would have increased one percentage point compared to the prior year's second quarter, reflecting of lower sales in the second quarter of 2002.
In the second quarter of 2002, we recorded $164 million of bad debt expense, $154 million of which relates to estimated uncollectible trade receivables in Argentina. This allowance was established because of the continued economic deterioration and market conditions in Argentina. For further discussion of the economic conditions in Argentina and their effect on our business, see "Outlook - Update."
Research and development (R&D) expenses remained relatively unchanged from the second quarter of 2001. As a percent of sales, R&D expenses increased two percentage points, reflecting lower sales in the second quarter of 2002. The majority of planned savings in R&D from our prior restructuring plans have been substantially realized in our second quarter 2001 and 2002 results, and we have not yet begun to realize the full savings from our 2002 restructuring plan. For further details, see "Restructuring and Other Special Items."
Operating results for the second quarter of 2002 include the positive effect of SFAS No. 142, the new accounting standard related to the amortization of goodwill. In the second quarter of 2001, we recorded $30 million of goodwill amortization expense. Since adoption of SFAS No. 142 on Jan. 1, 2002, we no longer amortize our goodwill.
We recognized expenses totaling $66 million in the second quarter of 2002 relating to our 2002 restructuring plan, $57 million of which were recorded as restructuring charges - net. In the second quarter of 2001, we recorded $31 million in restructuring charges - net related to our 2000 restructuring plan to focus on key crops. For further details on both plans, see "Restructuring and Other Special Items."
Interest expense, net of interest income, decreased nearly 40 percent to $15 million for the second quarter of 2002, compared with $25 million for the second quarter of 2001. The lower interest expense reflects the
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
benefit of lower average interest rates throughout the second quarter of 2002, when compared with the second quarter of 2001, as well as lower average borrowing levels in 2002.
We recognized other income - net of $7 million in the second quarter 2002, compared with $28 million of net other expense in the same period last year. In 2002, we recorded approximately $20 million of other income related to sales of certain herbicide assets for use in ex-U.S. markets, including the Nissan transaction in Japan and a smaller transaction in the Australia and New Zealand markets. We also recognized $10 million of other income related to gains that were realized upon the sale of equity securities. These gains were slightly offset by currency losses reflecting the further devaluation of our net assets denominated in Argentine pesos. In 2001, we recognized other expense resulting from the impairment of an equity investment. Other expense in 2001 also includes $4 million related to the early extinguishment of Employee Stock Ownership (ESOP) debt that was previously classified as an extraordinary loss. See "New Accounting Standards" for further details.
Income tax provision decreased to $68 million for the second quarter of 2002 compared with $232 million for the same period in 2001. This decrease was largely due to the decline in pretax income (before cumulative effect of accounting change) in the second quarter of 2002 compared with the second quarter of 2001. The effective tax rate decreased to 32 percent for the three months ended June 30, 2002, from 37 percent for the three months ended June 30, 2001. The absence of goodwill amortization has led to an improvement in the effective tax rate in 2002 because the majority of our historical goodwill amortization was not deductible for tax purposes.
Agricultural Productivity Segment
Our Agricultural Productivity segment consists of our crop protection
products (ROUNDUP and other glyphosate-based herbicides and selective
chemistries) and our animal agriculture, lawn and garden herbicide
products, and environmental technologies businesses. We are a leading
worldwide developer, producer and marketer of crop protection products,
including ROUNDUP herbicides.
Three Months Ended
June 30,
------------------------------
2002 2001
---- ----
Net sales $1,339 $1,574
====== ======
EBIT(1) $ 426 $ 632
Add: depreciation and amortization 62 50
------ ------
EBITDA(2) $ 488 $ 682
====== ======
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
In the Agricultural Productivity segment, net sales decreased 15 percent to $1.3 billion for the second quarter of 2002, compared with $1.6 billion in the second quarter of 2001. The quarter-to-quarter decrease was due primarily to lower ROUNDUP sales in the U.S., Canada and Argentina. Net sales increases in our lawn and garden and animal agriculture businesses slightly offset these ROUNDUP sales declines.
Worldwide net sales for our ROUNDUP and other glyphosate-based herbicides decreased 20 percent to $845 million for the second quarter of 2002 from $1.1 billion for the same period last year. Worldwide volumes decreased 15 percent and prices declined 6 percent.
In the United States, net sales of ROUNDUP herbicides experienced a double-digit decline, with volumes and prices declining 7 percent and 13 percent, respectively. Wet weather during spring months delayed planting of corn and soybeans, which reduced over-the-top applications of ROUNDUP herbicides. This wet weather was followed by hot, dry weather in June and July, which will reduce the number of ROUNDUP applications and the application rate in the second half of the year. Average selling prices were affected by a move in the market place to lower-tier products of Monsanto and other glyphosate suppliers for pre-plant and burn-down
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
applications. To date, these price declines are consistent with our global post-patent pricing experience.
Lower sales of ROUNDUP herbicides in Canada also contributed to the sales decline quarter-over-quarter, albeit to a much lesser extent than the U.S. decline. Unfavorable, dry weather conditions led to lower volumes in Canada. Economic conditions and the actions we are taking to reduce our risk affected ROUNDUP sales performance in Argentina, as we continue to operate with primarily cash-or-grain sales terms in that country. Even under tightened credit terms, ROUNDUP sales in Brazil increased on higher volumes. This sales improvement was in response to increased applications of ROUNDUP, which led to higher demand. Competitive pricing of generic products affected sales in Asia. Volumes of glyphosate that we manufacture and supply to third parties declined.
Net sales of our other Agricultural Productivity products decreased 4 percent, to $495 million in 2002 compared with net sales of $516 million in 2001. Sales of our other herbicides declined, but sales in our lawn and garden and animal agriculture businesses increased. As expected, lawn and garden sales increased quarter-over-quarter. As previously announced by The Scotts Company (Scotts), retailers are focused on minimizing their inventory levels by more closely matching the timing of orders to anticipated sales to their customers. As a result, certain sales that historically would have occurred in the first quarter of 2002 took place in the second quarter of 2002. On a year-to-date comparison, lawn and garden sales increased slightly. Sales in our environmental technologies business declined, while higher sales in our animal agriculture business were led by an increase in volumes of POSILAC bovine somatotropin.
EBIT for the Agricultural Productivity segment decreased 33 percent, to $426 million for the three-month period ended June 30, 2002, as compared with EBIT of $632 million for the same period last year. Lower sales of ROUNDUP (especially in the United States, Canada and Argentina) and the segment's portion of the Argentine bad debt reserve were the primary contributors to the EBIT decline. These effects were somewhat mitigated by lower SG&A spending (including lower employee-related costs) and a reduction to SG&A expenses related to the sale of certain Japanese assets to Nissan. Charges relating to our restructuring plans declined slightly quarter-over-quarter; last year we recorded $27 million of restructuring charges in the second quarter, while this year we recorded $16 million. Segment EBIT also included other income related to sales of certain herbicide assets for use in ex-U.S. markets. Gross profit as a percent of sales for the segment declined by 2 percentage points, reflective of lower average selling prices of ROUNDUP products.
Seeds and Genomics Segment
The Seeds and Genomics segment consists of our global seeds and related trait business, and genetic technology platforms. We produce leading seed brands, including DEKALB and ASGROW, and we provide our seed partners with biotechnology traits for herbicide tolerance and insect protection.
Three Months Ended
June 30,
------------------------------
2002 2001
---- ----
Net sales $ 214 $437
===== ====
EBIT(1) $(196) $ 14
Add: Depreciation and amortization 57 82
----- ----
EBITDA(2) $(139) $ 96
===== ====
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
Net sales for the Seeds and Genomics segment decreased to $214 million for the second quarter of 2002 from net sales of $437 million in the same period in 2001. The lower sales in the second quarter of 2002 reflect a shift in the timing of revenues for our biotechnology traits from the second quarter of 2002 to earlier quarters. Starting with the 2002-selling season, we have eliminated the technology fee paid by growers who plant crops containing certain of our technologies and replaced it with a royalty paid by the seed companies licensed to market those products. This change resulted in trait revenues being recognized earlier. Certain trait revenues
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
that would have previously been recognized in the second quarter of 2002 were recognized in the third and fourth quarters of 2001 and the first quarter of 2002.
Although this quarter's sales were negatively affected by the change to a royalty system, U.S. acreage for our biotechnology traits in 2002 is estimated to have increased 5 percent, to 89.5 million acres. The percentages of corn and soybean acres with a Monsanto trait are expected to increase, with strong demand for ROUNDUP READY and insect-protected technologies.
In Argentina, we recorded additional return accruals in response to the contracting corn market that has been affected by economic conditions and last year's flooding. In Brazil, corn seed sales improved slightly from year-ago levels, but prior year sales were affected by approximately $80 million in higher-than-anticipated returns of high-priced corn seed. In 2002, the continued deterioration of the Brazilian corn market has negatively affected sales.
In the United States, corn sales increased reflecting an increase in planted acreage of corn this year, and strong market performance by our DEKALB and ASGROW brands. The gain in corn sales was more than offset by a decline in U.S. soybean sales. Despite the market dynamics of lower acres and increased supply, our soybean brands maintained price and market share.
The factors above led to a significant decline in Seeds and Genomics gross profit and gross profit as a percent of sales. The effect of the shift in trait revenue on gross profit is magnified because traits are relatively high-margin contributors. Thus, the shift in trait revenues out of the second quarter of 2002 has negatively affected gross profit. Our actions in Brazil to respond to the oversupply of seed in a contracting corn market also affected margins in the second quarter of this year.
Continued cost management and lower employee costs contributed to lower SG&A expenses, while R&D spending for the segment increased slightly. A portion of the Argentine bad debt reserve was recorded in the Seeds and Genomics segment. Restructuring charges - net in the second quarter of 2002 more than doubled when compared with last year's second quarter. Last year, we recorded $20 million in charges related to our 2000 restructuring plan. This year, we recorded $50 million related to our 2002 restructuring plan. On a quarter-over-quarter comparison, other expense - net declined. In 2002, we recognized other income related to gains realized upon the sale of equity securities. In 2001, we recognized other expense because of an equity investment impairment.
EBIT for the Seeds and Genomics segment declined to a loss of $196 million in the second quarter of 2002 versus earnings of $14 million in the second quarter 2001. Last year's second quarter EBIT included approximately $135 million related to traits that were not recognized in the second quarter of this year. Lower seed gross profit in Latin America was slightly offset by the benefit of no longer amortizing our goodwill.
Results of Operations - First Six Months of 2002 Compared with First Six Months of 2001
We recognized a net loss of $1.6 billion, or $6.02 per share, for the first six months of 2002. For the first six months of 2001, we recognized net income of $444 million, or $1.68 per share. The following factors affected the year-to-date comparison:
o $1.8 billion aftertax goodwill impairment upon adoption of SFAS No. 142, which was recorded as of Jan. 1, 2002, as a cumulative effect of a change in accounting principle (see "New Accounting Standards")
o Lower volumes and prices of ROUNDUP herbicides, particularly in the United States
o Establishment of a $154 million pretax bad debt reserve related to Argentine receivables
o Actions in 2002 to reduce risk in Latin America, due to continued economic and market uncertainties
o Last year's change to a royalty system for our biotechnology traits, which shifted revenues from the second quarter of 2002 to the last half of 2001 and the first quarter of 2002
o Higher-than-anticipated Latin America (primarily Brazil) corn seed returns in 2001
o Absence of goodwill amortization in 2002, as a result of adopting SFAS No. 142
o Gain from sales of certain herbicide assets for use in certain ex-U.S. markets 22
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
Six Months Ended
June 30,
-----------------------------
Total Monsanto Company and Subsidiaries: 2002 2001
---------------------------------------- ---- ----
Net sales $2,774 $3,317
====== ======
Income before extraordinary item and cumulative
effect of accounting change $ 233 $ 444
Add: Interest expense - net of interest income 29 44
Income tax provision 112 265
------ ------
EBIT(1) 374 753
Add: Depreciation and amortization 229 269
------ ------
EBITDA(2) $ 603 $1,022
====== ======
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
Net sales declined 16 percent to $2.8 billion in the first half of 2002 from first half 2001 net sales of $3.3 billion. Sales from the Agricultural Productivity and, to a lesser extent, the Seeds and Genomics segments declined due to a variety of factors. In the Agricultural Productivity segment, sales declined due to lower volumes and lower average selling prices of our ROUNDUP and other glyphosate-based herbicides. The lower volumes were due in part to wet spring weather conditions in key U.S. planting regions. In the Seeds and Genomics segment, first half 2002 net sales were lower than first half 2001 net sales because of our move last year from a technology fee system to a royalty system. Under this new model, certain trait revenues that would have previously been recognized in the second quarter were recognized in the third and fourth quarters of the previous year and the first quarter of the current year.
We have begun to implement certain actions and changes to our business model to address the continued economic uncertainty and unfavorable market conditions in Latin America. These actions have affected and will continue to affect sales and EBIT in 2002, and are intended to reduce working capital levels and reduce our credit risk and exposure in Argentina and Brazil. In Argentina, we continue to sell primarily for cash or grain, which we expect will delay farmers' purchasing decisions and move sales even closer to the use season. The economic conditions, coupled with our actions in the second quarter, reduced ROUNDUP sales in Argentina. Corn seed sales in Argentina also declined, as we recorded additional return accruals in response to the declining corn market that has been affected by economic conditions and last year's flooding. Higher-than-anticipated returns of relatively high-priced corn seed in Latin America (primarily Brazil) negatively affected first-half sales in 2001. For a more detailed discussion of these and other factors affecting first-half segment sales, see "Agricultural Productivity Segment" and "Seeds and Genomics Segment."
Cost of goods sold declined 11 percent to $1.4 billion for the first six months of 2001 from $1.5 billion for the same period in 2001, reflecting lower sales in the segment. Gross profit decreased 21 percent to $1.4 billion for the six months ended June 30, 2002, compared with gross profit of $1.8 billion for the six months ended June 30, 2001. This decline was attributable to lower ROUNDUP sales, and to a lesser extent, lower Seeds and Genomics gross profit. As a percent of sales, gross profit declined three percentage points, from 54 percent in the first half of 2001 to 51 percent during the same period this year. This decline was principally because of lower average ROUNDUP selling prices and the shift in relatively high-margin trait revenues to earlier quarters.
SG&A expenses for the first half of 2002 decreased 14 percent when
compared with the same period in 2001, and remained relatively unchanged as
a percentage of sales. We have achieved these lower spending levels through
our continued emphasis on cost management. SG&A expenses also reflect lower
employee-related costs, as well as an approximate $25 million reduction of
costs stemming from our agreement to sell certain Monsanto herbicide assets
to Nissan. Excluding the effect of the Nissan transaction, SG&A as a
percent of sales would have increased one percentage point, reflective of
lower sales in the first half of 2002, when compared with the first half of
2001.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
In the first half of 2002, we recorded $167 million of bad debt expense, $154 million of which relates to estimated uncollectible trade receivables in Argentina. This allowance was established because of the continued economic deterioration and market conditions in Argentina. For further discussion of the economic conditions in Argentina and their effect on our business, see "Outlook - Update." Bad debt expense for the first half of 2001 was minimal.
R&D expenses for the first six months of 2002 decreased 5 percent when compared with the same period last year. As a percent of sales, R&D spending increased approximately 1 percentage point, reflective of lower sales in 2002. The majority of planned savings in R&D from our prior restructuring plans have been substantially realized in our 2001 and 2002 results, and we have not yet begun to realize the full savings from our 2002-restructuring plan.
Operating results in 2002 include the positive effect of SFAS No. 142, the new accounting standard related to the amortization of goodwill. In the first half of 2001, we recorded $61 million of goodwill amortization expense. Since adoption of SFAS No. 142 on Jan. 1, 2002, we no longer amortize our goodwill.
Results for the first half of 2002 include charges relating to our 2002 restructuring plan, while 2001 results include charges relating to our 2000 restructuring plan to focus on key crops. Of the $66 million of expenses recognized to-date relating to our 2002 plan, $57 million were recognized as restructuring charges - net. Of the $69 million of expenses realized in the first half of 2001 relating to our 2000 restructuring plan, $52 million were recognized as restructuring charges - net. For further details on both plans, see "Restructuring and Other Special Items."
Interest expense, net of interest income, decreased 34 percent. This decline can be attributed to lower interest rates and lower average borrowing levels throughout 2002.
Other expense - net increased $4 million from $32 million for the
first half of 2001 to $36 million for the first half of 2002. Other expense
- net for both periods was affected by a number of items. In 2002, we
recorded:
o Currency losses reflecting the further devaluation of our net assets denominated in Argentine pesos
o Approximately $20 million of other income related to sales of certain herbicide assets for use in ex-U.S. markets, including the Nissan transaction in Japan and a smaller transaction in the Australia and New Zealand markets
o Other income of $10 million related to gains that were realized upon the sale of equity securities
o Other expense related to a broad-reaching business agreement between Monsanto and certain subsidiaries, E.I. du Pont de Nemours (DuPont) and DuPont's Pioneer Hi-Bred International Inc. subsidiary, resolving a number of important business and patent disputes between them, and also agreeing to new business arrangements, including the granting of licenses
In 2001, we recognized:
o Other income from a deferred payout provision related to a past business divestiture
o The impairment of an equity investment
o A loss related to the early extinguishment of Employee Stock Ownership (ESOP) debt that was previously classified as an extraordinary loss (see "New Accounting Standards" for further details)
Income tax provision for the first six months of 2002 decreased approximately 58 percent, reflective of the lower pretax income during the period. The effective tax rate decreased to 32 percent for the first half of 2002, from 37 percent for the first half of 2001. The absence of goodwill amortization has led to an improvement in the effective tax rate in 2002 because the majority of our historical goodwill amortization was not deductible for tax purposes.
Agricultural Productivity Segment
Our Agricultural Productivity segment consists of our crop protection products (ROUNDUP and other glyphosate-based herbicides and selective chemistries) and our animal agriculture, lawn and garden herbicide
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
products, and environmental technologies businesses. We are a leading
worldwide developer, producer and marketer of crop protection products,
including ROUNDUP herbicides.
Six Months Ended
June 30,
------------------------------
2002 2001
---- ----
Net sales $1,975 $2,382
====== ======
EBIT(1) $ 454 $ 771
Add: Depreciation and amortization 117 108
------ ------
EBITDA (2) $ 571 $ 879
====== ======
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
Net sales for the Agricultural Productivity segment declined 17 percent from $2.4 billion for the first six months of 2001 to $2.0 billion for the first six months of 2002. Lower sales of ROUNDUP and other glyphosate-based herbicides and to a much lesser extent, our selective herbicides drove the decline in sales. These net sales declines were slightly offset by higher sales of our lawn and garden herbicide products and a net sales increase in our animal agricultural business.
Worldwide net sales of our ROUNDUP and other glyphosate-based herbicides were $1.2 billion during the first six months of 2002 as compared with $1.5 billion during the first six months of 2001. Lower volumes and prices led to the decline, with worldwide volumes down 13 percent and worldwide prices down 9 percent. The United States and Argentina experienced the largest net sales declines. Volumes of glyphosate that we manufacture and supply to third parties also declined.
In the United States, volumes and average selling prices of ROUNDUP herbicides each experienced 13 percent declines, leading to a significant overall decrease in net sales. Wet weather during spring months delayed planting of corn and soybeans, which reduced over-the-top applications of ROUNDUP herbicides. This wet weather was followed by hot, dry weather in June and July, which will reduce the number of ROUNDUP applications and the application rate in the second half of the year. Prices were affected by the mix of products sold. In the first half of 2002 (our second year post-patent), the mix of products sold included more lower-priced glyphosate products when compared with the first half of 2001. To date, these price declines are consistent with our global post-patent pricing experience.
Economic conditions and the actions we are taking to reduce our risk affected ROUNDUP herbicides' sales performance in Argentina. Even under tightened credit terms, ROUNDUP sales in Brazil increased on higher volumes. This sales improvement was in response to increased applications of ROUNDUP herbicides, which led to higher demand. Competitive pricing of generic products decreased sales in Asia.
Our other Agricultural Productivity products experienced an overall decline in net sales, from $862 million for the first half of 2001 to $770 million for the first half of 2002. Sales of our acetanilide products, in particular our U.S. acetanilide products, decreased because of higher product sales earlier in the 2002 selling season (which began in the third quarter of 2001) when compared with the 2001 selling season. In addition, despite a strong corn market in the U.S., fewer pre-treatment acetanilide applications (shifting to competitive post treatments) occurred because of the wet spring weather across a significant portion of the U.S. corn belt. Full-year 2002 sales of acetanilide products are expected to be lower than 2001 levels. Sales in our environmental technologies business also declined, but sales in our lawn and garden and animal agriculture businesses increased.
Agricultural Productivity segment EBIT declined from $771 million for the first half of 2001 to $454 million for the first half of 2002. Overall gross profit for the segment declined 21 percent, while gross profit as a percent of sales declined 2 percentage points. Lower ROUNDUP volumes and prices were the primary reasons for the decline. Segment EBIT was also negatively affected by the bad debt expense relating to estimated uncollectible accounts receivable in Argentina. Lower operating expenses slightly mitigated these margin shortfalls. The sales of certain herbicide assets contributed to EBIT, through reduced SG&A expenses and other income.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
SG&A expenses also declined because of lower employee-related costs and continued cost management. We also recorded lower restructuring charges in the first half of this year versus the first half of last year. In addition, our R&D spending was lower in the first half of 2002.
Seeds and Genomics Segment
The Seeds and Genomics segment consists of our global seeds and related trait business, and genetic technology platforms. We produce leading seed brands, including DEKALB and ASGROW, and we provide our seed partners with biotechnology traits for herbicide tolerance and insect protection.
Six Months Ended
June 30,
------------------------------
2002 2001
---- ----
Net sales $799 $935
==== ====
EBIT(1) $(80) $(18)
Add: Depreciation and amortization 112 161
---- ----
EBITDA (2) $ 32 $143
==== ====
|
(1) Earnings (loss) before cumulative effect of accounting change, interest and
income taxes
(2) Earnings (loss) before cumulative effect of accounting change, interest,
income taxes, depreciation and amortization
First-half 2002 net sales for the Seeds and Genomics segment totaled $799 million, down 15 percent to $935 million for the first-half of 2001. Our first half sales were negatively affected by our new approach to the market. In 2001, we eliminated the technology fee paid by growers who plant crops containing our technologies and replaced it with a royalty fee paid by the seed companies licensed to market those products. This has resulted in trait revenues being recognized earlier - certain trait revenues that would have previously been recognized in the first half of 2002 were recognized in the last half of 2001. Since a portion of these trait revenues was recognized in the first quarter of 2002, the effect of the shift on the first half of 2002 was less significant than the effect on the second quarter of 2002. Sales of our corn traits increased, led by strong performance of our insect-protected corn trait. An increasingly higher percentage of our seed sales contain a biotechnology trait, demonstrating growing demand for our biotechnology products.
In Argentina, we recorded additional return accruals in response to the contracting corn market that has been affected by economic conditions and last year's flooding. In Brazil, corn seed sales improved slightly from year-ago levels, but approximately $100 million in higher-than-anticipated returns of high-priced corn seed affected prior year sales. In 2002, the continued deterioration of the Brazilian corn market has negatively affected sales.
In the United States, corn sales increased reflecting an increase in planted acreage of corn this year, and strong market performance by our DEKALB and ASGROW brands. The gain in corn sales was more than offset by a decline in U.S. soybean sales. Despite the market dynamics of lower acres and increased supply, our brands maintained price and market share.
Seeds and Genomics EBIT for the first half of 2002 declined to a loss
of $80 million from a loss of $18 million for the comparable period last
year. Gross profit for the segment declined 21 percent, and gross profit as
a percentage of sales also declined. The shift in trait revenues negatively
affected the segment gross profit comparison, as did our actions taken in
Latin America. Charges relating to our restructuring plans affected EBIT in
both periods. Charges related to our 2002 restructuring plan (recorded in
2002) were higher than the charges related to our 2000 plan recorded in
2001. While Seeds and Genomics EBIT was negatively affected by a portion of
the bad debt expense related to estimated uncollectible accounts receivable
in Argentina, lower operating expenses had a positive effect on EBIT. SG&A
spending was lower due to lower employee-related costs and a continued
focus on cost management. EBIT also benefited from the fact that we no
longer amortize our goodwill in 2002. Several items affected other expense
- net during the six-month periods in both years. In 2002, we recognized
other expense related to the broad-reaching business agreement with Pioneer
and DuPont, and other income related to gains that were realized upon the
sale of equity securities. In 2001, we recognized other income from a
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
deferred payout provision related to a past business divestiture and the impairment of an equity investment.
Our Agreement with The Scotts Company
In 1998, Monsanto entered into an agency and marketing agreement with Scotts with respect to our lawn and garden herbicide business. Under the agreement, beginning in the fourth quarter of 1998, Scotts was obligated to pay us a $20 million fixed fee each year to defray costs associated with the lawn and garden business. Scotts' payment of a portion of this fee owed in each of the first three years of the agreement was deferred and is required to be paid at later dates, with interest. Monsanto is accruing the $20 million fixed fee per year owed by Scotts ratably over the periods during which it is being earned as a reduction of SG&A expenses. We are also accruing interest on the amounts owed by Scotts and including such amounts in interest income. The total amount owed by Scotts, including accrued interest, was $50 million as of June 30, 2002, and $48 million as of Dec. 31, 2001. Scotts is required to begin paying these deferred amounts at $5 million per year in monthly installments beginning Oct. 1, 2002.
Events Affecting Comparability
The amounts related to the 2002 and 2000 restructuring plans were
recorded in the Statement of Consolidated Income (Loss) in the following
categories:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Cost of Goods Sold $ (9) $(10) $ (9) $(11)
Restructuring charges - net (57) (31) (57) (52)
Other expense - net -- (6) -- (6)
--- ---- -- ---
Income (Loss) Before Income Taxes (66) (47) (66) (69)
Income tax benefit 23 17 23 26
---- ---- ---- ---
Net Income (Loss) $(43) $(30) $(43) $(43)
==== ==== ==== ====
|
2002 Restructuring Plan:
In April 2002, Monsanto's management approved a restructuring plan to further rationalize (i.e., consolidate or shut down) facilities and reduce the work force. In connection with this plan, Monsanto recorded $66 million pretax ($43 million aftertax) of net charges in the second quarter of 2002. The pretax components of the restructuring for the three months and six months ended June 30, 2002 were as follows:
Three Months and
Six Months Ended
June 30, 2002
----------------
Work Force Reductions $23
Facility Closures / Exit Costs 16
Asset Impairments:
Property, plant and equipment - net 27
----
Total Pretax Charge $66
===
|
These restructuring costs primarily relate to the closure of certain research sites and certain manufacturing sites, as well as work force reductions. The work force reductions include involuntary employee separation costs for approximately 450 employees worldwide, including positions in marketing, research and development, manufacturing and administration. The affected employees are entitled to receive severance benefits pursuant to established severance policies or by governmentally mandated labor regulations. Facility closures and other exit costs included expenses associated with contract terminations ($8 million), equipment dismantling and disposal ($4 million) and other shutdown costs ($4 million) resulting from the exit of certain research sites and certain manufacturing sites. The asset impairments related to property, plant and equipment. Cash payments to complete the actions related to this plan will be funded from operations and are not expected to significantly affect our liquidity. We anticipate that the actions related to this plan will yield annual cash savings of more than $50 million.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
During the second quarter of 2002, approximately 195 former employees received cash severance payments totaling $8 million. The work force reduction payments for the remaining 255 employees associated with these actions will be made by June 30, 2003.
2000 Restructuring Plan:
In 2000, Monsanto's management formulated a plan as part of the company's overall strategy to focus on certain key crops and streamline operations. In connection with this plan, Monsanto incurred $261 million of net charges in 2000. Restructuring and other special items, primarily associated with the implementation of this plan, were also recorded in 2001. These charges totaled $69 million pretax ($43 million aftertax) for the first six months of 2001, with $47 million ($30 million aftertax) recorded in the second quarter. The pretax components of the restructuring and other special items for the three months and six months ended June 30, 2001, were as follows:
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------- -------------
Work Force Reductions $ 5 $20
Facility Closures / Exit Costs 14 18
Asset Impairments:
Inventories 10 11
Other current assets 4 4
Property, plant and equipment - net 8 8
Other intangible assets - net ---- 2
Other Special Items 6 6
---- ---
Total Pretax Charge $ 47 $69
==== ===
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The work force reduction costs for the three months and six months ended June 30, 2001, included involuntary employee separation costs for approximately 110 and 230 employees worldwide, respectively, including positions in administration, manufacturing and research and development related to noncore programs. The affected employees are entitled to receive severance benefits pursuant to established severance policies or by governmentally mandated labor regulations. Facility closures and other exit costs included expenses associated with contract terminations, equipment dismantling and disposal and other shutdown costs resulting from the exit of certain research programs and noncore activities. The asset impairments related to property, plant and equipment, other current assets and other intangible assets. In addition, $10 million and $11 million related to the write-off of inventories was recorded within cost of goods sold for the three months and six months ended June 30, 2001, respectively. These employee reductions, asset dispositions and other exit activities will be substantially completed by Dec. 31, 2002. Cash payments to complete this restructuring plan will be funded from operations and are not expected to significantly affect the company's liquidity. We anticipate that these actions will yield annual cash savings of more than $100 million. The second quarter of 2001 also included a $6 million charge, recorded within other expense - net, for the impairment of an equity security due to adverse business developments of the investee.
During the first two quarters of 2002, $3 million was paid to former employees whose involuntary termination benefits were recorded in 2001, but elected to defer payment until 2002. For the first two quarters of 2002, approximately 390 former employees received cash severance payments totaling $20 million. The work force reduction payments for the remaining 130 employees associated with this plan will be completed by the end of 2002. Exit costs of $13 million associated with contract terminations, equipment dismantling and disposal were also paid during the first half of 2002.
See Note 8 - Restructuring and Other Special Items - of Notes to Consolidated Financial Statements for further details regarding our restructuring plans.
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Changes in Financial Condition as of June 30, 2002
Working Capital and Financial Condition
June 30, 2002 Dec. 31, 2001
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Working capital $2,772 $2,420
Current ratio 2.12:1 2.02:1
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Our working capital at June 30, 2002, increased $352 million from Dec. 31, 2001, working capital to $2.8 billion. Consistent with the seasonality of our business, current assets and current liabilities increased from Dec. 31, 2001, levels. Higher receivables and short-term borrowings were offset somewhat by lower accrued liabilities and accounts payable. Accrued liabilities declined from Dec. 31, 2001, because of payments of customer marketing allowances and payments to growers for corn and soybean inventories.
Trade receivables increased due to the seasonality of our business. However, this seasonal increase was partially offset by the establishment of a $154 million allowance for doubtful accounts in Argentina. Lower sales and fluctuations in currency related to the Brazilian real also decreased the net trade receivable balances in Latin America. Net accounts receivable in Brazil and Argentina totaled approximately $580 million as of June 30, 2002, down from approximately $1 billion at year-end. Worldwide year-to-date collections improved slightly from first-half 2001 collections. Collections in Brazil were relatively unchanged, while collections in Argentina declined approximately 20 percent, primarily because of the effect of the 20 percent tax levied on exports. However, we were more successful in collecting receivables that were secured with grain, net of export taxes.
Collections in the United States improved, in part because of a new financing option we now have in place for certain of our customers. Under this agreement, we collected $63 million in the second quarter. This new $500 million revolving credit and liquidity facility allows certain major U.S. customers to borrow to finance product purchases, and allows us to reduce our reliance on commercial paper borrowings. The company originates these loans on behalf of a third-party specialty finance company using Monsanto's credit guidelines approved by the lender, a special purpose entity. The loans are sold to multi-seller commercial paper conduits through a non-consolidated qualifying special purpose entity (QSPE). Monsanto has no ownership interest in the lender, the QSPE or the loans. The company services the loans and provides a first loss guarantee of up to $100 million. We have not issued, and are not obliged to issue, any debt or equity securities in connection with this arrangement.
As of June 30, 2002, customer loans held by the QSPE totaled $63 million and the QSPE's liability to the conduits was $63 million. The lender or the conduits may restrict or discontinue the facility at any time. If the facility were to terminate, existing sold loans would be collected by the QSPE over their remaining terms, which are generally six months or less, and we would revert to past practice of providing customers with direct credit purchase terms. Cash received from these loans sales totaled $63 million during the second quarter of 2002, and servicing fee revenues were not significant. As of June 30, 2002, Monsanto's recorded guarantee liability was less than $1 million, based on our historical collection experience with these customers and our current assessment of credit exposure. Adverse changes in the actual loss rate would increase the liability.
Cash Flow
Six Months Ended June 30,
2002 2001
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Cash required by operations $ (347) $ (384)
Cash required by investing activities (84) (247)
Cash provided by financing activities 401 736
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Free cash flow (representing cash flows from operations and investing activities) for the first half of 2002 improved $200 million from the same period last year, from negative free cash flows of $631 million last year to negative free cash flows of $431 million this year. Our free cash flow for the first half of the year is historically negative, as we use cash to fund the seasonal fluctuations in our business. Worldwide collections improved slightly, in part because of our new customer financing arrangement discussed above. Capital expenditures in the first half of 2002
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declined over $100 million from the first half of 2001, as we continue to manage our capital expenditures. We also received proceeds of approximately $90 million associated with the sale of certain herbicide assets to Nissan for use in the Japanese market and a long-term supply agreement with Nissan. Approximately half of the proceeds related to the sale of these herbicide assets and were included in cash provided by investing activities; the proceeds from the long-term supply agreement were included in cash flows from operations. In the second quarter of 2002, $22 million aftertax was recognized as other income and a reduction of SG&A expenses, and the proceeds from the long-term supply agreement were recorded as unearned revenue to be recognized over the next five years. These cash flow improvements were offset slightly by a $65 million payment to Aventis CropScience S.A. as part of a legal judgment.
Capital Resources and Liquidity
June 30, 2002 Dec. 31, 2001
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Debt-to-total capitalization 27% 19%
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Total debt as of June 30, 2002, and consequently debt-to-total capitalization, increased when compared with Dec. 31, 2001 debt and debt-to-total capitalization levels. This increase is consistent with the seasonality of our business. The debt-to-capitalization ratio was also affected by the $2 billion pretax ($1.8 billion aftertax) goodwill impairment charge. At June 30, 2002, our borrowings included a related party loan payable of $194 million, a $60 million decrease from year-end, reflecting short-term loans from Pharmacia.
Under our present debt structure, we use short-term commercial paper and loans from Pharmacia to fund our operating cash requirements. Pharmacia has announced it will spin off its remaining ownership interest in Monsanto on August 13, 2002, and after such spinoff, we do not expect to have access to new borrowings from Pharmacia. This could affect our liquidity, as our capital structure will likely be affected by a shift from short-term to longer-term borrowings and a resulting increase in interest costs.
As of June 30, 2002, we had unused committed external borrowing facilities amounting to $1.5 billion. These facilities exist largely to support our commercial paper borrowings. In July, we finalized an $800-million 364-day facility that replaces a $1 billion facility that was scheduled to expire in August of this year. We reduced the amount of the credit facility from $1 billion to $800 million because we expect to have reduced reliance on commercial paper compared with the prior year. The remaining $500-million facility expires in 2005.
On Aug. 9, 2002, we entered into an agreement with our underwriters to issue $600 million of 7-3/8% Senior Notes due Aug. 15, 2012, pursuant to a shelf registration filed in May 2002. The transaction is scheduled to close on Aug. 14, 2002, and proceeds will be used to reduce commercial paper borrowings. We have also announced that we anticipate seeking additional long-term debt capital in the near future. To the extent that we are unable to access long-term debt financing, we will continue to be exposed to refinancing risks including changes in prevailing interest rates.
On Aug. 13, 2002, Monsanto repaid its outstanding short-term debt to Pharmacia and entered into a new short-term debt arrangement with Pharmacia for $150 million. This short-term debt is scheduled to mature on Nov. 15, 2002, or earlier to the extent that Monsanto receives proceeds from the issuance of additional debt or of equity.
When we entered into the agreement with our underwriters on Aug. 9, 2002, we closed our position in a treasury rate lock agreement, resulting in a loss of $26 million, due to decreases in interest rates. As the rate lock agreement was designated a cash-flow hedge, this loss will be recorded in other comprehensive income until the hedged interest costs are recognized in earnings. (See Note 10 - Accounting for Derivative Instruments and Hedging Activities - of Notes to Consolidated Financial Statements for further details.)
Effective Aug. 13, 2002, we entered into an agreement with Pharmacia whereby Pharmacia will pay us approximately $40 million, and will transfer certain assets, as payment for certain of our expenses relating to our separation from Pharmacia and to the spinoff of Monsanto by Pharmacia.
Critical Accounting Policies
Monsanto regularly reviews its selection and application of significant accounting policies and related financial disclosures. The discussion of past performance in MD&A is based upon Monsanto's
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consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in Note 2 - Significant Accounting Policies - of Notes to Consolidated Financial Statements contained in our annual report on Form 10-K for the year ended Dec. 31, 2001. The application of these accounting policies requires that management make estimates and judgments. On an ongoing basis, Monsanto evaluates its estimates, which are based on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. Actual results may differ from these estimates due to actual market and other conditions, and assumptions being significantly different than was anticipated at the time of the preparation of these estimates. Such differences may affect financial results. The estimates that affect the application of our most critical accounting policies and require our most significant judgments are outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations - "Critical Accounting Policies"- contained in our annual report on Form 10-K for the year ended Dec. 31, 2001.
New Accounting Standards
SFAS No. 141, Business Combinations, requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, thereby eliminating the pooling-of-interests method. It also provides broader criteria for identifying which types of acquired intangible assets must be recognized separately from goodwill and which must be included in goodwill. We adopted the provisions of SFAS No. 141 on Jan. 1, 2002, with the exception of the immediate requirement to use the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 also required Monsanto to reassess the useful lives, residual values, and classification of all identifiable and recognized intangible assets. Any necessary prospective amortization period adjustments were made Jan. 1, 2002.
On Jan. 1, 2002, Monsanto adopted SFAS No. 142, which changes the accounting for goodwill from an amortization method to an impairment-only method. Under SFAS No. 142, all goodwill amortization ceased effective Jan. 1, 2002. Monsanto's goodwill was tested for impairment in conjunction with a transitional goodwill impairment test in 2002 and will be tested at least annually thereafter. The transitional goodwill impairment test resulted in a $2 billion impairment charge relating to our corn and wheat reporting units, relating to goodwill that resulted primarily from our 1998 and, to a lesser extent, 1997 seed company acquisitions. The resulting impairment charge was recorded as a cumulative effect of accounting change, effective Jan. 1, 2002.
SFAS No. 142 did not require that prior periods be restated to reflect the nonamortization provision of the standard. Had Monsanto adopted the new accounting standard as of Jan. 1, 2001, Monsanto earnings per share for the second quarter, first half, and full year would have increased by $0.17 per share, $0.26 per share, and $0.40 per share, respectively. For further details see Note 5 - Goodwill and Other Intangible Assets - of Notes to Consolidated Financial Statements. Because of the seasonality of the agricultural business, quarterly financial information should not be annualized.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting for and reporting of costs and obligations associated with the retirement of tangible long-lived assets. This statement will become effective for Monsanto on Jan. 1, 2003. Monsanto has not yet determined the effect adoption of this standard will have on its consolidated financial position or its results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144, which was effective for Monsanto on Jan. 1, 2002, establishes an accounting model for long-lived assets to be disposed of by sale. It applies to all long-lived assets, including discontinued operations. The adoption of SFAS No. 144 did not have a material effect on our consolidated financial position or results of operations.
In April 2002, the FASB approved for issuance SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds, updates, clarifies and simplifies existing accounting pronouncements. Among other things, SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from
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extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Under SFAS No. 145, the criteria in Accounting Principles Board (APB) No. 30 will now be used to classify those gains and losses. The adoption of SFAS No. 145 resulted in a reclassification of the extraordinary loss related to the extinguishment of Employee Stock Ownership (ESOP) debt recorded in the second quarter of 2001 ($2 million, net of taxes), to increase other expense - net ($4 million) and to decrease the income tax provision ($2 million). The adoption of the remaining provisions of SFAS No. 145 did not have a material effect on Monsanto's consolidated financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement will become effective for exit or disposal activities initiated after Dec. 31, 2002. We have not yet determined the effect adoption of this standard will have on our consolidated financial position or its results of operations.
Outlook - Update
Focused Strategy
We believe that our focused approach to the business and the value we bring to our customers will allow us to maintain an industry leadership position. We continue to face a difficult agricultural and economic environment, especially in Latin America. While growth from our traditional products will be challenged in these conditions, we believe that our portfolio of integrated products and services continues to offer farmers cost-effective and value-added solutions. Our current business, building on a restructured Latin American business, and continued cost management are important in the near-term, while gaining biotechnology acceptance and continued development of our research pipeline are important to our future growth. Near-term cost savings initiatives will also be necessary to mitigate the decline in U.S. sales of ROUNDUP herbicides. We will also continue to pursue strategic alliances involving the sale of herbicide assets in certain ex-U.S. geographic areas, where appropriate.
We remain committed to managing our operating costs and improving our cash position through working capital and capital expenditure management. As part of our emphasis on working capital, we have focused on receivables collections and also have instituted more restrictive credit policies (particularly in Latin America) to improve the overall quality of our receivables going forward. We will continue to seek new external financing alternatives for our customers to supplement our new customer financing program discussed in "Changes in Financial Condition." Our primary working capital challenges in 2002 will be receivables management in Latin America, particularly in Argentina and Brazil.
Latin America
We recently announced changes in how we approach our Latin American business, due to continued economic and market uncertainties. These actions are intended to improve the longer-term viability of our business there and to reduce overall risk. We will continue to operate primarily with cash or grain sales terms in Argentina. We also are reducing our working capital in Brazil and Argentina and, because of market conditions in Argentina, in certain cases we will exercise our right to use collateralized products to settle receivables there as appropriate. While we expect these steps will reduce sales and earnings for the year, we believe that they are appropriate for our business because they are designed to substantially reduce our credit risk exposure and working capital in Brazil and Argentina.
We have been affected by significant changes in Argentine monetary legislation and a decline in the value of the Argentine peso. The economic situation in Argentina continues to evolve. It is unclear what effect existing and new regulations and conditions might have on our business in Argentina. While we have prepared our 2001 and 2002 financial statements
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relating to our Argentine operations on a U.S. dollar functional basis, the functional currency designation in Argentina may change based on future government economic reforms. The peso-to-U.S. dollar exchange rate was 3.625-to-1.00 as of Aug. 9, 2002.
In the second quarter of 2002, we established an allowance of $154 million pretax for estimated uncollectible accounts receivable in Argentina. While we cannot determine how government actions in Argentina will affect the outcome, we will aggressively pursue collection of the net outstanding receivables (which were approximately $270 million as of June 30, 2002) at full U.S. dollar value. However, the unfavorable market and economic conditions could have further negative impact on our collections, sales and earnings. In March 2002, the government issued a decree establishing a 20 percent export tax on agricultural exports and also ruled that the U.S. dollar-denominated contracts in agriculture markets entered into prior to Jan. 6, 2002, must be honored at the same exchange parity, as the one obtained for exports of the agricultural products that contain the agricultural inputs. This decree was amended with the July 2, 2002, issuance of Resolution Number 143, which states that the future settlement of such contracts on farm inputs for corn and soybeans will be subject to a 25 percent reduction, including the 20 percent export tax discussed above, of the U.S. dollar price. Management's estimate of the potential impact of these decrees on the company's receivables has been included in the allowance for uncollectible receivables. The Argentine agricultural markets continue to be primarily export-oriented, and their export sales are generally denominated in U.S. dollars. The exchange rate between the U.S. dollar and peso will fluctuate as we continue our collection efforts.
Year-to-date collections in Argentina are down approximately 20 percent, due primarily to the impact of the export taxes levied on agricultural exports. We have been able to collect essentially all of our receivables that were secured with grain, net of export taxes. We also plan to continue to operate with primarily cash-or- grain sales terms in that country. Management believes that the actions it has taken thus far have reduced the risk related to our receivables.
In addition, our ability to repatriate funds from Argentina may be restricted and we also have additional exposures. For example, our sales, margins, and foreign-currency transactional gains/losses, may be adversely affected based on fluctuations in foreign-currency exchange rates and the level of inflation experienced.
The Brazilian real has fluctuated considerably during recent months. While the majority of net current assets are protected against future fluctuation, further devaluation and other economic concerns could have an adverse effect on our sales.
Due to the changing economic conditions, we are changing the method by which we account for our Latin American grain sales program to no longer record revenues and cost of goods sold of essentially the same amount on the conversion of grain to cash. Under the nature of the current program, we no longer take ownership of the grain, thereby eliminating the associated inventory risk. Full-year results for 2001 included net sales of approximately $65 million related to this program, with minimal contribution to gross margin and EBIT.
ROUNDUP Herbicide
ROUNDUP herbicide is key to our integrated strategy. Primary opportunities for ROUNDUP volume growth in the future will be ROUNDUP use in conjunction with conservation tillage systems and growth in ROUNDUP READY crops. Conservation tillage helps farmers reduce soil erosion by replacing plowing with the judicious use of herbicides to control weeds. We believe that there is significant value yet to be gained through conservation tillage and applications of ROUNDUP over the top of ROUNDUP READY crops. We intend to maintain our leadership position by providing new and unique formulations (such as ROUNDUP WEATHERMAX herbicide) and services to growers, and by offering integrated seed, biotech and chemistry solutions. We expect to continue to benefit from our logistics and manufacturing capabilities, our increased capacity and our decreased production costs. We also sell glyphosate to other herbicide producers.
We plan to build on our advantages as we face increased competition for our ROUNDUP business. Without patent protection worldwide, ROUNDUP herbicide continues to face competition from generic producers and marketers, whose pricing policies in most instances cause downward pressure on our prices. Since the expiration of our glyphosate patent in 2000, we also face these pressures in the United States, where our market share has declined over the past two years. ROUNDUP prices are expected to decline in
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the United States. To date, this decline has been consistent with our global pricing experience. The current plan for the ROUNDUP herbicide business in the United States assumes that price and volume declines for ROUNDUP herbicides in the future will be consistent with our previous experience in other parts of the world. However, if price or volume declines deviate significantly from our previous experience, we will need to consider additional changes to our business model.
We expect to continue to selectively reduce average prices through new formulations, discounts, rebates or other promotional strategies to encourage new uses and to increase our sales volumes. This strategy likely will result in a reduction in our gross margin, consistent with the reduction in recent years, as we have implemented a price-elasticity strategy in certain segments. For example, in 2001 we introduced RT MASTER herbicide, which is formulated and priced for conservation tillage use in the highly elastic wheat market.
In certain regions, particularly the United States and Latin America, distribution channel inventories for ROUNDUP herbicide have increased. Distribution channel inventories have increased significantly in the United States within the past three years. In the United States, our goal is that, in the future, sales of ROUNDUP herbicides will approximate usage on a seasonal basis. However, many factors that are not within our control may affect usage of ROUNDUP herbicides. Higher product levels at our distributors could materially adversely affect our future results of operations, particularly in the event of an unanticipated rate of reduction in prices of competitive glyphosate products, or of sales volumes of ROUNDUP. In addition, if distributors elect to reduce their inventory levels from current levels, sales volumes of ROUNDUP herbicides would be materially adversely affected. We recently announced a plan to reduce channel inventories in Latin America as a part of our plan to reduce our risk in that region. This plan has affected, and will continue to affect sales and EBIT in 2002.
Seed Biotechnology
We are investing in the growth segment of agriculture. As the seed and biotechnology segments of the industry have become more important, we have increased our marketing and R&D focus in this area. Biotechnology traits offer growers several benefits: lower costs, greater convenience and flexibility, higher yields, and the ability to adopt environmentally sound practices like conservation tillage. ROUNDUP and other glyphosate-based herbicides can be applied over the top of our ROUNDUP READY crops, controlling weeds without injury to the crop. This integration of agricultural chemicals and enhanced seeds offers growers a cost-effective solution for weed control.
To date, we have introduced ROUNDUP READY traits for soybeans, corn, canola and cotton. In 2001, approximately 103 million acres were planted with ROUNDUP READY crops. In addition, we have developed insect-resistance seed traits such as YIELDGARD for corn and BOLLGARD for cotton, which serve as pest control alternatives to chemical pesticides. We currently estimate that acreage planted with our seed traits grew from approximately 3 million in 1996 to approximately 123 million in 2001. We currently estimate that our insect-resistant and ROUNDUP READY biotechnology traits were used on approximately 90 million acres in the United States during the 2002 growing season, compared with approximately 85 million acres in the previous year.
Gaining global acceptance of biotechnology is another key part of our strategy. In March 2002, our seed partner in India, Maharashtra Hybrid Seed Company Limited, received commercial approval for BOLLGARD insect-protected cotton. This is the first biotechnology crop approved by India, one of the world's largest cotton producing countries, and commercialization has begun. Proceedings are pending before the Indian courts seeking to overturn the government's authorization for the commercial release of insect-protected cotton. To date, the courts have denied applications for injunctive relief and planting is occurring. We believe that the challenges are without merit and that commercialization of our technology will be allowed to continue. We are continuing our efforts to obtain approval in Brazil for planting of ROUNDUP READY soybeans, and in Europe for importing corn that may contain a ROUNDUP READY trait.
We are also working to commercialize our R&D pipeline of new biotechnology traits. We have two new biotechnology traits ready to enter the market in 2003, pending successful completion of U.S. regulatory reviews. We have completed the Food and Drug Administration (FDA) consultation on BOLLGARD II cotton, and are in the process of obtaining United States Department of Agriculture (USDA) and Environmental Protection Agency (EPA) clearance prior to commercialization. We have received
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Japanese food and feed approval of YIELDGARD rootworm-protected corn, and have completed consultation with the FDA. The USDA and EPA are in the final stages of their regulatory review.
We continue to address concerns raised by consumers and public interest groups and questions raised by government regulators regarding agricultural and food products developed through biotechnology. We are committed to addressing these issues, and to achieving greater acceptance, efficient regulation, and timely commercialization of biotechnology products.
We also continue to address concerns about the unintended or adventitious presence of biotechnology materials in seed, crops or food. We expect these types of issues to continue. We are addressing the issue of adventitious presence through our own seed quality programs, by working with others in seed, feed and food industry associations, by developing information to improve both understanding and management of seed quality, and by continuing to press for regulations which recognize and accept the adventitious presence of biotechnology traits.
Other Information
As discussed in Note 9 - Commitments and Contingencies - of Notes to the Consolidated Financial Statements, Monsanto is involved in a number of lawsuits and claims relating to a variety of issues. Many of these lawsuits relate to intellectual property disputes. We expect that such disputes will continue to occur as the agricultural biotechnology industry evolves.
This Outlook section should be read in conjunction with outlook information in our annual report for the year ended Dec. 31, 2001, which is incorporated by reference into our annual report on Form 10-K. For additional information about the outlook for Monsanto, see "Cautionary Statements Regarding Forward Looking Information," below.
Cautionary Statements Regarding Forward Looking Information
Under the Private Securities Litigation Reform Act of 1995, companies are provided with a "safe harbor" for making forward-looking statements about the potential risks and rewards of their strategies. We believe it is in the best interest of our shareowners to use these provisions in discussing future events. However, we are not required to, and you should not rely on us to, revise or update these statements or any factors that may affect actual results, whether as a result of new information, future events or otherwise. Forward-looking statements include: statements about our business plans; statements about the potential for the development, regulatory approval, and public acceptance of new products; estimates of future financial performance; predictions of national or international economic, political or market conditions; statements regarding other factors that could affect our future operations or financial position; and other statements that are not matters of historical fact. Such statements often include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," or similar expressions.
Our ability to achieve our goals depends on many known and unknown risks and uncertainties, including changes in general economic and business conditions. These factors could cause our actual performance and results to differ materially from those described or implied in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below.
Competition for ROUNDUP Herbicides: ROUNDUP herbicide is a major product line. Patents protecting ROUNDUP herbicides in several countries expired in 1991, and compound per se patent protection for the active ingredient in ROUNDUP herbicides expired in the United States in 2000. As a result, ROUNDUP herbicides will face increasing competition in the future, including in the United States. In order to compete in this environment, we rely on a combination of (1) marketing and logistics strategies, including new and improved formulations, (2) pricing strategy, and (3) decreased production costs.
Marketing and Logistics Strategies: We intend to respond to increasing competition by encouraging new uses (especially conservation tillage), providing unique formulations and services, and offering integrated seed and biotech solutions. The success of our
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ROUNDUP marketing and logistics strategies will depend on the continued expansion of conservation tillage practices and of ROUNDUP READY seed acreage, on our ability to develop services and marketing programs that are attractive to our customers, and on the continued success of our unique logistics and distribution systems and practices.
Pricing Strategy: Historically, we have reduced the average net sales price of ROUNDUP herbicides in selected markets in order to increase volumes, penetrate new markets, and compete effectively. In addition to reduced list prices, price reductions may include discounts, rebates or other promotional strategies, as well as the development of new and lower-cost formulations for specific uses. However, there can be no guarantee that price reductions will stimulate enough volume growth to offset the price reductions and increase revenues. In the past, price reductions have not always stimulated volume growth and, where volumes have increased, the increases have not always been adequate to offset the price reductions and to increase revenues.
Production Cost Decreases: We also believe that increased volumes and technological innovations will lead to efficiencies that will reduce the production cost of glyphosate. As part of this strategy, we have entered into agreements to supply glyphosate to other herbicide producers. Such cost reductions will depend on realizing such increased volumes and technological innovations.
Realization and Introduction of New Products: Our ability to develop and introduce new products to market, particularly new agricultural biotechnology products, will depend on, among other things, the availability of sufficient financial resources to fund research and development needs; the success of our research and development efforts; our ability to gain acceptance through the chain of commerce (e.g., by processors, food companies, and consumers); our ability to obtain regulatory approvals; the demonstrated effectiveness of our products; our ability to produce new products on a large scale and to market them economically; our ability to develop, purchase or license required technology; and the existence of sufficient distribution channels.
Governmental and Consumer Acceptance: The commercial success of agricultural and food products developed through biotechnology will depend in part on government and public acceptance of their cultivation, distribution and consumption. We continue to work with consumers, customers and regulatory bodies to encourage understanding of modern biotechnology, crop protection and agricultural biotechnology products. Biotechnology has enjoyed and continues to enjoy substantial support from the scientific community, regulatory agencies and many governmental officials around the world. However, public attitudes may be influenced by claims that genetically modified plant products are unsafe for consumption or pose unknown risks to the environment or to traditional social or economic practices, even if such claims have little or no scientific basis. The development and sales of our products have been, and may in the future be, delayed or impaired because of adverse public perception or extreme regulatory caution in assessing the safety of our products and the potential effects of these products on other plants, animals, human health and the environment.
Securing governmental approvals for, and consumer confidence in, products developed through biotechnology poses numerous challenges, particularly outside the United States. If crops grown from seeds that were developed through biotechnology are not yet approved for import into certain markets, growers in other countries may be restricted from introducing or selling their grain. In addition, because some markets have not approved these products, some companies in the food industry have sought to establish supplies of non-genetically-modified crops, or have refused to purchase crops grown from seeds developed through biotechnology. Resulting concerns about trade and marketability of these products may deter farmers from planting them, even in countries where planting and consumption have been fully approved.
Regulatory Approvals: The field testing, production and marketing of our products are subject to extensive regulations and numerous government approvals, which vary widely among jurisdictions. Obtaining necessary regulatory approvals can be time consuming and costly, and there can be no guarantee of the timing or granting of approvals. Regulatory authorities can block the sale or import of our products, order recalls, and prohibit planting of seeds containing our technology. As agricultural biotechnology continues to evolve, new unanticipated restrictions and burdensome regulatory requirements may be imposed. In addition, international agreements may also affect the treatment of biotechnology products.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
Seed Quality and Adventitious Presence: Because the global acceptance and regulation of biotechnology-derived agricultural products is not consistent or harmonized, the detection of unintended (adventitious) biotechnology traits in precommercial seed, commercial seed varieties, or the crops and products produced can negatively affect our business or results of operations. The detection of adventitious presence can result in the withdrawal of seed lots from sale, or in governmental regulatory compliance actions such as crop destruction or product recalls in some jurisdictions. Concerns about seed quality related to biotechnology could also lead to additional requirements such as seed labeling and traceability. Concerns about unintended biotechnology traits in grain or food could lead to additional government regulations and to consumer concerns about the integrity of the food supply chain from the farm to the finished product. Together with other seed companies and industry associations, we are actively seeking sound, science-based rules and regulatory interpretations that would clarify the legal status of trace adventitious amounts of biotechnology traits in seed, crops and food. This may involve the establishment of threshold levels for the adventitious presence of biotechnology traits, and standardized sampling and testing methods. Although we believe that such thresholds are already implicit in existing seed quality and other laws, the establishment of appropriate regulations would provide the basis for recognition and acceptance of the adventitious presence of biotechnology traits.
Intellectual Property: We have devoted significant resources to obtaining and maintaining our intellectual property rights, which are material to our business. We rely on a combination of patents, copyrights, trademarks and trade secrets, confidentiality provisions, Plant Variety Protection Act registrations, and licensing arrangements to establish and protect our intellectual property. We seek to preserve our intellectual property rights and to operate without infringing the proprietary rights of third parties. Intellectual property positions are extremely important within the agricultural biotechnology industry.
There is some uncertainty about the value of available patent protection in certain countries outside the United States, and patent protection may not be available in some countries. For example, we do not have patent protection for our ROUNDUP READY soybean traits in Argentina. Moreover, the patent positions of biotechnology companies involve complex legal and factual questions. Rapid technological advances and the number of companies performing such research can create an uncertain environment. Patent applications in the United States may be kept secret, or if published like those outside the United States, published 18 months after filing. Accordingly, competitors may be issued patents from time to time without any prior warning to us. That could decrease or eliminate the value of similar technologies that we are developing. Because of this rapid pace of change, some of our products may unknowingly rely on key technologies already patent-protected by others. If that should occur, we must obtain licenses to such technologies to continue to use them.
Certain of our seed germplasm and other genetic material, patents, and licenses are currently the subject of litigation, and additional future litigation is anticipated. Although the outcome of such litigation cannot be predicted with certainty, we will continue to defend and litigate our positions vigorously. We believe that we have meritorious defenses and claims in the pending suits.
Technological Change and Competition: A number of companies are engaged in plant biotechnology research. Technological advances by others could render our products less competitive. In addition, the ability to be first to market a new product can result in a significant competitive advantage. We believe that competition will intensify, not only from agricultural biotechnology firms but also from major agrichemical, seed and food companies with biotechnology laboratories. Some of our agricultural competitors have substantially greater financial, technical and marketing resources than we do.
Planting Decisions and Weather: Our business is subject to weather conditions and natural disasters that affect commodity prices, seed yields, and grower decisions about purchases of seeds, traits and herbicides. In addition, crop commodity prices continue to be at very low levels. There can be no assurance that this trend will not continue. These lower commodity prices affect growers' decisions about the types and amounts of crops to plant and may negatively influence sales of our herbicide, seed and biotechnology products.
Need for Short-Term Financing: Like many other agricultural companies, we regularly extend credit to our customers to enable them to acquire agricultural chemicals and seeds at the beginning of the growing season. Our credit practices, combined with the seasonality of our sales, make us dependent on our ability to obtain substantial short-term financing to fund our cash flow requirements, our ability to collect customer receivables,
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
and our ability to repatriate funds from ex-U.S. operations. Our need for short-term financing typically peaks in the second quarter. Downgrades in our credit rating or other limitations on our ability to access short-term financing, including our ability to refinance our short-term debt as it becomes due, would increase our interest costs and adversely affect our sales and our profitability.
Litigation and Contingencies: We are involved in numerous major lawsuits regarding contract disputes, intellectual property issues, biotechnology issues, antitrust allegations and other matters. Adverse outcomes could subject us to substantial damages or limit our ability to sell our products. In addition, in connection with the separation of our businesses from those of Pharmacia Corporation on Sept. 1, 2000, and pursuant to a Separation Agreement entered into on that date (as amended, the "Separation Agreement"), we assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Pharmacia's former agricultural or chemical businesses. Under the Separation Agreement, we agreed to indemnify Pharmacia for any liabilities that Solutia Inc. ("Solutia") had assumed from Pharmacia in connection with the spinoff of Solutia on Sept. 1, 1997, to the extent that Solutia fails to pay, perform or discharge those liabilities. This indemnification obligation applies to litigation, environmental, retiree and all other Pharmacia liabilities that were assumed by Solutia.
Distribution of Products: In order to successfully market our products, we must estimate growers' needs, and successfully match the level of product at our distributors to those needs. If distributors do not have enough inventory of our products at the right time, our current sales will suffer. On the other hand, high product inventory levels at our distributors may cause revenues to suffer materially in future periods as these distributor inventories are worked down, particularly in the event of unanticipated price reductions.
Cost Management: Our ability to meet our short- and long-term objectives requires that we manage our costs successfully, without adversely affecting our performance. Changing business conditions or practices may require us to reduce costs to remain competitive. If we are unable to identify cost savings opportunities and successfully reduce costs and maintain cost reductions, our profitability will be affected. Our profitability will also be affected to the extent that we incur cost increases which we are not able to offset through price increases in our products.
Accounting Policies and Estimates: In accordance with generally accepted accounting principles, we adopt certain accounting policies, such as policies related to the timing of revenue recognition and other policies described in our financial statements. Changes to these policies may affect future results. There may also be changes to generally accepted accounting principles, which may require adjustments to financial statements for prior periods and changes to the company's accounting policies and financial results prospectively. In addition, we must use certain estimates, judgments and assumptions in order to prepare our financial statements. For example, we must estimate matters such as levels of returns, collectibility of receivables, and the probability and amount of future liabilities. If actual experience differs from our estimates, adjustments will need to be made to financial statements for future periods, which may affect revenues and profitability. Finally, changes in our business practices may result in changes to the way we account for transactions, and may affect comparability between periods.
Operations Outside the United States: Sales outside the United States make up a substantial portion of our revenues, and we intend to continue to actively explore international sales opportunities. In addition, we engage in manufacturing, seed production, sales, and/or research and development in many parts of the world. Although we have operations in virtually every region, our ex-U.S. sales are principally in Argentina, Brazil, Canada, France, Mexico, Australia and Japan. Accordingly, developments in those parts of the world generally have a more significant effect on our operations than developments in other places. Operations outside the United States are potentially subject to a number of unique risks and limitations, including, among others, fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in a specific country's or region's political or economic conditions; weather conditions; import and trade restrictions; import or export licensing requirements and trade policy; unexpected changes in regulatory requirements; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting United States companies doing business abroad. Weakened economies may cause future sales to decrease because customers may purchase fewer goods in general, and also because imported products could become more expensive for customers to purchase in their local currency. Changes in exchange rates may affect our earnings, the book value of our assets outside the United States, and our equity.
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (continued)
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except as noted below, there are no material changes related to market risk from the disclosures in Monsanto's annual report on Form 10-K for the year ended Dec. 31, 2001.
In May 2002, the company filed a shelf registration with the SEC that would allow the company to issue debt of up to $2 billion in the future. On June 26, 2002, the Company entered into a treasury rate lock agreement with several banks to hedge against changes in long-term interest rates on a portion of the planned debt issue. On June 30, 2002, the market value of this agreement was $2 million. The market value of the treasury rate lock agreement rises or falls with the yield on 10-year U.S. Treasury notes. A one-percentage point change in interest rates would change the fair value of the Treasury lock by approximately $39 million. See Note 13 - Subsequent Events - of Notes to Consolidated Financial Statements for further details.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Pursuant to the Separation Agreement between Monsanto Company and Pharmacia Corporation, effective Sept. 1, 2000, as amended (the "Separation Agreement"), we assumed responsibility for legal proceedings primarily related to the agricultural business that Pharmacia transferred to us on that date. As a result, although Pharmacia may remain the named defendant or plaintiff in some of these cases, we manage and are responsible for the litigation. In the proceedings where Pharmacia is the defendant, we will indemnify Pharmacia for costs, expenses and any judgments or settlements; and in the proceedings where Pharmacia is the plaintiff, we will pay the fees and costs of, and receive any benefits from, this litigation. The discussion below includes certain proceedings to which Pharmacia is a party and which we are defending or prosecuting, as well as proceedings to which Monsanto is a party in its own name. Monsanto is also involved in other legal proceedings arising in the ordinary course of business. While the results of litigation cannot be predicted with certainty, we do not believe that the resolution of the proceedings that we are defending or prosecuting, either individually or taken as a whole, will have a material adverse effect on our financial position, profitability or liquidity. We have meritorious legal arguments and will continue to represent our interests vigorously in all of these proceedings.
In addition to the proceedings described below, to which Pharmacia or we are a party and which we are defending or prosecuting, pursuant to the Separation Agreement we have assumed, and agreed to indemnify Pharmacia for, any liabilities primarily related to Pharmacia's former agricultural or chemical businesses. Under the Separation Agreement, we agreed to indemnify Pharmacia for any liabilities that Solutia Inc. ("Solutia") had assumed from Pharmacia in connection with the spinoff of Solutia on Sept. 1, 1997 (the "Solutia Spinoff"), to the extent that Solutia fails to pay, perform or discharge those liabilities. This indemnification obligation applies to litigation, environmental, retiree and all other liabilities that were assumed by Solutia, and which are not included in the discussion below. For example, pursuant to the Distribution Agreement entered into in connection with the Solutia Spinoff, as amended (the "Distribution Agreement"), Solutia assumed responsibility for litigation currently pending in state and federal court in Alabama brought by several thousand plaintiffs, alleging property damage, anxiety and emotional distress and personal injury arising from exposure to polychlorinated biphenyls (PCB's), which were discharged from an Anniston, Alabama plant site that was formerly owned by Pharmacia and that was transferred to Solutia as part of the Solutia Spinoff. This litigation includes but is not limited to the Abernathy litigation described in Item 5 - Other Information - Solutia Inc. Pursuant to the terms of the Distribution Agreement, Solutia is required to indemnify Pharmacia and us for liabilities that Pharmacia and we incur in connection with this litigation. Pursuant to the terms of the Separation Agreement, Monsanto is required to indemnify Pharmacia for any losses relating to, arising out of or due to Solutia's failure to pay or discharge such liabilities when due or required to be paid, performed or discharged, or to indemnify Pharmacia therefor. See Item 5 - Other Information - Solutia Inc. for certain additional information relating to Solutia.
The following updates certain proceedings to which Pharmacia or we are a party and for which we are responsible. In that discussion, we use the phrase "the former Monsanto Company" to refer to Pharmacia Corporation prior to the date of the Separation Agreement. Other information with respect to legal proceedings appears in our annual report on Form 10-K report for the year ended Dec. 31, 2001 and in our Form 10-Q report for the quarterly period ended March 31, 2002.
On July 25, 2002, Syngenta Biotechnology, Inc. ("SBI") filed a suit against Monsanto and Delta and Pine Land Company in the United States District Court for Delaware alleging infringement of a patent issued in April 2000, under which SBI is a licensee, and which allegedly relates to certain agro-transformed cotton technology products. SBI seeks injunctive relief and monetary damages. Monsanto has substantial defenses to the claims, including non-infringement and invalidity of the patent. This litigation is at its inception and Monsanto plans to vigorously defend the litigation.
Also, on July 25, 2002, Syngenta Seeds, Inc. ("SSI") filed a suit against Monsanto, DEKALB Genetics Corporation, Pioneer Hi-Bred International, Inc., Dow Agrosciences, L.L.C. and Mycogen Plant Sciences, Inc. ("MPS") and Agrigenetics, Inc., collectively d.b.a. Mycogen Seeds, in the United States District Court for Delaware alleging infringement of three patents issued between June 2000 and June 2002. The patents allegedly pertain to insect resistant transgenic corn. SSI seeks injunctive relief
and monetary damages. The defendants have substantial defenses to the claims, including non-infringement and invalidity of the various patents. This litigation is at its inception and Monsanto plans to vigorously defend the lawsuit.
As described in our Form 10-K report for the year ended Dec. 31, 2001 and in our Form 10-Q report for the quarterly period ended March 31, 2002, since the 1984 termination of the class action litigation against various manufacturers, including the former Monsanto Company, of the herbicide Agent Orange used in the Vietnam War, Monsanto and the former Monsanto Company have successfully defended against various lawsuits associated with injuries allegedly caused by the herbicide's use. A few matters remain pending, including three separate actions (now consolidated) brought by approximately 13,000 Korean veterans and initially filed against the former Monsanto Company and The Dow Chemical Company in Seoul, Korea, in October 1999. The plaintiffs seek damages of 300 million won (approximately $250,000) each. On May 23, 2002, the Seoul District Court ruled in favor of the defendants and dismissed all claims by plaintiffs due to lack of causation and failure to meet the applicable statute of limitations. On June 14, 2002, plaintiffs lodged their notice of de novo appeal.
As described in our Form 10-K report for the year ended Dec. 31, 2001 and in our Form 10-Q report for the quarterly period ended March 31, 2002, on Dec. 2, 1999, a class action lawsuit was filed against the former Monsanto Company and five other herbicide manufacturers in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs purport to represent a class of over 9,000 Korean and 1,000 United States service persons allegedly exposed to the herbicide Agent Orange and other herbicides sprayed from 1967 to 1970 in or near the demilitarized zone separating North Korea from South Korea. The complaint did not assert any specific causes of action or demand a specified amount in damages. This suit was dismissed by the District Court in November 2001. In addition, two suits filed by individual U.S. veterans contesting their denial of claims subsequent to the class action settlement have been consolidated in the multidistrict litigation proceeding that was established in 1977 in the United States District Court for the Eastern District of New York, to coordinate Agent Orange-related litigation in the United States. These suits were dismissed by the District Court. In an opinion dated Nov. 30, 2001 the United States Court of Appeals for the Second Circuit vacated the District Court's dismissal claims and remanded the cases to the District Court for further proceedings. On June 20, 2002, the District Court announced that it would stay further proceedings pending a ruling by the United States Supreme Court on defendants' petition for certiorari.
As described in our Form 10-K report for the year ended Dec. 31, 2001 and in our Form 10-Q report for the quarterly period ended March 31, 2002, since the late 1990's, the EPA has focused attention on the presence of dioxin in the Kanawha River in West Virginia. As part of its efforts in this regard, the EPA is conducting preliminary assessments at over twenty sites identified as potential sources of dioxin in the Kanawha River. Among these sites are three landfills - the Heizer Creek landfill, the Poca Strip Mine landfill, and the Manila Creek landfill - that the former Monsanto Company used in the late 1950's to dispose of plant waste from its former Nitro, West Virginia, manufacturing location. Through the preliminary assessment work, the EPA identified an elevated dioxin level in one soil sample taken at the Heizer Creek landfill, and notified the former Monsanto Company of its potential liability at that landfill. Pursuant to a September 1999 consent order with the EPA, the former Monsanto Company and (after Sept. 1, 2000) Monsanto prepared and submitted to the EPA an Engineering Evaluation/Cost Analysis (EE/CA) Report, which contained an investigation of the dioxin contamination at the Heizer Creek landfill, a risk assessment, an evaluation of remedial action options, and our recommended remedy. The cost to implement the recommended remedy was estimated at $1.5 million, and funds were reserved for this amount. The EPA has published and solicited comments on its decision that the EE/CA Report's recommended remedy was protective of human health and the environment and is now developing responses to the public comments. As of this time, the EPA has not identified elevated dioxin levels at the Poca Strip Mine or Manila Creek landfills. Also with regard to the EPA's focus on dioxin in the Kanawha River, the EPA sent Monsanto a "notice of potential liability and offer to negotiate for removal action" regarding the Kanawha River Sediment Site in Putnam County, West Virginia in May 2002. The basis for this notice is elevated dioxin levels that the EPA found in sediments located in certain areas of the Kanawha River. At this point, the nature and extent of the response activities that the EPA is seeking as well as the degree, if any, to which the Monsanto is responsible for associated costs is unclear.
As described in our Form 10-K report for the year ended Dec. 31, 2001 and in our Form 10-Q report for the quarterly period ended March 31, 2002, on March 7, 2000, the United States Department of Justice filed suit on behalf of the EPA in United States District Court for the District of Wyoming against the former Monsanto Company, Solutia and P4 Production, LLC ("P4 Production") seeking civil penalties for alleged violations of Wyoming's environmental laws and regulations, and of an air permit issued in 1994 by the Wyoming Department of Environmental Quality. The permit had
been issued for a coal coking facility in Rock Springs, Wyoming, that is currently owned by P4 Production. The United States sought civil penalties of up to $25,000 per day (or $27,500 per day for violations occurring after Jan. 30, 1997) for the air violations, and immediate compliance with the air permit. The companies have already paid a $200,000 fine covering the same Clean Air Act violations pursuant to a consent decree entered in the First Judicial District Court in Laramie County, Wyoming, on June 25, 1999. On April 21, 2000, the companies filed a motion for dismissal or summary judgment on the grounds of claim preclusion, including the doctrines of res judicata and release. In an opinion dated March 29, 2002, the court denied the companies' motion for summary judgment. On July 22, 2002, the District Court denied the companies' April 19, 2002 motion for certification of an appeal of the order denying the motion for summary judgment. Any liability would be shared by Monsanto and Solutia, based upon the purchases from P4 Production.
As described in our Form 10-K report for the year ended Dec. 31, 2001, in June 1996, Mycogen Corporation ("Mycogen"), MPS and Agrigenetics, Inc. filed suit against the former Monsanto Company in California State Superior Court in San Diego alleging that the former Monsanto Company had failed to license, under an option agreement, technology relating to Bt corn and glyphosate-tolerant corn, cotton and canola. On Oct. 20, 1997, the court construed the agreement as a license to receive genes rather than a license to receive germplasm. Jury trial of the damage claim for lost future profits from the alleged delay in performance ended March 20, 1998, with a verdict against the former Monsanto Company awarding damages totaling $174.9 million. On June 28, 2000, the California Court of Appeals for the Fourth Appellate District issued its opinion reversing the jury verdict and related judgment of the trial court, and directed that judgment should be entered in favor of the former Monsanto Company. On Aug. 8, 2002, the California Supreme Court upheld the California Court of Appeals decision reversing the jury's verdict.
As described in our Form 10-K report for the year ended Dec. 31, 2001, on May 19, 1995, MPS filed suit against Monsanto in the United States District Court in California alleging infringement of its patent involving synthetic Bt genes, and seeking unspecified damages and injunctive relief. Monsanto prevailed on summary judgment in dismissing all claims. On May 30, 2001, the United States Court of Appeals for the Federal Circuit affirmed the summary judgment finding that current products of Monsanto do not infringe the MPS patent. The appellate court also determined that certain factual issues prevented complete entry of summary judgment on the issue of prior invention by Monsanto and remanded the matter to District Court. Monsanto has moved for summary judgment on all remaining claims on the basis that a prior judgment won by Monsanto against MPS in United States District Court in Delaware, is dispositive of all claims asserted by MPS. The District Court has denied Monsanto's renewed request for summary judgment.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the company's Annual Meeting of Stockholders on May 1, 2002, three matters were submitted to a vote of stockholders.
1. The following directors were elected, each to hold office until the Annual Meeting to be held in 2003 or until a successor is elected and has qualified or until his or her earlier death, resignation or removal. Votes were cast as follows:
Votes Votes
Name "For" "Withhold Authority"
---- ----- --------- ----------
Frank V. AtLee III 255,157,329 544,576
Christopher J. Coughlin 247,389,479 8,322,426
Michael Kantor 255,100,170 611,735
Gwendolyn S. King 255,590,336 121,569
Sharon R. Long, Ph.D. 255,602,477 109,448
C.Steven McMillan 255,256,982 454,923
Philip Needleman, Ph.D. 247,430,330 8,281,575
William U. Parfet 255,256,382 455,523
John S. Reed 255,257,002 454,903
Hendrik A. Verfaillie 247,401,815 8,310,090
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2. The appointment by the Board of Directors of Deloitte & Touche LLP as principal independent auditors for the year 2002 was ratified by the stockholders. A total of 254,619,724 votes were cast in favor of ratification, 1,083,090 votes were cast against it, and 9,091 votes were counted as abstentions.
3. The approval of the 2000 Management Incentive Plan was submitted to a vote of stockholders. The Board recommended a vote for the proposal. A total of 246,870,126 votes were cast in favor, a total of 5,451,970 votes were cast against it, 124,587 votes were counted as abstentions, and 3,274,222 were counted as broker non-votes.
Under New York Stock Exchange rules, brokerage firms that hold shares as nominee may vote shares for which the beneficial owners do not provide voting instructions on certain "routine" matters. When a proposal is not a routine matter and the nominee does not receive voting instructions from the beneficial owner of the shares with respect to the proposal, the nominee cannot vote the shares on that proposal. This is called a "broker non-vote." With respect to the matters submitted to a vote of the Company's stockholders at its Annual Meeting of Stockholders on May 1, 2002, (i) the election of directors and the ratification of auditors were considered routine matters under applicable rules for which nominees were permitted to vote uninstructed shares; and (ii) the approval of the 2000 Management Incentive Plan was not considered routine under applicable rules, which resulted in the broker non-votes indicated above.
Item 5. OTHER INFORMATION
Solutia Inc.
We have recently entered into additional agreements relating to Solutia Inc.
On Sept. 1, 1997, the former Monsanto Company, now known as Pharmacia Corporation, spun off its chemical businesses into a separate, independent company called Solutia Inc. In connection with that spinoff, Solutia assumed and agreed to indemnify Pharmacia for certain liabilities related to those chemicals businesses. We, Pharmacia and Solutia entered into an agreement dated as of July 1, 2002, to provide that Solutia will also indemnify us for the same liabilities for which it had agreed to indemnify Pharmacia, and to clarify the parties' rights and obligations.
On Sept. 1, 2000, Pharmacia transferred certain assets and liabilities associated with its agricultural business to us. We agreed to indemnify Pharmacia for any liabilities primarily related to Pharmacia's former agricultural or chemical businesses. We agreed to indemnify Pharmacia for any liabilities assumed by Solutia as referred to above, to the extent that Solutia fails to pay, perform or discharge those liabilities. We and Pharmacia have entered into an agreement dated as of July 1, 2002 to clarify our respective rights and obligations in this regard.
The liabilities for which we have agreed to indemnify Pharmacia include litigation, environmental, retiree and all other Pharmacia liabilities that were assumed by Solutia. These include liabilities that were Pharmacia liabilities prior to the Solutia spinoff, and from which Pharmacia could not be released, either by operation of law, because of the unavailability of third-party consents, or otherwise. They include, for example, liabilities relating to litigation currently pending in state and federal court in Alabama and described in Item 1 - Legal Proceedings. In addition, Solutia assumed any liability that Pharmacia had with respect to certain unfunded post-retirement benefits for Pharmacia employees and former Pharmacia employees who were assigned to Solutia in connection with the spinoff. To the extent that Solutia encounters material liquidity or other financial constraints, the risk that it would be unable to pay, perform or discharge its assumed liabilities or to satisfy its indemnity obligations to Pharmacia, and that we would be called upon to do so, would increase. We have no obligation to provide financing support for Solutia.
Solutia is defending itself and Pharmacia in connection with Sabrina Abernathy, et al. v. Monsanto Company, et al., currently pending in state court in Alabama. The jury has found Solutia and Pharmacia liable with respect to certain claims in this litigation, and proceedings have commenced to determine damages. Solutia has requested that Pharmacia commit to posting any appeal bond that may be required to stay execution of any judgment in this litigation pending an appeal. Pursuant to an agreement dated as of July 1, 2002, we, Pharmacia and Solutia have agreed that, if Solutia does not post a bond sufficient to stay the execution of any judgment in the litigation pending an appeal, Pharmacia will post such a bond if it is able to do so on commercially reasonable terms. The agreement also specifies which party or parties would control any decisions regarding settlement of the Abernathy litigation, depending upon whether or not collateral must be provided to secure the bond and, if so, which party provides it. We have no obligation to post an appeal bond or provide any
related collateral with respect to the Abernathy litigation. Under our agreement, the continued defense of the Abernathy litigation and the prosecution of any appeal will continue to be managed by Solutia, at Solutia's expense.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits: See Exhibit Index
(B) Reports on Form 8-K:
The Company furnished a report on Form 8-K (Item 9) on April 4, 2002, pursuant to Regulation FD, relating to slide presentations prepared for use by the Company's executives at an investor meeting in New York.
SIGNATURE
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.
/s/ Richard B. Clark
----------------------
RICHARD B. CLARK
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
Date: August 13, 2002
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2 First Amendment to Separation Agreement, dated as of
July 1, 2002, by and between Pharmacia Corporation and
Monsanto Company (incorporated herein by reference to
Exhibit 99.2 of the Company's Report on Form 8-K,
filed July 30, 2002, Commission File No. 1-16167)
3 Omitted - Inapplicable
4 Omitted - Inapplicable
10.1 364-Day Credit Agreement dated July 17, 2002
10.2 Amendment to Distribution Agreement, dated as of July
1, 2002, among Pharmacia Corporation, Solutia Inc.
and Monsanto Company (incorporated herein by
reference to Exhibit 99.1 of the Company's Report on
Form 8-K, filed July 30, 2002, Commission File No.
1-16167)
10.3 Protocol Agreement, dated as of July 1, 2002,
among Pharmacia Corporation, Solutia Inc. and Monsanto
Company (incorporated herein by reference to Exhibit 99.3
of the Company's Report on Form 8-K, filed July 30, 2002,
Commission File No. 1-16167)
10.4 Tax Sharing and Indemnification Agreement, dated as of
July 19, 2002 by and between Pharmacia Corporation and
Monsanto Company
10.5 U.S. $150,000,000 Promissory Note Issued by Monsanto
Company to Pharmacia Corporation, dated August 13, 2002
10.6 Letter Agreement between Monsanto Company and Pharmacia
Corporation, effective August 13, 2002
11 Omitted - Inapplicable; see Note 7 of Notes to
Consolidated Financial Statements
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
99 Computation of Ratio of Earnings to Fixed Charges
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EXECUTION COPY
U.S. $800,000,000
364-DAY CREDIT AGREEMENT
Dated as of July 17, 2002
Among
MONSANTO COMPANY
as Borrower,
THE INITIAL LENDERS NAMED HEREIN
as Initial Lenders,
CITIBANK, N.A.
as Administrative Agent,
JPMORGAN CHASE BANK
as Syndication Agent,
COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
THE BANK OF TOKYO-MITSUBISHI, LTD.
and
BANK ONE, NA
as Co-Documentation Agents
and
SALOMON SMITH BARNEY INC. and J.P. MORGAN SECURITIES INC.
as Joint Lead Arrangers and Joint Bookrunners
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms...............................................................................1
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SECTION 1.02. Computation of Time Periods........................................................................11
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SECTION 1.03. Accounting Terms...................................................................................11
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ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances......................................................................11
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SECTION 2.02. Making the Revolving Credit Advances...............................................................11
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SECTION 2.03. The Competitive Bid Advances.......................................................................12
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SECTION 2.04. Fees...............................................................................................15
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SECTION 2.05. Termination or Reduction of the Commitments........................................................15
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SECTION 2.06. Repayment of Revolving Credit Advances.............................................................15
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SECTION 2.07. Interest on Revolving Credit Advances; Regulation D Compensation...................................16
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SECTION 2.08. Interest Rate Determination........................................................................16
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SECTION 2.09. Optional Conversion of Revolving Credit Advances...................................................17
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SECTION 2.10. Optional Prepayments of Revolving Credit Advances..................................................17
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SECTION 2.11. Increased Costs....................................................................................18
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SECTION 2.12. Illegality.........................................................................................19
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SECTION 2.13. Payments and Computations..........................................................................20
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SECTION 2.14. Taxes..............................................................................................21
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SECTION 2.15. Sharing of Payments, Etc...........................................................................22
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SECTION 2.16. Use of Proceeds....................................................................................22
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SECTION 2.17. Extension of Termination Date......................................................................23
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SECTION 2.18. Evidence of Debt...................................................................................24
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ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03....................................25
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SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing and Extension Date.........................26
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SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.............................................26
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SECTION 3.04. Determinations Under Section 3.01..................................................................27
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ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.....................................................27
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SECTION 4.02. Representation and Warranty of the Lenders.........................................................28
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ARTICLE V COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants..............................................................................28
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SECTION 5.02. Negative Covenants.................................................................................29
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SECTION 5.03. Financial Covenant.................................................................................30
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ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. Events of Default..................................................................................31
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ARTICLE VII THE AGENT
SECTION 7.01. Authorization and Action...........................................................................32
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SECTION 7.02. Agent's Reliance, Etc..............................................................................33
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SECTION 7.03. Citibank and Affiliates............................................................................33
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SECTION 7.04. Lender Credit Decision.............................................................................33
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SECTION 7.05. Indemnification....................................................................................33
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SECTION 7.06. Successor Agent....................................................................................33
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SECTION 7.07. Other Agents.......................................................................................34
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ARTICLE VIII MISCELLANEOUS
SECTION 8.01. Amendments, Etc....................................................................................34
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SECTION 8.02. Notices, Etc.......................................................................................34
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SECTION 8.03. No Waiver; Remedies................................................................................34
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SECTION 8.04. Costs and Expenses.................................................................................34
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SECTION 8.05. Right of Set-off...................................................................................35
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SECTION 8.06. Binding Effect.....................................................................................35
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SECTION 8.07. Assignments and Participations.....................................................................36
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SECTION 8.08. Confidentiality....................................................................................38
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SECTION 8.09. Governing Law......................................................................................38
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ii
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SECTION 8.10. Execution in Counterparts..........................................................................38
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SECTION 8.11. Jurisdiction, Etc..................................................................................38
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SECTION 8.12. Waiver of Jury Trial...............................................................................39
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Schedules --------- Schedule I - List of Applicable Lending Offices Schedule 3.01(a) - Disclosure Schedule 3.01(b) - Disclosed Litigation Exhibits Exhibit A-1 - Form of Revolving Credit Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Revolving Credit Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Assumption Agreement Exhibit E - Form of Notice of Extension of Termination Date |
364-DAY CREDIT AGREEMENT
Dated as of July 17, 2002
MONSANTO COMPANY, a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders (the "Initial Lenders") listed on the signature pages hereof, CITIBANK, N.A. ("Citibank"), as administrative agent (the "Agent") for the Lenders (as hereinafter defined), SALOMON SMITH BARNEY INC. and J.P. MORGAN SECURITIES INC., as joint lead arrangers and joint bookrunners (the "Joint Lead Arrangers"), JPMORGAN CHASE BANK, as syndication agent, and COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES ("Commerzbank"), THE BANK OF TOKYO-MITSUBISHI, LTD. and BANK ONE, NA, as co-documentation agent, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain 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):
"Advance" means a Revolving Credit Advance or a Competitive Bid Advance.
"Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.
"Agent's Account" means the account of the Agent maintained by the Agent at Citibank with its office at 388 Greenwich Street, New York, New York 10013, Account No. 36852248, Attention: William Clark.
"Aggregate Amount of Financing Outstanding" at any time means the aggregate amount of proceeds received in connection with a Permitted Receivables Financing, less (a) any amounts collected in connection with the accounts receivable sold, conveyed or otherwise transferred pursuant to such financing and (b) the amount of any defaulted accounts receivable the uncollectibility of which is a risk assumed by the transferee of such accounts receivable.
"Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Agent as its Applicable Lending Office with respect to such Competitive Bid Advance.
"Applicable Margin" means, for Base Rate Advances, 0.0% per annum and, for Eurodollar Rate Advances as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating Applicable Margin for Applicable Margin for
S&P/Moody's Eurodollar Rate Advances Prior Eurodollar Rate Advances
to Term Loan Conversion Date On and After Term Loan
Conversion Date
------------------ ------------------------------ ------------------------
Level 1
-------
A+ or A1 0.195% 0.500%
Level 2
-------
Lower than Level 1 but at least
A or A2 0.235% 0.550%
Level 3
-------
Lower than Level 2 but at least
A- or A3 0.320% 0.700%
Level 4
-------
Lower than Level 3 but at least
BBB+ or Baa1 0.525% 0.950%
Level 5
-------
Lower than Level 4 0.850% 1.450%
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"Applicable Percentage" means, for each date prior to the Term Loan Conversion Date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating Applicable
S&P/Moody's Percentage
------------------ ----------
Level 1
-------
A+ or A1 0.055%
Level 2
-------
Lower than Level 1 but at least
A or A2 0.065%
Level 3
-------
Lower than Level 2 but at least
A- or A3 0.080%
Level 4
-------
Lower than Level 3 but at least
BBB+ or Baa1 0.100%
Level 5
-------
Lower than Level 4 0.150%
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"Applicable Utilization Fee" means, for each date prior to the Term Loan Conversion Date that the aggregate principal amount of the Advances exceeds 25% of the aggregate Commitments, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating Applicable
S&P/Moody's Utilization Fee
------------------ ---------------
Level 1
-------
A+ or A1 0.050%
2
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Level 2 ------- Lower than Level 1 but at least A or A2 0.050% Level 3 ------- Lower than Level 2 but at least A- or A3 0.100% Level 4 ------- Lower than Level 3 but at least BBB+ or Baa1 0.125% Level 5 ------- Lower than Level 4 0.250% |
"Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit C hereto.
"Assuming Lender" has the meaning specified in Section 2.17(c).
"Assumption Agreement" has the meaning specified in Section 2.17(c).
"Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:
(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i)1/2 of 1% per annum, plus (ii) the rate obtained by dividing (A) the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including (among other liabilities) three-month U.S. dollar non-personal time deposits in the United States, plus (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank in the United States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i).
"Borrowing" means a Revolving Credit Borrowing or a Competitive Bid Borrowing.
"Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.
"Commitment" means as to any Lender (a) the amount set forth opposite such Lender's name on the signature pages hereof, (b) if such Lender has become a Lender hereunder pursuant to an Assumption Agreement, the amount set forth in such Assumption Agreement or (c) if such Lender has entered into any Assignment and Acceptance, the amount set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(d), as such amount may be reduced pursuant to Section 2.05.
"Competitive Bid Advance" means an advance by a Lender to the Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted by the Borrower under the competitive bidding procedure described in Section 2.03.
"Competitive Bid Note" means a promissory note of the Borrower of a Competitive Bid Advance payable to the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Lender resulting from such Competitive Bid Advance made by such Lender.
"Competitive Bid Reduction" has the meaning specified in Section 2.01.
"Confidential Information" means information that the Borrower furnishes to the Agent or any Lender which information is non-public, confidential or proprietary in nature, but does not include any such information (a) that is or becomes generally available to the public other than as the result of an unauthorized disclosure by the Agent or any Lender or (b) that is or becomes available to the Agent or such Lender from a source other than the Borrower and the Agent or such Lender had no reason to believe that such source did not have legitimate possession of such information or such source was under any obligation to keep such information confidential.
"Consenting Lender" has the meaning specified in Section 2.17(b).
"Consolidated" refers to the consolidation of accounts in accordance with GAAP.
"Consolidated Net Worth" at any time, means the sum of the capital
stock (excluding treasury stock and capital stock subscribed for and
unissued) and surplus (including earned surplus, capital surplus and the
balance of the current profit and loss account not transferred to surplus)
accounts of the Borrower and its Subsidiaries appearing on the most recent
consolidated balance sheet of the Borrower and its Subsidiaries delivered
pursuant to Section 5.01(f)(i) or (ii), as applicable, prepared in
accordance with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements referred to in
Section 4.01(e).
"Convert", "Conversion" and "Converted" each refers to a conversion of Revolving Credit Advances of one Type into Revolving Credit Advances of the other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all obligations of such Person for
the deferred purchase price of property or services (other than trade
payables not overdue by more than 60 days incurred in the ordinary course
of such Person's business), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all obligations
of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such
property), (e) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person in
respect of acceptances, letters of credit or similar extensions of credit,
(g) all obligations of such Person in respect of Hedge Agreements, (h) all
Debt of others referred to in clauses (a) through (g) above or clause (i)
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.
"Debt for Borrowed Money" of any Person means, without duplication,
(a) all indebtedness of such Person for borrowed money, (b) all obligations
of such Person evidenced by notes, bonds, debentures or other similar
instruments, (c) all obligations of such Person as lessee under leases that
have been or should be, in accordance with GAAP, recorded as capital
leases, (d) during the term of a Permitted Receivables Financing, the
Aggregate Amount of Financing Outstanding in connection with domestic
accounts receivable pursuant to such financing and (e) all Debt of others
referred to in clauses (a) through (d) above guaranteed directly or
indirectly in any manner by such Person.
"Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section 3.01(b).
"Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assumption Agreement or the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.
"EDGAR" means the electronic disclosure system for the receipt, storage, retrieval and dissemination of public documents filed with the Securities and Exchange Commission.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 8.07, the Borrower, such approval not to be unreasonably withheld or delayed; provided, however, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or written judicial policy or guidance that is publicly available, in each case relating to pollution or protection of the environment, health and safety as they relate to Hazardous Materials or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the application for a minimum funding waiver with respect to a
Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(c) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of
the Borrower or any ERISA Affiliate in the circumstances described in
Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was
a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
conditions for the imposition of a lien under Section 302(f) of ERISA shall
have been met with respect to any Plan; (g) the adoption of an amendment to
a Plan requiring the provision of security to such Plan pursuant to Section
307 of ERISA; or (h) the institution by the PBGC of proceedings to
terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of
any event or condition described in Section 4042 of ERISA that constitutes
grounds for the termination of, or the appointment of a trustee to
administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assumption Agreement or the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Markets Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's ratable share of an amount equal to such Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. If the Telerate Markets Page 3750 (or any successor page) is unavailable, the Eurodollar Rate for any Interest Period for each Advance comprising part of the same Revolving Credit Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08.
"Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Extension Date" has the meaning specified in Section 2.17(b).
"Federal Funds Rate" means, for any period, a fluctuating interest rate per annum 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 that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.
"Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i).
"Funded Debt" at any time, means Debt for Borrowed Money in respect of
the Advances made to the Borrower at such time and all other Debt for
Borrowed Money that by its terms matures more than one year after the date
of its creation or matures within one year from such date but is renewable
or extendible, at the option of such Person, to a date more than one year
after such date or arises under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a period of
more than one year after such date all as set forth in the then most recent
financial statements of the Borrower and its Subsidiaries delivered
pursuant to Section 5.01(f)(i) or (ii), as applicable, prepared in
accordance with generally accepted accounting principles consistent with
those applied in preparation of the financial statements referred to in
Section 4.01(e).
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas and
(b) any other chemicals, materials or substances designated, classified or
regulated as hazardous or toxic or as a pollutant or contaminant under any
Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements.
"Information Memorandum" means the information memorandum dated June 14, 2002 (including all exhibits and attachments thereto) used by the Agent in connection with the syndication of the Commitments, as up-dated from time to time by any subsequent filings by the Borrower with the Securities and Exchange Commission.
"Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Revolving Credit Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, with respect to Eurodollar Rate Advances, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months or, if available to all Lenders, nine months, as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:
(i) the Borrower may not select any Interest Period that ends after the Termination Date or, if the Revolving Credit Advances have been converted to a term loan pursuant to Section 2.06 prior to such selection, that ends after the Maturity Date;
(ii) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Revolving Credit Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on the last day of a calendar month or on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
"Lenders" means the Initial Lenders, each Assuming Lender that shall become a party hereto pursuant to Section 2.17 and each Person that shall become a party hereto pursuant to Section 2.11, Section 2.12 or Section 8.07.
"Leverage Ratio" of the Borrower means the ratio of Consolidated Funded Debt of the Borrower and its Subsidiaries to the sum of Consolidated Funded Debt of the Borrower and its Subsidiaries plus Consolidated Net Worth.
"LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum (rounded upward to the nearest 1/100 of 1%) appearing on Telerate Markets Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount that would be the Reference Banks' respective ratable shares of such Borrowing if such Borrowing were to be a Revolving Credit Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. If the Telerate Markets Page 3750 (or any successor page) is unavailable, the LIBO Rate for any Interest Period for each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08.
"LIBO Rate Advance" has the meaning specified in Section 2.03(a)(i).
"Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement having the effect of security, including, without limitation, the lien or retained security title of a conditional vendor.
"Material Adverse Change" means any material adverse change in the financial condition or results of operations of the Borrower or the Borrower and its Consolidated Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the financial condition or results of operations of the Borrower or the Borrower and its Consolidated Subsidiaries taken as a whole or (b) the ability of the Borrower to perform its obligations under this Agreement or any Note.
"Material Subsidiary" means, at any time, a domestic Consolidated Subsidiary of the Borrower having (i) at least 10% of the total Consolidated assets of the Borrower and its Subsidiaries (determined as of the last day of the most recent fiscal quarter of the Borrower) or (ii) at least 10% of the Consolidated net sales of the Borrower and its Subsidiaries for the twelve month period ending on the last day of the most recent fiscal quarter of the Borrower.
"Maturity Date" means the earlier of (a) the first anniversary of the Termination Date and (b) the date of termination in whole of the aggregate Commitments pursuant to Section 2.05 or 6.01.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower or any ERISA Affiliate and at least one Person other than the
Borrower and the ERISA Affiliates or (b) was so maintained and in respect
of which the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"Non-Consenting Lender" has the meaning specified in Section 2.17(b).
"Note" means a Revolving Credit Note or a Competitive Bid Note.
"Notice of Revolving Credit Borrowing" has the meaning specified in
Section 2.02(a).
"Notice of Competitive Bid Borrowing" has the meaning specified in
Section 2.03(a).
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).
"Permitted Receivables Financing" means any financing pursuant to which the Borrower or any Subsidiary of the Borrower may sell, convey, or otherwise transfer to a Receivables Subsidiary or any other Person, or grant a security interest in, any accounts receivable (and related assets) of the Borrower or such Subsidiary, provided that such financing shall be on customary market terms and shall be with limited or no recourse to the Borrower and its Subsidiaries (other than the Receivables Subsidiary) except to the extent customary for such transactions.
"Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Public Debt Rating" means, as of any date, the lowest rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Borrower. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be determined by reference to the available rating; (b) if neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee will be set in accordance with Level 5 under the definition of "Applicable Margin", "Applicable Percentage" or "Applicable Utilization Fee", as the case may be; (c) if the ratings established by S&P and Moody's shall fall within different levels, the Applicable Margin, the Applicable Percentage and the Applicable Utilization Fee shall be based upon the higher rating; (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose wholly owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Reference Banks" means Citibank, JPMorgan Chase Bank and Commerzbank; provided that the Borrower may at any time substitute another Lender as one of the Reference Banks, but such substitution shall terminate after 30 days if within such period the Required Lenders shall have notified the Agent of their objection to such substitution.
"Register" has the meaning specified in Section 8.07(c).
"Required Lenders" means at any time Lenders owed more than 50% of the then aggregate unpaid principal amount of the Revolving Credit Advances owing to Lenders, or, if no such principal amount is then outstanding, Lenders having more than 50% of the Commitments.
"Revolving Credit Advance" means an advance by a Lender to the Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by each of the Lenders pursuant to Section 2.01.
"Revolving Credit Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Revolving Credit Advances made by such Lender.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower or any ERISA Affiliate and no Person other than the Borrower and
the ERISA Affiliates or (b) was so maintained and in respect of which the
Borrower or any ERISA Affiliate could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such limited liability company, partnership or joint venture or
(c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Term Loan Conversion Date" means the Termination Date on which all Revolving Credit Advances outstanding on such date are converted into a term loan pursuant to Section 2.06.
"Term Loan Election" has the meaning specified in Section 2.06.
"Termination Date" means the earlier of (a) July 16, 2003, subject to the extension thereof pursuant to Section 2.17 and (b) the date of termination in whole of the Commitments pursuant to Section 2.05 or 6.01; provided, however, that the Termination Date of any Lender that is a Non-Consenting Lender to any requested extension pursuant to Section 2.17 shall be the Termination Date in effect immediately prior to the applicable Extension Date for all purposes of this Agreement.
"Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Credit Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding such Lender's Commitment, provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the Competitive Bid Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be allocated among the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "Competitive Bid Reduction"). Each Revolving Credit Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10 and reborrow under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each Revolving Credit Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, or not later than 11:00 A.M. (New York City time) on the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier or telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier or telex, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount
of such Revolving Credit Borrowing, and (iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Revolving Credit Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Revolving Credit Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower that requested such Revolving Credit Borrowing at the Agent's address referred to in Section 8.02.
(b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit Borrowing is less than $15,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than six separate Revolving Credit Borrowings.
(c) Each Notice of Revolving Credit Borrowing shall be irrevocable and binding on the Borrower providing such notice. In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Revolving Credit Advance to be made by such Lender as part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from a Lender prior to the date of any Revolving Credit Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Revolving Credit Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Revolving Credit Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower that requested such Borrowing severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Revolving Credit Advance as part of such Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Revolving Credit Advance to be made by it as part of any Revolving Credit Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Revolving Credit Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Revolving Credit Advance to be made by such other Lender on the date of any Revolving Credit Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that the Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders (computed without regard to any Competitive Bid Reduction).
(i) The Borrower may request a Competitive Bid Borrowing under this
Section 2.03 by delivering to the Agent, by telecopier or telex, a notice
of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"),
in substantially the form of Exhibit B-2 hereto, specifying therein the
requested (v) date of such proposed Competitive Bid Borrowing, (w)
aggregate amount of such proposed Competitive Bid Borrowing, (x) in the
case of a Competitive Bid Borrowing consisting of LIBO Rate Advances,
Interest Period, or in the case of a Competitive Bid Borrowing consisting
of Fixed Rate Advances, maturity date for repayment of each Fixed Rate
Advance to be made as part of such Competitive Bid Borrowing (which
maturity date may not be earlier than the date occurring 30 days after the
date of such Competitive Bid Borrowing or later than the Termination Date),
(y) interest payment date or dates relating thereto, and (z) other terms
(if any) to be applicable to such Competitive Bid Borrowing, not later than
10:00 A.M. (New York City time) (A) at least one Business Day prior to the
date of the proposed Competitive Bid Borrowing, if the Borrower shall
specify in the Notice of Competitive Bid Borrowing that the rates of
interest to be offered by the Lenders shall be fixed rates per annum (the
Advances comprising any such Competitive Bid Borrowing being referred to
herein as "Fixed Rate Advances") and (B) at least five Business Days prior
to the date of the proposed Competitive Bid Borrowing, if the Borrower
shall instead specify in the Notice of Competitive Bid Borrowing that the
rates of interest be offered by the Lenders are to be based on the LIBO
Rate (the Advances comprising such Competitive Bid Borrowing being referred
to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid
Borrowing shall be irrevocable and binding on the Borrower giving such
Notice of Competitive Bid Borrowing. The Agent shall in turn promptly
notify each Lender of each request for a Competitive Bid Borrowing received
by it from the Borrower by sending such Lender a copy of the related Notice
of Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower requesting such proposed Competitive Bid Borrowing as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Agent (which shall give prompt notice thereof to the Borrower), before 9:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 10:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing.
(iii) The Borrower requesting such proposed Competitive Bid Borrowing shall, in turn, before 10:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 11:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either:
(x) cancel such Competitive Bid Borrowing by giving the Agent notice to that effect, or
(y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Agent notice to that effect. The Borrower shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances
in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the amount that each such Lender offered at such interest rate.
(iv) If the Borrower notifies the Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent
shall in turn promptly notify (A) each Lender that has made an offer
as described in paragraph (ii) above, of the date and aggregate amount
of such Competitive Bid Borrowing and whether or not any offer or
offers made by such Lender pursuant to paragraph (ii) above have been
accepted by the Borrower, (B) each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing, of
the amount of each Competitive Bid Advance to be made by such Lender
as part of such Competitive Bid Borrowing, and (C) each Lender that is
to make a Competitive Bid Advance as part of such Competitive Bid
Borrowing, upon receipt, that the Agent has received forms of
documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make a Competitive Bid Advance as
part of such Competitive Bid Borrowing shall, before 12:00 noon (New
York City time) on the date of such Competitive Bid Borrowing
specified in the notice received from the Agent pursuant to clause (A)
of the preceding sentence or any later time when such Lender shall
have received notice from the Agent pursuant to clause (C) of the
preceding sentence, make available for the account of its Applicable
Lending Office to the Agent at the Agent's Account, in same day funds,
such Lender's portion of such Competitive Bid Borrowing. Upon
fulfillment of the applicable conditions set forth in Article III and
after receipt by the Agent of such funds, the Agent will make such
funds available to the Borrower at the Agent's address referred to in
Section 8.02. Promptly after each Competitive Bid Borrowing the Agent
will notify each Lender of the amount of the Competitive Bid
Borrowing, the consequent Competitive Bid Reduction and the dates upon
which such Competitive Bid Reduction commenced and will terminate.
(vi) If the Borrower notifies the Agent that it accepts one or
more of the offers made by any Lender or Lenders pursuant to paragraph
(iii)(y) above, such notice of acceptance shall be irrevocable and
binding on the Borrower. The Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result
of any failure to fulfill on or before the date specified in the
related Notice of Competitive Bid Borrowing for such Competitive Bid
Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to
fund the Competitive Bid Advance to be made by such Lender as part of
such Competitive Bid Borrowing when such Competitive Bid Advance, as a
result of such failure, is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrower shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing.
(d) The Borrower shall repay to the Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by the Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and provided in the Competitive Bid Note evidencing such Competitive Bid Advance), the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by the Borrower for such
Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and set forth in the Competitive Bid Note evidencing such Competitive Bid Advance.
(e) The Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the Competitive Bid Note evidencing such Competitive Bid Advance. Upon the occurrence and during the continuance of an Event of Default, the Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Competitive Bid Advance under the terms of the Competitive Bid Note evidencing such Competitive Bid Advance unless otherwise agreed in such Competitive Bid Note.
(f) The indebtedness of the Borrower resulting from each Competitive Bid Advance made as part of a Competitive Bid Borrowing shall be evidenced by a separate Competitive Bid Note payable to the order of the Lender making such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to pay to the Agent for the account of each Lender a facility fee on the aggregate amount of such Lender's Commitment from the Effective Date in the case of each Initial Lender and from the later of the Effective Date and the effective date specified in the Assumption Agreement or the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December commencing September 30, 2002, and on the Termination Date.
(b) Agent's Fees. The Borrower shall pay to the Agent for its own account such fees as may from time to time be agreed between the Borrower and the Agent, and shall pay to each Joint Lead Arranger for its own account such fees and as may from time to time be agreed between the Borrower and such Joint Lead Arranger.
SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and provided further that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Competitive Bid Advances then outstanding.
(b) Mandatory. On the Termination Date, if the Borrower has made the Term Loan Election in accordance with Section 2.06 prior to such date, and from time to time thereafter upon each prepayment of the Revolving Credit Advances, the Commitments of the Lenders shall be automatically and permanently reduced on a pro rata basis by an amount equal to the amount by which (i) the aggregate Commitments immediately prior to such reduction exceeds (ii) the aggregate unpaid principal amount of all Revolving Credit Advances outstanding at such time.
SECTION 2.06. Repayment of Revolving Credit Advances. The Borrower shall, subject to the next succeeding sentence, repay to the Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding. The Borrower may, upon not less than 15 days' notice to the Agent, elect (the "Term Loan Election") to convert all of the Revolving Credit Advances outstanding on the Termination Date in effect at such time into a term loan which the Borrower shall repay in full ratably to the Lenders on the Maturity Date; provided that the Term Loan Election may not be exercised if a Default has occurred and is continuing on the date of notice of the Term Loan Election or on the date on which the Term Loan Election is to be effected. All Revolving Credit Advances converted into a term
loan pursuant to this Section 2.06 shall continue to constitute Revolving Credit Advances except that the Borrower may not reborrow pursuant to Section 2.01 after all or any portion of such Revolving Credit Advances have been prepaid pursuant to Section 2.10.
SECTION 2.07. Interest on Revolving Credit Advances; Regulation D Compensation. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Revolving Credit Advance owing to each Lender from the date of such Revolving Credit Advance until such principal amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Revolving Credit Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time plus (2) the Applicable Utilization Fee, if any, in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December, during such periods and on the date such Base Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Revolving Credit Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Revolving Credit Advance plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, if any, in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a), the Borrower shall pay interest on (i) the unpaid principal amount of each Revolving Credit Advance made to it owing to each Lender, payable in arrears on the dates referred to in clause (a) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Revolving Credit Advance pursuant to clause (a) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above.
(c) Regulation D Compensation. Each Lender that is subject to reserve
requirements of the Board of Governors of the Federal Reserve System (or any
successor) may require the Borrower to pay, contemporaneously with each payment
of interest on Eurodollar Rate Advances or LIBO Rate Advances, additional
interest on the related Eurodollar Rate Advances or LIBO Rate Advances, as
applicable, of such Lender at the rate per annum equal to the excess of (i)(A)
the applicable Eurodollar Rate or LIBO Rate, divided by (B) one minus the
Eurodollar Rate Reserve Percentage over (ii) the rate specified in clause
(i)(A). Any Lender wishing to require payment of such additional interest shall
so notify the Agent and the Borrower, in which case such additional interest on
the Eurodollar Rate Advances or LIBO Rate Advances, as applicable, of such
Lender shall be payable to such Lender at the place indicated in such notice
with respect to each Interest Period commencing after the giving of such notice.
SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate and each LIBO Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default,
(i) each Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
(f) If Telerate Markets Page 3750 (or any successor page) is unavailable and fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate or LIBO Rate for any Eurodollar Rate Advances or LIBO Rate Advances, as the case may be,
(i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances,
(ii) with respect to Eurodollar Rate Advances, each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances. The
Borrower may on any Business Day, upon notice given to the Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12,
Convert all Revolving Credit Advances of one Type comprising the same Borrowing
into Revolving Credit Advances of the other Type; provided, however, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(b) and no
Conversion of any Revolving Credit Advances shall result in more separate
Revolving Credit Borrowings than permitted under Section 2.02(b). Each such
notice of a Conversion shall, within the restrictions specified above, specify
(i) the date of such Conversion, (ii) the Revolving Credit Advances to be
Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for each such Advance. Each notice of
Conversion shall be irrevocable and binding on the Borrower giving such notice.
SECTION 2.10. Optional Prepayments of Revolving Credit Advances. The Borrower may, in the case of Eurodollar Rate Advances, upon at least two Business Days' notice to the Agent and, in the case of Base Rate Advances, upon notice to the Agent not later than 10:00 A.M. (New York City time) on the date of the proposed prepayment, stating in each case the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(c).
SECTION 2.11. Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then such Lender may from time to time give notice of such circumstances to the Borrower (with a copy of such notice to the Agent); provided, however, that each Lender agrees, before giving any such notice, to use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the need for, or reduce the amount of, such increased costs and would not be disadvantageous to such Lender. The amount sufficient to compensate such Lender in light of such increase in costs to such Lender or any corporation controlling such Lender shall be determined by such Lender in good faith on a basis that allocates the amounts sufficient to compensate such Lender in light of such increase ratably among all applicable Advances. A certificate specifying the event referred to in this Section 2.11(a), the amount sufficient to compensate such Lender and the basis of its calculations (which shall be reasonable), submitted in good faith to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Each Lender agrees to provide reasonably prompt notice to the Borrower of the occurrence of any event referred to in the first sentence of this Section 2.11(a).
(b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) after the date hereof affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, such Lender may from time to time give notice of such circumstances to the Borrower (with a copy of such notice to the Agent); provided, however, that each Lender agrees, before giving any such notice, to use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the need for, or reduce the amount of, the cost to such Lender of such increase in the amount of capital maintained by such Lender and would not be disadvantageous to such Lender. The amount sufficient to compensate such Lender in light of such increase in capital maintained by such Lender or any corporation controlling such Lender shall be determined by such Lender in good faith to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate specifying the event referred to in this Section 2.11(b), the amount sufficient to compensate such Lender and the basis of its calculations (which shall be reasonable), submitted in good faith to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. Each Lender agrees to provide reasonably prompt notice to the Borrower of the occurrence of any event referred to in the first sentence of this Section 2.11(b).
(c) The Borrower shall, within five days of receiving a notice from any Lender pursuant to clause (a) or (b) of this Section 2.11, elect (and shall notify such Lender and the Agent of such election) to:
(i) pay to the Agent for the account of such Lender, from time to time
commencing on the date of notice by such Lender and as specified by such
Lender, (A) the amount such Lender has set forth in the certificate which
such Lender has delivered to the Borrower pursuant to clause (a) of this
Section 2.11 or (B) the amount such Lender has set forth in the certificate
which such Lender has delivered to the Borrower pursuant to clause (b) of
this Section 2.11, as the case may be; or
(ii) terminate such Lender's Commitment on a date which shall be specified in the notice sent by the Borrower, and such Lender's Commitment shall terminate on such date; provided, however, that the aggregate amount
of the Commitments of the Lenders shall not be reduced, as a result of any such termination, to an amount that is less than the sum of the aggregate principal amount of the Advances then outstanding; provided, further, that such termination shall not be effective if, after giving effect to such termination, the aggregate amount of the Commitments so terminated or assigned under this Section 2.11 and Section 2.12(b) during the term of this Agreement would exceed 25% of the aggregate amount of the Commitments as of the Effective Date; and provided further, that upon termination of a Lender's Commitment under this Section 2.11(c)(ii), the Borrower shall on the date such termination becomes effective pay, prepay or cause to be prepaid the aggregate principal amount of all Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount, all facility fees and other fees payable to such Lender and all other amounts payable to such Lender under this Agreement (including, but not limited to, any increased costs or other additional amounts (computed in accordance with this Section 2.11), and any Taxes, incurred by such Lender prior to the effective date of such termination and amounts payable under Section 8.04(a)). Upon such payments and prepayments, the obligations of such Lender hereunder, by the provisions hereof, shall be released and discharged. Such Lender's rights under Sections 2.11, 2.14 and 8.04(b), and its obligations under Section 7.05, shall survive such release and discharge as to matters occurring prior to date of such termination; or
(iii) require that such Lender assign to the Borrower's designated
assignee or assignees, in accordance with the terms of Section 8.07, all
Advances then owing to such Lender and all rights and obligations of such
Lender hereunder; provided that (A) each such assignment shall be either an
assignment of all of the rights and obligations of the assigning Lender
under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or assignments
which together cover all of the rights and obligations of the assigning
Lender under this Agreement, (B) no Lender shall be obligated to make any
such assignment as a result of a demand by the Borrower pursuant to this
Section 2.11(c) unless and until such Lender shall have received one or
more payments from either the Borrower or one or more assignees in an
aggregate amount at least equal to the aggregate outstanding principal
amount of all Advances owing to such Lender, together with accrued interest
thereon to the date of payment of such principal amount, all facility fees
and other fees payable to such Lender and all other amounts payable to such
Lender under this Agreement (including, but not limited to, any increased
costs or other additional amounts (computed in accordance with this Section
2.11), and any Taxes, incurred by such Lender prior to the effective date
of such assignment and amounts payable under Section 8.04(a)) and (C) each
such assignment shall be made pursuant to an Assignment and Acceptance;
provided, however, that such assignment shall not be effective if, after
giving effect to such assignment, the aggregate amount of the Commitments
so assigned or terminated under this Section 2.11 and Section 2.12(b)
during the term of this Agreement would exceed 25% of the aggregate amount
of the Commitments as of the Effective Date. Upon such payments and
prepayments, the obligations of such Lender hereunder, by the provisions
hereof, shall be released and discharged; provided, however, that such
Lender's rights under Sections 2.11, 2.14 and 8.04(b), and its obligations
under Section 7.05, shall survive such release and discharge as to matters
occurring prior to the date of termination of such Lender's Commitment.
SECTION 2.12. Illegality. (a) Notwithstanding any other provision of this Agreement, if any Lender (any such Lender being referred to herein as an "Affected Lender") shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, the obligation of the Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. The Borrower's right to require an assignment in accordance with clause (b)(ii) below shall not be effective to the extent that Lenders representing a majority of the Commitments then outstanding shall be "Affected Lenders".
(b) The Borrower shall, within five days of receiving a notice from any Affected Lender pursuant to clause (a) of this Section 2.12, elect (and shall notify such Affected Lender and the Agent of such election) to:
(i) prepay in full all Eurodollar Rate Advances or LIBO Rate Advances then outstanding, together with interest thereon, unless in the case of Eurodollar Rate Advances the Borrower, within five Business Days of written notice from the Agent, converts all Eurodollar Rate Advances of all Lenders then outstanding into Base Rate Advances in accordance with Section 2.09; or
(ii) require that such Affected Lender assign to the Borrower's designated assignee or assignees, in accordance with the terms of Section 8.07, all Advances then owing to such Affected Lender and all rights and obligations of such Affected Lender hereunder; provided that (A) each such assignment shall be either an assignment of all of the rights and obligations of the assigning Affected Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or assignments which together cover all of the rights and obligations of the assigning Affected Lender under this Agreement, (B) no Affected Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 2.12(b) unless and until such Affected Lender shall have received one or more payments from either the Borrower or one or more assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of all Advances owing to such Affected Lender, together with accrued interest thereon to the date of payment of such principal amount, all facility fees and other fees payable to such Affected Lender and all other amounts payable to such Affected Lender under this Agreement (including, but not limited to, any increased costs or other additional amounts (computed in accordance with Section 2.11), and any Taxes, incurred by such Affected Lender prior to the effective date of such assignment and amounts payable under Section 8.04(a)) and (C) each such assignment shall be made pursuant to an Assignment and Acceptance; provided, however, that such assignment shall not be effective if, after giving effect to such assignment, the aggregate amount of the Commitments so assigned or terminated under this Section 2.12(b) and Section 2.11 during the term of this Agreement would exceed 25% of the aggregate amount of the Commitments as of the Effective Date. Upon such payments and prepayments, the obligations of such Affected Lender hereunder, by the provisions hereof, shall be released and discharged; provided, however, that such Affected Lender's rights under Sections 2.11, 2.14 and 8.04(b), and its obligations under Section 7.05, shall survive such release and discharge as to matters occurring prior to the date of termination of such Affected Lender's Commitment.
SECTION 2.13. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees ratably (other than amounts payable pursuant to Section 2.03, 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon any Assuming Lender becoming a Lender hereunder as a result of an extension of the Termination Date pursuant to Section 2.17, and upon the Agent's receipt of such Lender's Assumption Agreement and recording of the information contained therein in the Register, from and after the applicable Extension Date, the Agent shall make all payments hereunder and under any Notes issued in connection therewith in respect of the interest assumed thereby to the Assuming Lender. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the LIBO Rate or the Federal Funds Rate or in respect of Fixed Rate Advances and of facility fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or facility fees are payable. Each determination by the Agent of an interest rate and of facility fees hereunder shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.
(d) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of Taxes or Other Taxes (including, without limitation, taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.14) imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
making such payment shall furnish to the Agent, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing such
payment. In the case of any payment hereunder or under the Notes by or on behalf
of the Borrower through an account or branch outside the United States or by or
on behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Agent, at such
address, an opinion of counsel acceptable to the Agent stating that such payment
is exempt from Taxes. For purposes of this subsection (d) and subsection (e),
the terms "United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender and on the date of the Assumption Agreement or the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Borrower with two original Internal Revenue Service forms W-8BEN or W-8ECI, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN or W-8ECI, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances owing to it (other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Revolving Credit Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Revolving Credit Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.
SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely for general corporate purposes of the Borrower and its Subsidiaries.
SECTION 2.17. Extension of Termination Date. (a) At least 30 days but not more than 45 days prior to the Termination Date, the Borrower, by written notice to the Agent, may request an extension of the Termination Date in effect at such time by 364 days from its then scheduled expiration; provided, however, that the Borrower shall not have made the Term Loan Election for Revolving Credit Advances outstanding on such Termination Date prior to such time. The Agent shall promptly notify each Lender of such request, and each Lender shall in turn, in its sole discretion, not earlier than 30 days but not later than 20 days prior to the Termination Date, notify the Borrower and the Agent in writing as to whether such Lender will consent to such extension, such notice to be in substantially the form of Exhibit E hereto. If any Lender shall fail to notify the Agent and the Borrower in writing of its consent to any such request for extension of the Termination Date at least 20 days prior to the Termination Date, such Lender shall be deemed to be a Non-Consenting Lender with respect to such request. The Agent shall notify the Borrower in writing not later than 15 days prior to the Termination Date of the decision of the Lenders regarding the Borrower' request for an extension of the Termination Date.
(b) If all the Lenders consent in writing to any such request in accordance with subsection (a) of this Section 2.17, the Termination Date in effect at such time shall, effective as at the Termination Date (the "Extension Date"), be extended for 364 days; provided that on each Extension Date, the applicable conditions set forth in Article III shall be satisfied. If less than all of the Lenders consent in writing to any such request in accordance with subsection (a) of this Section 2.17, the Termination Date in effect at such time shall, subject to Section 2.17(d) and effective as at the applicable Extension Date, be extended as to those Lenders that so consented (each a "Consenting Lender") but shall not be extended as to any other Lender (each a "Non-Consenting Lender"). To the extent that the Termination Date is not extended as to any Lender pursuant to this Section 2.17 and the Commitment of such Lender is not assumed in accordance with subsection (c) of this Section 2.17 on or prior to the applicable Extension Date, the Commitment of such Non-Consenting Lender shall automatically terminate in whole on such unextended Termination Date without any further notice or other action by the Borrower, such Lender or any other Person; provided that such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 8.04, and its obligations under Section 7.05, shall survive the Termination Date for such Lender as to matters occurring prior to such date. It is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrower for any requested extension of the Termination Date.
(c) If fewer than all of the Lenders consent to any such request pursuant to subsection (a) of this Section 2.17, the Agent shall promptly so notify the Consenting Lenders, and each Consenting Lender may, in its sole discretion, give written notice to the Agent not later than 10 days prior to the Termination Date of the amount of the Non-Consenting Lenders' Commitments for which it is willing to accept an assignment. If the Consenting Lenders notify the Agent that they are willing to accept assignments of Commitments in an aggregate amount that exceeds the amount of the Commitments of the Non-Consenting Lenders, such Commitments shall be allocated among the Consenting Lenders willing to accept such assignments in such amounts as are agreed between the Borrower and the Agent. If after giving effect to the assignments of Commitments described above there remains any Commitments of Non-Consenting Lenders, the Borrower may arrange for one or more Consenting Lenders or other Eligible Assignees that agrees to an extension of the Termination Date (an "Assuming Lender") to assume, effective as of the Extension Date, any Non-Consenting Lender's Commitment and all of the obligations of such Non-Consenting Lender under this Agreement thereafter arising, without recourse to or warranty by, or expense to, such Non-Consenting Lender; provided, however, that the amount of the Commitment of any such Assuming Lender as a result of such substitution shall in no event be less than $10,000,000 unless the amount of the Commitment of such Non-Consenting Lender is less than $10,000,000, in which case such Assuming Lender shall assume all of such lesser amount; and provided further that:
(i) any such Consenting Lender or Assuming Lender shall have paid to such Non-Consenting Lender (A) the aggregate principal amount of, and any interest accrued and unpaid to the effective date of the assignment on, the outstanding Advances, if any, of such Non-Consenting Lender plus (B) any accrued but unpaid facility fees owing to such Non-Consenting Lender as of the effective date of such assignment;
(ii) all additional costs reimbursements, expense reimbursements and indemnities payable to such Non-Consenting Lender, and all other accrued and unpaid amounts owing to such Non-Consenting Lender hereunder, as of the effective date of such assignment shall have been paid to such Non-Consenting Lender; and
(iii) with respect to any such Assuming Lender, the applicable processing and recordation fee required under Section 8.07(a) for such assignment shall have been paid by the Assuming Lender;
provided further that such Non-Consenting Lender's rights under Sections 2.11, 2.14 and 8.04, and its obligations under Section 7.05, shall survive such substitution as to matters occurring prior to the date of substitution. At least three Business Days prior to any Extension Date, (A) each such Assuming Lender, if any, shall have delivered to the Borrower and the Agent an assumption agreement in substantially the form of Exhibit D (each an "Assumption Agreement") or an Assignment and Acceptance, as appropriate, duly executed by such Assuming Lender, such Non-Consenting Lender, the Borrower and the Agent, (B) any such Consenting Lender shall have delivered confirmation in writing satisfactory to the Borrower and the Agent as to the increase in the amount of its Commitment and (C) each Non-Consenting Lender being replaced pursuant to this Section 2.17 shall have delivered to the Agent any Note or Notes held by such Non-Consenting Lender. Upon the payment or prepayment of all amounts referred to in clauses (i), (ii) and (iii) of the immediately preceding sentence, each such Consenting Lender or Assuming Lender, as of the Extension Date, will be substituted for such Non-Consenting Lender under this Agreement and shall be a Lender for all purposes of this Agreement, without any further acknowledgment by or the consent of the other Lenders, and the obligations of each such Non-Consenting Lender hereunder shall, by the provisions hereof, be released and discharged.
(d) If the Lenders having more than 50% of the Commitments (after giving effect to any assignments pursuant to subsection (c) of this Section 2.17) consent in writing to a requested extension (whether by execution or delivery of an Assumption Agreement, an Assignment and Acceptance or otherwise) not later than one Business Day prior to such Extension Date, the Agent shall so notify the Borrower, and, upon satisfaction of the applicable conditions set forth in Article III, the Termination Date then in effect shall be extended for the additional 364-day period as described in subsection (a) of this Section 2.17, and all references in this Agreement, and in the Notes, if any, to the "Termination Date" shall, with respect to each Consenting Lender and each Assuming Lender for such Extension Date, refer to the Termination Date as so extended. Promptly following each Extension Date, the Agent shall notify the Lenders (including, without limitation, each Assuming Lender) of the extension of the scheduled Termination Date in effect immediately prior thereto and shall thereupon record in the Register the relevant information with respect to each such Consenting Lender and each such Assuming Lender.
SECTION 2.18. Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder in respect of Advances. The Borrower agrees that upon notice by any Lender (with a copy of such notice to the Agent) to the effect that a Note is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and deliver to such Lender a Note payable to the order of such Lender in a principal amount up to the Commitment of such Lender.
(b) The Register maintained by the Agent pursuant to Section 8.07(d) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assumption Agreement and each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof.
(c) Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and
2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and as
of the first date (the "Effective Date") on which the following conditions
precedent have been satisfied:
(a) As of the Effective Date, except as disclosed in the Borrower's Quarterly Report on Form 10-Q for the quarter ending March 31, 2002 and on Schedule 3.01(a), since December 31, 2001 there shall have occurred no Material Adverse Change.
(b) As of the Effective Date, there shall exist no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Consolidated Subsidiaries pending or, to its knowledge, threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect other than the matters disclosed by the Borrower in filings with the United States Securities and Exchange Commission prior to the date hereof or described on Schedule 3.01(b) hereto (collectively, the "Disclosed Litigation") or (ii) purports and is reasonably likely to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby.
(c) As of the Effective Date, the Borrower shall not have been notified that anything has come to the attention of the Lenders during the course of their due diligence investigation to lead them to believe that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect; without limiting the generality of the foregoing, the Lenders shall have been given such access to the management, records, books of account, contracts and properties of the Borrower and its Subsidiaries as they shall have reasonably requested.
(d) All governmental and third party consents and approvals necessary in connection with the transactions contemplated hereby shall have been obtained (without the imposition of any conditions that are not acceptable to the Lenders) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the transactions contemplated hereby.
(e) The Borrower shall have notified the Agent as to the proposed Effective Date.
(f) The Borrower shall have paid all accrued fees and invoiced expenses of the Agent and the Lenders (including the accrued fees and invoiced expenses of counsel to the Agent).
(g) On the Effective Date, the following statements shall be true and the Agent shall have received for the account of each Lender a certificate signed by a duly authorized officer of the Borrower, dated the Effective Date, stating that:
(i) The representations and warranties contained in Section 4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes a Default.
(h) The Agent shall have received on or before the Effective Date the following, each dated such day, in form and substance satisfactory to the Agent and (except for the Revolving Credit Notes) in sufficient copies for each Lender:
(i) The Revolving Credit Notes to the order of the Lenders to the extent requested by any Lender pursuant to Section 2.18.
(ii) Certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement and the Revolving Credit Notes to be delivered by it, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement and such Notes.
(iii) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and such Notes to be delivered by it and the other documents to be delivered by it hereunder.
(iv) A favorable opinion of the General Counsel or Associate General Counsel of the Borrower, in form and substance satisfactory to the Agent.
(v) A favorable opinion of Shearman & Sterling, counsel for the Agent, in form and substance satisfactory to the Agent.
(i) The Borrower shall have terminated the commitments, and paid in full all Debt, interest, fees and other amounts outstanding, under the 364-Day Credit Agreement dated as of August 7, 2001 among the Borrower, the lenders and agents parties thereto and Citibank, as administrative agent, and each of the Lenders that is a party to each such credit agreement hereby waives, upon execution of this Agreement the requirement of prior notice under each such credit agreement relating to the termination of commitments thereunder.
SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing and Extension Date. The obligation of each Lender to make a Revolving Credit Advance on the occasion of each Revolving Credit Borrowing and each extension of Commitments pursuant to Section 2.17 shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Revolving Credit Borrowing or the applicable Extension Date the following statements shall be true (and each of the giving of the applicable Notice of Revolving Credit Borrowing, request for Commitment Extension and the acceptance by the Borrower of the proceeds of such Revolving Credit Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Revolving Credit Borrowing or such Extension Date such statements are true):
(a) the representations and warranties contained in Section 4.01 (except in the case of each Revolving Credit Borrowing, the representations set forth in subsection (e) thereof and in subsection (f)(i) thereof) are correct on and as of the date of such Revolving Credit Borrowing or such Extension Date, before and after giving effect to such Revolving Credit Borrowing or such Extension Date and to the application of the proceeds therefrom, as though made on and as of such date, and
(b) no event has occurred and is continuing, or would result from such Revolving Credit Borrowing or such Extension Date or from the application of the proceeds therefrom, that constitutes a Default.
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, (ii) on or before the date of such Competitive Bid Borrowing, but prior to such Competitive Bid Borrowing, the Agent shall have received a Competitive Bid Note payable to the order of such Lender for each of the one or more Competitive Bid Advances to be made by such Lender as part of such Competitive Bid Borrowing, in a principal amount equal to the principal amount of the Competitive Bid Advance to be evidenced thereby and otherwise on such terms as were agreed to for such Competitive Bid Advance in accordance with Section 2.03, and (iii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Competitive Bid Borrowing such statements are true):
(a) the representations and warranties contained in Section 4.01
(except the representations set forth in the last sentence of subsection
(e) thereof and in subsection (f)(i) thereof) are correct on and as of the
date of such Competitive Bid Borrowing, before and after giving effect to
such Competitive Bid Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, and
(b) no event has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the date that the Borrower, by notice to the Lenders, designates as the proposed Effective Date, specifying its objection thereto. The Agent shall promptly notify the Lenders of the occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Borrower of this Agreement and the Notes to be delivered by it, and the consummation of the transactions contemplated hereby, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower's charter or by-laws or (ii) law or any contractual restriction binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Borrower of this Agreement or the Notes to be delivered by it.
(d) This Agreement has been, and each of the Notes to be delivered by it when delivered hereunder will have been, duly executed and delivered by the Borrower. This Agreement is, and each of the Notes when delivered hereunder will be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms.
(e) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2001, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of Deloitte & Touche LLP, independent public accountants, and the Consolidated balance sheet of the Borrower and its Subsidiaries as at March 31, 2002, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the three months then ended, duly certified by the Chief Financial Officer, Treasurer, Assistant Treasurer, Controller or Assistant Controller of the Borrower, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at March 31, 2002, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Except as disclosed in the Borrower's Quarterly Report on Form 10-Q for the quarter ending March 31, 2002 and on Schedule 3.01(a), since December 31, 2001, there has been no Material Adverse Change.
(f) There is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, litigation or proceeding, including, without limitation, any Environmental Action, affecting the Borrower or any of its Consolidated Subsidiaries before any court, governmental agency or arbitrator that (i) is reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation), and there has been no material adverse change in the status, or financial effect on the Borrower or any of its Consolidated Subsidiaries, of the Disclosed Litigation or (ii) purports to affect the legality, validity or enforceability of this Agreement, any Note or the consummation of the transactions contemplated hereby.
(g) The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.02. Representation and Warranty of the Lenders. Each Lender represents and warrants that in good faith it has not and will not rely upon any margin stock (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System) as collateral in the making and maintaining of its Advances hereunder.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its Material Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and Environmental Laws, except such non-compliance as would not have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Material Subsidiaries to pay and discharge, before the date on which penalties are attached thereto, all taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided, however, that neither the Borrower nor any of its Material Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings or are not of material importance to the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries.
(c) Maintenance of Insurance. Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is consistent with prudent business practice. This section shall not prevent the use of deductible or excess loss insurance and shall not prevent the Borrower or a Consolidated Subsidiary from acting as a self-insurer or maintaining insurance with a Subsidiary or Subsidiaries so long as such action is consistent with sound business practice.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Borrower may consummate any merger or consolidation permitted under Section 5.02(b) and provided further that the Borrower shall not be required to preserve any right or franchise if the Borrower shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower.
(e) Keeping of Books. Keep, and cause each of its Material Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Material Subsidiary in accordance with generally accepted accounting principles in effect from time to time.
(f) Reporting Requirements. Furnish to the Agent, and in sufficient copies for the Lenders (provided, however, that, in the case of the Consolidated balance sheet and Consolidated statements of income and cash flows referred to in clause (i) below, the annual audit report and accompanying information referred to in clause (ii) below and the reports and registration statements referred to in clause (iv) below, such information will be deemed to have been furnished to the Agent if it is readily available through EDGAR):
(i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the Chief Financial Officer, Treasurer, Assistant Treasurer, Controller, Assistant Controller, or other authorized financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles and certificates of the Chief Financial Officer Treasurer, Assistant Treasurer, Controller or Assistant Controller of the Borrower as to compliance with the terms of this Agreement;
(ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, containing the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an opinion acceptable to the Required Lenders by Deloitte & Touche LLP or other independent public accountants acceptable to the Required Lenders;
(iii) as soon as possible and in any event within five days after the determination by the Borrower of the occurrence of a Default that is continuing on the date of such statement, a statement of the Chief Financial Officer, Treasurer, Assistant Treasurer, Controller, Assistant Controller, or other authorized financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of all material reports that the Borrower sends to its securityholders (or any class of them) or its creditors (or any class of them), and copies of all reports and registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission;
(v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(f); and
(vi) such other information (excluding trade secrets) respecting the Borrower or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, no Borrower will:
(a) Liens, Etc. Create or suffer to exist, or permit any of its Material Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Material Subsidiaries to assign, any right to receive income, other than:
(i) (A) Liens for taxes, assessments, governmental charges or levies or other amounts owed to governmental entities other than for borrowed money; (B) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days or that are being contested in good faith; (C) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (D) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes; and (E) Liens in favor of a landlord arising in the ordinary course of business,
(ii) purchase money Liens upon or in any property, assets or stock acquired or held by the Borrower or any Material Subsidiary in the ordinary course of business to secure the purchase price or construction cost of such property or to secure Debt incurred solely for the purpose of financing the acquisition or construction of such property whether incurred prior or subsequent to such acquisition or construction, or Liens existing on such property at the time of its acquisition (other than any such Lien created in contemplation of such acquisition) or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any property other than the property being acquired, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced,
(iii) Liens existing on the Effective Date,
(iv) (A) assignments of the right to receive income in connection with any Permitted Receivables Financing and (B) other Liens that would otherwise be prohibited; provided that the Aggregate Amount of Financing Outstanding in connection with Permitted Receivables Financings described in clause (A), plus the aggregate principal amount of Debt secured by Liens described in clause (B) at any time outstanding, shall not exceed 10% of the Consolidated Net Worth of the Borrower at such time,
(v) the replacement, extension or renewal of any Lien permitted by clauses (ii) and (iii) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the amount secured thereby, and
(vi) intercompany Liens.
(b) Mergers, Etc. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit any of its Material Subsidiaries to do so, except that (x) any Material Subsidiary of the Borrower may merge or consolidate with or into, or dispose of assets to, any other Material Subsidiary of the Borrower or any other Subsidiary of the Borrower that shall become a Material Subsidiary as a result of such transaction and (y) any Material Subsidiary of the Borrower may merge into or dispose of assets to the Borrower, provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.
(c) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business taken as a whole as carried on at the date hereof.
SECTION 5.03. Financial Covenant. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower shall
maintain at the end of each fiscal quarter of the Borrower a Leverage Ratio of
not more than 0.45:1.00.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under this Agreement or any Note within five Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d) or (f)(iii), 5.02(a), 5.02(b) or 5.03, or (ii) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(f)(i) or (ii) if such failure shall remain unremedied for 5 days after written notice thereof shall have been given to the Borrower by the Agent or any Lender, or (iii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Agent or any Lender; or
(d) The Borrower or any of its Material Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or notional amount of at least $50,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the Borrower or such Material Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or
(e) The Borrower or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$75,000,000 in the aggregate shall be rendered against the Borrower or any
of its Material Subsidiaries and either (i) a lawsuit shall have been
properly commenced by any creditor to enforce such judgment or order or
(ii) such judgment is not, within 30 days after entry thereof, paid,
bonded, discharged or stayed during appeal, or is not discharged within 30
days after the expiration of such stay; provided, however, that the
rendering of any such judgment or order shall not be an Event of Default under this Section 6.01(f) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least "A" by A.M. Best Company, has been notified of, and has not properly disputed the claim made for payment of, the amount of such judgment or order; or
(g) Any Person or two or more Persons acting in concert (other than Pharmacia Corporation and its Subsidiaries and any successor thereto) shall have, on or after the date of this Agreement, acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 25% or more of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing on or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower (together with any new directors who (A) were properly and duly elected to the board of directors pursuant to the Borrower's bylaws by the affirmative vote of a majority of the remaining directors then in office or (B) were nominated by a majority of the remaining members of the board of directors of the Borrower and thereafter elected as directors by the shareholders of the Borrower) shall cease for any reason to constitute a majority of the board of directors of the Borrower; or
(h) The Borrower or any of its ERISA Affiliates shall incur, or, in the reasonable opinion of the Required Lenders, shall be reasonably likely to incur liability in excess of $75,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event, provided that the occurrence of the ERISA Event described in PBGC Regulation Sections 4040.23, 4043.29 or 4043.32 shall constitute an Event of Default under this Section 6.01(h) only if it is reasonably expected to result in a Material Adverse Effect, (ii) the partial or complete withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the Lender that made any Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assumption Agreement entered into by an Assuming Lender as provided in Section 2.17 or an Assignment and Acceptance entered into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram or telex) believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its Commitment, the Advances made by it and any Note issued to it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Citibank were not the Agent and without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Revolving Credit Advances then owed to each of them (or if no Revolving Credit Advances are at the time outstanding, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement (collectively, the "Indemnified Costs"), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.
SECTION 7.06. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
SECTION 7.07. Other Agents. Each Lender hereby acknowledges that neither the documentation agent nor any other Lender designated as any "Agent" on the signature pages hereof has any liability hereunder other than in its capacity as a Lender.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Revolving Credit Notes, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following: (a)
waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Revolving Credit Advances or
any fees or other amounts payable hereunder, (d) postpone any date fixed for any
payment of principal of, or interest on, the Revolving Credit Advances or any
fees or other amounts payable hereunder, (e) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Revolving Credit
Advances, or the number of Lenders, that shall be required for the Lenders or
any of them to take any action hereunder or (f) amend this Section 8.01;
provided further that no amendment, waiver or consent shall, unless in writing
and signed by the Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Agent under this Agreement or any
Note; and provided further that this Section 8.01 shall not apply to changes in
Commitments pursuant to Section 2.11, Section 2.12, Section 2.17 or any other
Section of this Agreement.
SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed or delivered, if to the Borrower, at its address at 800 N. Lindbergh Boulevard, St Louis, Missouri 63167, Attention: Chief Financial Officer, with an information copy to the Secretary at the same address, if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at its address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan Syndications Department; or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied, telegraphed or telexed, be effective upon receipt. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on demand all reasonable costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of counsel for the Agent with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under this
Agreement. The Borrower further agrees to pay on demand all reasonable costs and
expenses of the Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the actual or proposed use of the proceeds of the Advances by the Borrower or any of its Subsidiaries or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.07 as a result of a demand by the Borrower pursuant to Section 8.07(a), the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Set-off. Nothing herein shall derogate any Lender's right, if any, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to set off from time to time against any or all of the Borrower's deposit (general or special, time or demand, provisional or final) accounts with such Lender any amount so due. Each Lender agrees promptly to notify the Borrower after any such set off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set off and application. The rights of each Lender under this Section 8.05 are in addition to other rights and remedies which such Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been
executed by the Borrower and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may and, if
demanded by the Borrower (following a demand by such Lender pursuant to Section
2.11 or Section 2.12 if no Default has occurred and is continuing) upon at least
5 Business Days' notice to such Lender and the Agent or if required pursuant to
Section 2.17, will assign to one or more Persons all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Revolving Credit Advances owing to it and any
Revolving Credit Note or Notes held by it, and any Competitive Bid Advances or
Competitive Bid Notes held by it required to be assigned pursuant to Section
2.11 or Section 2.12) with the consent of the Agent and, so long as no Default
has occurred and is continuing, the Borrower (which consent shall not
unreasonably be withheld); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all rights and
obligations under this Agreement (other than any Competitive Bid Advances owing
to it and any Competitive Bid Notes held by it, except any such Competitive Bid
Advances or Competitive Bid Notes required to be assigned pursuant to Section
2.11 or Section 2.12), (ii) except in the case of an assignment to an Affiliate
of such Lender or a Person that, immediately prior to such assignment, was a
Lender or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each
such assignment shall be to an Eligible Assignee, (iv) each such assignment made
as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall
be arranged by the Borrower after consultation with the Agent and shall be
either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (v) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrower pursuant to this
Section 8.07(a) unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Revolving Credit Note
subject to such assignment and a processing and recordation fee of $3,500, and
(vii) any Lender may, without the approval of the Borrower and the Agent, assign
all or a portion of its rights to any of its Affiliates. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (y) the Lender assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights (other than
its rights under Sections 2.11, 2.14 and 8.04 to the extent any claim thereunder
relates to an event arising prior to such assignment) and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender.
(c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assumption Agreement and each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower.
(e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and any
Note or Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note or the Guaranty, or any
consent to any departure by the Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Advances or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Advances or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation.
Upon the sale of a participation pursuant to this Section 8.07(e), such Lender
shall promptly provide notice to the Borrower of the sale of a participation
(other than a sale of a participation pursuant to Section 2.15); provided,
however, that the failure by such Lender to provide such notice shall not
invalidate the sale of such participation.
(f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender; provided further that, so long as no Default has occurred and is continuing, the Borrower shall have consented in advance to the disclosure of any non-public information, such consent not to be unreasonably withheld.
(g) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
(h) Each Lender agrees that it will not assign any right, obligation or Note, or sell any participation, in any manner or under any circumstances that would require registration, qualification or filings under the securities laws of the United States of America, of any state or any country.
SECTION 8.08. Confidentiality. Neither the Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Borrower, other than (a) to the Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and, to the extent contemplated by Section 8.07(f), to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, provided that the Agent or such Lender, as the case may be, has notified the Borrower and has otherwise taken reasonable steps to protect such information from any unnecessary disclosure, and (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking, provided that, without prejudice to its right to disclose to such examiner or regulator, the Agent and the Lenders agree to use reasonable efforts to limit the amount of Confidential Information which is disclosed.
SECTION 8.09. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
MONSANTO COMPANY
By____________________________
Name: Terrell K. Crews
Title: Executive Vice President and Chief
Financial Officer
By____________________________
Name: Robert A. Paley
Title: Assistant Treasurer
CITIBANK, N.A.,
as Agent
By____________________________
Title:
Initial Lenders
$120,000,000 CITIBANK, N.A.
By____________________________
Title:
$120,000,000 JPMORGAN CHASE BANK
By____________________________
Title:
$100,000,000 BANK ONE, NA (MAIN OFFICE CHICAGO)
By____________________________
Title:
$100,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By____________________________
Title:
$100,000,000 COMMERZBANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By____________________________
Title:
By____________________________
Title:
$71,000,000 SOCIETE GENERALE
By____________________________
|
Title:
$31,500,000 THE BANK OF NEW YORK
By_____________________________
Title:
$31,500,000 BARCLAYS BANK PLC
By____________________________
Title:
$31,500,000 CREDIT AGRICOLE INDOSUEZ
By____________________________
Title:
$31,500,000 KBC BANK N.V.
By____________________________
Title:
$31,500,000 MELLON BANK, N.A.
By____________________________
Title:
$31,500,000 THE NORTHERN TRUST COMPANY
By____________________________
Title:
$800,000,000 Total of the Commitments
|
SCHEDULE I -
APPLICABLE LENDING OFFICES
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Name of Initial Lender Domestic Lending Office Eurodollar Lending Office
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THE BANK OF NEW YORK The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, NY 10286 New York, NY 10286
Attn: Keith Stiell Attn: Keith Stiell
T: 212-635-8216 T: 212-635-8216
F: 212-635-7926 F: 212-635-7926
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BANK ONE, NA (MAIN OFFICE CHICAGO) Bank One, NA, (Main Office Chicago) Bank One, NA, (Main Office Chicago)
Chicago, Illinois Chicago, Illinois
ABA: 071000013 ABA: 071000013
LS2 Incoming LS2 Incoming
481152860000 481152860000
Ref: Monsanto Co Ref: Monsanto Co
Attn: Ben Oliva Attn: Ben Oliva
Tel: 312-732-5987 Tel: 312-732-5987
Fax: 312-732-4840/3013 Fax: 312-732-4840/3013
------------------------------------------- -------------------------------------- --------------------------------------
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THE BANK OF TOKYO-MITSUBISHI, LTD., The Bank of Tokyo - Mitsubishi, The Bank of Tokyo - Mitsubishi,
CHICAGO BRANCH Ltd., Chicago Branch Ltd., Chicago Branch
227 West Monroe Street, Suite 2300 227 West Monroe Street, Suite 2300
Chicago, IL 60606 Chicago, IL 60606
Attn: Janice Hennig Attn: Janice Hennig
Tel: 312-696-4710 Tel: 312-696-4710
Fax: 312-696-4532 Fax: 312-696-4532
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BARCLAYS BANK PLC Barclays Bank PLC Barclays Bank PLC
Mark Williams Mark Williams
Global Services Unit Global Services Unit
5 The North Colonnade 5 The North Colonnade
Canary Wharf Canary Wharf
London El4 4BB London El4 4BB
Tel: 020-7773-6436 Tel: 020-7773-6436
Fax: 020-7773-6807 Fax: 020-7773-6807
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
JPMORGAN CHASE BANK JPMorgan Chase Bank JPMorgan Chase Bank
270 Park Avenue, 48th Floor 270 Park Avenue, 48th Floor
New York, NY 10017 New York, NY 10017
Attn: Stephen P. Rochford Attn: Stephen P. Rochford
T: 212-270-7275 T: 212-270-7275
F: 212-270-5135 F: 212-270-5135
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
CITIBANK, N.A. Citibank, N.A. Citibank, N.A.
Two Penns Way Two Penns Way
Suite 200 Suite 200
New Castle, DE 19720 New Castle, DE 19720
Attn: Ann Hieronimus Attn: Ann Hieronimus
Tel: 302-894-6034 Tel: 302-894-6034
Fax: 302-894-6120 Fax: 302-894-6120
------------------------------------------- -------------------------------------- --------------------------------------
|
------------------------------------------- -------------------------------------- --------------------------------------
COMMERZBANK AG, NEW YORK AND GRAND CAYMAN Commerzbank AG, Grand Cayman Branch Commerzbank AG, Grand Cayman Branch
BRANCHES c/o New York Branch c/o New York Branch
Two World Financial Center Two World Financial Center
New York, NY 10281-1050 New York, NY 10281-1050
Attn: Mr. Al Caputo Attn: Mr. Al Caputo
Tel: 212-266-7694 Tel: 212-266-7694
Fax: 212-266-7772 Fax: 212-266-7772
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
CREDIT AGRICOLE INDOSUEZ Credit Agricole Indosuez Credit Agricole Indosuez
55 E. Monroe Street 55 E. Monroe Street
Chicago, IL 60603 Chicago, IL 60603
Attn: Theodore Tice Attn: Theodore Tice
T: 312-917-7463 T: 312-917-7463
F: 312-372-3455 F: 312-372-3455
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
KBC BANK N.V. KBC Bank N.V. KBC Bank N.V.
New York Branch New York Branch
125 West 55th Street 125 West 55th Street
New York, NY 10019 New York, NY 10019
Attn: Loan Administration Attn: Loan Administration
T: 212-541-0657 T: 212-541-0657
F: 212-956-5581 F: 212-956-5581
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
MELLON BANK, N.A. Mellon Bank N.A. Mellon Bank N.A.
525 William Pen Place, Room 1203 525 William Pen Place, Room 1203
Pittsburgh, PA 15259-0003 Pittsburgh, PA 15259-0003
Attn: Richard Bouchard Attn: Richard Bouchard
Tel: 412 234-5767 Tel: 412 234-5767
Fax: 412 209-6124 Fax: 412 209-6124
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
THE NORTHERN TRUST COMPANY The Northern Trust Company The Northern Trust Company
50 S. LaSalle 50 S. LaSalle
Chicago, IL 60675 Chicago, IL 60675
Attn: Ms. Linda Honda Attn: Ms. Linda Honda
Tel: 312-444-4715 Tel: 312-444-4715
Fax: 312-630-1566 Fax: 312-630-1566
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
SOCIETE GENERALE Societe Generale Societe Generale
2001 Ross Ave. Suite 4800 2001 Ross Ave. Suite 4800
Dallas, TX 75201 Dallas, TX 75201
Attn: Deanna Farhat Attn: Deanna Farhat
Tel: 214-979-2736 Tel: 214-979-2736
Fax: 214-754-0171 Fax: 214-754-0171
------------------------------------------- -------------------------------------- --------------------------------------
|
$800,000,000 Total of the Commitments
SCHEDULE I -
APPLICABLE LENDING OFFICES
------------------------------------------- -------------------------------------- --------------------------------------
Name of Initial Lender Domestic Lending Office Eurodollar Lending Office
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
BANK ONE, NA (MAIN OFFICE CHICAGO) Bank One, NA, (Main Office Chicago) Bank One, NA, (Main Office Chicago)
Chicago, Illinois Chicago, Illinois
ABA: 071000013 ABA: 071000013
LS2 Incoming LS2 Incoming
481152860000 481152860000
Ref: Monsanto Co Ref: Monsanto Co
Attn: Ben Oliva Attn: Ben Oliva
Tel: 312-732-5987 Tel: 312-732-5987
Fax: 312-732-4840/3013 Fax: 312-732-4840/3013
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
THE BANK OF TOKYO-MITSUBISHI, LTD., The Bank of Tokyo - Mitsubishi, The Bank of Tokyo - Mitsubishi,
CHICAGO BRANCH Ltd., Chicago Branch Ltd., Chicago Branch
227 West Monroe Street, Suite 2300 227 West Monroe Street, Suite 2300
Chicago, IL 60606 Chicago, IL 60606
Attn: Janice Hennig Attn: Janice Hennig
Tel: 312-696-4710 Tel: 312-696-4710
Fax: 312-696-4532 Fax: 312-696-4532
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
CITIBANK, N.A. Citibank, N.A. Citibank, N.A.
Two Penns Way Two Penns Way
Suite 200 Suite 200
New Castle, DE 19720 New Castle, DE 19720
Attn: Ann Hieronimus Attn: Ann Hieronimus
Tel: 302-894-6034 Tel: 302-894-6034
Fax: 302-894-6120 Fax: 302-894-6120
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
COMMERZBANK AG, NEW YORK AND GRAND CAYMAN Commerzbank AG, Grand Cayman Branch Commerzbank AG, Grand Cayman Branch
BRANCHES c/o New York Branch c/o New York Branch
Two World Financial Center Two World Financial Center
New York, NY 10281-1050 New York, NY 10281-1050
Attn: Mr. Al Caputo Attn: Mr. Al Caputo
Tel: 212-266-7694 Tel: 212-266-7694
Fax: 212-266-7772 Fax: 212-266-7772
------------------------------------------- -------------------------------------- --------------------------------------
------------------------------------------- -------------------------------------- --------------------------------------
JPMORGAN CHASE BANK JPMorgan Chase Bank JPMorgan Chase Bank
270 Park Avenue, 38th Floor 270 Park Avenue, 38th Floor
New York, NY 10017 New York, NY 10017
Attn: Peter A. Dedousis Attn: Peter A. Dedousis
T: 212-270-4062 T: 212-270-4062
F: 212-270-5135 F: 212-270-5135
------------------------------------------- -------------------------------------- --------------------------------------
|
SCHEDULE 3.01(a)
On June 12, 2002, Monsanto Company issued the following press release:
MONSANTO MAKES CHANGES IN LATIN AMERICA; LOWERS SECOND-QUARTER AND FULL-YEAR 2002 EARNINGS PER SHARE GUIDANCE
ST. LOUIS (June 12, 2002) - Monsanto Company (NYSE: MON) today announced it is taking additional steps to reduce risk in Latin America because of continuing economic and market uncertainties there. As a result of these and other factors discussed below, the company is lowering its second-quarter and full-year 2002 and 2003 earnings per share (EPS) guidance.
"Our North American, European and Asian businesses are healthy and meeting our expectations," said Hendrik A. Verfaillie, Monsanto president and chief executive officer. "However, we've determined that we must make additional changes in how we approach the Latin American business. These aggressive actions in Latin America will improve the longer-term viability of our business there and will reduce our risk going forward."
Second-Quarter Guidance
Wet weather in key U.S. corn and soybean growing areas this spring has resulted in planting delays, and corresponding delays in the applications of Roundup herbicide. The company expects roughly a 20-cents-per-share shift in expected earnings from second-quarter results to third-quarter results because of these delays.
In addition, the unfavorable market conditions in Latin American agricultural markets continue to affect Monsanto's sales in that region. The company is implementing plans to improve its performance in the herbicide and corn seed markets while maintaining its leadership positions. These actions are expected to negatively affect second quarter earnings by approximately 10 cents per share.
Monsanto management also expects to establish a reserve in the second quarter in the range of $120 million to $150 million for potential uncollectable accounts receivables in Argentina.
Excluding the Argentine reserve and the previously announced restructuring, the company now expects second-quarter 2002 EPS to be $1.10 to $1.15, compared with earlier guidance of $1.40 to $1.45 for the quarter.
Full-Year Guidance
In anticipation of the upcoming Latin American selling season in the second half of the year, the company will continue to operate with cash- or grain-only sales terms in Argentina. Additionally, it will reduce its working capital in Brazil and Argentina, and because of market conditions in Argentina, the company will exercise its right to use collateralized products to settle receivables there as appropriate. These steps will reduce sales and earnings for the year. These business approaches are designed to substantially reduce the company's credit risk exposure and working capital in both Brazil and Argentina for the year.
Management is revising its estimate for full-year 2002 EPS to approximately $1.50, which includes the effect of taking aggressive steps to reduce the company's risk in Latin America, but excludes the reserve for potential uncollectable accounts receivables in Argentina, and the previously announced restructuring actions. (See attached table for details.) The company's previous guidance for 2002 EPS was $2.23 to $2.27.
Monsanto management also is confirming its free cash flow (cash flows from operations less cash required for investing activities) guidance for 2002 of $400 million to $460 million, including the actions mentioned above. The company also is providing guidance for full-year 2003 EPS in the range of $1.90 to $2.05.
Goodwill Impairment Update
Monsanto has completed its initial impairment analysis required by the new Standard of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which was adopted by the company as of Jan. 1, 2002. This new accounting standard eliminates goodwill amortization and changes the
method of determining whether there is goodwill impairment to a discounted cash flow method instead of the undiscounted cash flow method used previously. As a result of its review, Monsanto plans to record an impairment of approximately $2 billion pretax related to its corn and wheat businesses. The company plans to record this impairment as a cumulative effect of an accounting change for the first half of 2002, and this impairment is excluded from the revised second-quarter and full-year EPS guidance discussed above.
Monsanto Company, an 84 percent-owned subsidiary of Pharmacia Corporation, is a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality.
--------------------------------------------------------------------------------
Reconciliation from previous 2002 EPS guidance
to revised 2002 EPS guidance*
Initial 2002 EPS Guidance* $2.23 - $2.27
Less: Effect of macro-economic uncertainty
in Argentina, including currency devaluation of
peso-denominated assets, and weaker corn (0.45)
seed business in Brazil
Less: Effect of changing our business model
in Brazil and Argentina to reduce working capital (0.15)
Less: Effect of exercising rights to collateralize
products in Argentina (0.15)
Revised 2002 EPS Guidance* $1.50
* Revised 2002 EPS guidance excludes a reserve of $120 million to $150
million for potential uncollectable receivables, the previously announced
2002 restructuring of up to $124 million, and the $2 billion goodwill
impairment.
--------------------------------------------------------------------------------
|
Notes to editors: Roundup is a trademark owned by Monsanto Technology LLC.
References to Roundup products in this release mean Roundup branded and other glyphosate-based herbicides, excluding lawn and garden products.
Certain statements contained in this release, such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, currency impact, business and financial plans and other non-historical facts are "forward-looking statements." These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: fluctuations in exchange rates and other developments related to foreign currencies and economies; increased generic and branded competition for the company's Roundup herbicide; the success of the company's research and development activities and the speed with which regulatory authorizations and product launches may be achieved; domestic and foreign social, legal and political developments, especially those relating to agricultural products developed through biotechnology; the accuracy of the company's estimates and projections, for example, those with respect to product returns and grower use of our products and related distribution inventory levels; the company's ability to continue to manage its costs; the company's ability to successfully market new and existing products in new and existing domestic and international markets; the company's ability to obtain payment for the products that it sells; the company's ability to achieve and maintain protection for its intellectual property; the effects of the company's accounting policies and changes in generally accepted accounting principles; the company's exposure to lawsuits and other liabilities and contingencies, including those related to intellectual property, product liability, regulatory compliance (including seed quality), environmental contamination and antitrust; the effect of weather conditions and commodity markets on the agriculture business; the company's ability to fund its
short-term financing needs; general economic and business conditions; and other risks and factors detailed in the company's filings with the U.S. Securities and Exchange Commission. The company disclaims any current intention to revise or update any forward-looking statements or any of the factors that may affect actual results, whether as a result of new information, future events or otherwise.
SCHEDULE 3.01(b)
DISCLOSED LITIGATION
None
EXHIBIT A-1 - FORM OF
REVOLVING CREDIT PROMISSORY NOTE
U.S.$_______________ Dated: _______________, 200_
FOR VALUE RECEIVED, the undersigned, Monsanto Company, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
____________________ (the "Lender") for the account of its Applicable Lending
Office on the later of the Termination Date and the date designated pursuant to
Section 2.06 of the Credit Agreement (each as defined in the Credit Agreement
referred to below) the principal sum of U.S.$[amount of the Lender's Commitment
in figures] or, if less, the aggregate principal amount of the Revolving Credit
Advances made by the Lender to the Borrower pursuant to the 364-Day Credit
Agreement dated as of July 17, 2002 among the Borrower, the Lender and certain
other lenders parties thereto, Citibank, N.A., as Agent for the Lender and such
other lenders, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as
joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication
agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of
Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents (as amended
or modified from time to time, the "Credit Agreement"; the terms defined therein
being used herein as therein defined), outstanding on such date.
The Borrower promises to pay interest on the unpaid principal amount of each Revolving Credit Advance from the date of such Revolving Credit Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York, New York 10043, in same day funds. Each Revolving Credit Advance owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Revolving Credit Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of Revolving Credit Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Revolving Credit Advance being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
ADVANCES AND PAYMENTS OF PRINCIPAL
--------------------------- ------------------------ ------------------------ ------------------------- ------------------------
Amount of
Date Amount of Principal Paid Unpaid Principal Notation
Advance or Prepaid Balance Made By
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EXHIBIT A-2 - FORM OF
COMPETITIVE BID
PROMISSORY NOTE
U.S.$_______________ Dated: _______________, 200_
FOR VALUE RECEIVED, the undersigned, MONSANTO COMPANY, a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of _________________________ (the "Lender") for the account of its Applicable Lending Office (as defined in the 364-Day Credit Agreement dated as of July 17, 2002 among the Borrower, the Lender and certain other lenders parties thereto, Citibank, N.A., as Agent for the Lender and such other lenders, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents (as amended or modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined)), on _______________, 200_, the principal amount of U.S.$_______________.
The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, at the interest rate and payable on the interest payment date or dates provided below:
Interest Rate: _____% per annum (calculated on the basis of a year of _____ days for the actual number of days elapsed).
Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, for the account of the Lender at the office of Citibank, N.A., at 399 Park Avenue, New York, New York 10043 in same day funds.
This Promissory Note is one of the Competitive Bid Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.
The Borrower hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights.
This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York.
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
EXHIBIT B-1 - FORM OF
NOTICE OF REVOLVING CREDIT BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720 [Date]
Attention: Bank Loans Syndications Department
Ladies and Gentlemen:
The undersigned, Monsanto Company, refers to the 364-Day
Credit Agreement, dated as of July 17, 2002 (as amended or modified from time to
time, the "Credit Agreement", the terms defined therein being used herein as
therein defined), among the undersigned, certain Lenders parties thereto,
Citibank, N.A., as Agent for said Lenders, Salomon Smith Barney Inc. and J.P.
Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan
Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman
Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as
co-documentation agents, and hereby gives you notice, irrevocably, pursuant to
Section 2.02 of the Credit Agreement that the undersigned hereby requests a
Revolving Credit Borrowing under the Credit Agreement, and in that connection
sets forth below the information relating to such Revolving Credit Borrowing
(the "Proposed Revolving Credit Borrowing") as required by Section 2.02(a) of
the Credit Agreement:
(i) The Business Day of the Proposed Revolving Credit Borrowing is _______________, 200_.
(ii) The Type of Advances comprising the Proposed Revolving Credit Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Revolving Credit Borrowing is $_______________.
[(iv) The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Revolving Credit Borrowing is __________ month[s].]
The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f)(i) thereof) are correct, before and after giving effect to the Proposed Revolving Credit Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and
(B) no event has occurred and is continuing, or would result from such Proposed Borrowing Revolving Credit or from the application of the proceeds therefrom, that constitutes a Default.
Very truly yours,
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
EXHIBIT B-2 - FORM OF NOTICE OF
COMPETITIVE BID BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720
[Date]
Attention: Bank Loan Syndications Department
Ladies and Gentlemen:
The undersigned, Monsanto Company, refers to the 364-Day Credit Agreement, dated as of July 17, 2002 (as amended or modified from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto, Citibank, N.A., as Agent for the Lender and such other lenders, Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents, and hereby gives you notice, irrevocably, pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a Competitive Bid Borrowing under the Credit Agreement, and in that connection sets forth the terms on which such Competitive Bid Borrowing (the "Proposed Competitive Bid Borrowing") is requested to be made:
(A) Date of Competitive Bid Borrowing ________________________ (B) Amount of Competitive Bid Borrowing ________________________ (C) [Maturity Date] [Interest Period] ________________________ (D) Interest Rate Basis ________________________ (E) Interest Payment Date(s) ________________________ (F) ___________________ ________________________ (G) ___________________ ________________________ (H) ___________________ ________________________ |
The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Competitive Bid Borrowing:
(a) the representations and warranties contained in Section 4.01 of the Credit Agreement (except the representations set forth in the last sentence of subsection (e) thereof and in subsection (f)(i) thereof) are correct, before and after giving effect to the Proposed Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date;
(b) no event has occurred and is continuing, or would result from the Proposed Competitive Bid Borrowing or from the application of the proceeds therefrom, that constitutes a Default;
(c) no event has occurred and no circumstance exists as a result of which the information concerning the undersigned that has been provided to the Agent and each Lender by the undersigned in connection with the Credit Agreement would include an untrue statement of a material fact or omit to state any material fact or any fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading; and
(d) the aggregate amount of the Proposed Competitive Bid Borrowing and all other Borrowings to be made on the same day under the Credit Agreement is within the aggregate amount of the unused Commitments of the Lenders.
The undersigned hereby confirms that the Proposed Competitive Bid Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of the Credit Agreement.
Very truly yours,
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
EXHIBIT C - FORM OF ASSIGNMENT
AND ACCEPTANCE
Reference is made to the 364-Day Credit Agreement dated as of July 17, 2002 (as amended or modified from time to time, the "Credit Agreement") among Monsanto Company, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement), Citibank, N.A., as agent for the Lenders (the "Agent), Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, without recourse, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of Competitive Bid Advances and Competitive Bid Notes) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement (other than in respect of Competitive Bid Advances and Competitive Bid Notes). After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Advances owing to the Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iv) attaches the Revolving Credit Note, if any, held by the Assignor [and requests that the Agent exchange such Revolving Credit Note for a new Revolving Credit Note payable to the order of the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, as specified on Schedule 1 hereto].
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) confirms that
it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to the Agent by the
terms thereof, together with such powers and discretion as are reasonably
incidental thereto; (v) agrees that it will perform in accordance with
their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; (vi) attaches any
U.S. Internal Revenue Service forms required under Section 2.14 of the
Credit Agreement; and (vii) makes the representation and warranty set forth
in Section 4.02 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Agent, as of the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Revolving Credit Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Revolving Credit Notes for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon.
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Amount of Commitment assigned: $_______________
Assignee's Commitment: $_______________
Aggregate outstanding principal amount of Revolving Credit Advances assigned: $_______________
Effective Date*: _______________, 200_
|
[NAME OF ASSIGNOR], as Assignor
Dated: _______________, 200_
[NAME OF ASSIGNEE], as Assignee
Domestic Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
Accepted [and Approved]** this
__________ day of _______________, 200_
[Approved this __________ day
of _______________, 200_
* This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent.
** Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee".
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
EXHIBIT D- FORM OF
ASSUMPTION AGREEMENT
Dated:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Chief Financial Officer
Citibank, N.A.,
as Agent
399 Park Avenue
New York, New York 10043
Attention:__________________
Ladies and Gentlemen:
Reference is made to the 364-Day Credit Agreement dated as of July 17, 2002 (as amended or modified from time to time, the "Credit Agreement") among Monsanto Company, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement), Citibank, N.A., as agent for the Lenders (the "Agent), Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meaning.
The undersigned proposes to become an Assuming Bank pursuant
to Section 2.17 of the Credit Agreement and, in that connection, hereby agrees
that it shall become a Lender for purposes of the Credit Agreement on
[applicable Termination Date] and that its Commitment shall as of such date be $
.
The undersigned (the "Assuming Bank") (i) confirms that it has
received a copy of the Credit Agreement, together with copies of the financial
statements referred to in Section 5.01(f) thereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assumption Agreement; (ii) agrees that it will,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (iv) agrees that it will perform in
accordance with their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Lender; (v) confirms
that it is an Eligible Assignee; [and] (vi) specifies as its Domestic Lending
Office (and address for notices) and Eurodollar Lending Office the offices set
forth beneath its name on the signature pages hereof; [and (vii) attaches any
U.S. Internal Revenue Service forms required under Section 2.14] of the Credit
Agreement](1) and [(vii)] [(viii)] makes the representation and warranty set
forth in Section 4.02 of the Credit Agreement.
The effective date for this Assumption Agreement shall be
[applicable Termination Date]. Upon delivery of this Assumption Agreement to the
Borrower and the Agent and acceptance and recording of this Assumption Agreement
by the Agent, as of [date specified above], the Assuming Bank shall be a party
to the Credit Agreement and have the rights and obligations of a Lender
thereunder. As of [date specified above], the Agent shall make all payments
under the Credit Agreement in respect of the interest assumed hereby (including,
without limitation, all payments of principal, interest and facility fees) to
the Assuming Bank.
This Assumption Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Assumption Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Assumption Agreement.
This Assumption Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Very truly yours,
[NAME OF ASSUMING BANK]
Title:
Domestic Lending Office
(and address for notices):
[Address]
Eurodollar Lending Office:
[Address]:
Above Acknowledged and Agreed to:
MONSANTO COMPANY
By____________________________
Title:
By____________________________
Title:
Accepted this day of
----
,
--------- ---------
|
CITIBANK, N.A.,
as Agent
EXHIBIT E- FORM OF NOTICE OF
EXTENSION OF TERMINATION DATE
[Date]
Citibank, N.A.,
as Agent
399 Park Avenue
New York, New York 10043
Attention: __________________
Monsanto Company
Ladies and Gentlemen:
Reference is made to the 364-Day Credit Agreement dated as of July 17, 2002 (as amended or modified from time to time, the "Credit Agreement") among Monsanto Company, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement), Citibank, N.A., as agent for the Lenders (the "Agent), Salomon Smith Barney Inc. and J.P. Morgan Securities Inc., as joint lead arrangers and co-bookrunners, JPMorgan Chase Bank, as syndication agent, and Commerzbank AG, New York and Grand Cayman Branches, The Bank of Tokyo-Mitsubishi, Ltd. and Bank One, NA, as co-documentation agents. Terms defined in the Credit Agreement are used herein with the same meaning.
Pursuant to Section 2.17 of the Credit Agreement, the Lender named below hereby notifies the Agent as follows:
[The Lender named below desires to extend the Termination Date with respect to [all] [$______] of its Commitment for a period of 364 days.]
[The Lender named below desires to extend the Termination Date with respect to all of its Commitment for a period of 364 days and offers to increase its Commitment commencing [______________] to $__________.]
[The Lender named below does NOT desire to extend the Termination Date with respect to any of its Commitment for a period of 364 days.]
This notice is subject in all respects to the terms of the Credit Agreement, is irrevocable and shall be effective only if received by the Agent no later than [______________].(1)
Very truly yours,
[NAME OF LENDER]
Title:
(1) This date shall be no later than 20 days prior to the then scheduled Termination Date in the case of an Extending Lender's notice to extend its Commitment and no later than 15 days prior to the then scheduled Termination Date in the case of an Extending Lender's offer to increase its Commitment.
TAX SHARING AND INDEMNIFICATION AGREEMENT
This Tax Sharing and Indemnification Agreement (the "Agreement"), dated as of July 19, 2002 is entered into by and between Pharmacia Corporation, a Delaware corporation ("Distributing") and Monsanto Company, a Delaware corporation ("Controlled"). Each of Distributing and Controlled is referred to herein as a "Party" and, collectively, as "Parties".
WHEREAS, Distributing owns more than 80 percent of the issued and outstanding shares of common stock of Controlled and Controlled is a member of an affiliated group within the meaning of Section 1504(a) of the Code of which Distributing is the common parent corporation;
WHEREAS, the Parties have entered into a Tax Sharing Agreement dated as of September 1, 2000 (the "September 1, 2000 Agreement");
WHEREAS, the board of directors of Distributing has (or, in the near future, will have) authorized and declared the distribution by Distributing of all of its shares of Controlled common stock, on a pro rata basis, to the holders of the common stock of Distributing in a transaction intended to qualify as a tax-free distribution under Section 355 of the Code (the "Distribution");
WHEREAS, in contemplation of the Distribution pursuant to which Controlled and its subsidiaries will cease to be members of the Distributing Group (as hereinafter defined), the Parties hereto have determined to enter into this Agreement, setting forth their agreement with respect to certain tax matters;
WHEREAS, this Agreement is intended to supercede the September 1, 2000 Agreement and, effective on the Distribution Date, the September 1, 2000 Agreement shall have no further force and effect; and
WHEREAS, this Agreement also creates certain indemnification obligations if the actions of a member of the Controlled Group (as hereinafter defined) has an adverse effect on the tax-free nature of the Distribution;
NOW THEREFORE, in consideration of the premises set forth above and the mutual promises, undertakings, agreements and obligations set forth herein, the Parties, intending to be legally bound, hereby agree as follows:
Section 1. DEFINITIONS.
For Purposes of this Agreement, the following definitions shall apply:
1.1 "Adjustment" shall mean any final change in the Tax liability of any member of the Controlled Group or the Distributing Group.
1.2 "Affiliated Group" shall mean an affiliated group of corporations within the meaning of Code Section 1504(a).
1.3 "Agreement" shall have the meaning ascribed to such term in the introductory paragraph hereof.
1.4 "Applicable States" shall have the meaning ascribed to that term in
Section 1.7 hereof.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect during the term of this Agreement.
1.6 "COFL" shall have the meaning ascribed to that form in Section 5.4 hereof.
1.7 "Consolidated Tax Amount" shall mean, for each Tax Period during which
Controlled is included in a (i) consolidated Federal Income Tax Return of the
Distributing Group pursuant to Section 4.1 hereof or (ii) a consolidated,
combined, unitary or similar State Income Tax Return pursuant to Section 4.2
hereof ("Applicable States"), the amount of (i) Federal Income Tax, plus (ii)
State Income Taxes for Applicable States, in each case that would be due and
payable by Controlled for each such Tax Period if the Controlled Affiliated
Group had filed a Federal Income Tax Return and a State Income Tax Return in
each Applicable State for such Tax Period on a consolidated or combined basis
without the Distributing Affiliated Group (except for the members of the
Controlled Affiliated Group). The Consolidated Tax Amount shall be calculated:
(i) giving effect to any net operating loss carryovers (as defined by Section
172 of the Code or any corresponding Applicable State law) and applicable credit
carryovers, calculated on a separate return basis, incurred by Controlled for
any Tax Period, and (ii) treating gains or losses on intercompany transactions
in the manner required by Treas. Reg. Section 1.1502-13. For purposes of this
definition, the determination of Tax Items attributable to any period that is
less than a 12-month fiscal period shall be made, at the election of
Distributing, either (i) on the basis of a closing of the books of the relevant
entity or (ii) by determining the aggregate Tax Items for a full 12-month period
and allocating those Tax Items to the Tax Period, pro rata on the basis of the
number of days that Controlled was a member of the Distributing Group during
such Tax Period divided by 365.
1.8 "Controlled" shall have the meaning ascribed to such term in the introductory paragraph hereof.
1.9 "Controlled Affiliated Group" shall mean, for each taxable period, the Affiliated Group of which Controlled or its successor is the common parent corporation.
1.10 "Controlled Carryback" shall have the meaning ascribed to such term in
Section 5.5 hereof.
1.11 "Controlled Group" shall mean, for each taxable period, (i) the corporations that are members of the Controlled Affiliated Group, and (ii) the corporations that would be members of the Controlled Affiliated Group, but for the fact that they are not includible corporations under Code Section 1504(b), and other entities owned, in whole or in part, by any Controlled Group member.
1.12 "CSLL" shall have the meaning ascribed to that term in Section 5.4 hereof
1.13 "DeKalb Tax Liabilities" shall mean the amount of (i) United States Federal Income Taxes, plus (ii) Income Taxes of any State, accruing in respect of periods ending on or prior to December 31, 1999 and that are attributable solely to the operations of DeKalb Genetics Corporation, a Delaware Corporation, and its subsidiaries.
1.14 "Dispute" shall have the meaning ascribed to such term in Section 12 hereof.
1.15 "Distributing" shall have the meaning ascribed to such term in the introductory paragraph hereof.
1.16 "Distributing Affiliated Group" shall mean, for each taxable period, the Affiliated Group of which Distributing or its successor is the common parent corporation.
1.17 "Distributing Carryback" shall have the meaning ascribed to such term in Section 5.5 hereof.
1.18 "Distributing Group" shall mean, for each taxable period, (i) the corporations that comprise the Distributing Affiliated Group, and (ii) the corporations that would be members of the Distributing Affiliated Group, but for the fact that they are not includible corporations under Code Section 1504(b), and other entities owned in whole or in part by any Distributing Group member.
1.19 "Distributing Tax Reduction" shall mean the amount of the aggregate Tax refund attributable to the Controlled Carryback and actually received (or to be received) by Distributing.
1.20 "Distribution" shall have the meaning ascribed to that term in the third WHEREAS clause hereof.
1.21 "Distribution Date" shall mean the date of the Distribution.
1.22 "Estimated Tax Amount" shall mean the amount of: (i) Federal Income
Taxes, plus (ii) Income Taxes of all Applicable States, that would become due
and payable by Controlled on the applicable Estimated Tax Payment Date if the
Controlled Affiliated Group had filed consolidated or combined, as the case may
be, Tax Returns for Federal Income Tax and State Income Tax purposes for all Tax
Periods in which Controlled is a member of the Distributing Group, in each case
(i) giving effect to any net operating loss carryovers (as defined by Section
172 of the Code) and applicable credit carryovers incurred by the Controlled
Affiliated Group; and (ii) treating gains or losses on intercompany transactions
in the manner required by Treas. Reg. Section 1.1502-13, in a manner consistent
with the determination of the Consolidated Tax Amount as defined in Section 1.7.
The calculation of the Estimated Tax Amount for the year ending December 31,
2002
shall be made using the assumption that Controlled will be a member of the Distributing Group for the full year ending December 31, 2002.
1.23 "Federal Income Tax" shall mean any tax imposed under Subtitle A of the Code.
1.24 "Federal Income Tax Return" shall mean Tax Returns relating to United States Federal Income Tax.
1.25 "Final Determination" shall mean the final resolution of any tax matter relating to Distributing, Controlled or any member of the Distributing Group or the Controlled Group occurring after the Distribution Date. A Final Determination shall result from the first to occur of:
(i) the expiration of 30 days after the IRS' acceptance of a waiver of restrictions on assessment and collection of deficiency in tax and acceptance of overassessment on United States Federal revenue (Form 870 or 870-AD (the "Waiver")) or any successor comparable form, except as to reserved matters specified therein, or the expiration of 30 days after acceptance by any other taxing authority of a comparable agreement or form under the laws of any other jurisdiction, including State, local, and foreign; unless, within such period, the taxpayer gives notice to the other Party to this Agreement of the taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Code Section 7121, or the acceptance by the IRS of an offer in compromise under Code Section 7122, or comparable agreements under the laws of any other jurisdiction, including State, local, and foreign, except as to reserved matters specified therein;
(iv) the expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund that was disallowed in whole or part by the IRS or any other taxing authority;
(v) the expiration of the applicable statute of limitations; or
(vi) an agreement by the Parties hereto that a Final Determination has been made.
1.26 "First Party" shall have the meaning ascribed to such term in Section 6.5 hereof.
1.27 "Income Taxes" shall mean all Federal, State, local and foreign taxes imposed upon, or measured, in whole or in part, by net income or a taxable base in the nature of net income, including without limitations, environmental and alternative or add-on minimum taxes (including the alternative minimum tax imposed under Code Section 55), and such related franchise, excise, and similar taxes as have been customarily included in the provision for income taxes or charged to the income tax liability account on Distributing's financial statements, together with all related interest, penalties, and additions to tax.
1.28 "Income Tax Liability" shall mean the net amount of Income Taxes due and paid or payable for any taxable period, determined after applying all tax credits and all applicable Carrybacks or carryovers for net operating losses, net capital losses, unused general business tax credits, or any other relevant adjustments.
1.29 "Income Tax Return" shall mean Tax Returns relating to Income Tax.
1.30 "Indemnified Party" shall mean any Party who is entitled to receive payments from an Indemnifying Party pursuant to the terms and conditions of this agreement.
1.31 "Indemnifying Party" shall mean any Party that is required to pay any other Party pursuant to the terms and conditions of this Agreement.
1.32 "IPO Restructuring" shall mean the transfer or assignment of a Retained Business or a Transferred Ag Business by any entity owned by any member of the Distributing Group other than members of the Controlled Group in anticipation of the transfer by Distributing of the Transferred Ag Businesses to Controlled pursuant to the Separation Agreement.
1.33 "IPO Restructuring Tax" shall mean any Tax proximately resulting from the IPO Restructuring imposed upon Distributing or any affiliate of Distributing other than Controlled and its subsidiaries reduced by an amount equal to the present value (calculated using a discount rate equal to the prevailing five-year United States Treasury rate plus 105 basis points) of any Tax Asset created in the related IPO Restructuring transaction and retained by the Distributing Group.
1.34 "IRS" shall mean the United States Internal Revenue Service or any successor thereto, including but not limited to its agents, representatives, and attorneys.
1.35 "OFL" shall have the meaning ascribed to that term in Section 5.4 hereof.
1.36 "Other Tax Liabilities" shall mean the net amount of Other Taxes due and paid or payable for any taxable period or transaction, after applying all tax offsets and credits.
1.37 "Other Taxes" shall mean any and all taxes other than Income Taxes, including, without limitation, gross income, gross receipts, sales, use, transfer, franchise, license, withholding, payroll, value added, employment, excise, severance, stamp, occupations, premium, windfall profits, custom, duty, real and personal property or other charge of any kind whatsoever, together with all related interest, penalties, and additions to tax, or additional amount imposed by any taxing authority.
1.38 "Party" shall have the meaning ascribed to that term in the introductory paragraph hereof.
1.39 "Retained Business" shall mean the assets, liabilities and businesses of a member of the Distributing Group other than Transferred Ag Businesses.
1.40 "Separation Agreement" shall mean the Separation Agreement dated as of September 1, 2000, between Distributing and Controlled.
1.41 "September 1, 2000 Agreement" shall have the meaning ascribed to that term in the second WHEREAS clause hereof.
1.42 "State" shall mean any of the fifty (50) United States of America.
1.43 "State Income Tax" shall mean any income, franchise or similar tax measured by net income payable to a State taxing jurisdiction or local taxing jurisdiction within any State.
1.44 "State Income Tax Return" shall mean Tax Returns relating to State Income Tax.
1.45 "Subsidiary" shall mean entities owned and controlled by Distributing or Controlled wherever formed.
1.46 "Tax" shall mean any Federal Income Tax, or any net income, alternative or add-on minimum, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding (as payor or recipient), payroll, employment, excise, severance, stamp, capital stock, occupation, property, real property gains, environmental, windfall, premium, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever and imposed by any governmental body, together with any interest thereon and any penalty, addition to tax or additional amount thereto.
1.47 "Tax Asset" shall mean any net operating loss, net capital loss, business tax credit, foreign tax credit, charitable deduction, or any other loss, credit, deduction or tax attribute that could be applied to reduce any tax (including, without limitation, deductions, credits, alternative minimum net operating loss carryforwards related to alternative minimum taxes or additions to the basis of property).
1.48 "Tax Benefit" shall mean a reduction in the Income Tax Liability of a Party to this Agreement (or any member of the Affiliated Group of which it is a member) from a Tax Item to the extent any portion of such reduction is deemed to be realized. Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been actually realized or received from a Tax Item in a taxable period only if and to the extent that the Income Tax Liability of the Party (or any member of the Affiliated Group of which it is a member) for such period, after taking into account the effect of the Tax Item on the Income Tax Liability of such Party in all prior periods, is less than it would have been if such Income Tax Liability were determined without regard to such Tax Item. In determining the amount of the Tax Benefit, the marginal Federal income tax rate, without regard to alternative minimum tax, shall be utilized, the marginal state income tax rate shall be deemed to be four percent (reduced to account for any loss of a Federal income tax deduction for state taxes) and net operating loss carryforwards shall be ignored. A Tax Item that results in additional tax basis to a depreciable or amortizable asset (or that results in a tax asset that otherwise extends beyond one year) shall be treated as resulting in a Tax Benefit in the year of a Final Determination of such Tax Item and shall be
deemed to create Tax Benefit in the year of such Final Determination (and in no other year) in an amount equal to the total amount of the present value of the present and future anticipated tax reductions from such Tax Item, applying for this purpose an assumption that the Tax Item will be absorbed in full as and when it first becomes deductible or creditable under applicable law and applying for this purpose a discount rate equal to the prevailing five-year United States Treasury rate (as published in the Wall Street Journal) plus 105 basis points as of the date of such Final Determination. A Tax Item that results in additional tax basis to a non-depreciable, non-amortizable asset shall not be treated as resulting in a Tax Benefit until a reduction in Income Tax Liability is actually realized on a Tax Return.
1.49 "Tax Detriment" shall mean an increase in the Income Tax Liability of a Party to this Agreement (or any member of the Affiliated Group of which it is a member) for any taxable period. Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed to have been realized or suffered from a Tax Item in a taxable period, only if and to the extent that the Income Tax Liability of the Party (or any member of the Affiliated Group of which it is a member) for such period, after taking into account the effect of the Tax Item on the Income Tax Liability of such Party in all prior periods, is greater than it would have been if such Income Tax Liability were determined without regard to such Tax Item.
1.50 "Tax Item" shall mean any item of income, gain, loss, deduction, credit, recapture of credit, or any other item which may have the effect of increasing or decreasing Income Tax Liability.
1.51 "Tax Period" shall mean, respectively, as follows: (i) the period
commencing on or before the September 1, 2000 and ending on December 31, 2000;
(ii) the period commencing January 1, 2001 and ending December 31, 2001, and
(iii) the period commencing January 1, 2002 and ending on the Distribution Date.
1.52 "Tax Returns" shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in connection with any Income Taxes or Other Taxes, including information returns or reports with respect to backup withholding and other payments to third Parties.
1.53 "Transferred Ag Businesses" shall mean the assets, liabilities and businesses transferred to Controlled pursuant to the terms of the Separation Agreement.
1.54 "Treas. Reg." shall mean the United States Treasury Regulations promulgated under the Code.
1.55 "Waiver" shall have the meaning ascribed to such term in Section 14.6 hereof.
Section 2. RESPONSIBILITY FOR PRE-SEPTEMBER 1, 2000 TAXES.
2.1 General Responsibility for Pre-September 1, 2000 Taxes. Notwithstanding any other provision of this Agreement, except for any IPO Restructuring Tax and any DeKalb Tax Liability, Distributing shall be responsible for, and shall indemnify and hold harmless each member of the Controlled Group from and against, any Income Tax liability of any member of the Distributing Group, attributable to periods through and including August 31, 2000, whether or not such period constitutes a fiscal period under applicable law.
2.2 Method of Determining Pre-September 1, 2000 Taxes. For purposes of
Section 2.1 hereof, the determination of Tax liability attributable to fiscal
periods beginning before August 31, 2000 and ending after August 31, 2000 shall
be made on the basis of a closing of the books of each relevant entity.
2.3 Responsibility for Pre-September 1, 2000 Taxes Attributable to IPO Restructuring and DeKalb Tax Liabilities and Other Taxes Attributable to the Controlled Group's Assets and Businesses. Notwithstanding any other provision of this Agreement, Controlled shall be responsible for, and shall indemnify and hold harmless each member of the Distributing Group from and against: (i) Other Taxes attributable to assets or businesses of the Controlled Group; (ii) any IPO Restructuring Tax; and (iii) any DeKalb Tax Liabilities. Indemnification payments under this Section 2.3 shall be made by Controlled to Distributing within 30 days after a Final Determination that Distributing owes such IPO Restructuring Tax, DeKalb Tax Liability, or Other Taxes.
Section 3. RESPONSIBILITY FOR POST-AUGUST 31, 2000 TAXES.
3.1 Distributing Responsibility for Post-August 31, 2000 Taxes of Distributing Group. Except as otherwise expressly provided herein, Distributing shall be responsible for, and shall indemnify and hold harmless each member of the Controlled Group from and against, Tax liability of all members of the Distributing Group (other than members of the Controlled Group), attributable to periods commencing on or after the September 1, 2000 whether or not such period constitutes a fiscal period.
3.2 Distributing Responsibility for Post-August 31, 2000 Taxes of
Controlled Group. Distributing shall, to the extent provided by and pursuant to
Section 4.3 hereof, be responsible for, and shall indemnify each member of the
Controlled Group from and against: (i) all Federal Income Taxes of Controlled
and each member of the Controlled Group, and (ii) Income Tax liability for each
Applicable State, to the extent that such United States Federal Income Tax or
Applicable State Income Tax liability is attributable to any Tax Period,
provided, however, that Distributing shall be entitled to receive Consolidated
Tax Amounts from Controlled as provided in Section 5 hereof.
3.3 Controlled Responsibility for Post-August 31, 2000 Taxes. Except as otherwise expressly provided herein, Controlled shall be responsible for, and shall indemnify and hold each member of the Distributing Group harmless from and against, all Taxes attributable to any member of the Controlled Group's assets and businesses for periods commencing on or after the September 1, 2000, other than those Taxes referred to in Section 3.2 hereof.
Section 4. FILING OF INCOME AND OTHER TAX RETURNS.
4.1 Federal Consolidated Income Tax Return. A consolidated Federal Income Tax Return for the Distributing Affiliated Group, including the Controlled Affiliated Group as member thereof, shall be filed for each Tax Period. Distributing and Controlled shall execute and file any and all consents, elections, and other documents and take such other action as may be required or appropriate for the proper filing of such returns.
4.2 State Income Tax Returns. If Distributing in its discretion elects (or if required by law), Distributing and its eligible affiliates and Controlled and its eligible affiliates shall join in the filing of combined, unitary or other similar consolidated Tax Returns with respect to Income Taxes imposed by any State for each Tax Period. Distributing and Controlled shall execute and file any and all consents, elections, and other documents and take such other action as may be required or appropriate for the proper filing of such returns.
4.3 Distributing Responsibilities for Consolidated, Combined and Unitary Tax Returns. Distributing shall prepare and timely file, or cause to be prepared and filed, all Tax Returns for Income Taxes referred to in Sections 4.1 and 4.2 hereof and Distributing shall timely pay, or cause to be timely paid, the liability for Income Taxes due in respect of such Tax Returns.
4.4 Distributing Responsibilities for Foreign Income Taxes and Other Taxes. Distributing shall prepare and timely file or cause to be timely prepared and filed, all Tax Returns in respect of foreign Income Taxes and Other Taxes attributable to the businesses and assets of the Distributing Group (other than members of the Controlled Group) and shall timely pay all Taxes due in respect of those Tax Returns.
4.5 Controlled's Responsibilities for Separate Income Tax Returns. Controlled and its Subsidiaries shall prepare and timely file, or cause to be prepared and filed, all Tax Returns for Income Taxes required by law to be filed by it or them and not referred to in Sections 4.3 or 4.4 hereof and Controlled and its Subsidiaries shall timely pay or cause to be timely paid all Income Taxes due in respect of such Tax Returns.
4.6 Controlled's Responsibilities for Other Taxes. Controlled shall prepare and timely file or cause to be prepared and timely filed, all Tax Returns in respect of Other Taxes attributable to the businesses and assets of members of the Controlled Group and shall timely pay all Taxes due in respect of those Tax Returns.
4.7 Manner of Preparation. All Tax Returns filed after the Distribution Date shall be prepared on a basis that is consistent with the rulings obtained from the IRS or any other governmental authority in connection with the Distribution (in the absence of a controlling change in law or circumstances) by the Party responsible for such filing under this Agreement. In the absence of a controlling change in law or circumstances, or except as otherwise provided in this Agreement or agreed in writing by Distributing and Controlled, all Tax Returns filed after the date of this Agreement shall be prepared on a basis consistent with the elections, accounting methods, conventions, and principles of taxation used by the Parties for the most recent taxable periods for which Tax Returns involving similar Tax Items have been filed, except that, with respect to Tax Items not relating to the Distribution, one Party may take an inconsistent position to the extent such position does not create a Tax Detriment to the other Party. Subject to the provisions of this Agreement, all decisions relating to the preparation of Tax Returns shall be made in the sole discretion of the Party responsible under this Agreement for such preparation.
Section 5. SHARING OF INCOME TAXES.
5.1 General Tax Sharing Principles. Controlled shall pay to Distributing (and shall indemnify and hold harmless Distributing against) the Consolidated Tax Amount at such times and in such amounts specified in Sections 5.2 and 5.3 hereof.
5.2 Estimated Payments. No later than 5 days prior to the date on which an estimated Federal Income Tax installment or an estimated State Income Tax installment of the Distributing Group is due, Controlled shall determine the Estimated Tax Amount. No later than the Federal Income Tax estimated tax payment date for any Tax Period or the State Income Tax estimated tax payment date for any Tax Period, as the case may be, Controlled shall pay to Distributing the Estimated Tax Amount.
5.3 Payment of Taxes After Year-End.
(a) No later than 15 days prior to the due date (including all applicable and valid extensions) for the Distributing Group's consolidated Federal Income Tax Return for each Tax Period, Controlled shall deliver to Distributing a pro forma Federal Income Tax Return of Controlled reflecting Controlled's Consolidated Tax Amount for such Tax Period prepared by Controlled in good faith. Each pro forma return prepared by Controlled shall include the information required for subsidiaries pursuant to Treas. Reg. Section 1.1502-75 or such other information as may be reasonably requested by Distributing. No later than 15 days prior to the due date (including all applicable and valid extensions) for each State Income Tax Return that includes Controlled and another member of the Distributing Group for each Tax Period, Controlled shall deliver to Distributing a pro forma State Income Tax Return reflecting Controlled's Consolidated Tax Amount for such Tax Period prepared by Controlled in good faith. Each pro forma Tax Return shall be delivered together with a statement showing a calculation of the amount to be paid pursuant to Section 5.1 hereof.
(b) Upon receipt of a pro forma Federal Income Tax Return or State Income Tax Return from Controlled, Distributing may adjust such return if it determines that the calculation of the Consolidated Tax Amount reflected on such return or returns is incorrect or incomplete. Any adjustment made by Distributing under this Section 5.3(b) shall be treated as though it had always been reflected on such pro forma return. Controlled shall not be permitted to invoke the dispute resolution procedures in Section 12 of this Agreement until it shall have paid any amounts required under Section 5.1 hereof.
(c) No later than the due date for any Distributing Tax Return to which a pro forma Return prepared pursuant to Section 5.3(a) of this Agreement is attributable (i), if the Consolidated Tax Amount reflected on such pro forma Income Tax Return is greater than the aggregate Estimated Tax Amount paid by Controlled with respect to such Tax Return and Tax Period under Section 5.2 hereof, Controlled shall pay to Distributing an amount equal to the difference between the Consolidated Tax Amount reflected on such pro forma Income Tax Return for the applicable Tax Period and the aggregate Estimated Tax Amount paid by Controlled with respect to such Tax Return and Tax Period under Section 5.2 hereof; or
(ii), if the Consolidated Tax Amount reflected on such pro forma
Income Tax Return is less than the aggregate Estimated Tax Amount paid
by Controlled with respect to such Tax Return and Tax Period under
Section 5.2 hereof, Distributing shall pay to Controlled an amount
equal to the difference between the aggregate Estimated Tax Amount
paid by Controlled with respect to such Tax Return and Tax Period
under Section 5.2 hereof and the Consolidated Tax Amount reflected on
such pro forma Income Tax Return for the applicable Tax Period.
(d) If a pro forma Tax Return described in Section 5.3 of this Agreement reflects a Tax Asset that may under applicable law be used to produce a Tax Benefit to Distributing, Distributing shall pay to Controlled an amount equal to the Tax Benefit produced by such Tax Asset within 30 days of the realization by Distributing of such Tax Benefit, and the pro forma Tax Returns of Controlled and other relevant determinations hereunder shall thereafter reflect such use. Without limiting the generality of the foregoing, the determination of the Tax Benefit for purposes of this Section 5.3(d) shall take into account any net decrease in the foreign tax credits and business credits which would otherwise have been available to, and usable by, the Distributing Group by reason of the use of such Tax Asset.
5.4 Consolidated Overall Foreign Losses and Consolidated Separate
Limitation Losses. If: (i) an overall foreign loss (as defined in Treas. Reg.
Section 1.904(f)-1(c)(1)) ("OFL") account is generated in Controlled's pro forma
Tax Return calculation of the Consolidated Tax Amount in respect of any Tax
Period, (ii) such OFL has not been recaptured by Controlled in Controlled's
calculation of the Consolidated Tax Amount for any subsequent Tax Period, and
(iii) such OFL will not be available for recapture in Controlled's
post-Distribution actual tax calculation, Controlled shall, on or before the due
date for filing Controlled's United States Federal income tax return for the
period that includes the Distribution Date, pay to Distributing the amount of
any Tax Detriment incurred by Distributing as a result of Distributing's prior
inclusion of such OFL in its calculation of its Consolidated Federal Income Tax
liability, plus interest calculated thereon at a rate equal to the prevailing
five-year United States Treasury rate as published in the Wall Street Journal
plus 105 basis points from the Distribution Date to the date of actual payment
of such amount. If pursuant to Treas. Reg. Section 1.1502-9 Controlled is
required to succeed to any portion of a consolidated overall foreign loss
("COFL") (as defined in Treas. Reg. Section 1.1502-9(b)(3)) account or
consolidated separate limitation loss ("CSLL") (as defined in Treas. Reg.
Section 1.1502-9(b)(1)) account, that was not reflected in its calculation of
the Consolidated Tax Amount for any Tax Period, Distributing shall, within 60
days after the Distribution Date, pay Controlled the amount of any Tax Detriment
incurred by Controlled as a result.
5.5 Carryback Reporting. If the Income Taxes of the Distributing Group are reduced for a taxable period beginning before the Distribution Date, by reason of a Controlled Group loss or other Tax Asset arising on or after the Distribution Date (a "Controlled Carryback") Distributing shall pay to Controlled an amount equal to the portion of the Distributing Tax Reduction that is attributable to the Controlled Carryback. If both a Controlled Carryback and a Distributing loss or other Tax Asset arising on or after the Distribution Date (a "Distributing Carryback") exists, the absorption rules of Treas. Reg. 1.1502-21(b)(1), shall be applied to determine the portion of the Distributing Tax Reduction that is attributable to the Controlled Carryback and the Distributing Carryback, respectively. Nothing herein shall require either
Distributing or Controlled to carry back a loss or other Income Tax attribute that it generates. Any payment required pursuant to this Section 5.5 shall be made no later than ten (10) days after the Distributing Tax Reduction is actually realized by Distributing.
5.6 Treatment of Adjustments. (a) If any Adjustment of a Tax Item is made
to a Tax Return relating to Federal or State Taxes of the Distributing Group,
after the filing thereof, in which income or loss of any Controlled or any of
its Subsidiaries is included, then within 30 days of a Final Determination of
such Adjustment, Controlled shall pay to Distributing, or Distributing shall pay
to Controlled, as the case may be and as appropriate, (i) the difference between
(A) all payments actually made, net of all refunds or recoupments received or
otherwise realized, by Controlled or Distributing, as the case may be (or
treated as such) in accordance with the principles of this Section 5 with
respect to such Tax Item for the Tax Period or fiscal period covered by such
Return, and (B) all payments that would have been made by Controlled or
Distributing, as the case may be (or treated as such) in accordance with the
principles under this Article 5 with respect to such Tax Item for the Tax Period
or fiscal period covered by such Return taking such Adjustment into account and
(ii) related penalties and interest.
5.7 Earnings and Profits. Except as otherwise specifically provided herein,
pre-Distribution earnings and profits shall be allocated in accordance with Code
Section 312(h) and Treas. Reg. Section 1.312-10(b).
Section 6. AUDITS AND TAX CONTROVERSIES AND ADJUSTMENTS.
6.1 Audit Responsibility and Control. Except as otherwise provided in this Agreement, Distributing shall have sole responsibility for and control over all audits, appeals or litigation with respect to any Income Tax Returns that include periods through August 31, 2000, whether or not those periods constitute fiscal periods, and any Tax Return that it is required to file under this Agreement. Controlled shall have sole responsibility and control over all audits, appeals or litigation with respect to any Tax Return that it is required to file under this Agreement.
6.2 Notice; Contest. Whenever Distributing or Controlled receives in writing from the IRS or any other taxing authority notice of an Adjustment which may give rise to a payment from the other Party under this Agreement, Distributing or Controlled (as the case may be) shall give notice of the Adjustment to the other Party within 10 business days of becoming aware of such receipt, but in no case less than 30 days before Distributing or Controlled, as the case may be, is required to respond to the IRS or other taxing authority. The Indemnifying Party shall, at its cost and expense, have control over all matters with respect to which such Party has an indemnification or payment obligation pursuant to this Agreement. The foregoing notwithstanding, the Indemnified Party and its representatives, at the Indemnified Party's expense, shall be entitled to participate in all conferences, meetings, and proceedings with respect thereto and shall be entitled to consult with the Indemnifying Party with respect to all such matters. If the IRS or any other taxing authority proposes to disallow any of the deductions required to be taken by a member of the Distributing or Controlled Group pursuant to Section 7 of this Agreement, Distributing or Controlled, as the case may be, shall contest such proposed disallowance, or shall cause such disallowance to be contested to a Final Determination unless otherwise agreed by the Parties in writing.
6.3 Consultation with Controlled. Distributing may consult with Controlled, and Controlled agrees to fully cooperate with Distributing, in the negotiation, settlement, or litigation of any liability for taxes of any member of the Distributing Group regardless of the effect of any such negotiation, settlement, or litigation on the liability for taxes of any member of the Controlled Group.
6.4 Consultation with Distributing. Controlled may consult with Distributing, and Distributing agrees to fully cooperate with Controlled, in the negotiation, settlement, or litigation of any liability for taxes of any member of the Controlled Group regardless of the effect of any such negotiation, settlement, or litigation on the liability for taxes of any member of the Distributing Group.
6.5 Cooperation and Exchange of Information for Audits, Appeals and
Litigation. The parties shall cooperate and exchange information needed to
respond to audits, appeals and litigation in accordance with the provisions of
Section 10 of this Agreement.
6.6 Certain Adjustments. Except as otherwise provided in this Agreement, if a Final Determination with respect to any Tax Item (including, without limitation, any Tax Item relating to depreciation or amortization) of one Party (the "First Party") results in a Tax Detriment to the First Party and, if as a result of such Final Determination, (i) the other Party becomes entitled to take a reporting position with respect to the same Tax Item that may result in a Tax Benefit to such other Party, on an appropriate Tax Return, including an amended Tax Return, or (ii) the other Party has already taken a reporting position consistent with such Final Determination on an appropriate tax return, and, in the case of both (i) and (ii), such reporting position will result in the realization of a Tax Benefit for the other Party, then such other Party shall, within 30 days after notification and documentation of such Final Determination, pay to the First Party the aggregate amount of such Tax Detriment (not including interest or penalties) suffered by the First Party but limited to an amount not greater than the Tax Benefit to be realized by the other Party. For purposes of this Section, Party may refer to any member of the Distributing Group or Controlled Group.
Section 7. TAXABILITY AND REPORTING OF STOCK OPTIONS. Each of Distributing and Controlled shall be responsible for making all reports required to be made to any relevant tax authority with respect to any grants or exercises of stock options with respect to their respective stocks. Distributing (or the appropriate member of the Distributing Group) shall take all tax deductions arising by reason of exercises of such stock options to purchase shares of Distributing stock. Controlled (or the appropriate member of the Controlled Group) shall take all tax deductions arising by reason of exercises of stock options to purchase shares of Controlled stock. If, pursuant to a Final Determination, all or any part of a tax deduction taken pursuant to this Section 7 is disallowed to Distributing, then, to the extent permitted by law, the appropriate member of the Controlled Group shall take such deduction. If a member of the Controlled Group receives a Tax Benefit in any period as a result of any deduction taken by a member of the Controlled Group in respect of options exercised against Distributing stock, Controlled shall pay the amount of such Tax Benefit to Distributing. If, pursuant to a Final Determination, all or any part of a tax deduction taken pursuant to this Section 7 is disallowed to Controlled, then, to the extent permitted by law, the appropriate member of the Distributing Group shall take such deduction. If a member of the Distributing Group receives a Tax Benefit in any period as a result of any deduction taken by a member of the Distributing Group in respect of options exercised against Controlled stock, Distributing shall pay the amount of such Tax Benefit to Controlled.
Section 8. LIABILITY OF CONTROLLED GROUP FOR UNDERTAKING CERTAIN
TRANSACTIONS. Controlled shall, and shall cause each member of the Controlled
Group to, comply with each representation and statement made, or to be made, to
any taxing authority. Controlled represents that at no time during the two-year
period preceding the Distribution Date, has Controlled had any plan, agreement,
arrangement, substantial negotiation, or other intention to enter into a
transaction (or series of related transactions) whereby a person or entity, or
persons or entities acting in concert, would acquire greater than 50 percent of
the vote or value of any class of stock of Controlled, or more than 50 percent
of Controlled's assets, in each case within the meaning of Section 355(e) of the
Code. Controlled shall indemnify and hold Distributing harmless against any Tax
or other loss arising from Controlled's breach of any representation in this
Section 8 or if it takes any action that causes Distributing to have liability
with respect to the Distribution under Section 355(e) of the Code, provided,
however, that Controlled shall not be considered in breach of any representation
or to have caused Distributing liability under Section 355(e) of the Code if
such liability would not have arisen but for actions taken by Distributing with
respect to which Controlled had no actual knowledge prior to Controlled taking
its action or entering into a definitive agreement with respect thereto.
Distributing shall, and shall cause each member of the Distributing Group to,
comply with each representation and written statement made, or to be made, to
any taxing authority. Distributing shall reasonably cooperate with Controlled to
provide information sufficient to allow Controlled to analyze or determinate
whether Distributing's activities could contribute to cause Controlled to
trigger a liability under Section 355(e) of the Code.
Section 9. INDEMNIFICATION.
9.1 Timing in General. Unless otherwise specified in this Agreement, all indemnification and other payments to be made pursuant to this Agreement shall be made within 30 days of written notice of a request for indemnification or payment by the Indemnified Party, which notice shall be accompanied by a computation of the amount due.
9.2 Special Timing Rules. If any indemnification or other payment is required to be made under Section 5 and Section 6 of this Agreement upon the actual or deemed realization by the Indemnifying Party of a Tax Benefit, such payment shall be made no later than 30 days after the earlier of (a) the filing or (b) the due date (including extensions) of the Tax Return with respect to which such Tax Benefit is realized. The Parties shall cooperate in good faith in enforcing the provisions of this Section 9.2, which cooperation shall include the provision of reasonable access to the Tax Returns of the Indemnifying Party by the Indemnified Party in order to determine the amount of any indemnification or other payment to be made pursuant to this Section 9.2.
9.3 Interest. Except as otherwise specifically provided herein, if any indemnification payment required to be made pursuant to this agreement is not made when due, such payment shall bear interest at a rate equal to the prevailing five-year United States Treasury rate as published in the Wall Street Journal plus 105 basis points.
9.4 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in tax treatment under the Code or other applicable Tax Law, any Tax indemnity payments or Tax Benefit payments made by a Party under this Agreement shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately
before the Distribution, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treas. Reg. Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws).
9.5 Tax Gross Up. If, notwithstanding the manner in which Tax indemnity payments and Tax Benefit payments were reported, there is an adjustment to the Tax liability of a Party as a result of its receipt of a payment pursuant to this Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the party receiving such payment would otherwise be entitled to receive pursuant to this Agreement.
9.6 Interest Under This Agreement. Anything herein to the contrary notwithstanding, to the extent an Indemnifying Party makes a payment of interest to an Indemnified Party under this Agreement with respect to the period from the date that the Indemnified Party made a payment of Tax to a Tax authority to the date that the Indemnifying Party reimbursed the Indemnified Party for such Tax payment, or with respect to the period from the date that the Indemnifying Party received a Tax Benefit to the date Indemnifying Party paid the Tax Benefit to the Indemnified Party, the interest payment shall be treated as interest expense to the Indemnifying Party (deductible to the extent provided by law) and as interest income by the Indemnified Party (includible in income to the extent provided by law).
Section 10. COOPERATION AND EXCHANGE OF INFORMATION
10.1 Information from Controlled. Controlled shall, and shall cause each appropriate member of the Controlled Group to, provide (at Controlled's cost and expense) Distributing with all information and other assistance reasonably requested by Distributing to enable the members of the Distributing Group to prepare and file the Tax Returns required or authorized to be filed by them for any Tax Period pursuant to this Agreement and to respond to audits, appeals and litigation with respect to such Returns to the extent that Distributing is responsible for such audits under Section 6 of this Agreement.
10.2 Information from Distributing. Distributing shall, and shall cause each appropriate member of the Distributing Group to, provide (at Distributing's cost and expense) Controlled with all information and other assistance reasonably requested by Controlled to enable the members of the Controlled Group to file the Tax Returns required to be filed by them pursuant to this Agreement and to respond to audits, appeals and ligitation with respect to such Returns to the extent that Controlled is responsible for such audits under Section 6 of this Agreement.
10.3 Tax Return Information. Within 5 days before filing a Tax Return that affects the liability or the determination of the liability for Taxes of any member of the Controlled Group by a member of the Distributing Group, such member of the Distributing Group shall provide Controlled with a copy of only that portion of such Tax Return which is relevant to the Controlled Group.
10.4 General Cooperation. Distributing and Controlled agree to fully cooperate with each other in connection with the preparation of all Tax Returns
required to be filed by them and in connection with responses to audits, appeals and litigation with respect to such Returns consistent with the assignment of responsibility for audits under Section 6 of this Agreement. Such cooperation shall include making personnel and records available promptly and within 20 days (or such other period as may be reasonable under the circumstances) after a request for such personnel or records is made by the taxing authority or the other Party. If any member of Distributing Group or the Controlled Group, as the case may be, unreasonably fails to provide any information required pursuant to this Section, then the requesting Party shall have the right to engage an independent certified public accountant of its choice to gather such information. Distributing or Controlled, as the case may be, agrees to permit any such independent certified public accountant full access to the Tax Return information in the possession of any member of the Distributing Group or Controlled Group, as the case may be, during reasonable business hours, and to reimburse or pay directly all costs and expenses in connection with the engagement of such independent certified public accountant.
10.5 Indemnification. Distributing shall indemnify and hold harmless each member of the Controlled Group and its officers and employees, and Controlled shall indemnify and hold harmless each member of the Distributing Group and its officers and employees, against any cost, fine, penalty, or other expenses of any kind attributable to the negligence of a member of the Distributing Group or the Controlled Group, as the case may be, in supplying a member of the other group with inaccurate or incomplete information, in connection with the preparation of any Tax Return.
10.6 Controlled Payroll and Unemployment Compensation Taxes For Periods Ending On or After the Distribution Date. Distributing shall make available to Controlled sufficient data to facilitate a determination of the desirability of the transfer to the Controlled Group of any payroll tax experience and/or any favorable unemployment compensation tax experience rating of Distributing; and at Controlled's election, Distributing shall cooperate to effect a transfer of such payroll tax experience and/or such favorable unemployment compensation experience rating (including state unemployment reserves) to the Controlled Group within one hundred and twenty (120) days after Controlled's written request therefor.
10.7 Research Tax Credit Information. Upon Controlled's request, Distributing will timely furnish to Controlled the base period information the Controlled Group will need, pursuant to Code Section 41 and similar statements, to properly compute its research tax credits for years beginning after or on the Distribution Date.
Section 11. RETENTION OF RECORDS.
11.1 General. Distributing and Controlled agree to retain the appropriate records which may affect the determination of the liability for taxes of any member of the Distributing Group or the Controlled Group, respectively, until such time as there has been a Final Determination with respect to such liability for taxes.
11.2 Notice of Waivers. Distributing and Controlled will notify each other in writing of any waivers or extensions of the applicable statute of limitations that may affect the period for which any materials, records, or documents must be retained.
Section 12. RESOLUTION OF DISPUTES. The Parties hereto shall attempt in good faith to resolve any dispute arising out of, or relating to, this Agreement (a
"Dispute") and shall attempt in good faith to negotiate a settlement of any Dispute. If, after the filing of any Tax Return under this Agreement, the Parties hereto are unable to resolve any disagreement or Dispute relating to such Tax Return or the calculation of any payment under this Agreement, such Dispute shall be submitted for resolution by the certified public accounting firms then acting as independent auditors of each of Distributing and Controlled. If the independent auditors cannot agree to a resolution, then such Dispute shall be submitted for resolution by a third certified public accounting firm to be appointed by mutual agreement of the independent auditors. Any decision by such third certified public accounting firm shall be binding on the Parties to this Agreement without further recourse.
Section 13. TERMINATION OF PRIOR INTERCOMPANY TAX ALLOCATION AGREEMENTS.
Immediately prior to the close of business on the Distribution Date (i) all
written or oral agreements or any other arrangements relating to allocation of
Taxes then existing between or among the Distributing Group and the Controlled
Group (other than this Agreement) shall be terminated, and (ii) amounts due
under such agreements as of the Distribution Date shall be settled as of the
Distribution Date (including capitalization or distribution of amounts due or
receivable under such agreements). Upon such termination and settlement, no
further payments by or to Distributing or by or to Controlled with respect to
such agreements shall be made, and all other rights and obligations resulting
from such agreements between the Parties and their affiliates shall cease at
such time. Any payments pursuant to such agreements shall be ignored for
purposes of computing amounts due under this Agreement. The terms of this
Section 13, do not impact any service agreements that exist between Distributing
or Controlled with respect to the provision of services for audits, appeals and
litigation matters.
Section 14. MISCELLANEOUS.
14.1 Term of the Agreement. This Agreement shall become effective as of the date of its execution and, except as otherwise expressly provided herein, shall continue in full force and effect until the expiration of the latest applicable statute of limitations period.
14.2 Severability. If any term, provision, covenant, or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants, and restrictions set forth herein shall remain in full force and effect, and shall in no way be affected, impaired, or invalidated. It is hereby stipulated and declared to be the intention of the Parties that they would have executed the remaining terms, provisions, covenants, and restrictions without including any of such which may be hereafter declared invalid, void, or unenforceable. In the event that any such term, provision, covenant, or restriction is held to be invalid, void, or unenforceable, the Parties hereto shall use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant, or restriction.
14.3 Assignment. Except by operation of law or in connection with the sale of all or substantially all the assets of a Party hereto, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party hereto without the advance written consent of the other Party; and any attempt to assign any rights or obligations arising under this Agreement without such
consent shall be void; provided, however, that the provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the Parties hereto and their respective successors and permitted assigns.
14.4 Further Assurances. Subject to the provisions hereof, the Parties hereto shall make, execute, acknowledge, and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each of the Parties shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders, and decrees, obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority, and promptly provide the other Parties with all such information as they may reasonably request in order to be able to comply with the provisions of this sentence.
14.5 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Agreement expressed or implied is intended to confer any right or benefit upon any person, firm, or corporation other than the Parties and their respective successors and permitted assigns.
14.6 Waivers, Etc. No failure or delay on the part of the Parties in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the Parties therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.
14.7 Setoff. All payments to be made by any Party under this Agreement shall be made without setoff, counterclaim, or withholding, all of which are expressly waived.
14.8 Change of Law. If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement or any transaction contemplated thereby shall become impracticable or impossible, the Parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.
14.9 Confidentiality. Subject to any contrary requirement of law and the right of each Party to enforce its rights hereunder in any legal action, each Party agrees that it shall keep strictly confidential, any information which it or any of its employees or agents may require pursuant to, or in the course of performing its obligations under, any provision of this Agreement; provided, however, that the Parties hereby consent to disclosure of this Agreement to the IRS in connection with any ruling request made or to be made relating to the Distribution.
14.10 Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement.
14.11 Counterparts. This Agreement may be executed in any two or more counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.
14.12 Notices. All notices, consents, requests, instructions, approvals, and other communications provided for herein shall be validly given, made, or served, if in writing and delivered personally, by telegram or sent by registered mail, postage prepaid, or by facsimile transmission to:
If to Distributing, to it at:
Pharmacia Corporation
100 Route 206 North
Peapack, New Jersey 07977
Attention: General Counsel
Facsimile Number: 908-901-8379
With a copy to:
Pharmacia Corporation
100 Route 206 North
Peapack, New Jersey 07977
Attention: Vice President- Tax
Facsimile Number: 908-901-8379
If to Controlled, to it at:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
Facsimile Number: 314-694-3011
With a copy to:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Vice President- Tax
Facsimile Number: 314-694-5423
Or such other address as any Party may, from time to time, designate in a written notice given in like manner. Notice given by telegram shall be deemed delivered when received by the recipient. Notice given by mail as set above shall be deemed delivered five calendar days after the date the same is mailed. Notice given by facsimile transmission shall be deemed delivered on the day of the transmission provided telephone confirmation or receipt is obtained promptly after completion of transmission.
14.13 Costs and Expenses. Unless otherwise specifically provided herein, each Party agrees to pay its own costs and expenses resulting from the fulfillment of its respective obligations hereunder.
14.14 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the domestic substantive laws of the State of Delaware without regard to any choice or conflict of laws, rules, or provisions that would cause the application of the domestic substantive laws of any other jurisdiction.
IN WITNESS WHEREOF, the Parties, by their duly authorized officers, have executed this Agreement as of the date first written above.
PHARMACIA CORPORATION
By: /s/ A. J. Shoultz -------------------------- Name: A.J. Shoultz Title: Vice President - Tax |
MONSANTO COMPANY
By: /s/ Kevin P. Buchanan -------------------------- Name: Kevin P. Buchanan Title: Vice President - Tax |
Promissory Note
U.S. $150,000,000 August 13, 2002
FOR VALUE RECEIVED, and upon the terms and conditions set forth herein, MONSANTO COMPANY, a Delaware corporation ("Borrower"), unconditionally promises to pay to the order of PHARMACIA CORPORATION, a Delaware corporation ("Lender"), at Lender's office located at 100 Route 206 North, Peapack, New Jersey 07977, or at such other place as Lender may designate to Borrower in writing from time to time, on the Maturity Date (as defined below) the principal sum of ONE HUNDRED AND FIFTY MILLION DOLLARS ($150,000,000) (the "Principal Loan Amount").
The Borrower promises to pay interest on the unpaid balance of the
Principal Loan Amount from and including the date of this Promissory Note to but
excluding the Maturity Date or the earlier repayment date of the Principal Loan
Amount in accordance with the terms hereof at a rate per annum equal to
[__.___]%, calculated on the basis of a 360-day year. Accrued interest shall be
payable on the Maturity Date or the earlier prepayment date of the Principal
Loan Amount in accordance with the terms hereof.
All payments hereunder shall be made in U.S. Dollars and in immediately available funds, without deduction, set-off or counterclaim. Lender shall maintain on its books records setting forth the amounts of principal, interest and other sums paid or payable by the Borrower from time to time hereunder. In the event of any dispute, action or proceeding relating to this Note, such records shall be conclusive in the absence of manifest error.
1. Certain Definitions. As used herein, the following terms shall have the following meanings:
"Banking Day" shall mean any day other than a Saturday or Sunday or a legal holiday on which national banks in the State of New York are closed.
"Borrower" shall have the meaning set forth in the preamble.
"Buy and Sellback Agreement" shall mean the Buy and Sellback Agreement, dated as of June 30, 1998, as amended, among the Lender (formerly known as Monsanto Company), Monsanto Colombiana, Inc. and Centrobanca, S.p.A.
"Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
"Consolidated" shall refer to the consolidation of accounts in accordance with generally accepted accounting principles in effect from time to time.
"Default" shall mean any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
"Default Rate" shall mean, in respect of any amount not paid when due, a rate per annum during the period commencing on the due date until such amount is paid in full equal to a fixed rate 2.00% above the rate of interest otherwise applicable to the Principal Loan Amount.
"Disclosed Litigation" shall mean any litigation disclosed in the Borrower's public filings with the Securities and Exchange Commission on or prior to the date hereof.
"Environmental Action" shall mean any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" shall mean any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or written judicial policy or guidance that is publicly available, in each case relating to pollution or protection of the environment, health and safety as they relate to Hazardous Materials or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" shall mean any permit, approval, identification number, license or other authorization required under any Environmental Law.
"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.
"ERISA Affiliates" shall mean any Person that for purposes of Title IV of ERISA is a member of any Borrower's controlled group, or under common control with any Borrower, within the meaning of Section 414 of the Internal Revenue Code.
"ERISA Event" shall mean (a) the occurrence of a reportable event, within the meaning of Section 4043 or ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(c) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(c) of ERISA; (d) the cessation of operations at a facility of any Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to
terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any
event or condition described in Section 4042 of ERISA that constitutes grounds
for the termination of, or the appointment of a trustee to administer, a Plan.
"Events of Default" shall have the meaning set forth in Section 6.
"Five Year Facility" shall mean the Five Year Credit Agreement, dated as of August 8, 2000, among Pharmacia Corporation, Monsanto Company and the lenders party thereto, as in effect on the date hereof.
"Hazardous Materials" shall mean (a) petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.
"Indebtedness" shall mean, with respect to any Person, any amount payable by such Person pursuant to an agreement or instrument involving or evidencing money borrowed or received, the advance of credit, a conditional sale or a transfer with recourse or with an obligation to repurchase, pursuant to a lease with substantially the same economic effect as any such agreement or instrument, or any such agreement, instrument or arrangement secured by any lien or other encumbrance upon any property owned by such Person, even though such Person has not assumed or become liable for the payment of any money under such agreement, instrument or arrangement, to which such Person is a party as debtor, borrower or guarantor.
"Lender" shall have the meaning set forth in the preamble.
"Lien" shall mean any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement having the effect of security, including, without limitation, the lien or retained security title of a conditional vendor.
"Material Adverse Effect" shall mean a material adverse effect on (a) the financial condition or results of operations of the Borrower or the Borrower and its Consolidated Subsidiaries taken as a whole or (b) the ability of the Borrower to perform its obligations under this Promissory Note.
"Material Subsidiary" of the Borrower shall mean, at any time, a domestic Consolidated Subsidiary of the Borrower having (i) at least 10% of the total Consolidated assets of the Borrower and its Subsidiaries (determined as of the last day of the most recent fiscal quarter of such Borrower) or (ii) at least 10% of the Consolidated net sales of the Borrower and its Subsidiaries for the twelve month period ending on the last day of the most recent fiscal quarter of the Borrower.
"Maturity Date" shall mean November 15, 2002.
"Multiemployer Plan" shall mean a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
"Person" shall mean any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization or government, or any political subdivision, department or agency of any government.
"Principal Loan Amount" shall have the meaning set forth in the preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation (or any successor).
"Subsidiary" of any Person shall mean any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.
"Taxes" shall have the meaning set forth in Section 2(f).
"364-Day Facility" shall mean the 364-Day Credit Agreement, dated as of July 17, 2002, among Monsanto Company and the lenders party thereto, as in effect on the date hereof.
"Voting Stock" shall mean capital stock issue by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
2. Payments.
(a) Place and Time of Payment. All payments of principal of and interest on this Promissory Note and all other amounts payable hereunder shall be made by deposit to account no. 323372929 at JP Morgan Chase Bank, ABA No. 021000021 not later than 12:00 p.m. (New York time) on the dates due, or to such other account as the Lender may designate in writing to the Borrower.
(b) Payments to be on Banking Days. Whenever any payment hereunder shall be stated to be due on a day other than a Banking Day, such payment shall be made on the next succeeding Banking Day (unless such next succeeding Banking Day would fall in the succeeding calendar month, in which case such payment shall be made on the next preceding Banking Day), and any such extension or reduction of time shall in such case be reflected in the computation of payment of interest.
(c) Interest on Overdue Principal and Other Amounts. In the event that any
principal hereof, any interest hereon or any other amount payable by the
Borrower hereunder (including any prepayment due in accordance with paragraph
(e) below and any amounts due by reason of demand or otherwise) is not paid when
due in accordance with the terms of this Promissory Note, the Borrower will pay,
to the extent permitted by applicable law, interest on such past-due amount from
the date such amount becomes due until the date the same is paid in full, at a
rate per annum equal to the Default Rate in effect from time to time.
(d) Voluntary Prepayments. The Borrower may, upon five Banking Days' notice to the Lender, prepay all or any portion of the Principal Loan Amount on any Banking Day prior to the Maturity Date; provided, however, that (x) the minimum amount of any such prepayment shall be $5,000,000 or any larger multiple thereof and (y) such prepayment is made together with any accrued interest to but excluding the date of prepayment on the portion of the Principal Loan Amount so prepaid.
(e) Mandatory Prepayment. If at any time the aggregate amount of proceeds received after the date of this Promissory Note by the Borrower or any Consolidated Subsidiary (including the fair value of any proceeds not received in U.S. dollars) from any issuance of Indebtedness (including, without limitation, the $600,000,000 of Indebtedness expected to be incurred by the Borrower in a public debt offering scheduled to close on August 14, 2002, but excluding any Indebtedness that arises from commercial paper borrowings that are supported by the Five Year Facility or the 364-Day Facility) or Capital Stock to or capital contribution by any Person exceeds (A) to the extent that the Borrower or any of its Subsidiaries shall have repurchased the Note (as defined in the Buy and Sellback Agreement) from Centrobanca, S.p.A., $800,000,000 or (B) to the extent that the Borrower or any of its Subsidiaries shall not have repurchased the Note from Centrobanca, S.p.A., $750,000,000, then, in such case, the Borrower shall on the next succeeding Banking Day pay to the Lender the entire unpaid Principal Loan Amount together with accrued and unpaid interest to but excluding the date of prepayment and all other amounts then due by the Borrower hereunder.
(f) Payments Free and Clear of Taxes. Any and all payments by the Borrower hereunder shall be made free and clear of, and without deduction for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all interest, penalties or other liabilities with respect thereto, excluding taxes imposed on or measured by the net income or capital of the Lender (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter called "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lender, (i) the Borrower shall forthwith pay to the Lender such additional amount as may be necessary so that after making all required deductions for Taxes (including deductions applicable to additional amounts payable under this paragraph (f)) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable laws.
3. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
(b) The Borrower has taken all necessary action to authorize the execution and delivery of this Promissory Note and all other documents to be executed and delivered by it in connection herewith and the performance of its obligations hereunder.
(c) This Promissory Note has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.
(d) All governmental authorizations, if any, and actions of any kind necessary for the due execution, delivery and performance of this Promissory Note by the Borrower or required for the validity or enforceability against the Borrower of this Promissory Note, have been obtained or performed and are valid and subsisting in full force and effect.
(e) No consent or approval of, or notice to, any creditor of the Borrower is required by the terms of any agreement or instrument evidencing any Indebtedness of the Borrower for the execution or delivery of, or the performance of the obligations of the Borrower under, this Promissory Note, and such execution, delivery and performance will not result in any breach or violation of, or constitute a default under, the charter or by-laws of the Borrower or any agreement, instrument, judgment, order, statute, rule or regulation applicable to the Borrower or to any of its property.
(f) There is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation or proceeding, including, without limitation, any Environmental Action, affecting the Borrower or any of its Consolidated Subsidiaries before any court, governmental agency or arbitrator that (i) is reasonably likely to have a Material Adverse Effect (other than the Disclosed Litigation), and there has been no material adverse change in the status, or financial effect on the Borrower or any of its Consolidated Subsidiaries of the Disclosed Litigation or (ii) purports to affect the legality, validity or enforceability of this Promissory Note or the consummation of the transactions contemplated hereby.
(g) The payment obligations of the Borrower under this Promissory Note rank at least pari passu with all of its other unsecured Indebtedness, except for obligations accorded preference by mandatory provisions of law.
(h) The Borrower is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.
4. Affirmative Covenants. So long as any amount is owing under this Promissory Note, the Borrower covenants as follows:
(a) Compliance with Laws, Etc. The Borrower shall comply, and shall cause each of its Material Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and order, such compliance to include,
without limitation, compliance with ERISA and Environmental Laws, except for such non-compliance as would not have a Material Adverse Effect.
(b) Payment of Taxes, Etc. The Borrower shall pay and discharge, and shall cause each of its Material Subsidiaries to pay and discharge, before the date on which penalties are attached thereto, all taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided, however, that neither the Borrower nor any of its Material Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings or are not of material importance to the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries.
(c) Maintenance of Insurance, Etc. The Borrower shall maintain, and shall cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is consistent with prudent business practice. This paragraph shall not prevent the use of deductible or excess loss insurance and shall not prevent the Borrower or a Consolidated Subsidiary from acting as a self-insurer or maintaining insurance with a Subsidiary or Subsidiaries so long as such action is consistent with sound business practice.
(d) Preservation of Corporate Existence, Etc. The Borrower shall preserve and maintain its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Borrower may consummate any merger or consolidation permitted under Section 5(b) and; provided, further, that the Borrower shall not be required to preserve any right or franchise if the Borrower shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower.
(e) Keeping of Books. The Borrower shall keep, and shall cause each of its Material Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Material Subsidiary in accordance with generally accepted accounting principles in effect from time to time.
(f) Reporting Requirements. The Borrower shall deliver to the Lender (i) as soon as possible and in any event within five days after the determination by the Borrower of the occurrence of a Default that is continuing on the date of such statement, a statement of the Chief Financial Officer, Treasurer, Assistant Treasurer, Controller, Assistant Controller, or other authorized financial officer of the Borrower setting forth the details of such Default and the action that the Borrower has taken and proposes to take with respect thereto and (ii) such other information (excluding trade secrets) in respect of the Borrower or any of its Subsidiaries as the Lender may from time to time reasonably request.
(g) Environmental Guarantees. The Borrower shall provide letters of credit to replace approximately $60,000,000 in environmental guarantees provided by the Lender to the Environmental Protection Agency within 15 days after notice from the Environmental Protection Agency or other appropriate regulatory authority that a guarantee by the Borrower is insufficient to satisfy any financial assurance requirements of Subpart H of 40 CFR part 264.
5. Negative Covenants. So long as any amount is owing under this Promissory Note, the Borrower covenants as follows:
(a) Liens, Etc. The Borrower shall not and shall not permit any Consolidated Subsidiary to incur any Lien except for Liens permitted under the Five Year Facility.
(b) Mergers, Etc. The Borrower shall not and shall not permit any Consolidated Subsidiary to merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit any of its Material Subsidiaries to do so, except that (i) any Material Subsidiary of the Borrower may merge or consolidate with or into, or dispose of assets to, any other Material Subsidiary of the Borrower any other Subsidiary of such Borrower that shall become a Material Subsidiary as a result of such transaction and (ii) any Material Subsidiary of the Borrower may merge into or dispose of assets to the Borrower; provided, in each case, that no Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.
(c) Change in Nature of Business. The Borrower shall not, and shall not permit any of its Subsidiaries to, make any material change in the nature of its business taken as a whole as carried on at the date hereof.
6. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay the Principal Loan Amount when due under this Promissory Note; or the Borrower shall fail to pay any interest or other amounts payable under this Promissory Note within five Banking Days after such interest or other amounts become due and payable;
(b) Any representation or warranty made by the Borrower in connection with this Promissory Note shall prove to have been incorrect in any material respect when made;
(c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 4(d), 4(f)(i), 4(g) or 5 or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Promissory Note and, solely in the case of clause (ii), such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Lender;
(d) The Borrower or any Material Subsidiary shall fail to pay any principal of or premium or interest on any Indebtedness (other than any Indebtedness under this Promissory Note) that is outstanding in a principal amount or notional amount of at least $50,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate or permit the holders of such Indebtedness to elect to accelerate the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid or redeemed (other than by regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof;
(e) The Borrower or any Material Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (e);
(f) Any judgment or order for the payment of money in excess of $75,000,000 in the aggregate shall be rendered against any Borrower or any of its Material Subsidiaries and either (i) a lawsuit shall have been properly commenced by any creditor to enforce such judgment or order or (ii) such judgment is not, within 30 days after entry thereof, paid, bonded, discharged or stayed during appeal, or is not discharged within 30 days after the expiration of such stay; provided, however, that the rendering of any such judgment or order shall not be an Event of Default under this paragraph (f) if and for so long as (A) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (B) such insurer, which shall be rated at least "A" by A.M. Best Company, has been notified of, and has not properly disputed the claim made for payment of, the amount of such judgment or order;
(g) (i) Any Person or two or more Persons acting in concert shall have, on or after the date of this Promissory Note, acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 25% or more of the combined voting power of all Voting Stock of such Borrower; or (ii) during any period of up to 24 consecutive months, commencing on or after the date of this Promissory Note, individuals who at the beginning of such 24-month period were directors of the Borrower (together with any new directors who (A) were properly and duly elected to the board of directors pursuant to the Borrower's bylaws by the affirmative vote of a majority of the remaining directors then in office or (B) were nominated by a majority of the remaining members of the board of directors of the Borrower and thereafter elected as directors by the shareholders of the Borrower) shall cease for any reason to constitute a majority of the board of directors of the Borrower; or
(h) The Borrower or any of its ERISA Affiliates shall incur, or, in the reasonable opinion of the Lender, shall be reasonably likely to incur liability in excess of $75,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; provided, that the occurrence of the ERISA Event described in PBGC Regulation Sections 4040.23, 4043.29 or 4043.32 shall constitute an Event of Default under this paragraph (h) only if it is reasonably expected to result in a Material Adverse Effect, (ii) the partial or complete withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan;
then, and in any such event, the Lender may by notice to the Borrower declare the Principal Loan Amount, all interest thereon and all other amounts payable under this Promissory Note to be forthwith due and payable, whereupon the Principal Loan Amount, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry for relief with respect to the Borrower under the Federal Bankruptcy Code, the Principal Loan Amount, all such interest and all such other amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.
7. Miscellaneous.
(a) The Borrower waives presentment, notice of dishonor, protest and any other formality with respect to this Promissory Note.
(b) The Borrower agrees to reimburse the Lender on demand for all reasonable costs, expenses and charges (including reasonable fees and charges of external and in-house legal counsel for the Lender) in connection with the interpretation, performance or enforcement of this Promissory Note, including, without limitation, all such costs and expenses incurred by the Lender in or relating to any bankruptcy or insolvency proceedings of Borrower and any attorney's fees, expenses and costs reasonably incurred in connection with any of the foregoing. In addition, the Borrower shall pay any present or future stamp or documentary taxes or other excise or property taxes, charges or similar levies which arise in any jurisdiction from any payment made hereunder or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Promissory Note.
(c) This Promissory Note shall be binding on the Borrower and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns; provided, that the Borrower may not delegate any of its obligations hereunder to any Person without the written consent of the Lender. The Lender may at any time assign or otherwise transfer or sell participations in this Promissory Note or any of the Lenders rights hereunder.
(d) Any suit, action or proceeding against the Borrower with respect to this Promissory Note or on any judgment entered by any court in respect thereof may be brought in the Supreme Court of the State of New York, County of New York, or in the United States District Court for the Southern District of New York, as the Lender may elect in its sole discretion, and the Borrower submits to the nonexclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding or judgment. The Borrower hereby waives any objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Promissory Note brought in such courts, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
(e) The Borrower hereby waives any right the Borrower may have to jury trial.
(f) THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be duly executed by its duly authorized officer as of the day and year first above written.
MONSANTO COMPANY
By: /s/ Terrell K. Crews
-----------------------------------------
Name: Terrell K. Crews
Title: Executive Vice President and Chief
Financial Officer
By: /s/ Robert A. Paley
-----------------------------------------
Name: Robert A. Paley
Title: Assistant Treasurer
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August 12, 2002
Richard B. Clark
Vice President and Controller
Monsanto Company
800 North Lindbergh Blvd.
St. Louis, MO 63167
Dear Dick:
The following sets forth my understanding in connection with certain matters related to the Monsanto spin-off.
In connection with the spin-off, Monsanto has agreed to replace approximately $60 million in Pharmacia environmental guarantees that relate to Monsanto businesses (the "Environmental Guarantees") with a Monsanto guarantee or letter of credit. In addition, the parties have agreed to amend the Lease Agreements for the Creve Coeur and Chesterfield Village sites to provide for the migration of people at and between the sites. Pharmacia has also agreed to pay $39,606,000 to Monsanto to cover certain of Monsanto's costs related to the spin-off of Monsanto and the separation of the Monsanto assets and liabilities from Pharmacia (the "Final Payment"). In addition, Pharmacia has agreed to transfer certain information technology assets to Monsanto.
Pharmacia would like to resolve all remaining issues relating to the spin-off as soon as possible. Accordingly, Pharmacia plans to make the Final Payment to Monsanto within two business days after the documentation necessary to be submitted to the U.S. Environmental Protection Agency (the "EPA") and other appropriate regulatory authorities (hereinafter together with EPA the "Regulatory Authorities") to permit the replacement of the Environmental Guarantees by Monsanto has been submitted to the EPA to the reasonable satisfaction of Pharmacia and its auditors, and the parties have signed a mutually acceptable amendment to the Lease Agreement incorporating the Migration Plan. Upon receipt of the Final Payment, Monsanto agrees that Pharmacia has fully satisfied and paid Monsanto's costs related to the spin-off and/or Pharmacia's obligations under Section 11.04 of the Separation Agreement between Pharmacia and Monsanto, dated as of September 1, 2000, as amended (the "Separation Agreement") and Monsanto waives and forever discharges any rights it might have to seek additional or further payments regarding its costs in connection with the spin-off, or pursuant to Section 11.04 of the Separation Agreement.
The parties agree to use their commercially reasonable best efforts to comply with any requests of the Regulatory Authorities to replace the Pharmacia Environmental Guarantees. In the event that the Regulatory Authorities notify Pharmacia or Monsanto that a guarantee by Monsanto is insufficient to satisfy any financial assurance requirements of Subpart H of 40 CFR Part 264, Monsanto agrees within 15 days of such notice to provide the necessary letters of credit to replace the Pharmacia Environmental Guarantees.
Please confirm your agreement by signing below on behalf of Monsanto Company.
It has been a pleasure working with you on the spin-off and other matters over the past two years.
Very truly yours,
/s/ Alexandra van Horne Alexandra van Horne |
ACCEPTED AND AGREED:
MONSANTO COMPANY
By: /s/ Richard B. Clark
----------------------------
Name: Richard Clark
Title: Vice President and Controller
Dated: 8/13/02
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Exhibit 99
MONSANTO COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Six Months Ended
June 30, Year Ended December 31,
------------------ ------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Income (Loss) Before Income Taxes
and Cumulative Effect of
Accounting Change $345 $709 $459 * $334 $263 $(60) $ 1
Add:
Fixed charges 51 83 153 272 305 140 68
Less capitalized interest (4) (14) (30) (37) (23) (9) (9)
Dividends from affiliated companies 1 1 1 1 1 1 1
Equity affiliate expense (subtract
equity affiliate income) 20 19 41 34 18 31 (6)
---- ---- ---- ---- ---- ---- ----
Earnings available for fixed charges $413 $798 $624 $604 $564 $103 $ 55
==== ==== ==== ==== ==== ==== ====
Fixed Charges:
Interest expense $ 38 $ 57 $ 99 $214 $269 $121 $ 48
Capitalized interest 4 14 30 37 23 9 9
Portion of rents representative of
interest factor 9 12 24 21 13 10 11
---- ---- ---- ---- ---- ---- ----
Fixed Charges $ 51 $ 83 $153 $272 $305 $140 $ 68
==== ==== ==== ==== ==== ==== ====
Ratio of Earnings to Fixed Charges 8.10 9.61 4.08 2.22 1.85 0.74 0.81
==== ==== ==== ==== ==== ==== ====
* In accordance with Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13 and Technical Corrections as of April 2002, Income Before Income Taxes and Cumulative Effect of Accounting
Change for the six months ended June 30, 2001 and the year ended Dec. 31, 2001 have been restated to reflect the reclassification of
the loss on early extinguishment of debt from an extraordinary item into operating income.
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