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<SEC-DOCUMENT>0000950123-01-509381.txt : 20020413
<SEC-HEADER>0000950123-01-509381.hdr.sgml : 20020413
ACCESSION NUMBER: 0000950123-01-509381
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011219
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ARVINMERITOR INC
CENTRAL INDEX KEY: 0001113256
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 383354643
STATE OF INCORPORATION: IN
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15983
FILM NUMBER: 1817534
BUSINESS ADDRESS:
STREET 1: 2135 W MAPLE ROAD
CITY: TROY
STATE: MI
ZIP: 48084
BUSINESS PHONE: 2484351000
FORMER COMPANY:
FORMER CONFORMED NAME: MU SUB INC
DATE OF NAME CHANGE: 20000501
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>y55526e10-k405.txt
<DESCRIPTION>ARVINMERITOR INC.
<TEXT>
<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
COMMISSION FILE NUMBER 1-15983
------------------------
ARVINMERITOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
<S> <C>
INDIANA 38-3354643
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2135 WEST MAPLE ROAD 48084-7186
TROY, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 435-1000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $1 Par Value New York Stock Exchange
(including the associated Preferred
Share Purchase Rights)
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on November 30, 2001 was approximately $1.188
billion.
66,492,558 shares of the registrant's Common Stock, par value $1 per share,
were outstanding on November 30, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of
Shareowners of the registrant to be held on February 20, 2002 is incorporated by
reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS.
ArvinMeritor, Inc. (the "company" or "ArvinMeritor"), headquartered in
Troy, Michigan, is a leading global supplier of a broad range of integrated
systems, modules and components serving light vehicle, commercial truck, trailer
and specialty original equipment manufacturers and certain aftermarkets. The
company also provides coil coating services to the transportation, appliance,
construction and furniture industries.
ArvinMeritor was incorporated in Indiana in March 2000 in connection with
the merger ("Merger") of Meritor Automotive, Inc. ("Meritor") and Arvin
Industries, Inc. ("Arvin"). The Merger of Meritor and Arvin into ArvinMeritor
was effective on July 7, 2000.
Before the Merger, Meritor was a Delaware corporation that was spun off by
its parent company, Rockwell International Corporation ("Rockwell"), on
September 30, 1997. On that date, Rockwell transferred substantially all of its
operations, assets and liabilities related to its automotive businesses to
Meritor, and distributed all of Meritor's outstanding common stock to Rockwell
shareowners on a pro rata basis.
As used herein, the terms "company," "ArvinMeritor," "we," "us" and "our"
include subsidiaries and predecessors unless the context indicates otherwise.
Whenever an item of this Annual Report on Form 10-K refers to information
in the Proxy Statement for the Annual Meeting of Shareowners of ArvinMeritor to
be held on February 20, 2002 (the "2002 Proxy Statement"), or under specific
captions in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations or Item 8. Financial Statements and Supplementary
Data, the information is incorporated in that item by reference.
References in this Annual Report on Form 10-K to the company's being a
leading supplier or the world's leading supplier, and other similar statements
as to our relative market position, are based principally on calculations made
by us based on information collected by us, including company and industry sales
data obtained from internal and available external sources, as well as our
estimates. In addition to such quantitative data, our statements are based on
other competitive factors such as our technological capabilities, our research
and development efforts and innovations and the quality of our products and
services, in each case relative to that of our competitors in our addressed
markets.
ArvinMeritor serves a broad range of original equipment manufacturer
("OEM") customers worldwide, including truck OEMs, light vehicle OEMs,
semi-trailer producers and off-highway and specialty vehicle manufacturers, and
the related aftermarkets. Our ten largest customers accounted for 60% of total
fiscal year 2001 sales. We operated 165 manufacturing facilities in 27 countries
around the world in fiscal year 2001. Sales outside the United States accounted
for approximately 49% of total sales in fiscal year 2001.
ArvinMeritor serves customers worldwide through three operating segments:
Light Vehicle Systems ("LVS"), Commercial Vehicle Systems ("CVS") and Light
Vehicle Aftermarket ("LVA"). The three operating segments supply the following
products and markets:
- LVS supplies aperture systems (primarily roof, door and access control
systems and motion control products), undercarriage systems (primarily
suspension, ride control and wheel products) and exhaust systems for
passenger cars, light trucks and sport utility vehicles to OEMs.
- CVS supplies drivetrain systems and components, including axles, brakes,
drivelines and ride control products, for medium- and heavy-duty trucks,
trailers and off-highway equipment and specialty vehicles.
- LVA supplies exhaust, ride control and filter products and accessories to
the passenger car, light truck and sport utility aftermarket.
Business units that do not primarily focus on automotive products are classified
as "Other." Our coil coating operation is the primary component in this
classification.
1
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Note 21 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data contains financial information by
segment for the three years ended September 30, 2001, including information on
sales and assets by geographic area for each segment. The heading "Products"
below includes information on LVS, CVS and LVA sales by product for each of the
three years ended September 30, 2001.
ArvinMeritor began operations as a combined company on July 7, 2000 and,
accordingly, does not have an operating history as a combined company prior to
that date. Except where otherwise noted, the historic financial information
included in this Annual Report on Form 10-K for periods prior to July 7, 2000
reflects only the results of Meritor and its consolidated subsidiaries. The
information for periods after July 7, 2000 represents the results of
ArvinMeritor and its consolidated subsidiaries. This information may not be
indicative of our future results of operations, financial position or cash
flows.
INDUSTRY DEVELOPMENTS AND OUTLOOK
The industry in which we operate is cyclical and has been characterized
historically by periodic fluctuations in demand for vehicles for which we supply
products. Softening demand in several of the company's principal markets,
including commercial truck and light vehicle markets in North America and light
vehicle replacement markets, had a negative effect on our financial results for
fiscal year 2001 and will continue to have an effect in 2002. Our most recent
outlook shows continued weakness in these markets, as well as a decline in light
vehicle markets in Europe, for fiscal year 2002. Currency fluctuations, notably
weakness of the euro relative to the U.S. dollar, also impacted the company in
2001 and may continue to impact us in 2002. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview and
Outlook and -- Results of Operations, and "International Operations" below.
We continue to seek to mitigate the effects of these negative factors by
implementing cost-reduction initiatives, limiting capital spending, reducing
salaried workforce, reducing the number of our facilities and improving
operational efficiencies. In that connection, we have undertaken restructuring
actions and have achieved Merger synergies in fiscal year 2001 to improve
efficiency and realize cost reductions. See "Strategic Initiatives" below and
Note 5 of the Notes to Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data below.
BUSINESS STRATEGIES AND INDUSTRY TRENDS
ArvinMeritor has developed leadership market positions as a global supplier
of a broad range of components and systems for use in commercial, specialty and
light vehicles worldwide. In the short term, we seek to maintain these market
positions in the face of the industry downturns described above. In the longer
term, we work to enhance our leadership positions and capitalize on our existing
customer, product and geographic strengths, and to increase sales, earnings and
profitability. ArvinMeritor employs various business strategies to achieve these
goals.
Several significant trends in the automotive industry influence our
business strategies. These trends, which present opportunities and challenges to
industry suppliers, include the globalization of OEMs and their suppliers,
increased outsourcing by OEMs, increased demand for modules and systems by OEMs,
with an increasing emphasis on engineering and technology, and the consolidation
of suppliers worldwide.
ArvinMeritor's business strategies and the industry trends that affect them
include the following:
Continuously Improve Core Business Processes. As OEMs expand their global
presence to reach new markets, they are able to achieve significant cost savings
and enhanced product quality and consistency by sourcing from the most capable
full-service global suppliers. The criteria for selection of suppliers have
increasingly focused on quality, cost and responsiveness. We have responded to
this trend by continuously improving our core business processes through
investment in information technology and capital equipment; rationalization of
production among facilities; deintegration of non-core processes; establishment
of flexible assembly sites; and simplification and increased commonality of
products. The goals of these actions are to
2
<PAGE>
reduce product costs, improve product quality and lower required asset
investment levels, which should result in reduced product development times or
cycles and more flexibility to meet customer needs.
The Merger provided an opportunity to advance this continuous improvement
process by combining or selecting between the best practices of both constituent
companies. In fiscal year 2001, we launched the ArvinMeritor Performance System
(AMPS) program, a continuous improvement initiative based on the best principles
of Arvin's Total Quality Production System and Meritor's White Shirt continuous
improvement program.
Leverage Geographic Strengths. As OEMs globalize, they also have the
opportunity to take advantage of economies of scale through global sourcing of
components and systems. Geographic expansion to meet the global sourcing needs
of customers and to address new markets will continue to be an important element
of our growth strategy.
Management believes opportunities exist to further increase our presence in
the light vehicle OEM market where, prior to the current downturn in the
industry, our sales of light vehicle products increased each year from 1996 to
2000. The Merger has enhanced our LVS product offerings and improved our ability
to take advantage of these opportunities.
We also believe there are opportunities to increase sales to heavy-duty and
medium-duty commercial vehicle OEMs in Europe, building on established customer
relationships with our North American affiliates and our existing manufacturing
presence in Europe. Emerging markets such as the Asia/Pacific region and South
America also present growth opportunities, as demand for commercial, specialty
and light vehicles increases in these areas. In evaluating opportunities in
these emerging markets, we will continue to assess the economic situation in
these regions and its potential effect on our businesses and served markets.
Capitalize on Customer Outsourcing Activities. OEMs are responding to
global competitive pressures to improve quality and reduce manufacturing costs
and related capital investments by outsourcing products that historically have
been engineered and manufactured internally. Outsourcing enables OEMs to focus
on their core design, assembly and marketing capabilities. One of our
significant growth strategies is to provide lower cost and higher quality
products to customers that are increasing their outsourcing activities.
Management believes truck and trailer OEMs in Europe will increasingly
outsource in order to achieve cost and efficiency advantages. We work closely
with current and prospective customers worldwide to identify and implement
mutually beneficial outsourcing opportunities.
In markets addressed by LVS, the increased outsourcing trend has extended
not only to components, but to entire modules and systems, requiring suppliers
to provide a higher level of engineering, design, and electromechanical and
systems integration expertise in order to remain competitive. Increased
outsourcing by light vehicle OEMs has resulted in higher overall per vehicle
sales by independent suppliers and presents the opportunity for supplier sales
growth independent of the overall automotive industry growth trend.
We have sought and will continue to seek to capitalize on this trend by
using our broad product lines and design, engineering and manufacturing
expertise to expand sales of higher value modules and systems. For example,
Air2Air(TM), LVS's new integrated airflow system, expands our existing exhaust
system products to incorporate air induction components that are customarily
produced internally by OEMs. In addition, LVS has developed, and is the leading
supplier of, complete roof modules comprised of a roof liner bound to an outer
shell using a patented process. These modules can also incorporate LVS sunroof
technology and such items as sun visors, grab handles and interior lighting, as
well as aerials and loudspeakers. LVS currently has development contracts for
roof modules with several OEMs. While no assurances can be made, these
arrangements have the potential of resulting in increased sales to OEMs in the
future.
Introduce New Systems and Technologies. As OEMs seek the most capable
global suppliers, the criteria for selection include not only quality, cost and
responsiveness, but also certain full-service capabilities, including an
increasing emphasis on design and engineering.
ArvinMeritor plans to continue investing in new technologies and product
development and to continue working closely with its customers to develop and
implement design, engineering, manufacturing and quality
3
<PAGE>
improvements. For example, we are continuing to develop technical expertise that
will permit us to assist customers in meeting new and more stringent emissions
requirements that are phased in over the next ten years in our primary markets
in North America and Europe. In addition, we are developing braking systems
technology that would assist customers in meeting proposed U.S. regulations to
improve braking performance and reduce stopping distances for commercial motor
vehicles. Management believes that the strategy of continuing to introduce new
and improved systems and technologies will be an important factor in our efforts
to achieve our growth objectives. We will draw upon the engineering resources of
our Technical Centers in Troy, Michigan, and Columbus, Indiana, and our
engineering centers of expertise in the United States, Brazil, Canada, France,
Germany and the United Kingdom. See "Research and Development."
Leverage Aftermarket Business. Longer product lives of automotive parts
adversely affect the demand for some aftermarket products. The average useful
life of automotive products has been increasing steadily in recent years, due to
innovations in products and technologies, resulting in less frequent replacement
of parts and a negative effect on aftermarket sales.
ArvinMeritor seeks to mitigate the effects of this trend by using our
existing distribution channels to market new products, both those manufactured
by ArvinMeritor and those manufactured by others and sold by us under
distribution agreements. The Merger furthered this strategy by combining Arvin's
strength in the light vehicle aftermarket with Meritor's strength in the
commercial vehicle aftermarket, thereby providing opportunities for operating
synergies and cross-selling of products.
Selectively Pursue Strategic Opportunities. The globalization of OEMs and
the trend toward entering into supply arrangements with the most capable global
suppliers have contributed to the consolidation of automotive suppliers into
larger, more efficient and more capable companies. The company regularly
evaluates various strategic and business development opportunities, including
licensing agreements, marketing arrangements, joint ventures, acquisitions and
dispositions. We intend to continue to selectively pursue alliances and
acquisitions that would allow us to gain access to new customers and
technologies, penetrate new geographic markets and enter new product markets. We
also intend to continue to review the prospects of our existing businesses to
determine whether any of them should be modified, restructured, sold or
otherwise discontinued. See "Strategic Initiatives" and "Joint Ventures" below
for information on initiatives in these areas.
PRODUCTS
ArvinMeritor designs, develops, manufactures, markets, distributes, sells,
services and supports a broad range of products for use in commercial, specialty
and light vehicles. In addition to sales of original equipment systems and
components, we provide our products to OEMs, dealers, distributors, fleets and
other end-users in the related aftermarkets. The Merger has enhanced our product
lines and provided opportunities for increased sales through cross-marketing
products and services to customers of the two constituent companies.
The following chart depicts operating segment sales by product for each of
the three fiscal years ended September 30, 2001. Product sales by Arvin and its
subsidiaries are included only for periods after the date of the Merger. A
narrative description of the principal products of the company's three operating
segments and other operations follows the chart.
SALES BY PRODUCT
<Table>
<Caption>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
LVS*:
Aperture Systems**..................................... 17% 23% 27%
Undercarriage Systems.................................. 11 9 8
Exhaust Systems........................................ 25 7 --
--- --- ---
Total LVS......................................... 53% 39% 35%
--- --- ---
</Table>
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<PAGE>
<Table>
<Caption>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
CVS:
Drivetrain Systems..................................... 13% 23% 25%
Stopping Systems....................................... 8 13 13
Specialty Products..................................... 6 10 12
Suspension Systems and Trailer Products*............... 5 9 11
Transmissions and Clutches***.......................... -- 1 4
--- --- ---
Total CVS......................................... 32% 56% 65%
--- --- ---
LVA*:
Exhaust System Products................................ 5% 2% --%
Ride Control Products.................................. 4 1 --
Filtration Products.................................... 4 1 --
--- --- ---
Total LVA......................................... 13% 4% --
--- --- ---
Other*...................................................... 2 1 --
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</Table>
- ---------------
* Sales relating to motion control systems (included in aperture systems),
ride control systems (included in undercarriage systems and suspension
systems and trailer products), exhaust systems, LVA products and Other are
included only for periods after the date of the Merger, July 7, 2000.
** The company sold the seat adjusting systems business in November 1999 and
sold the seat motors business in August 2001. Sales from these products are
included in aperture systems prior to these dates.
*** In August 1999, the company transferred the transmission and clutch business
to a new 50% owned joint venture.
Light Vehicle Systems
A key strategy of LVS is to develop our market position in aperture systems
(including roof, door and access control systems and gas springs), undercarriage
components and systems (including suspension systems, ride control products and
wheel products) and exhaust systems. The Merger provided an enhanced platform
for expansion of this business and improved our ability to supply suspension
systems and corner modules to light vehicle OEMs. The following products
comprise our LVS portfolio.
Aperture Systems
Roof Systems. ArvinMeritor is one of the world's leading independent
suppliers of sunroofs and roof systems products for use in passenger cars, light
trucks and sport utility vehicles. We make one-piece, modular roof systems, some
of which incorporate sunroofs, that provide OEMs with cost savings by reducing
assembly time and parts. Our roof system manufacturing facilities are located in
North America, Europe and the Asia/ Pacific region.
Door Systems. The company is a leading supplier of manual and power window
regulators and a leading supplier of integrated door modules and systems. In
fiscal year 2001, we manufactured window regulators at plants in North America,
Europe and the Asia/Pacific region for light vehicle and heavy-duty commercial
vehicle OEMs. Our wide range of power and manual door system products utilize
numerous technologies and offer our own electric motors, which are designed for
individual applications and to maximize operating efficiency and reduce noise
levels.
Access Control Systems. ArvinMeritor supplies manual and power activated
latch systems to light vehicle and heavy-duty commercial vehicle manufacturers,
with leadership market positions in Europe and a market presence in North
America and the Asia/Pacific region. Our access control products include modular
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and integrated door latches, actuators, trunk and hood latches and fuel flap
locking devices. We have access control systems manufacturing facilities in
North America, Europe and the Asia/Pacific region.
Motion Control Systems. ArvinMeritor is a worldwide leader in the
manufacture and supply of motion control and counterbalancing systems for the
automotive industry. Our products include gas lift supports and vacuum
actuators. We have manufacturing facilities in the United States and the United
Kingdom.
Undercarriage Systems
Suspension Systems. Through our 57%-owned joint venture with Mitsubishi
Steel Manufacturing Co., ArvinMeritor is one of the leading independent
suppliers of products used in suspension systems for passenger cars, light
trucks and sport utility vehicles in North America. Our suspension system
products, which are manufactured at facilities in the United States and Canada,
include coil springs, stabilizer bars and torsion bars. In addition, we supply
automotive suspension components for the European light vehicle market from a
manufacturing facility in England. Prior to the current downturn in the
industry, this business experienced significant sales growth over recent years,
as light vehicle OEMs have increased their outsourcing of suspension system
products and the light vehicle market has grown.
Ride Control Systems. The company provides ride control products,
including shock absorbers, struts, ministruts and corner modules. Through our
joint ventures with Kayaba Industries, Inc. ("Kayaba"), we manufactured ride
control products and were a leading supplier in the European OEM market in
fiscal year 2001. See "Joint Ventures" below.
Wheel Products. ArvinMeritor is a leading supplier of steel wheel products
to the light vehicle OEM market, principally in North and South America. We have
wheel manufacturing facilities in Brazil and Mexico.
Exhaust Systems
ArvinMeritor is a leading global supplier of a complete line of exhaust
system components, including mufflers, exhaust pipes, catalytic converters and
exhaust manifolds. We sell these products to OEMs primarily as original
equipment, while also supporting the replacement needs for manufacturers and the
service parts needs for dealers. In August 2001, the company signed its first
letter of intent with respect to its Air2Air(TM) system. An Air2Air(TM) system
combines air induction and exhaust systems development into an integrated
airflow system for OEM customers and provides an overall improved airflow system
for better system performance with less development time.
ArvinMeritor participates in this business both directly and through joint
ventures and affiliates. These alliances include our 50% interest in Arvin Sango
Inc., an exhaust joint venture based in North America, and our 49% interest in
Zeuna Starker GmbH & Co., an exhaust systems supplier headquartered in Germany.
Commercial Vehicle Systems
Drivetrain Systems
Truck Axles. ArvinMeritor is one of the world's leading independent
suppliers of axles for medium- and heavy-duty commercial vehicles. Our axle
manufacturing facilities located in the United States, South America and Europe
produce axles for medium- and heavy-duty commercial vehicles. Our extensive
truck axle product line includes a wide range of drive and non-drive front steer
axles and single and tandem rear drive axles, which can include
driver-controlled differential lock for extra traction, aluminum carriers to
reduce weight and pressurized filtered lubrication systems for longer life. Our
front steer and rear drive axles can be equipped with our cam, wedge or air disc
brakes, automatic slack adjusters and anti-lock braking systems.
Drivelines and Other Products. ArvinMeritor also supplies universal joints
and driveline components, including our Permalube(TM) universal joint, a
permanently lubricated universal joint used in the high mileage on-highway
market.
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Stopping Systems
ArvinMeritor is a leading independent supplier of air brakes to medium- and
heavy-duty commercial vehicle manufacturers in North America and Europe. In
addition, in Brazil, which is the third largest truck and trailer market in the
world, we are a leading supplier of brakes and brake-related products through
our 49%-owned joint venture with Randon S. A. Veiculos e Implementos.
Through manufacturing facilities located in North America and Europe, we
manufacture a broad range of foundation air brakes, as well as automatic slack
adjusters for brake systems. Our foundation air brake products include cam drum
brakes, which offer improved lining life and tractor/trailer interchangeability;
air disc brakes, which provide fade resistant braking for demanding
applications; wedge drum brakes, which are lightweight and provide automatic
internal wear adjustment; hydraulic brakes; and wheel end components such as
hubs, drums and rotors.
Federal regulations require that new heavy-duty and medium-duty vehicles
sold in the United States be equipped with anti-lock braking systems ("ABS").
Through our 50%-owned joint venture with WABCO Automotive Products ("WABCO"), a
wholly-owned subsidiary of American Standard, Inc., we are the leading supplier
of ABS and a supplier of other electronic and pneumatic control systems for
North American heavy-duty commercial vehicles. The joint venture also supplies
hydraulic ABS to the North American medium-duty truck market.
Specialty Products
Off-Highway Vehicle Products. ArvinMeritor supplies heavy-duty axles,
brakes and drivelines for use in numerous off-highway vehicle applications,
including construction, material handling, agriculture, mining and forestry, in
North America, South America, Europe and the Asia/Pacific region. These products
are designed to tolerate high tonnages and operate under extreme conditions.
Government Products. We supply axles, brakes and brake system components
including ABS, trailer products, transfer cases and drivelines for use in
medium-duty and heavy-duty military tactical wheeled vehicles, principally in
North America.
Specialty Vehicle Products. We supply axles, brakes and transfer cases for
use in buses, coaches and recreational, fire and other specialty vehicles in
North America and Europe, and we are the leading supplier of bus and coach axles
and brakes in North America.
Suspension Systems and Trailer Products
We believe ArvinMeritor is the world's leading manufacturer of heavy-duty
trailer axles, with leadership positions in North America and in Europe. Our
trailer axles are available in over 40 models in capacities from 20,000 to
30,000 pounds for virtually all heavy trailer applications and are available
with our broad range of brake products, including ABS. In addition, we supply
trailer air suspension products for which we have strong market positions in
Europe and an increasing market presence in North America.
Transmissions and Clutches
Through our 50%-owned joint venture with ZF Friedrichshafen AG ("ZF"), we
produce technologically advanced medium- and heavy-duty transmission components
and systems for heavy vehicle original equipment manufacturers and the
aftermarket for the United States, Canada and Mexico. This transmission product
line enables us to supply a complete drivetrain system to heavy-duty commercial
vehicle manufacturers in North America. The most recent additions to the joint
venture's range of transmission models include FreedomLine(TM), a fully
automated mechanical truck transmission without a clutch pedal, and
SureShift(TM), a shift-by-wire system that provides the operating ease of an
automatic transmission with full manual control by the driver. The joint venture
also supplies clutches, including diaphragm-spring clutches.
7
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Light Vehicle Aftermarket
The principal LVA products include mufflers; exhaust and tail pipes;
catalytic converters; shock absorbers; struts; clamps; hangers; automotive oil,
air, and fuel filters; and accessories. These products are sold under the brand
names TIMAX(R), ANSA(R) and ROSI(R)(mufflers); Gabriel(R) (shock absorbers); and
Purolator(R) (filters). LVA also markets products under private label to
customers such as Pep Boys and CarQuest (ride control) and Quaker State
(filters).
Other
"Other" includes business units that are not focused predominantly on
automotive products and consists primarily of our coil coating operation. Coil
coated steel and aluminum substrates are used in a variety of applications,
which include consumer appliances; roofing and siding; garage and entry doors;
heating, ventilation and air conditioning (HVAC); and transportation.
CUSTOMERS; SALES AND MARKETING
ArvinMeritor's operating segments have numerous customers worldwide and
have developed long-standing business relationships with many of these
customers.
Original Equipment. Both LVS and CVS market and sell products principally
to OEMs. In North America, CVS also markets truck and trailer products directly
to dealers, fleets and other end-users, which may designate the components and
systems of a particular supplier for installation in the vehicles they purchase
from OEMs.
Consistent with industry practice, LVS and CVS make most of their sales to
OEMs through open purchase orders, which do not require the purchase of a
minimum number of products. The customer typically may cancel these purchase
orders on reasonable notice without penalty. LVS and CVS also sell products to
certain customers under long-term arrangements that require us to provide annual
cost reductions (through price reductions or other cost benefits for the OEMs).
If we were unable to generate sufficient cost savings in the future to offset
such price reductions, our gross margins would be adversely affected.
Both LVS and CVS are dependent upon large OEM customers with substantial
bargaining power, including with respect to price and other commercial terms.
Although we believe that our businesses generally enjoy good relations with our
OEM customers, loss of all or a substantial portion of sales to any of our large
volume customers for whatever reason (including, but not limited to, loss of
contracts, reduced or delayed customer requirements, plant shutdowns, strikes or
other work stoppages affecting production by such customers) could have a
significant adverse effect on our financial results. During fiscal year 2001,
DaimlerChrysler AG (which owns Chrysler, Mercedes-Benz AG and Freightliner
Corporation) accounted for approximately $360 million of sales for CVS, $606
million of sales for LVS and $23 million of sales for LVA, or 15% of total
ArvinMeritor sales. In addition, General Motors Corporation accounted for
approximately $41 million of sales for CVS, $752 million of sales for LVS and
$15 million of sales for LVA, or 12% of our total sales.
Except as noted above with respect to the North American market for
heavy-duty trucks and trailers, LVS and CVS generally compete for new business
from OEMs, both at the beginning of the development of new vehicle platforms and
upon the redesign of existing platforms. New platform development generally
begins two to four years prior to start-up of production. Once a supplier has
been designated to supply products to a new platform, an OEM will generally
continue to purchase those products from the supplier for the life of the
platform, which typically lasts three to six years.
Aftermarkets. CVS also provides truck and trailer products and off-highway
and specialty products to OEMs, dealers and distributors in the aftermarket. LVA
sells products primarily to wholesale distributors, retailers and installers.
The light vehicle aftermarket includes fewer and larger customers, as the market
consolidates and as OEMs increase their presence in the market.
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Coil Coating. Our coil coating customers include steel companies, service
centers and end manufacturers engaged in the transportation, appliance,
construction and furniture industries.
COMPETITION
Each of ArvinMeritor's businesses operates in a highly competitive
environment. LVS and CVS compete worldwide with a number of North American and
international providers of components and systems, some of which belong to, or
are associated with, some of our customers. Some of these competitors are larger
and some are smaller than the company in terms of resources and market shares.
The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and
timely delivery. LVS has numerous competitors across its various product lines
worldwide, including Brose (door systems); Webasto and Inalfa (roof systems);
Kiekert (access control systems); Stabilus (motion control systems);
Krupp-Hoesch (suspension systems); Hayes-Lemmerz (wheel products); and Tenneco
(ride control systems and exhaust systems). The major competitors of CVS are
Eaton Corporation (transmissions); Dana Corporation (truck axles and
drivelines); Knorr (stopping systems); and Hendrickson (suspension systems and
trailer products). In addition, certain OEMs manufacture for their own use
products of the types supplied by ArvinMeritor, and any future increase in this
activity could displace our sales.
LVA competes with both OEMs and independent suppliers in North America and
Europe and serves the market through our own sales force, as well as through a
network of manufacturers' representatives. Major competitors include Tenneco,
Goerlicks, Bosal and Catco (exhaust system products); Tenneco, Kayaba, Sachs,
Tokico and Cofap (ride control products); and Champ Labs, Honeywell, Dana,
Mann-Filter and Filtrauto (filtration products). Competitive factors include
customer loyalty, competitive pricing, customized service, quality, timely
delivery, product development and manufacturing process efficiency.
Our coil coating operation competes with other coil coaters and with
customers' internal painting systems.
RAW MATERIALS AND SUPPLIES
ArvinMeritor believes we have adequate sources for the supply of raw
materials and components for our business segments' manufacturing needs with
suppliers located around the world. We do, however, concentrate our purchases of
certain raw materials and parts over a limited number of suppliers, some of
which are located in developing countries, and we are dependent upon the ability
of our suppliers to meet performance and quality specifications and delivery
schedules. Although we historically have not experienced any significant
difficulties in obtaining an adequate supply of raw materials and components
necessary for our manufacturing operations, the loss of a significant supplier
or the inability of a supplier to meet performance and quality specifications or
delivery schedules could have an adverse effect on ArvinMeritor.
STRATEGIC INITIATIVES
ArvinMeritor regularly considers various strategic and business
opportunities, including licensing agreements, marketing arrangements and
acquisitions, and reviews the prospects of our existing businesses to determine
whether any of them should be modified, restructured, sold or otherwise
discontinued.
The industry in which we operate continues to experience significant
consolidation among suppliers. This trend is due in part to globalization and
increased outsourcing of product engineering and manufacturing by OEMs, and in
part to OEMs reducing the total number of their suppliers by more frequently
awarding long-term, sole-source or preferred supplier contracts to the most
capable global suppliers. Scale is an important competitive factor, with the
largest industry participants able to maximize key resources and contain costs.
Consistent with this trend, we completed the Merger of Arvin and Meritor in
fiscal year 2000 in order to enhance the financial strength, diversity of
operations and product lines of both companies and to better position ourselves
to take advantage of global opportunities. In addition, we believe that
efficiencies and cost savings resulting from the Merger should enable us to
improve upon and increase our strategic options and
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<PAGE>
lower our average cost of capital. Annual pre-tax synergies are estimated to
have been approximately $40 million in fiscal year 2001.
In August 2001, we sold the manufacturing equipment related to our LVS seat
motor business for approximately $11.7 million in cash. We had sold our seat
adjusting systems business in November 1999, after determining that retention of
this business was not consistent with the LVS strategy of developing market
position in aperture systems and undercarriage components and systems.
On November 8, 2000, we announced restructuring actions to realign
operations at selected facilities throughout the world to reflect the decline in
our major markets, with a cost of approximately $90 million. We have
subsequently identified an additional $15 million of restructuring actions as a
result of our continuing effort to identify cost savings. See Note 5 of the
Notes to Consolidated Financial Statements under Item 8. Financial Statements
and Supplementary Data below.
No assurance can be given as to whether or when any additional strategic
initiatives will be consummated in the future. We will continue to consider
acquisitions as a means of further expansion, but cannot predict whether our
participation or lack of participation in industry consolidation will ultimately
be beneficial to us. If an agreement with respect to any additional acquisitions
were to be reached, we could finance such acquisitions by issuance of additional
debt or equity securities. The additional debt from any such acquisitions, if
consummated, could increase the company's debt to capitalization ratio. In
addition, the ultimate benefit of any acquisition would depend on our ability to
successfully integrate the acquired entity or assets into our existing business
and to achieve any projected synergies.
JOINT VENTURES
As the automotive industry has become more globalized, joint ventures and
other cooperative arrangements have become an important element of our business
strategies. At September 30, 2001, we participated in joint ventures with
interests in the United States, Argentina, Brazil, Canada, China, Colombia, the
Czech Republic, Germany, Hungary, India, Italy, Japan, Mexico, South Africa,
Spain, Turkey, Venezuela and the United Kingdom.
In accordance with accounting principles generally accepted in the United
States, the consolidated financial statements of the company include the
operating results of those majority-owned joint ventures in which the company
has control. Consolidated joint ventures include our 57%-owned joint venture
with Mitsubishi Steel Manufacturing Co. (suspension products for passenger cars,
light trucks and sport utility vehicles); and our 75% interest in a joint
venture with Kayaba (ride control products). Unconsolidated joint ventures
include our 50%-owned joint venture with WABCO (ABS systems for heavy-duty
commercial vehicles); our 50%-owned joint venture with ZF (transmissions and
clutches); our 50% interest in Arvin Sango Inc. and our 49% interest in Zeuna
Starker GmbH & Co. (exhaust systems); our 49% interest in a joint venture with
Randon S.A. Veiculos e Implementos (brakes and brake-related products); and our
40% interest in a second joint venture with Kayaba (steering pumps).
Effective September 30, 2001, ArvinMeritor and Kayaba terminated a North
American joint venture that manufactured ride control products, and each company
reacquired the properties it had contributed at formation in 1998. We had a
50.1% interest in this joint venture. We will continue to participate in two
other joint ventures with Kayaba in Europe, in which we own 75% and 40%
interests. Effective October 1, 2001, we acquired our joint venturer's interest
in Arvin Exhaust Finnentrop GmbH, an exhaust joint venture in which we
previously had a 50% interest.
RESEARCH AND DEVELOPMENT
ArvinMeritor has significant research, development, engineering and product
design capabilities. We spent approximately $136 million in fiscal year 2001,
$115 million in fiscal year 2000 and $117 million in fiscal year 1999 on
research, development and engineering. At September 30, 2001, we employed
approximately 1,700 professional engineers and scientists.
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PATENTS AND TRADEMARKS
We own or license numerous United States and foreign patents and patent
applications in our manufacturing operations and other activities. While in the
aggregate these patents and licenses are considered important to the operation
of our businesses, management does not consider them of such importance that the
loss or termination of any one of them would materially affect a business
segment or the company as a whole. (See Item 3. Legal Proceedings for
information with respect to a patent infringement lawsuit filed against the
company by Eaton Corporation and adverse judgments in the case.)
The company's registered trademarks ArvinMeritor(R), Arvin(R) and
Meritor(R) are important to our business. Other significant trademarks owned by
us include Gabriel(R) (shock absorbers and struts) and Purolator(R) (filters)
with respect to LVA, and ROR(TM) (trailer axles) with respect to CVS. Under the
terms of an agreement entered into by Meritor and Rockwell in 1997 in connection
with the spin-off of Rockwell's automotive businesses, we may continue to apply
the "Rockwell" brand name to our products until September 30, 2007.
EMPLOYEES
At September 30, 2001, we had approximately 33,000 full-time employees. At
that date, approximately 5,200 employees in the United States and Canada were
covered by collective bargaining agreements. We believe our relationship with
unionized employees is satisfactory. No significant work stoppages have occurred
in the past five years.
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have had, and will continue to have, an
impact on our manufacturing operations. Thus far, compliance with environmental
requirements and resolution of environmental claims have been accomplished
without material effect on our liquidity and capital resources, competitive
position or financial statements.
The company has been designated as a potentially responsible party at 10
Superfund sites, excluding sites as to which our records disclose no involvement
or as to which our potential liability has been finally determined. Management
estimates the total reasonably possible costs we could incur for the remediation
of Superfund sites at September 30, 2001, to be approximately $36 million, of
which $18 million had been accrued.
Various other lawsuits, claims and proceedings have been asserted against
the company alleging violations of federal, state and local environmental
protection requirements or seeking remediation of alleged environmental
impairments, principally at previously disposed-of properties. For these
matters, management has estimated the total reasonably possible costs we could
incur at September 30, 2001, to be approximately $53 million, of which $25
million had been recorded.
The actual amount of costs or damages for which we may be held responsible
could materially exceed the foregoing estimates because of uncertainties,
including the financial condition of other potentially responsible parties, the
success of the remediation and other factors that make it difficult to
accurately predict actual costs. However, based on management's assessment,
after consulting with Vernon G. Baker, II, Esq., General Counsel of
ArvinMeritor, and subject to the difficulties inherent in estimating these
future costs, we believe that our expenditures for environmental capital
investment and remediation necessary to comply with present regulations
governing environmental protection and other expenditures for the resolution of
environmental claims will not have a material adverse effect on the company's
liquidity and capital resources, competitive position or financial statements.
Management cannot assess the possible effect of compliance with future
requirements.
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<PAGE>
INTERNATIONAL OPERATIONS
Approximately 41% of ArvinMeritor's total assets as of September 30, 2001
and 37% of fiscal year 2001 sales were outside North America. See Note 21 of the
Notes to Consolidated Financial Statements under Item 8. Financial Statements
and Supplementary Data below for financial information by geographic area for
the three fiscal years ended September 30, 2001.
Management believes that international operations have significantly
benefited our financial performance. However, our international operations are
subject to a number of risks inherent in operating abroad, including, but not
limited to:
- risks with respect to currency exchange rate fluctuations;
- local economic and political conditions;
- disruptions of capital and trading markets;
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and quotas
and customs duties and tariffs);
- changes in legal or regulatory requirements;
- import or export licensing requirements;
- limitations on the repatriation of funds;
- difficulty in obtaining distribution and support;
- nationalization;
- the laws and policies of the United States affecting trade, foreign
investment and loans; and
- tax laws.
There can be no assurance that these risks will not have a material adverse
impact on our ability to increase or maintain our foreign sales or on our
financial condition or results of operations. Exchange rate fluctuations reduced
the company's sales and operating income by approximately $170 million and $19
million, respectively, in fiscal year 2001. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations below. The impact that the euro and other currencies will have on our
sales and operating income is difficult to predict in the upcoming year.
We enter into foreign currency forward exchange contracts to minimize the
risk of unanticipated gains and losses from currency rate fluctuations on
foreign currency commitments entered into in the ordinary course of business. It
is our policy not to enter into derivative financial instruments for speculative
purposes and, therefore, we hold no derivative instruments for trading purposes.
We have not experienced any material adverse effect on our consolidated
financial position, results of operations or cash flow related to these foreign
currency forward exchange contracts. (See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quantitative and
Qualitative Disclosures about Market Risk and Note 13 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below.)
On January 1, 1999, the euro became the common currency of 11 countries of
the European Union and the present national currencies of these 11 countries
became sub-units of the euro at fixed exchange rates. Subsequent to January 1,
1999, an additional country was added to the European Monetary Union. The
European Union's current plans call for the transition to the euro to be
substantially completed by January 1, 2002, at which time the euro will become
the sole legal tender in those participating countries.
We are engaged in business in many of the countries that participate in the
European Monetary Union, and sales for fiscal year 2001 in these countries were
approximately 18 % of our total sales. In addition, we enter into foreign
currency forward exchange contracts with respect to several of the existing
currencies that have been subsumed into the euro and we have borrowings in
participating currencies primarily under our
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bank revolving credit facility. We have analyzed the potential effects of the
euro conversion on competitive conditions, information technology and other
systems, currency risks, financial instruments and contracts, and have examined
the tax and accounting consequences of euro conversion, and we believe that the
conversion has not had and will not have a material adverse effect on our
business, operations and financial condition.
We are making the necessary adjustments to accommodate the conversion,
including modifications to our information technology systems and programs,
pricing schedules and financial instruments. We expect that all necessary
actions will be completed in a timely manner, and that the costs associated with
the conversion to the euro will not be material.
SEASONALITY; CYCLICALITY
LVS and CVS may experience seasonal variations in the demand for products
to the extent automotive vehicle production fluctuates. Historically, for both
segments, such demand has been somewhat lower in the quarters ended September 30
and December 31, when OEM plants may close during model changeovers and vacation
and holiday periods.
In addition, the industry in which LVS and CVS operate has been
characterized historically by periodic fluctuations in overall demand for
trucks, passenger cars and other vehicles for which we supply products,
resulting in corresponding fluctuations in demand for our products. Cycles in
the major automotive industry markets of North America and Europe are not
necessarily concurrent or related. The cyclical nature of the automotive
industry is outside our control and cannot be predicted with certainty. We have
sought and will continue to seek to expand our operations globally to mitigate
the effect of periodic fluctuations in demand of the automotive industry in one
or more particular countries.
The following table sets forth vehicle production in principal markets
served by LVS and CVS for the last five fiscal years:
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Light Vehicles (in millions):
North America............................................. 15.6 17.5 16.9 15.4 15.2
South America............................................. 2.2 2.0 1.5 2.0 2.1
Europe.................................................... 19.1 18.9 18.2 17.7 15.2
Asia/Pacific.............................................. 16.0 17.5 15.6 15.4 17.1
Commercial Vehicles (in thousands):
North America, Heavy-Duty Trucks.......................... 140 269 292 245 201
North America, Medium-Duty Trucks......................... 117 165 175 141 138
North America, Trailers................................... 208 367 366 327 252
Europe, Trailers.......................................... 110 119 124 130 81
</Table>
- ---------------
Source: Automotive industry publications and management estimates.
The company's most recent outlook for fiscal year 2002 shows continued
softening in North American production in the heavy-duty commercial truck and
trailer markets, and we anticipate North American heavy-duty truck production to
decline approximately 7%. European heavy and medium trucks are estimated to be
down approximately 15% from fiscal year 2001. There is greater uncertainty in
light vehicle production, but the company currently expects a 4 % decline in
North America and a 7 % decline in Europe during fiscal year 2002. See "Industry
Developments and Outlook" above and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview and Outlook and
- -- Results of Operations below for information on downturns in certain markets
and their effects on our sales and earnings.
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ITEM 2. PROPERTIES.
At September 30, 2001, our operating segments had the following facilities
in the United States, Europe, South America, Canada, Mexico, Australia, South
Africa and the Asia/Pacific region:
<Table>
<Caption>
MANUFACTURING ENGINEERING FACILITIES, SALES OFFICES, WAREHOUSES
FACILITIES AND SERVICE CENTERS
------------- -------------------------------------------------
<S> <C> <C>
LVS................................ 95 62
CVS................................ 42 59
LVA................................ 24 29
Other.............................. 4 3
</Table>
These facilities had an aggregate floor space of approximately 35 million
square feet, substantially all of which is in use. We owned approximately 74%
and leased approximately 26% of this floor space. There are no major
encumbrances (other than financing arrangements that in the aggregate are not
material) on any of our plants or equipment. In the opinion of management, our
properties have been well maintained, are in sound operating condition and
contain all equipment and facilities necessary to operate at present levels. A
summary of floor space of these facilities at September 30, 2001, is as follows:
<Table>
<Caption>
OWNED LEASED
FACILITIES FACILITIES
------------------------------- -----------------------------
LOCATION LVS CVS LVA OTHER LVS CVS LVA OTHER TOTAL
-------- ------ ------ ----- ----- ----- ----- ----- ----- ------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States............... 4,032 4,856 2,144 642 687 1,106 798 507 14,772
Canada...................... 566 413 -- -- 103 160 107 -- 1,349
Europe...................... 3,903 2,934 1,076 -- 2,747 150 867 -- 11,677
Asia/Pacific................ 493 1,047 -- -- 147 658 597 -- 2,942
Latin America............... 1,225 2,120 157 -- 89 163 186 -- 3,940
Africa...................... 304 -- -- -- -- 11 2 -- 317
------ ------ ----- --- ----- ----- ----- --- ------
Total............. 10,523 11,370 3,377 642 3,773 2,248 2,557 507 34,997
====== ====== ===== === ===== ===== ===== === ======
</Table>
ITEM 3. LEGAL PROCEEDINGS.
On July 17, 1997, Eaton Corporation filed suit against Rockwell in the U.S.
District Court in Wilmington, Delaware, asserting infringement of Eaton's U.S.
Patent No. 4850236, which covers certain aspects of heavy-duty truck
transmissions, by our Engine SynchroShift(TM) transmission for heavy-duty
trucks, and seeking damages and injunctive relief. Meritor was joined as a
defendant on June 11, 1998. The following judgments and orders have been issued
in this case:
- After trial, on July 1, 1998, a jury rendered a verdict in favor of
Eaton, finding that Meritor had infringed Eaton's patent and awarding
compensatory damages in an amount equal to 13% of total product sales. On
October 11, 2001, the judge entered an order granting damages to Eaton in
the amount of $2.9 million, plus post-judgment interest.
- A separate phase of the trial was held in April 1999, without a jury,
with respect to Meritor's allegations that Eaton had engaged in
inequitable conduct in obtaining its patent and that the patent was
therefore unenforceable. On February 9, 2001, the judge ruled against the
company on the second phase of the proceedings, finding that we had not
provided clear and convincing evidence of inequitable conduct by Eaton in
obtaining its patent.
- On September 19, 2001, the judge granted Eaton's request for a permanent
injunction against our manufacturing or selling the Engine
SynchroShift(TM) transmission and any "colorable variations."
- On October 11, 2001, the judge denied our motions for a new trial and for
judgment as a matter of law.
We have appealed these judgments and orders to the United States Court of
Appeals for the Federal Circuit. Based on advice of M. Lee Murrah, Esq., Chief
Intellectual Property Counsel of the company, management
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believes our truck transmissions do not infringe Eaton's patent. We intend to
continue to defend this suit vigorously.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against ArvinMeritor or our subsidiaries relating to the
conduct of our business, including those pertaining to product liability,
intellectual property, environmental, safety and health, and employment matters.
Included in these matters are claims for alleged asbestos-related personal
injuries, which arose from products manufactured prior to 1977 by a subsidiary
acquired by Arvin in 1986. During fiscal years 1996 through 2001, ArvinMeritor
and our predecessors paid asbestos-related claims of approximately $40 million,
substantially all of which were reimbursed by insurance. As of September 30,
2001, we had accrued approximately $71 million for contingent asbestos-related
liabilities, and recorded assets of $60 million for probable recoveries from
third parties and insurance. Management believes that existing insurance
coverage will reimburse substantially all of the potential liabilities and
expenses related to pending cases.
Prior to February 1, 2001, the Center for Claims Resolution (the "CCR")
handled the processing and settlement of asbestos claims on our behalf, and we
shared in the payment of defense costs and settlements of the asbestos claims
with other CCR members. Several members of the CCR have filed for bankruptcy
protection, and these members have failed, or may fail, to pay certain financial
obligations with respect to settlements that were reached while they were CCR
members. We expect to be subject to claims for payment of a portion of the
defaulted shares and an estimate of this payment has been included in the
recorded reserves. We and our insurers are engaged in proceedings to determine
whether existing insurance coverage should reimburse any potential liability
related to this issue.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to ArvinMeritor
and for amounts in excess of the foregoing estimates. However, based on
management's evaluation of matters which are pending or asserted, after
consulting with Vernon G. Baker, II Esq., ArvinMeritor's General Counsel, we
believe the disposition of such matters will not have a material adverse effect
on our financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, positions and offices held with ArvinMeritor and principal
occupations and employment during the past five years of each of our executive
officers as of November 30, 2001, are as follows:
LARRY D. YOST, 63 -- Chairman of the Board and Chief Executive Officer
since July 2000. Chairman of the Board and Chief Executive Officer of Meritor
from May 1997 to July 2000; Acting President, Light Vehicle Systems of Meritor
from January 1998 to March 1999; Senior Vice President, President, Automotive
and Acting President, Heavy Vehicle Systems of Rockwell (electronic controls and
communications) from March 1997 to September 1997; President, Heavy Vehicle
Systems of Rockwell from November 1994 to March 1997.
VERNON G. BAKER, II, 48 -- Senior Vice President and General Counsel since
July 2000. Secretary of ArvinMeritor from July 2000 to November 2001; Senior
Vice President, General Counsel and Secretary of Meritor from August 1999 to
July 2000; Vice President and General Counsel, Corporate Research and Technology
of Hoechst Celanese Corporation, a subsidiary of Hoechst AG (pharmaceuticals and
industrial chemicals), from 1989 to July 1999.
DIANE S. BULLOCK, 44 -- Vice President and Controller since August 2001.
Vice President, Corporate Development of ArvinMeritor from July 2000 to December
2000; Vice President and Controller of Meritor from September 1998 to July 2000;
Assistant Controller of Meritor from January 1998 to September 1998;
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Controller -- Body Systems N.A. of ITT Automotive, Inc. (automotive component
supplier) from 1995 to 1997.
LINDA M. CUMMINS, 53 -- Senior Vice President, Communications since July
2000. Senior Vice President, Communications of Meritor from April 2000 to July
2000; Vice President, Communications of Meritor from August 1999 to April 2000;
Vice President of Advanced Marketing and Worldwide Communications of United
Technologies Automotive (automotive component supplier) from August 1997 to
August 1999; Vice President of Communications and External Affairs of United
Technologies Automotive from June 1996 to August 1997; Director of Broadcast
News/Global News Department of Ford Motor Company (automotive) from 1993 to
1996.
WILLIAM K. DANIEL, 36 -- Senior Vice President and President, Light Vehicle
Aftermarket since July 2000. President of Arvin Replacement Products business
group from December 1999 to July 2000; Managing Director of Arvin Replacement
Products in Europe from January 1998 to November 1999; Managing Director of
Gabriel Europe from May 1996 to December 1997.
JUAN L. DE LA RIVA, 57 -- Senior Vice President, Corporate Development &
Strategy, Engineering and Procurement since October 2001. Senior Vice President,
Corporate Development and Strategy of ArvinMeritor from July 2000 to October
2001; Senior Vice President, Business Development of Meritor from February 2000
to July 2000; Senior Vice President, Business Development and Communications of
Meritor from February 1999 to February 2000; Vice President, Business
Development and Communications of Meritor from September 1998 to February 1999;
Managing Director -- Wheels, Light Vehicle Systems of Meritor from September
1997 to September 1998; Managing Director -- Wheels, Light Vehicle Systems of
Rockwell, from 1994 to September 1997.
THOMAS A. GOSNELL, 51 -- Senior Vice President and President, Commercial
Vehicle Systems since November 2000. Senior Vice President and President, Heavy
Vehicle Systems Aftermarket Products of ArvinMeritor from July 2000 to November
2000; Senior Vice President and President, Worldwide Aftermarket of Meritor from
September 1999 to July 2000; Vice President and General Manager, Aftermarket, of
Meritor from February 1998 to September 1999; General Manager, Worldwide
Aftermarket Services, Heavy Vehicle Systems, of Meritor from September 1997 to
February 1998; General Manager, Worldwide Aftermarket Services, Heavy Vehicle
Systems, of Rockwell from November 1996 to September 1997; General
Manager -- North America, Aftermarket Services, Heavy Vehicle Systems, of
Rockwell from June 1991 to November 1996.
PERRY L. LIPE, 55 -- Senior Vice President and Chief Information Officer
since July 2000. Vice President, Information Technology, of Arvin from September
1998 to July 2000; Vice President, Information Technology, of Fisher Controls
International, Inc. (valves, regulators and instrumentation) from September 1992
to August 1998.
TERRENCE E. O'ROURKE, 54 -- Senior Vice President and President, Light
Vehicle Systems since July 2000. Senior Vice President and President, Light
Vehicle Systems of Meritor from March 1999 to July 2000; Group Vice President
and President -- Ford Division of Lear Corporation (automotive component
supplier) from January 1996 to January 1999.
S. CARL SODERSTROM, 48 -- Senior Vice President and Chief Financial Officer
since July 2001. Senior Vice President, Engineering, Quality and Procurement of
ArvinMeritor from July 2000 to July 2001; Senior Vice President, Engineering,
Quality and Procurement of Meritor from February 1998 to July 2000; Vice
President, Engineering and Quality, Heavy Vehicle Systems of Meritor from
September 1997 to February 1998; Vice President, Engineering and Quality, Heavy
Vehicle Systems of Rockwell from October 1995 to September 1997.
CRAIG M. STINSON, 40 -- Senior Vice President and President, Exhaust
Systems since September 2000. Executive Vice President, Exhaust Systems of
ArvinMeritor from July 2000 to September 2000; Executive Vice President, Exhaust
Systems of Arvin from January 2000 to July 2000; Vice President -- General
Motors Business Group, Exhaust Systems of Arvin from June 1998 to January 2000;
Vice President -- DaimlerChrysler Business Group, Exhaust Systems of Arvin from
February 1995 to June 1998.
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FRANK A. VOLTOLINA, 41 -- Vice President and Treasurer since October 2000.
Vice President and Treasurer of Mallinckrodt Inc. (medical products) from
October 1997 to October 2000; Staff Vice President -- Director of Corporate Tax
of Mallinckrodt from October 1995 to October 1997.
ERNEST T. WHITUS, 46 -- Senior Vice President, Human Resources, since April
2001. Vice President, Human Resources-Commercial Vehicle Systems of ArvinMeritor
from July 2000 to April 2001; Vice President, Human Resources-Heavy Vehicle
Systems of Meritor from October 1998 to July 2000; Director, Human
Resources-Heavy Vehicle Systems of Meritor from September 1997 to October 1998;
Director, Human Resources-Heavy Vehicle Systems of Rockwell from January 1997 to
September 1997; Group Director, Human Resources of Allied Signal, Inc.
(diversified technology and manufacturing) from November 1994 to January 1997.
BONNIE WILKINSON, 51 -- Vice President and Secretary since November 2001.
Assistant General Counsel of ArvinMeritor from July 2000 to November 2001;
Assistant General Counsel of Meritor from July 1997 to July 2000; Assistant
Director, Division of Investment Management (Office of Public Utility
Regulation), U.S. Securities and Exchange Commission, from January 1996 to July
1997.
There are no family relationships, as defined in Item 401 of Regulation
S-K, between any of the above executive officers and any director, executive
officer or person nominated to become a director or executive officer. No
officer of ArvinMeritor was selected pursuant to any arrangement or
understanding between him or her and any person other than ArvinMeritor. All
executive officers are elected annually.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ArvinMeritor's common stock, par value $1 per share ("Common Stock"), is
listed on the New York Stock Exchange and trades under the symbol "ARM." On
November 30, 2001, there were 35,697 shareowners of record of ArvinMeritor's
Common Stock.
In connection with the Merger, each outstanding share of Meritor common
stock was exchanged for 0.75 shares of ArvinMeritor Common Stock. The high and
low sale prices per share of Meritor common stock for the first three quarters
of fiscal year 2000, restated to reflect the exchange rate in the Merger, and
the high and low sale prices per share of ArvinMeritor Common Stock for the
fourth quarter of fiscal year 2000 and each quarter of fiscal year 2001, were as
follows:
<Table>
<Caption>
2001 2000
--------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
>December 31................................ $17.06 $ 8.88 $28.58 $20.00
March 31.................................... 17.00 11.00 26.50 18.17
June 30..................................... 16.80 12.78 22.33 14.67
September 30................................ 21.87 12.10 18.63 13.75
</Table>
Quarterly cash dividends in the following amounts per share were declared
and paid in each quarter of the last two fiscal years. The dividends for the
first three quarters of fiscal year 2000 were paid with respect to Meritor
common stock, and the amounts per share have been adjusted to reflect the
exchange rate in the Merger.
<Table>
<Caption>
QUARTER ENDED 2001 2000
------------- ----- -----
<S> <C> <C>
December 31................................................. $0.22 $0.14
March 31.................................................... 0.22 0.14
June 30..................................................... 0.22 0.14
September 30................................................ 0.10 0.22
</Table>
17
<PAGE>
On July 2, 2001, the company issued 514 shares of Common Stock to each of
James E. Perrella and Martin D. Walker, non-employee directors of ArvinMeritor,
in lieu of cash payment of the quarterly retainer fee for board service. These
shares were issued pursuant to the terms of our Directors Stock Plan and the
issuance was exempt from registration under the Securities Act of 1933, as
amended, as a transaction not involving a public offering under Section 4(2).
In July 2000, ArvinMeritor's board of directors authorized the purchase of
up to $100 million of ArvinMeritor's outstanding Common Stock. Under the
repurchase program, we purchased shares periodically in the open market or
through privately negotiated transactions, as market conditions warranted and in
accordance with SEC rules. Through September 30, 2001, we had acquired
approximately 5.4 million shares under this program, at an aggregate cost of $84
million, or an average of $15.39 per share. This program was terminated in
November 2001.
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth selected consolidated financial data in respect of
the company. The data should be read in conjunction with the information
included under Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8. Financial Statements and
Supplementary Data below.
<Table>
<Caption>
SUMMARY OF OPERATIONS -- 2001 2000 1999 1998 1997
YEAR ENDED SEPTEMBER 30 ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales
Light Vehicle Systems....................... $3,588 $2,031 $1,575 $1,475 $1,352
Commercial Vehicle Systems.................. 2,199 2,872 2,875 2,361 1,957
Light Vehicle Aftermarket................... 859 209 -- -- --
Other....................................... 159 41 -- -- --
------ ------ ------ ------ ------
Total............................... $6,805 $5,153 $4,450 $3,836 $3,309
====== ====== ====== ====== ======
Net income(1)................................. 35 218 194 147 109
Basic and diluted earnings per share(1)(2).... $ 0.53 $ 4.12 $ 3.75 $ 2.84 N/A
Cash dividends per share(2)................... $ 0.76 $ 0.64 $ 0.56 $ 0.56 N/A
FINANCIAL POSITION AT SEPTEMBER 30
Total assets.................................. $4,362 $4,720 $2,796 $2,086 $2,002
Short-term debt............................... 94 183 44 34 21
Long-term debt................................ 1,313 1,537 802 313 465
Capital Securities............................ 57 74 -- -- --
</Table>
- ---------------
(1) Net income and basic and diluted earnings per share for fiscal year 2001
includes restructuring costs of $67 million ($45 million after-tax, or $0.68
per share), an employee separation charge of $12 million ($8 million
after-tax, or $0.12 per share), and an environmental charge of $5 million
($3 million after-tax, or $0.05 per share). Net income and basic and diluted
earnings per share for fiscal year 2000 includes a one-time gain of $89
million ($54 million after-tax, or $1.01 per share) for the sale of the seat
adjusting systems business and other assets, restructuring costs of $26
million ($16 million after-tax, or $0.30 per share), and merger expenses of
$10 million ($6 million after-tax, or $0.11 per share). Net income and basic
and diluted earnings per share for fiscal year 1999 includes restructuring
costs of $28 million ($17 million after-tax, or $0.33 per share) and a
one-time gain of $24 million ($18 million after-tax, or $0.34 per share)
recorded to reflect the formation of a transmission and clutch joint venture
with ZF Friedrichshafen AG. Net income and basic and diluted earnings per
share for fiscal year 1998 includes a one-time charge of $31 million ($19
million after-tax, or $0.36 per share) relating to the settlement of
interest rate agreements. Net income for fiscal year 1997 includes
restructuring costs of $29 million ($21 million after-tax).
(2) As the company began operations as a stand-alone entity on September 30,
1997, per share data for years ending prior to September 30, 1998, are not
applicable.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW AND OUTLOOK
Our industry is rapidly transforming to keep pace with the globalization
and consolidation of the original equipment manufacturers (OEMs), as well as the
continued trends of outsourcing by the OEMs and systems integration. The
increased competitive pressures and complexity of the industry are presenting
suppliers with many challenges and growth opportunities. We believe that
ArvinMeritor has all the ingredients and qualities in place to continue to be a
leading Tier One supplier. We have the advantages of scale, product breadth,
geographic scope, technological leadership and systems integration capability to
be one of the industry's strongest competitors and to take further advantage of
industry trends.
We believe we can meet, over a multi-year period, our stated long-term
financial goals to deliver annual average sales growth of 10 percent and
earnings per share growth of 15 to 18 percent, while maintaining a strong
emphasis on cash and investment grade ratios. Our long-term goals have been
established with the recognition that the company operates in a cyclical
industry that has been characterized historically by periodic fluctuations in
demand for light, commercial and specialty vehicles, and related aftermarkets,
resulting in corresponding fluctuations in demand for our products. Accordingly,
we will measure our performance against these long-term financial goals over a
multi-year period.
Softening demand in several of our principal markets, including commercial
truck and light vehicle markets in North America and light vehicle replacement
markets, had a negative effect on our financial results for fiscal 2001. We
expect this environment to continue in fiscal 2002.
Our outlook for our major served markets around the world in fiscal 2002
anticipates declines from fiscal 2001 levels. We expect the North American
commercial truck and trailer markets to continue to soften during our fiscal
2002, and we anticipate North American Class 8 production to decline about 7
percent. European heavy and medium trucks are estimated to be down almost 15
percent from fiscal 2001. There is greater uncertainty in the light vehicle
original equipment markets, but our current expectations are for a 4 percent
decline in North American and a 7 percent decline in Western European light
vehicle production during fiscal 2002. We also believe the light vehicle
replacement market will continue to weaken in fiscal 2002 based on higher
quality original equipment products. Additionally, it is difficult to predict
the impact the euro and other currencies will have on sales and operating income
in the upcoming year.
We have realized significant cost savings from our fiscal 2001 synergy
related actions and restructuring programs, and we will continue to realize
incremental savings from actions implemented in the latter part of fiscal 2001
and in this fiscal year. We will continue to drive strong financial performance
through aggressive ongoing cost-reduction efforts and restructuring actions.
These cost-reduction initiatives include salaried workforce reductions, delays
in merit increases, further rationalization of our facilities and limitations on
capital spending.
While our restructuring programs and cost reduction actions continue at a
vigorous pace and we are making progress in improving our cost structure, our
top priorities remain keeping service at a high level and exceeding our
customers' expectations. We will continue to focus on providing best-in-class
engineering and technology support. Our ongoing commitment to continuous
improvement and customer satisfaction is further evidenced by the rollout of the
ArvinMeritor Performance System, which is a combination of lean manufacturing
principles and best practices. This internally focused system is designed to
empower teams to drive out waste, eliminate non-value added tasks, reduce cycle
and lead times, and improve processes.
FINANCIAL CONDITION
OPERATING CASH FLOW -- Our cash flow from operations was $605 million in
fiscal 2001, which was used to fund capital expenditures, pay dividends,
purchase treasury stock and pay down debt. The strong performance in cash
provided by operating activities in fiscal 2001 is primarily the result of
significant improvement in working capital levels and the sale of $211 million
of receivables (see below). Working capital improvements were driven by improved
inventory turnover and higher days in payables. Cash flow from operations was
$228 million and $262 million in fiscal 2000 and 1999, respectively. The decline
in cash
19
<PAGE>
provided by operating activities in fiscal 2000 from fiscal 1999 is primarily
the result of working capital levels not being reduced commensurate with the
decline in sales during the fourth quarter of fiscal 2000. In addition,
increased pension funding and retiree medical payments contributed to the
reduction from 1999 levels.
INVESTING CASH FLOW -- Our strong operating cash flow has allowed the
company to fund capital expenditures of $206 million in fiscal 2001, $225
million in fiscal 2000 and $170 million in fiscal 1999. These investments
include property, plant and equipment needed for future business requirements.
The company continues to evaluate spending reduction strategies, including
reductions in capital spending, and expects capital expenditures in fiscal 2002
to be between $170 million and $180 million. In fiscal 2001, cash used for
investing activities also includes $34 million used for the acquisition of a
business and investments. The cash used was partially offset by $30 million of
proceeds from dispositions of assets and an investment in an affiliate.
In fiscal 2000, cash used for investing activities included capital
expenditures of $225 million, cash payments of $49 million relating to the
merger between Arvin and Meritor and cash used for acquisitions of businesses
and investments of $74 million. This cash used was partially offset by $148
million of proceeds from dispositions of assets, property and businesses,
primarily relating to the sale of the seat adjusting systems business. The
increase in capital spending for fiscal 2000 compared to fiscal 1999 was due in
part to the inclusion of Arvin capital expenditures after the merger.
In fiscal 1999, cash used for investing activities included capital
expenditures of $170 million and cash used for three acquisitions totaling $573
million, offset somewhat by $51 million of proceeds from the formation of the
transmission and clutch joint venture with ZF Friedrichshafen AG (ZF).
FINANCING CASH FLOW -- Cash used for financing activities was $402 million
in fiscal 2001. Cash provided by operating activities was used to repay $303
million of debt and $17 million of preferred capital securities. The company's
total debt to capitalization ratio was 67 percent at both September 30, 2001 and
2000. Additionally, the company made payments of $31 million for the repurchase
of its stock and $51 million for cash dividends in fiscal 2001.
On April 12, 2001, the company filed a shelf registration statement with
the Securities and Exchange Commission registering $750 million aggregate
principal amount of debt securities that may be offered in one or more series on
terms to be determined at the time of sale. The registration statement became
effective on April 18, 2001. Except as may otherwise be determined at the time
of sale, the net proceeds of any offering would be used for repayment of
outstanding indebtedness and for other general corporate purposes.
During fiscal 2001, the company entered into an unsecured 364-day, $750
million unsecured credit facility and amended its 5-year $750 million revolving
credit facility. These credit facilities total $1.5 billion and replaced the
unsecured credit facilities entered into in July 2000. The company also has a
commercial paper program with authorized borrowings of up to $1 billion.
Interest rates applicable to the commercial paper borrowings are currently
higher than the cost of other available sources of financing, and no borrowings
were outstanding as of September 30, 2001.
Also during fiscal 2001, the company entered into an accounts receivable
securitization program, whereby the company sold substantially all of the trade
receivables of certain subsidiaries to ArvinMeritor Receivables Corporation
(ARC), a wholly owned subsidiary of the company. ARC then entered into an
agreement to sell an undivided interest in up to $250 million of the
receivables. As of September 30, 2001, $211 million of trade receivables had
been sold and are excluded from receivables (see Note 4 of Notes to Consolidated
Financial Statements).
In November 2001, the board of directors declared a $0.10 per share
quarterly dividend payable in December 2001.
Net cash provided by financing activities was $38 million in fiscal 2000.
The net increase in revolving debt in fiscal 2000 was $245 million. The company
made payments of $172 million for the repurchase of its stock and $35 million
for cash dividends.
Net cash provided by financing activities was $441 million in fiscal 1999.
This amount includes a $507 million increase in debt, primarily related to the
February 1999 public offering of $500 million of debt
20
<PAGE>
securities. The proceeds were used to repay existing indebtedness, including
short-term credit facilities entered into to facilitate three acquisitions. In
addition, the company made payments of $6 million for the repurchase of its
stock, $29 million for cash dividends and $31 million for the settlement of
interest rate agreements entered into in fiscal 1998 to secure interest rates in
anticipation of offering debt securities.
OTHER INFORMATION -- The company has retirement medical and defined benefit
pension plans that cover most of its U.S. and certain non-U.S. employees (see
Notes 16 and 17 of Notes to Consolidated Financial Statements). Retirement
medical plan benefit payments aggregated $53 million in fiscal 2001, $49 million
in fiscal 2000 and $41 million in fiscal 1999, and are expected to be
approximately $55 million in fiscal 2002. The company made pension plan
contributions of $44 million in fiscal 2001, $40 million in fiscal 2000 and $30
million in fiscal 1999. Management expects to fund at least the minimum pension
plan contributions required by government regulations for the various plans and
anticipates that pension plan funding will be between $40 million and $60
million in fiscal 2002.
As noted above, the company's total debt to capitalization ratio was 67
percent at September 30, 2001 and 2000. The company regularly considers various
strategic and business opportunities, including acquisitions. Although no
assurance can be given as to whether or when any acquisitions may be
consummated, if an agreement were to be reached, the company could finance such
acquisitions by issuance of additional debt or equity securities. The additional
debt from any acquisitions, if consummated, could increase the company's total
debt to capitalization ratio.
Based upon the company's projected cash flow from operations and existing
bank credit facilities, management believes that sufficient liquidity is
available to meet anticipated operating, capital and dividend requirements over
the next 12 months.
RESULTS OF OPERATIONS
The merger of Arvin and Meritor was accounted for as a purchase with
Meritor designated as the acquiror. Accordingly, the historic financial
information for periods prior to July 7, 2000, reflects only the results of
Meritor and its consolidated subsidiaries. The information for the period after
July 7, 2000, represents the results of ArvinMeritor and its consolidated
subsidiaries. All share and per share data prior to July 7, 2000 have been
restated to conform with the exchange of Meritor shares to ArvinMeritor shares
on a one Meritor share for 0.75 ArvinMeritor shares basis, in connection with
the merger (see Note 3 of Notes to Consolidated Financial Statements). All
earnings per share amounts are on a diluted basis. All references to pro forma
amounts assume that the merger occurred at the beginning of each period
presented, and do not give pro forma effect to any acquisitions or divestitures
made by Arvin or Meritor.
21
<PAGE>
The following sets forth the sales, operating income and net income of the
company for the years ended September 30, 2001, 2000 and 1999, as well as pro
forma amounts for fiscal 2000 and 1999:
<Table>
<Caption>
PRO FORMA
AS REPORTED (UNAUDITED)(1)
------------------------------ ------------------
YEAR ENDED SEPTEMBER 30, 2001 2000 1999 2000 1999
------------------------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales
Light Vehicle Systems............................... $3,588 $2,031 $1,575 $3,668 $3,474
Commercial Vehicle Systems.......................... 2,199 2,872 2,875 2,926 2,941
Light Vehicle Aftermarket........................... 859 209 -- 950 906
Other............................................... 159 41 -- 178 170
------ ------ ------ ------ ------
TOTAL SALES.................................. $6,805 $5,153 $4,450 $7,722 $7,491
====== ====== ====== ====== ======
Operating income
Light Vehicle Systems............................... $ 213 $ 149 $ 130 $ 232 $ 199
Commercial Vehicle Systems.......................... 32 221 233 231 245
Light Vehicle Aftermarket........................... 44 6 -- 43 72
Other............................................... (10) -- -- 9 17
------ ------ ------ ------ ------
SEGMENT OPERATING INCOME............................ 279 376 363 515 533
Gain on sale of business and other.................. -- 89 24 89 31
Restructuring costs and other charges............... (84) (26) (28) (30) (35)
Merger expenses..................................... -- (10) -- -- --
------ ------ ------ ------ ------
TOTAL OPERATING INCOME....................... 195 429 359 574 529
Equity in earnings of affiliates...................... 4 29 35 40 45
Non-operating one-time items.......................... -- -- -- (3) (1)
Interest expense, net and other....................... (136) (89) (61) (142) (117)
Provision for income taxes............................ (21) (141) (129) (177) (169)
Minority interests.................................... (7) (10) (10) (5) (7)
------ ------ ------ ------ ------
NET INCOME............................................ $ 35 $ 218 $ 194 $ 287 $ 280
====== ====== ====== ====== ======
DILUTED EARNINGS PER SHARE............................ $ 0.53 $ 4.12 $ 3.75 $ 4.02 $ 3.67
====== ====== ====== ====== ======
DILUTED EARNINGS PER SHARE
BEFORE SPECIAL ITEMS(2)............................. $ 1.38 $ 3.52 $ 3.73 $ 3.56 $ 3.66
====== ====== ====== ====== ======
</Table>
- ---------------
(1) Pro forma financial information is presented as if the merger had occurred
at the beginning of each fiscal year and reflects (a) the amortization of
goodwill from the merger and the elimination of historical Arvin goodwill
amortization expense; (b) the adjustment to interest expense for borrowings
to fund the Arvin cash consideration and other financing costs; (c) the
income tax effects of (a) and (b) above; and (d) the adjustment of shares
outstanding representing the exchange of one share of Meritor common stock
for 0.75 shares of ArvinMeritor common stock and one share of Arvin common
stock for one share of ArvinMeritor common stock, based on the average
shares outstanding for each year.
(2) Special items in fiscal 2001 include $67 million restructuring costs ($45
million after-tax, or $0.68 per share), $5 million environmental charge ($3
million after-tax, or $0.05 per share) and $12 million employee separation
charge ($8 million after-tax, or $0.12 per share). Special items in fiscal
2000 include gain on the sale of the seat adjusting systems business and
other assets of $89 million ($54 million after-tax, or $1.01 per share),
restructuring costs of $26 million ($16 million after-tax, or $0.30 per
share), and merger expenses of $10 million ($6 million after-tax, or $0.11
per share) Special items in fiscal 1999 include gain on formation of the ZF
Meritor joint venture of $24 million ($18 million after-tax, or $0.34 per
share) and restructuring costs of $28 million ($17 million after-tax, or
$0.33 per share). Pro forma amounts in fiscal 2000 exclude merger costs of
$70 million ($58 million after-tax, or $0.81 per share). In addition to the
special items discussed above, pro forma special items in fiscal 2000
include restructuring and other charges of $4 million ($3 million after-tax,
or $0.04 per share), and $3 million ($2 million after-tax, or $0.03 per
share) non-operating one-time items. Pro forma amounts in fiscal 1999 also
include a gain on sale of affiliate of $7 million ($5 million after-tax, or
$0.07 per share), restructuring and other charges of $7 million ($4 million
after-tax, or $0.05 per share) and non-operating one-time items of $1
million ($1 million after-tax, or $0.01 per share).
22
<PAGE>
2001 COMPARED TO 2000
SALES -- Sales for fiscal 2001 were $6,805 million, up $1,652 million, or
32 percent, over last year's sales of $5,153 million. Included in fiscal 2001 is
a full year of sales attributable to the merger with Arvin, whereas fiscal 2000
includes Arvin results only for the fourth quarter. The increase in sales is due
to $2,439 million of incremental sales from Arvin in the first three quarters of
fiscal 2001, offset slightly by a $787 million decline in sales relating
primarily to the company's Commercial Vehicle Systems segment, which has been
experiencing a steep decline in Class 8 North American truck volumes. Fiscal
2001 Class 8 North American truck volumes declined 48 percent from fiscal 2000
levels. Pro forma sales in fiscal 2000, as if Arvin and Meritor had operated as
a merged company during the entire year, were $7,722 million. The $917 million
or 12 percent decline in sales from pro forma 2000 levels is attributable to the
decline in heavy truck volumes, as described above, as well as volume declines
in the North American light vehicle market and a softening of demand in the
aftermarket.
LIGHT VEHICLE SYSTEMS (LVS) SALES -- LVS sales increased to $3,588 million,
from $2,031 million a year ago, as a result of the incremental sales of $1,633
million in fiscal 2001 related to the merger with Arvin. This sales increase is
slightly offset by $84 million of negative currency exchange. LVS sales were
down $80 million, or 2 percent, from 2000's pro forma sales of $3,668 million.
LVS sales in North America increased 83 percent (down 5 percent on a pro forma
basis). Sales in South America and Europe were up 181 percent and 61 percent,
respectively (both up 1 percent on a pro forma basis). Sales in Asia/Pacific
grew 13 percent (6 percent on a pro forma basis).
COMMERCIAL VEHICLE SYSTEMS (CVS) SALES -- CVS reported $2,199 million in
sales for components and systems for original equipment and the aftermarket in
fiscal 2001, including $41 million of incremental sales in fiscal 2001 related
to the Arvin merger and $82 million of negative currency exchange, versus $2,872
million in fiscal 2000. CVS sales in North America were $1,464 million, down
$556 million, or 28 percent from fiscal 2000. The 48 percent volume decline in
the North American Class 8 truck market and the 29 percent decline in the North
American medium truck market drove this decline. Western European sales were
down $116 million, or 17 percent in a heavy and medium truck market that was
down 4 percent. South American sales were down 1 percent, while sales in the
rest of the world were flat. Sales of $2,199 million were down $727 million from
$2,926 million pro forma in fiscal 2000.
LIGHT VEHICLE AFTERMARKET (LVA) SALES -- The LVA business is attributable
to Arvin, and accordingly is included in fiscal 2000 for only the fourth
quarter. LVA sales were $859 million in fiscal 2001, versus $209 million in the
prior year. The increase is due to the inclusion of $648 million of sales in the
first three quarters of fiscal 2001 due to the merger. On a pro forma basis, LVA
sales declined $91 million, or 10 percent, from $950 million pro forma fiscal
2000 sales. Softening customer demand resulted in depressed volumes in this
segment.
OPERATING INCOME -- Fiscal 2001 operating income was $195 million, down
$234 million from fiscal 2000. Operating margin was 2.9 percent in fiscal 2001
versus 8.3 percent in fiscal 2000. In fiscal 2001, the company recorded charges
totaling $84 million ($56 million after-tax, or $0.85 per share) related to
restructuring costs and other items. The restructuring charge was $67 million,
and the other items include a charge related to additional environmental
liability of $5 million and an employee separation charge of $12 million. In
fiscal 2000, the company completed the sale of its LVS seat adjusting systems
business for approximately $135 million in cash, resulting in a one-time gain of
$83 million ($51 million after-tax, or $0.96 per share). Also during fiscal
2000, the company recorded a restructuring charge of $26 million ($16 million
after-tax, or $0.30 per share), merger expenses of $10 million ($6 million
after-tax, or $0.11 per share), and a gain on sale of land of $6 million ($3
million after-tax, or $0.05 per share).
Excluding the restructuring costs and other charges, merger expenses and
one-time gains, operating income was $279 million, down $97 million from $376
million in fiscal 2000. This decrease in operating income is primarily
attributable to revenue declines in the CVS business of over 20 percent from
fiscal 2000. Additionally, operating income from Other (business units not
focused on automotive products) decreased $10 million. Partially offsetting
these operating income declines is the favorable impact of including Arvin
results for a full year in fiscal 2001, versus only the fourth quarter of fiscal
2000.
23
<PAGE>
Segment operating income (which is operating income before restructuring
costs and other charges, merger expenses, and gain on sale of business and
other) of $279 million was down $236 million, or 46 percent from 2000's pro
forma segment operating income of $515 million. The steep decline in CVS markets
and the related decline in CVS revenues, particularly in North America, was the
primary driver of this decline. The remaining decline is attributable to
declines in operating income in the LVS and Other segments of $19 million each.
Segment operating margin was 4.1 percent in fiscal 2001, as compared to 6.7
percent in pro forma fiscal 2000.
LVS OPERATING INCOME -- LVS operating income was $213 million in fiscal
2001, up $64 million, or 43 percent, from fiscal 2000. Results from the merger
with Arvin contributed an additional $74 million of operating income in fiscal
2001. LVS operating margin declined to 5.9 percent from 7.3 percent in fiscal
2000. LVS operating income was down $19 million from pro forma 2000 operating
income of $232 million and operating margin was 5.9 percent in fiscal 2001,
versus 6.3 percent in pro forma fiscal 2000. Continued pricing pressures from
the vehicle manufacturers, coupled with North American production declines,
contributed to the operating margin decline. LVS continues to offset these
challenges through restructuring and other programs aimed at lowering fixed
costs.
CVS OPERATING INCOME -- CVS operating income was $32 million, a decrease of
$189 million from fiscal 2000. Operating margin declined from 7.7 percent in
fiscal 2000 to 1.5 percent in fiscal 2001. The margin decline was driven by the
48 percent drop in North American heavy truck volumes and the 29 percent decline
in North American medium truck volumes. These volume reductions outpaced the
company's lowering of its fixed costs. Compared to pro forma fiscal 2000,
operating income was down $199 million, and operating margin was down from 7.9
percent.
LVA OPERATING INCOME -- LVA operating income was $44 million in fiscal
2001, with an operating margin of 5.1 percent, compared to operating income of
$6 million and a related margin of 2.9 percent in fiscal 2000. The inclusion of
a full year of activity in fiscal 2001, due to the merger with Arvin on July 7,
2000, added $28 million to operating income. Compared to pro forma fiscal 2000,
operating income was up slightly from $43 million and operating margin was up 60
basis points from 4.5 percent. The operating margin increase is the result of
improved pricing, the favorable impact of ongoing cost reductions and lower
changeover spending.
EQUITY IN EARNINGS OF AFFILIATES -- Equity in earnings of affiliates
declined to $4 million, as compared to $29 million a year ago, primarily due to
declining earnings from commercial vehicle affiliates. Equity in earnings of
affiliates was $40 million on a pro forma basis in fiscal 2000.
INTEREST EXPENSE, NET AND OTHER (INTEREST EXPENSE) -- Interest expense for
fiscal 2001 was $136 million, up $47 million, or 53 percent, from $89 million in
fiscal 2000. This increase is primarily attributable to the July 7, 2001 merger
with Arvin, which increased total debt by over $700 million. The decline in
interest expense from $142 million pro forma 2000 to $136 million in 2001
reflects lower debt levels and interest rates. Included in fiscal 2001 interest
expense is a discount of $3 million on the sale of receivables (see Note 4 of
Notes to Consolidated Financial Statements).
NET INCOME AND DILUTED EARNINGS PER SHARE -- Net income for fiscal 2001 was
$35 million, or $0.53 per share, a decrease of 84 percent and 87 percent,
respectively, as compared to fiscal 2000 net income of $218 million, or $4.12
per share. Diluted earnings per share before special items was $1.38, compared
with 2000 diluted earnings per share before special items of $3.52. On a pro
forma basis, excluding special items, fiscal 2000 diluted earnings per share was
$3.56.
2000 COMPARED TO 1999
SALES -- Sales for fiscal 2000 were $5,153 million, up $703 million, or 16
percent, over fiscal 1999 sales of $4,450 million. Included in fiscal 2000 sales
are $714 million of sales attributable to the merger with Arvin and a decrease
of about $130 million due to currency exchange. The sale of the company's seat
adjusting systems business in November 1999 resulted in a decrease of $98
million in sales year-over-year. Additionally, the
24
<PAGE>
company's transmission and clutch business contributed sales of $166 million in
fiscal 1999. The results of this business are now reported as affiliate income,
due to the formation of the ZF Meritor joint venture in fiscal 1999. Pro forma
sales, as if Arvin and Meritor had operated as a merged company in all periods,
were $7,722 million in fiscal 2000, an increase of 3 percent over pro forma 1999
sales.
LIGHT VEHICLE SYSTEMS (LVS) SALES -- LVS sales increased $456 million, or
29 percent, to $2,031 million, from $1,575 million in fiscal 1999. Fiscal 2000
sales include $447 million of sales from Arvin businesses. The remaining
increase in sales is due to penetration gains and strong industry volumes which
were partially offset by the sale of the LVS seat adjusting systems business in
early fiscal 2000 and the $84 million negative impact of currency. The seat
adjusting systems business had fiscal 1999 sales of $129 million and fiscal 2000
sales of $31 million. On a pro forma basis, LVS sales for fiscal 2000 were
$3,668 million, up $194 million or 6 percent from $3,474 million in 1999.
Additional market penetration gains in exhaust systems drove this growth. LVS
sales in North America grew 48 percent (11 percent on a pro forma basis). Sales
in South America and Asia/Pacific grew 7 percent and 5 percent, respectively (up
4 percent and 6 percent on a pro forma basis, respectively). Sales in Europe
were up 15 percent (down 2 percent on a pro forma basis).
COMMERCIAL VEHICLE SYSTEMS (CVS) SALES -- CVS reported $2,872 million in
sales of components and systems for original equipment and the aftermarket in
fiscal 2000, including $17 million attributable to the merger with Arvin, which
was down slightly from fiscal 1999 sales. CVS sales in North America were $2,020
million, down $148 million or 7 percent from $2,168 million in fiscal 1999. The
decline in North American heavy truck markets of approximately 8 percent drove
this decline. European sales were up $103 million, or 18 percent, and South
American sales were up $18 million, or 27 percent, while sales in the rest of
the world were up $24 million. On a pro forma basis, CVS sales would have been
$2,926 million in fiscal 2000, down $15 million, or 1 percent, from pro forma
1999 sales.
LIGHT VEHICLE AFTERMARKET (LVA) SALES -- LVA sales were $209 million in
fiscal 2000 with no sales in fiscal 1999, because this business is attributable
to Arvin and is included in the consolidated results only from July 7, 2000, and
forward. On a pro forma basis, LVA sales in fiscal 2000 were $950 million, an
increase of 5 percent, or $44 million from pro forma 1999 levels. The increase
in pro forma sales is attributable primarily to the inclusion of a full year of
results of the Purolator business, which was acquired by Arvin in March 1999.
Purolator generated $318 million of pro forma sales in fiscal 2000, as compared
to $203 million in pro forma sales in fiscal 1999. These increases were
partially offset by price reductions and product mix issues, the negative impact
of currency translation and a softening of markets in both North America and
Europe in the latter part of the fiscal year.
OPERATING INCOME -- Fiscal 2000 operating income was $429 million, up $70
million from fiscal 1999. Operating margin was 8.3 percent in fiscal 2000 versus
8.1 percent in fiscal 1999. In fiscal 2000, the company completed the sale of
its LVS seat adjusting systems business for approximately $135 million in cash,
resulting in a one-time gain of $83 million ($51 million after-tax, or $0.96 per
share). Also during fiscal 2000, the company recorded a restructuring charge of
$26 million ($16 million after-tax, or $0.30 per share), merger expenses of $10
million ($6 million after-tax, or $0.11 per share) and a gain on sale of land of
$6 million ($3 million after-tax, or $0.05 per share). Fiscal 1999 operating
income was $359 million, and includes a restructuring charge of $28 million ($17
million after-tax, or $0.33 per share) and a one-time gain of $24 million ($18
million after-tax, or $0.34 per share) in connection with the formation of a
transmission and clutch joint venture with ZF.
Excluding the restructuring charges, merger costs and one-time gains from
sales of businesses and assets, operating income was $376 million in fiscal
2000, up $13 million from $363 million in fiscal 1999. This increase is
attributable to the results of Arvin, included in the company's results after
July 7, 2000. Segment operating margin was 7.3 percent in fiscal 2000, as
compared to 8.2 percent in fiscal 1999. On a pro forma basis, segment operating
income was $515 million in fiscal 2000, down 3 percent from $533 million in
fiscal 1999. Pro forma segment operating margin declined from 7.1 percent in
fiscal 1999 to 6.7 percent in fiscal 2000.
LVS OPERATING INCOME -- LVS operating income was $149 million in fiscal
2000, with operating margin of 7.3 percent. Operating income was up $19 million,
or 15 percent, from 1999, although operating margin
25
<PAGE>
decreased from 8.3 percent. Results from the merger with Arvin contributed $7
million of operating income in fiscal 2000. Operating income increased due to
the volume contribution from higher sales and favorable product mix. On a pro
forma basis, operating income for fiscal 2000 increased $33 million, or 17
percent, to $232 million. Pro forma operating margin increased from 5.7 percent
in fiscal 1999 to 6.3 percent in fiscal 2000.
CVS OPERATING INCOME -- CVS operating income was $221 million in fiscal
2000, a decrease of 5 percent from 1999. Operating margin declined by 40 basis
points to 7.7 percent in fiscal 2000. The decline in margin was driven by higher
costs due to unfavorable economics, the negative impact of currency exchange and
higher warranty expenses. On a pro forma basis, operating income for fiscal 2000
was $231 million, also down 6 percent from pro forma fiscal 1999. Pro forma
operating margin of 7.9 percent also declined by 40 basis points.
LVA OPERATING INCOME -- LVA operating income was $6 million in fiscal 2000,
with an operating margin of 2.9 percent. This business was acquired as part of
the merger with Arvin and is, accordingly, included in the consolidated results
from July 7, 2000, and forward. On a pro forma basis, operating income and
margin for fiscal 2000 were $43 million and 4.5 percent, respectively, down from
fiscal 1999 pro forma operating income of $72 million and related margin of 7.9
percent. The decline in LVA pro forma operating income relates primarily to
reduced pricing and product mix issues, and was partially offset by increased
volume. The decline in operating income also reflects the soft market conditions
experienced in late fiscal 2000 and consolidation of the distribution channel
base.
EQUITY IN EARNINGS OF AFFILIATES -- Equity in earnings of affiliates was
down $6 million in fiscal 2000, to $29 million, primarily as a result of the
lower North American truck volumes.
INTEREST EXPENSE, NET AND OTHER (INTEREST EXPENSE) -- Interest expense for
fiscal 2000 was $89 million, up $28 million from fiscal 1999 interest expense of
$61 million. The increase was primarily attributable to higher debt levels
associated with acquisitions and the share repurchase programs. On a pro forma
basis, fiscal 2000 interest expense increased $25 million, to $142 million,
primarily as a result of the share repurchase programs and acquisitions made
during fiscal 1999.
NET INCOME AND DILUTED EARNINGS PER SHARE -- Net income for fiscal 2000 was
$218 million, or $4.12 per share, an increase of 12 percent and 10 percent,
respectively, as compared with fiscal 1999 net income of $194 million, or $3.75
per share. Diluted earnings per share before special items was $3.52 in fiscal
2000, compared with 1999 diluted earnings per share before special items of
$3.73. Special items include the restructuring costs, one-time gains and merger
expenses discussed earlier. On a pro forma basis, excluding special items,
fiscal 2000 diluted earnings per share was down to $3.56, compared to 1999
diluted earnings per share of $3.66.
AFFILIATES
At September 30, 2001, the company had 14 joint ventures which were not
majority-owned and controlled and were accounted for under the equity method of
accounting. These strategic alliances provide for sales, product design,
development and manufacturing in certain product and geographic areas. Aggregate
sales of these affiliates were $1,782 million, $924 million and $488 million in
fiscal 2001, 2000 and 1999, respectively. The increase in fiscal 2001 is due to
the inclusion of $1,129 million in sales from Arvin's affiliates in the first
three quarters of fiscal 2001 versus none from Arvin's affiliates in the
corresponding period of the prior year, due to the merger, offset slightly by
the decline in sales of certain CVS affiliates. The increase in fiscal 2000 is
due to the inclusion of approximately $290 million in sales from Arvin's
affiliates and $146 million attributable to sales of the ZF Meritor joint
venture created in late fiscal 1999.
The company's equity in earnings of affiliates was $4 million in fiscal
2001, compared to $29 million in fiscal 2000 and $35 million in fiscal 1999.
Cash dividends to ArvinMeritor from these joint ventures were $24 million, $32
million and $28 million in fiscal 2001, 2000 and 1999, respectively. The
decreases in earnings of affiliates over the three year period is primarily a
result of the lower North American heavy truck volumes, which resulted in lower
sales and lower earnings of certain affiliates.
26
<PAGE>
INCOME TAXES
The effective income tax rate in fiscal 2001 was 33.5 percent, compared to
38.2 percent in fiscal 2000 and 38.8 percent in fiscal 1999. The company's
effective tax rate has been favorably impacted over the three-year period by
ongoing legal entity restructuring, which more closely aligns the company's
organizational structure with the underlying operations of the business.
INTERNATIONAL OPERATIONS
Approximately 41 percent of the company's total assets as of September 30,
2001, and 37 percent of fiscal 2001 sales were outside North America. Management
believes that international operations have significantly benefited the
financial performance of the company. However, the company's international
operations are subject to a number of risks inherent in operating abroad. There
can be no assurance that these risks will not have a material adverse impact on
the company's ability to increase or maintain its foreign sales or on its
financial condition or results of operations. The company's sales in fiscal 2001
and 2000 were negatively impacted by approximately $170 million and $130
million, respectively, due to exchange rate changes. Operating income in fiscal
2001 and 2000 was negatively impacted due to foreign exchange by $19 million and
$20 million, respectively. The impact the euro and other currencies will have on
the company's sales and operating income is difficult to predict in the upcoming
year.
On January 1, 1999, the euro became the common currency of 11 countries of
the European Union and the present national currencies of these 11 countries
became sub-units of the euro at fixed exchange rates. Subsequent to January 1,
1999, an additional country was added to the European Monetary Union. The
European Union's current plans call for the transition to the euro to be
substantially completed by January 1, 2002, at which time the euro will become
the sole legal tender in those participating countries.
The company is engaged in business in many of the countries that
participate in the European Monetary Union, and sales for fiscal 2001 in these
countries were approximately 18 percent of the company's total sales. In
addition, the company enters into foreign currency forward exchange contracts
with respect to several of the existing currencies that have been subsumed into
the euro and has borrowings in participating currencies primarily under its
revolving Credit Facility. The company has analyzed the potential effects of the
euro conversion on competitive conditions, information technology and other
systems, currency risks, financial instruments and contracts, and has examined
the tax and accounting consequences of euro conversion, and believes that the
conversion will not have a material adverse effect on its business, operations
and financial condition.
The company is making the necessary adjustments to accommodate the
conversion, including modifications to its information technology systems and
programs, pricing schedules and financial instruments. The company expects that
all necessary actions will be completed in a timely manner, and that the costs
associated with the conversion to the euro will not be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to foreign currency exchange rate risk related to
its transactions denominated in currencies other than the U.S. dollar and
interest rate risk associated with the company's debt.
The company enters into foreign currency forward exchange contracts to
minimize the risk of unanticipated gains and losses from currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business (see Note 13 of Notes to Consolidated Financial Statements). It is
the policy of the company not to enter into derivative financial instruments for
speculative purposes, and therefore the company holds no derivative instruments
for trading purposes.
The company has performed a sensitivity analysis assuming a hypothetical
10-percent adverse movement in foreign currency exchange rates and interest
rates applied to the underlying exposures described above. As of September 30,
2001, the analysis indicated that such market movements would not have a
material effect on the company's consolidated financial position, results of
operations or cash flows. Actual gains or losses in
27
<PAGE>
the future may differ significantly from that analysis, however, based on
changes in the timing and amount of interest rate and foreign currency exchange
rate movements and the company's actual exposures.
NEW ACCOUNTING PRONOUNCEMENTS
There were no new accounting pronouncements adopted by the company in
fiscal 2001 that had a material impact on the company's financial condition or
results of operations.
On October 1, 2000, the company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. The adoption of this standard, as amended, did not have
a material impact on the company (see Note 13 of Notes to Consolidated Financial
Statements).
The company adopted Statement of Financial Accounting Standards No. 140
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities -- a replacement of FASB Statement No. 125" in the second quarter
of fiscal 2001. The adoption of this statement did not have a material impact on
the company (see Note 4 of Notes to Consolidated Financial Statements).
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and
Other Intangible Assets". SFAS 142 requires goodwill to be subject to annual
impairment testing instead of amortization. The company will adopt this standard
effective October 1, 2001. Management is currently analyzing the impact of
adoption of this standard, but anticipates it will result in a cumulative effect
of an accounting change of approximately $40 million ($40 million after-tax, or
$0.61 per basic and diluted share) for an impairment loss on goodwill. In
addition, the adoption will eliminate annual amortization expense of
approximately $24 million ($20 million after-tax, or $0.30 per share). See Note
2 of Notes to Consolidated Financial Statements.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets". The new standard requires one model of accounting for
long-lived assets to be disposed of, and broadens the definition of discontinued
operations to include a component of a segment. SFAS 144 is effective for fiscal
years beginning after December 15, 2001. The company does not expect the
adoption of this statement to have a significant impact on its financial
position or results of operation.
CAUTIONARY STATEMENT
This Management's Discussion and Analysis, as well as other sections of
this annual report, contains statements relating to future results of the
company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by words
or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are
likely to be" and similar expressions. Actual results may differ materially from
those projected as a result of certain risks and uncertainties, including, but
not limited to, global economic and market conditions; the demand for
commercial, specialty and light vehicles for which the company supplies
products; risks inherent in operating abroad; OEM program delays; demand for and
market acceptance of new and existing products; successful development of new
products; reliance on major OEM customers; labor relations of the company, its
customers and suppliers; successful integration of acquired or merged
businesses; the failure to achieve the expected annual savings and synergies
from past and future business combinations; competitive product and pricing
pressures; the amount of the company's debt; the ability of the company to
access capital markets; the credit ratings of the company's debt, as well as
other risks and uncertainties, such as those described in this annual report and
those detailed herein and from time to time in the filings of the company with
the Securities and Exchange Commission. These forward-looking statements are
made only as of the date hereof, and the company undertakes no obligation to
update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of ArvinMeritor, Inc.
Troy, Michigan
We have audited the accompanying consolidated balance sheets of
ArvinMeritor, Inc. and subsidiaries ("the Company") as of September 30, 2001 and
2000, and the related consolidated statements of income, shareowners' equity and
cash flows for each of the three years in the period ended September 30, 2001.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ArvinMeritor, Inc. and
subsidiaries at September 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 2001 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 13, 2001
29
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
Sales....................................................... $6,805 $5,153 $4,450
Cost of sales............................................... 6,074 4,410 3,798
------ ------ ------
GROSS MARGIN................................................ 731 743 652
Selling, general and administrative....................... (428) (348) (278)
Goodwill amortization..................................... (24) (19) (11)
Restructuring costs and other charges..................... (84) (26) (28)
Merger expenses........................................... -- (10) --
Gain on sale of business and other........................ -- 89 24
------ ------ ------
OPERATING INCOME............................................ 195 429 359
Equity in earnings of affiliates.......................... 4 29 35
Interest expense, net and other........................... (136) (89) (61)
------ ------ ------
INCOME BEFORE INCOME TAXES.................................. 63 369 333
Provision for income taxes................................ (21) (141) (129)
Minority interests........................................ (7) (10) (10)
------ ------ ------
NET INCOME.................................................. $ 35 $ 218 $ 194
====== ====== ======
Basic and Diluted Earnings per Share...................... $ 0.53 $ 4.12 $ 3.75
====== ====== ======
Basic and Diluted Average Common Shares Outstanding....... 66.1 52.9 51.8
====== ====== ======
</Table>
See Notes to Consolidated Financial Statements
30
<PAGE>
ARVINMERITOR, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<Table>
<Caption>
SEPTEMBER 30,
---------------
2001 2000
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 101 $ 116
Receivables (less allowance for doubtful accounts: 2001,
$18; 2000, $22)........................................ 965 1,278
Inventories............................................... 457 583
Other current assets...................................... 232 212
------ ------
TOTAL CURRENT ASSETS.............................. 1,755 2,189
------ ------
NET PROPERTY................................................ 1,200 1,348
NET GOODWILL (less accumulated amortization: 2001, $73;
2000, $48)................................................ 835 756
OTHER ASSETS................................................ 572 427
------ ------
TOTAL ASSETS...................................... $4,362 $4,720
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Short-term debt........................................... $ 94 $ 183
Accounts payable.......................................... 1,054 1,058
Accrued compensation and benefits......................... 184 203
Accrued income taxes...................................... 26 27
Other current liabilities................................. 314 254
------ ------
TOTAL CURRENT LIABILITIES......................... 1,672 1,725
------ ------
LONG-TERM DEBT.............................................. 1,313 1,537
ACCRUED RETIREMENT BENEFITS................................. 459 382
OTHER LIABILITIES........................................... 141 113
MINORITY INTERESTS.......................................... 69 96
PREFERRED CAPITAL SECURITIES................................ 57 74
SHAREOWNERS' EQUITY
Common stock (2001, 71.0 shares issued and 65.6
outstanding; 2000, 71.0 shares issued and 67.9
outstanding)........................................... 71 71
Additional paid-in capital................................ 547 546
Retained earnings......................................... 450 466
Treasury stock (2001, 5.4 shares; 2000, 3.1 shares)....... (69) (53)
Unearned compensation..................................... (12) --
Accumulated other comprehensive loss...................... (336) (237)
------ ------
TOTAL SHAREOWNERS' EQUITY......................... 651 793
------ ------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY......... $4,362 $4,720
====== ======
</Table>
See Notes to Consolidated Financial Statements
31
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 35 $ 218 $ 194
Adjustments to net income to arrive at cash provided by
operating activities:
Depreciation........................................... 193 143 120
Goodwill amortization.................................. 24 19 11
Gain on sale of business and other..................... -- (89) (24)
Restructuring costs and other charges, net of
expenditures.......................................... 51 19 23
Deferred income taxes.................................. (57) 32 17
Pension and retiree medical expense.................... 62 58 52
Pension and retiree medical contributions.............. (97) (89) (71)
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures and foreign currency
adjustments:
Sale of receivables.................................. 211 -- --
Receivables.......................................... 87 15 (95)
Inventories.......................................... 107 (10) --
Accounts payable..................................... 3 (28) 45
Change in other working capital...................... (14) (66) (18)
Other assets and liabilities......................... -- 6 8
----- ----- -----
CASH PROVIDED BY OPERATING ACTIVITIES........ 605 228 262
----- ----- -----
INVESTING ACTIVITIES
Capital expenditures...................................... (206) (225) (170)
Acquisitions of businesses and investments, net of cash
acquired............................................... (34) (74) (573)
Payment of certain merger-related assumed liabilities..... -- (49) --
Proceeds from disposition of assets, property and
businesses............................................. 30 148 51
----- ----- -----
CASH USED FOR INVESTING ACTIVITIES........... (210) (200) (692)
----- ----- -----
FINANCING ACTIVITIES
Net increase (decrease) in revolving debt................. (178) 245 9
Payment of notes.......................................... (125) -- --
Proceeds from issuance of notes........................... -- -- 498
----- ----- -----
Net increase (decrease) in debt................... (303) 245 507
Cash dividends............................................ (51) (35) (29)
Purchases of treasury stock............................... (31) (172) (6)
Purchase of preferred capital securities.................. (17) -- --
Payment of interest rate settlement cost.................. -- -- (31)
----- ----- -----
CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES................................. (402) 38 441
----- ----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (8) (18) (8)
CHANGE IN CASH.............................................. (15) 48 3
CASH AT BEGINNING OF YEAR................................... 116 68 65
----- ----- -----
CASH AT END OF YEAR......................................... $ 101 $ 116 $ 68
===== ===== =====
</Table>
See Notes to Consolidated Financial Statements
32
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK
Beginning balance......................................... $ 71 $ 69 $ 69
ArvinMeritor merger:
Shares issued to Arvin shareowners..................... -- 24 --
Conversion of outstanding Meritor shares............... -- (15) --
Cancellation of Meritor treasury stock................. -- (7) --
----- ----- -----
Ending balance............................................ 71 71 69
----- ----- -----
ADDITIONAL PAID-IN CAPITAL
Beginning balance......................................... 546 158 156
ArvinMeritor merger:
Shares issued to Arvin shareowners and Arvin stock
options converted..................................... -- 492 --
Conversion of outstanding Meritor shares............... -- 15 --
Cancellation of Meritor treasury stock................. -- (119) --
Issuance of restricted stock and other.................... 1 -- 2
----- ----- -----
Ending balance............................................ 547 546 158
----- ----- -----
RETAINED EARNINGS
Beginning balance......................................... 466 283 118
Net income................................................ 35 218 194
Cash dividends (per share: 2001, $0.76; 2000, $0.64; 1999,
$0.56)................................................. (51) (35) (29)
----- ----- -----
Ending balance............................................ 450 466 283
----- ----- -----
TREASURY STOCK
Beginning balance......................................... (53) (6) --
Cancellation of treasury stock in connection with
merger................................................. -- 125 --
Purchase of treasury stock................................ (31) (172) (6)
Issuance of restricted stock.............................. 15 -- --
----- ----- -----
Ending balance............................................ (69) (53) (6)
----- ----- -----
UNEARNED COMPENSATION
Beginning balance......................................... -- -- --
Issuance of restricted stock.............................. (16) -- --
Compensation expense...................................... 4 -- --
----- ----- -----
Ending balance............................................ (12) -- --
----- ----- -----
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning balance......................................... (237) (156) (77)
Foreign currency translation adjustments.................. (53) (81) (79)
Minimum pension liability, net of tax..................... (46) -- --
----- ----- -----
Ending balance............................................ (336) (237) (156)
----- ----- -----
TOTAL SHAREOWNERS' EQUITY......................... $ 651 $ 793 $ 348
===== ===== =====
COMPREHENSIVE INCOME (LOSS)
Net income................................................ $ 35 $ 218 $ 194
Foreign currency translation adjustments.................. (53) (81) (79)
Minimum liability adjustment.............................. (46) -- --
----- ----- -----
TOTAL COMPREHENSIVE INCOME (LOSS)................. $ (64) $ 137 $ 115
===== ===== =====
</Table>
See Notes to Consolidated Financial Statements
33
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global
supplier of a broad range of integrated systems, modules and components serving
light vehicle, commercial truck, trailer and specialty original equipment
manufacturers and certain aftermarkets. The company also provides coil coating
applications to the transportation, appliance, construction and furniture
industries.
On July 7, 2000, Meritor Automotive, Inc. (Meritor) and Arvin Industries,
Inc. (Arvin) merged into ArvinMeritor. The merger was accounted for utilizing
the purchase method of accounting. The financial information for the periods
prior to July 7, 2000, reflect the results of Meritor and its consolidated
subsidiaries prior to the merger. The information for periods after July 7,
2000, represents the results of ArvinMeritor and its consolidated subsidiaries.
All share and per share data for periods prior to the merger have been
restated to conform with the exchange of Meritor shares to ArvinMeritor shares
on a one to 0.75 basis in connection with the merger with Arvin (see Note 3).
Effective October 1, 2000, the company changed the date for the end of its
fiscal year to the Sunday nearest September 30. The company's fiscal quarters
end on the Sundays nearest December 31, March 31, and June 30. The company's
2001 fiscal year ended on September 30, 2001. All year and quarter references
relate to the company's fiscal year and fiscal quarters unless otherwise stated.
Certain prior year amounts have been reclassified to conform with current
year presentation.
2. ACCOUNTING POLICIES
Use of Estimates
The financial statements of ArvinMeritor have been prepared in accordance
with accounting principles generally accepted in the U.S. that require
management to make estimates and assumptions that affect the amounts reported in
the financial statements. Actual results could differ from those estimates.
Consolidations and Joint Ventures
The consolidated financial statements include the accounts of the company
and those majority-owned subsidiaries in which the company has control. All
significant intercompany accounts and transactions are eliminated in
consolidation. The accounts and results of operations of controlled subsidiaries
where ownership is greater than 50 percent, but less than 100 percent, are
included in the consolidated results and are offset by a related minority
interest expense and liability recorded for the minority interest ownership.
Investments in affiliates that are not majority-owned and controlled are
reported using the equity method of accounting for investments.
Foreign Currency
Local currencies are considered the functional currencies outside the U.S.,
except for subsidiaries located in countries with highly inflationary economies.
For operations reporting in local currencies, assets and liabilities are
translated at year-end exchange rates with cumulative currency translation
adjustments included as a component of Accumulated Other Comprehensive Loss.
Income and expense items are translated at average rates of exchange during the
year.
Cash Equivalents
The company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
34
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost (using LIFO, FIFO or average
methods) or market (determined on the basis of estimated realizable values).
Tooling
Costs incurred by the company for certain engineering and tooling projects,
principally for light vehicle products, for which customer reimbursement is
contractually guaranteed are classified as Other Current Assets in the
accompanying Consolidated Balance Sheet. Provisions for losses are provided at
the time management anticipates costs to exceed anticipated customer
reimbursement. Company-owned tooling is classified as property and depreciated
over its expected life or the life of the related vehicle platform, whichever is
shorter.
Property and Depreciation
Property is stated at cost. Depreciation of property is based on estimated
useful lives, generally using the straight-line method. Significant renewals and
betterments are capitalized, and replaced units are written off. Maintenance and
repairs, as well as renewals of minor amounts, are charged to expense.
Intangible Assets
Goodwill represents the excess of the cost of purchased businesses over the
fair value of their net assets at the date of acquisition and is amortized using
the straight-line method for periods not to exceed 40 years. All intangibles,
including patents, trademarks and licenses, are reviewed periodically to
determine whether the carrying amount of the asset is impaired. Adjustments to
the carrying value are made if the review indicates this amount will not be
recoverable. Goodwill will no longer be amortized upon adoption of Statement of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets," effective October 1, 2001 (see discussion in "New Accounting
Standards").
Capitalized Software
Costs relating to internally developed or purchased software are
capitalized and amortized utilizing the straight-line basis over periods not to
exceed seven years. These amounts are included in Other Assets in the
accompanying Consolidated Balance Sheet.
Impairment of Long-Lived Assets
Management periodically reviews the realizability of long-lived assets,
based on an evaluation of remaining useful lives, cash flows and profitability
projections.
Revenue Recognition
Revenues are recognized upon shipment of products to customers.
Earnings per Share
Basic earnings per share are based upon the weighted average number of
shares outstanding during each year. Diluted earnings per share assumes the
exercise of common stock options when dilutive and the impact of restricted
stock.
35
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Matters
The company records accruals for environmental issues in the accounting
period in which its responsibility is established and the cost can be reasonably
estimated. At environmental sites in which more than one potentially responsible
party has been identified, the company records a liability for its allocable
share of costs related to its involvement with the site, as well as an allocable
share of costs related to insolvent parties or unidentified shares. At
environmental sites in which ArvinMeritor is the only responsible party, the
company records a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties. If recovery from
a third party is determined to be probable, the company records a receivable for
the estimated recovery.
Stock-Based Compensation
The company accounts for its stock-based compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation" (see Note 15).
New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS 142 requires goodwill to
be subject to annual impairment testing instead of amortization, and will be
effective for fiscal years beginning after December 15, 2001, with early
adoption permitted for fiscal years beginning after March 15, 2001. The company
will adopt this standard effective October 1, 2001. Management is currently
analyzing the impact of adoption of this standard, but anticipates it will
result in a cumulative effect of an accounting change of approximately $40
million ($40 million after-tax, or $0.61 per basic and diluted share) for an
impairment loss on goodwill. In addition, the adoption will eliminate annual
amortization expense of approximately $24 million ($20 million after-tax, or
$0.30 per basic and diluted share).
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets." The new standard requires one model of accounting for
long-lived assets to be disposed of, and broadens the definition of discontinued
operations to include a component of a segment. SFAS 144 is effective for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years, with early adoption encouraged. The company does not expect the adoption
of SFAS 144 to have a significant impact on its financial position or results of
operations.
3. ARVINMERITOR MERGER
On July 7, 2000, Meritor and Arvin merged to form ArvinMeritor. Under the
terms of the merger agreement, each share of Meritor common stock was converted
into the right to receive 0.75 shares of common stock of ArvinMeritor, and each
share of Arvin common stock was converted into the right to receive one share of
common stock of ArvinMeritor plus $2.00 in cash. In total, approximately 62.3
million shares of Meritor, 24.3 million shares of Arvin and $48.5 million in
cash were exchanged for approximately 71.0 million shares of ArvinMeritor.
The merger was accounted for by the purchase method of accounting.
Accordingly, the results of operations of Arvin are included with those of the
company for the periods subsequent to the date of the merger. The total merger
consideration of $576 million was allocated first to assets and liabilities
based on their fair values as of the merger date, with the residual allocated to
goodwill, which is being amortized on a straight-line basis over 40 years. Since
the company assumed the stock options outstanding of Arvin, the fair value of
these options was included in determining the fair value of the consideration.
36
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the fair market value of assets and liabilities acquired is as
follows:
<Table>
<S> <C>
Current assets.............................................. $ 939
Property plant and equipment................................ 504
Goodwill.................................................... 428
Other assets................................................ 259
-------
Total assets...................................... 2,130
Current liabilities......................................... (1,028)
Long-term liabilities....................................... (131)
Long-term debt and capital securities....................... (395)
-------
Fair market value........................................... $ 576
=======
</Table>
The allocation of the purchase price has been revised from previously
reported amounts to reflect asset appraisals, restructuring actions, and other
items recorded under purchase accounting.
Pro forma sales, net income and earnings per share amounts (both basic and
diluted) for the fiscal year ended September 30, 2000, would have been $7,722
million, $287 million and $4.02 per share, respectively, and exclude a
non-recurring charge of $70 million ($58 million after-tax or $0.81 per basic
and diluted share) for merger-related expenses. The pro forma adjustments are
based upon available information and certain assumptions that management
believes are reasonable. The pro forma data is not necessarily indicative of the
results of operations of ArvinMeritor that would have been achieved if the
merger had in fact occurred on such dates, or the results of operations of
ArvinMeritor for any period subsequent to the merger. The pro forma data does
not give effect to any restructuring costs or to cost savings or other synergies
that have resulted from the merger.
4. ASSET SECURITIZATION
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 (SFAS 140), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities -- a replacement of FASB
Statement No. 125." The new standard carries forward some provisions of SFAS
125, but modifies the methods of accounting for securitizations and other
transfers of financial assets and collateral, in addition to requiring
additional disclosures. The company adopted SFAS 140 in the second quarter of
fiscal 2001. The adoption of SFAS 140 did not have a material impact on the
financial position or results of operations of the company.
During fiscal 2001, the company sold substantially all of the trade
receivables of certain subsidiaries to ArvinMeritor Receivables Corporation
(ARC), a wholly owned subsidiary of the company. ARC then entered into an
agreement (asset securitization facility) to sell an undivided interest in up to
$250 million of the receivables to a group of banks. As of September 30, 2001,
$211 million of trade receivables had been sold and are excluded from
receivables in the consolidated balance sheet. The company has no retained
interest in the receivables sold, but does retain collection and administrative
responsibilities. The receivables were sold at fair market value and a discount
on the sale of approximately $3 million was recorded in interest expense, net
and other. The banks have a preferential interest in approximately $202 million
of the remainder of the receivables held at ARC to secure the obligation under
the asset securitization facility.
37
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESTRUCTURING COSTS AND OTHER CHARGES
During fiscal 2001, the company recorded charges of $67 million ($45
million after-tax, or $0.68 per basic and diluted share) for restructuring
costs, $12 million ($8 million after-tax, or $0.12 per basic and diluted share)
for an employee separation agreement and $5 million ($3 million after-tax, or
$0.05 per basic and diluted share) for additional environmental liability (see
Note 20). The restructuring charge was net of approximately $4 million of
restructuring reserves established in fiscal 2000 that were reversed due to a
change in circumstance resulting from the ArvinMeritor merger. In addition,
approximately $12 million of restructuring reserves established in fiscal 2001
were reversed primarily due to actions taken to minimize severance costs related
to cost-reduction programs in Europe. The fiscal 2001 net charges include
severance and other employee costs of approximately $48 million related to a net
reduction of approximately 1,350 employees, with the balance primarily
associated with facility related costs from the rationalization of operations.
As of September 30, 2001 approximately 800 employees had been terminated under
this restructuring action. All restructuring actions will be finalized within
one year of recording the initial charge, and substantially all costs related to
those actions will be paid during that time.
In the third quarter of fiscal 2000, the company recorded a restructuring
charge of $26 million ($16 million after-tax, or $0.30 per basic and diluted
share). The original charge included severance and other employee costs of
approximately $19 million related to a net reduction of approximately 500
employees, with the balance primarily associated with facility related costs
from the rationalization of operations. In the second quarter of fiscal 2001,
approximately $4 million of restructuring reserves were reversed (discussed
above), which changed the total employee costs incurred for the fiscal 2000
restructuring charge to $15 million related to a net reduction of 350 employees.
As of September 30, 2001, approximately 350 employees had been terminated, and
all restructuring actions were complete.
A summary of the restructuring charges as of September 30, 2001 is as
follows (in millions):
<Table>
<Caption>
EMPLOYEE
TERMINATION ASSET
BENEFITS IMPAIRMENT OTHER TOTAL
----------- ---------- ----- -----
<S> <C> <C> <C> <C>
Fiscal 2000 original charge............... $ 19 $ 6 $ 1 $ 26
Reversal of charge in 2001................ (4) -- -- (4)
Write-down of assets...................... -- (6) -- (6)
Cash payments through 9/30/01............. (15) -- (1) (16)
---- ---- --- ----
Subtotal........................ -- -- -- --
---- ---- --- ----
Fiscal 2001 original charges.............. 60 19 4 83
Reversal of charge........................ (12) -- -- (12)
Write-down of assets...................... -- (19) -- (19)
Cash payments through 9/30/01............. (19) -- (3) (22)
---- ---- --- ----
Subtotal........................ 29 -- 1 30
---- ---- --- ----
Reserve balance at 9/30/01................ $ 29 $ -- $ 1 $ 30
==== ==== === ====
</Table>
In fiscal 2001, the company also recorded approximately $34 million of
restructuring costs that were incurred as a result of the ArvinMeritor merger
and are reflected in the purchase price allocation (see Note 3). These costs
include approximately $17 million related to a net reduction of approximately
1,200 employees, with the balance primarily associated with facility related
costs from the rationalization of operations. As of September 30, 2001,
approximately 500 employees had been terminated under this restructuring action,
and approximately $16 million of reserves remained in the consolidated balance
sheet.
The company recorded a restructuring charge of $28 million ($17 million
after-tax, or $0.33 per basic and diluted share) in fiscal 1999. The charge
included severance and other employee costs of approximately $14 million,
related to a net reduction of approximately 350 employees, with the balance
primarily associated with facility-related costs from the rationalization of
operations. All restructuring actions were complete as of June 30, 2000.
38
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVENTORIES
Inventories are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Finished goods.............................................. $238 $298
Work in process............................................. 118 142
Raw materials, parts and supplies........................... 152 195
---- ----
Total............................................. 508 635
Less allowance to adjust the carrying value of certain
inventories (2001, $69; 2000, $125) to a LIFO basis....... (51) (52)
---- ----
Inventories....................................... $457 $583
==== ====
</Table>
7. OTHER CURRENT ASSETS
Other Current Assets are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Current deferred income taxes (see Note 18)................. $138 $122
Customer tooling............................................ 30 37
Asbestos-related recoveries (see Note 20)................... 24 --
Prepaid and other........................................... 40 53
---- ----
Other Current Assets........................................ $232 $212
==== ====
</Table>
8. NET PROPERTY
Net Property is summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-----------------
2001 2000
------- -------
<S> <C> <C>
Property at cost:
Land and land improvements.............................. $ 55 $ 66
Buildings............................................... 416 400
Machinery and equipment................................. 1,596 1,572
Company-owned tooling................................... 206 190
Construction in progress................................ 131 221
------- -------
Total..................................................... 2,404 2,449
Less accumulated depreciation............................. (1,204) (1,101)
------- -------
Net Property.............................................. $ 1,200 $ 1,348
======= =======
</Table>
39
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OTHER ASSETS
Other Assets are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Investments in affiliates................................... $186 $200
Long-term deferred income taxes (see Note 18)............... 119 9
Prepaid pension costs (see Note 17)......................... 87 78
Net capitalized computer software costs..................... 42 41
Patents, trademarks and licenses............................ 36 38
Asbestos-related recoveries (see Note 20)................... 36 --
Other....................................................... 66 61
---- ----
Other Assets................................................ $572 $427
==== ====
</Table>
10. OTHER CURRENT LIABILITIES
Other Current Liabilities are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Accrued product warranties.................................. $ 94 $ 95
Accrued taxes other than income taxes....................... 48 36
Accrued restructuring....................................... 46 16
Asbestos-related liabilities (see Note 20).................. 24 --
Environmental reserves (see Note 20)........................ 18 11
Other....................................................... 84 96
---- ----
Other Current Liabilities................................... $314 $254
==== ====
</Table>
11. OTHER LIABILITIES
Other Liabilities are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Asbestos-related liabilities (see Note 20).................. $ 47 $ --
Deferred payments........................................... 29 34
Environmental reserves (see Note 20)........................ 25 27
Other....................................................... 40 52
---- ----
Other Liabilities........................................... $141 $113
==== ====
</Table>
40
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM DEBT
Long-Term Debt, net of discount where applicable, is summarized as follows
(in millions):
<Table>
<Caption>
SEPTEMBER 30,
---------------
2001 2000
------ ------
<S> <C> <C>
6 7/8 percent notes due 2001................................ $ -- $ 75
7.94 percent notes due 2005................................. -- 50
6 3/4 percent notes due 2008................................ 100 100
7 1/8 percent notes due 2009................................ 150 150
6.8 percent notes due 2009.................................. 498 498
Commercial paper............................................ -- 560
Bank revolving credit facilities............................ 495 194
Lines of credit and other................................... 164 93
------ ------
Subtotal.................................................. 1,407 1,720
Less current maturities..................................... (94) (183)
------ ------
Long-Term Debt.............................................. $1,313 $1,537
====== ======
</Table>
The company has two unsecured credit facilities: a 364-day, $750-million
credit facility and a five-year $750-million revolving credit facility. The
364-day facility matures on June 26, 2002, with the option to convert borrowings
thereunder to a one-year term loan. The five-year facility matures on June 27,
2005. Borrowings are subject to interest based on quoted LIBOR rates plus a
margin, in addition to a facility fee, both of which are based on the company's
credit rating. At September 30, 2001, the margin over the LIBOR rate was 105
basis points, and the facility fee was 20 basis points. At September 30, 2001,
the company was in compliance with all covenants and there have been no events
of default. At September 30, 2001 there were $495 million in outstanding
borrowings under these facilities.
The company also has a commercial paper program with authorized borrowings
of up to $1 billion. Interest rates applicable to our commercial paper
borrowings are currently higher than the cost of other available sources of
financing, and no borrowings were outstanding as of September 30, 2001.
On April 12, 2001, the company filed a shelf registration statement with
the Securities and Exchange Commission registering $750 million aggregate
principal amount of debt securities that may be offered in one or more series on
terms to be determined at the time of sale. The registration statement became
effective on April 18, 2001. Except as may otherwise be determined at the time
of sale, the net proceeds would be used for repayment of outstanding
indebtedness and for other general corporate purposes.
The company has $50 million of unsecured lines of credit with interest
rates determined at the time of borrowing. At September 30, 2001, there were $50
million in outstanding borrowings under these facilities.
Included in the Consolidated Balance Sheet are $57 million of 9.5 percent
company-obligated mandatorily redeemable preferred capital securities ("capital
securities"), issued by a wholly owned subsidiary trust of ArvinMeritor, due
February 1, 2027, and callable in February 2007. The company fully and
unconditionally guarantees the subsidiary trust's obligation under the capital
securities.
Included in lines of credit and other are approximately $50 million of
borrowings with a related party.
Future minimum lease payments on operating leases are $15 million in 2002,
$11 million in 2003, $10 million in 2004, $10 million in 2005, $10 million in
2006 and $38 million thereafter.
41
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FINANCIAL INSTRUMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that all derivatives be recognized as either
assets or liabilities in the consolidated balance sheet and be measured at fair
value, and that changes in the fair value be recorded in earnings, unless they
are designated as hedges of an underlying transaction. The company adopted this
standard, as amended, effective October 1, 2000. The adoption of this standard
did not have a material impact on the financial position or results of
operations of the company.
The company uses forward exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables. These contracts help minimize the risk of loss from changes in
exchange rates, and are generally of short duration (less than three months).
The foreign currency denominated payables and receivables are remeasured on a
quarterly basis and the forward exchange contracts are utilized to help offset
the earnings impact of the remeasurement. The company has elected not to
designate the forward exchange contracts as hedges. The impact of fair valuing
the foreign exchange contracts is recognized in operating income. The net income
impact of recording these items in the year ended September 30, 2001 was
immaterial.
Forward exchange contracts were also used to hedge the purchase of
equipment payable in foreign currency and were designated as fair value hedges
of the firm commitment. The fair value of the firm commitment was recorded as an
asset, the value of the forward contracts was recorded as a liability, and there
was no impact to earnings during the year. The value of both the firm commitment
and the forward exchange contracts are determined using the forward exchange
rates, with all other critical terms of the forward contracts and the hedged
transaction being the same. Therefore, the company has determined the change in
fair value attributable to the risk being hedged is expected to be completely
offset by the change in fair value of the forward contracts. Future assessments
of hedge effectiveness will include verifying and documenting if the critical
terms of the forward contracts and the firm commitment have changed.
The company's financial instruments include cash, short- and long-term debt
and foreign currency forward exchange contracts. As of September 30, 2001 and
2000, the carrying values of the company's financial instruments approximated
their fair values, based on prevailing market prices and rates. The notional
amount of outstanding foreign currency forward exchange contracts aggregated $68
million and $222 million at September 30, 2001 and 2000, respectively. It is the
policy of the company not to enter into derivative instruments for speculative
purposes.
14. CAPITAL STOCK
The company is authorized to issue 500 million shares of Common Stock, with
a par value of $1 per share, and 30 million shares of Preferred Stock, without
par value, of which two million shares are designated as Series A Junior
Participating Preferred Stock (Junior Preferred Stock). Under the Company Rights
Plan, a Preferred Share Purchase Right (Right) is attached to each share of
Common Stock pursuant to which the holder may, in certain takeover-related
circumstances, become entitled to purchase from the company 1/100th of a share
of Junior Preferred Stock at a price of $100, subject to adjustment. Also, in
certain takeover-related circumstances, each Right (other than those held by an
acquiring person) will be exercisable for shares of Common Stock or stock of the
acquiring person having a market value of twice the exercise price. In certain
events, each Right may be exchanged by the company for one share of Common Stock
or 1/100th of a share of Junior Preferred Stock. The Rights will expire on July
7, 2010, unless earlier exchanged or redeemed at a redemption price of $0.01 per
Right. Until a Right is exercised, the holder, as such, will have no voting,
dividend or other rights as a shareowner of the company.
The company has reserved approximately 15.6 million shares of Common Stock
in connection with its Long-Term Incentives Plan (the LTIP), Directors Stock
Plan, Incentive Compensation Plan, 1988 and 1998
42
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Benefit Plans, and Employee Stock Benefit Plan for grants of non-qualified
stock options, incentive stock options, stock appreciation rights, restricted
stock and stock awards to key employees and the company's directors. At
September 30, 2001, there were 7.5 million shares available for future grants
under these plans.
In January 2001, the company granted shares of restricted stock to certain
employees in accordance with the LTIP. The restricted shares are subject to
continued employment by the employee for the period until January 1, 2004, and
vest at the end of three years. The grant of shares was issued from treasury
shares, and cash dividends on the restricted shares will be reinvested in
additional shares of Common Stock during the period. The grant price of the
restricted shares was the quoted market price of $11.375, and is being accounted
for as compensation expense over the vesting period.
In June 2001, the company commenced an offer to exchange certain
outstanding stock options for restricted shares of the company's Common Stock.
All outstanding stock options issued under the LTIP, the Employee Stock Benefit
Plan, the 1998 Stock Benefit Plan and the 1988 Stock Benefit Plan (together,
"the plans") that were held by active employees and had an exercise price of
$22.25 or more per share (except options that expired in June 2001) were
eligible for exchange. The exchange rate was based on a percentage of the
present value of the options and the market price of the Common Stock on May 25,
2001 of $15.31 per share. In July 2001, 2,810,471 eligible options were
cancelled and 681,832 restricted shares of Common Stock were issued under the
plans in exchange for those options. The restricted stock will vest in 2006, if
the holder remains an active employee through that period, or earlier if certain
performance measures are achieved. The grant price of the restricted shares was
the quoted market price of $18.85 on the grant date, and is being accounted for
as compensation expense over the minimum vesting period of three years assuming
the performance measures will be met. The restricted stock was issued from
treasury shares, and cash dividends will be reinvested in additional shares of
Common Stock during the period.
In July 2000, the company's board of directors authorized a program to
repurchase up to $100 million of its Common Stock. As of September 30, 2001, 5.4
million shares of ArvinMeritor Common Stock had been purchased under this
program at an aggregate cost of approximately $84 million, or an average of
$15.39 per share. This program was terminated in November 2001.
In September 1999, Meritor's board of directors authorized the purchase of
up to $125 million of Meritor's common stock and in February 2000, the board of
directors authorized an additional $75 million for such purpose. Meritor
purchased 5,120,400 shares at an aggregate cost of approximately $125 million,
or an average of $24.51 per share, under these programs before they were
suspended in February 2000 in anticipation of entering into a definitive
agreement to merge with Arvin. The treasury stock was cancelled in connection
with the merger.
15. STOCK OPTIONS
Stock options granted under the plans described in Note 14 expire ten years
from the date of grant and generally have a vesting period of three years. The
stock options granted are exercisable at prices equal to the fair market value
of Common Stock on the dates the options are granted; accordingly, no
compensation expense has been recognized for the stock option plans. All Meritor
option quantities and exercise prices have been adjusted for the one Meritor
share for 0.75 ArvinMeritor shares exchange ratio as part of the merger (see
Note 3).
Upon completion of the merger, each outstanding option to purchase one
share of Arvin common stock was converted into an option to purchase one share
of ArvinMeritor common stock, plus $1.00 per share reduction of the exercise
price. The converted options generally expire ten years from the date of the
original grant and vested immediately upon the merger being consummated. The
Arvin stock options originally granted were exercisable at prices not less than
the fair market value of Arvin's common stock on the dates the options were
granted. Accordingly, no compensation expense has been recognized for the stock
option plans.
43
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Arvin stock options were valued using the Black-Scholes options model and
the fair value of the options was included in the purchase price of Arvin, as
described in Note 3. All of the converted options are exercisable at prices
greater than the fair market value of ArvinMeritor common stock on the date of
the conversion.
In July 2001, approximately 2.8 million options were cancelled in exchange
for restricted shares of Common Stock (see Note 14).
Information relative to stock options is as follows (shares in thousands):
<Table>
<Caption>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Options outstanding at September 30, 1998.................. 2,335 $30.08
Granted.................................................... 629 27.37
Exercised.................................................. (22) 29.83
Cancelled.................................................. (218) 29.62
------ ------
Options outstanding at September 30, 1999.................. 2,724 29.49
Granted.................................................... 729 22.09
Conversion of Arvin options at July 7, 2000................ 3,118 28.10
Exercised.................................................. -- --
Cancelled.................................................. (176) 26.96
------ ------
Options outstanding at September 30, 2000.................. 6,395 28.04
Granted.................................................... 1,573 15.06
Exercised.................................................. (2) 19.31
Cancelled.................................................. (3,274) 29.26
------ ------
Options outstanding at September 30, 2001.................. 4,692 $23.00
====== ======
Exercisable at September 30, 1999:......................... 621 $30.42
Exercisable at September 30, 2000:......................... 4,878 28.77
Exercisable at September 30, 2001:......................... 3,273 25.86
</Table>
Options outstanding at September 30, 2001, are summarized as follows
(shares in thousands):
<Table>
<Caption>
PRICE RANGE
-------------------------------------
$14.01- $20.01- $27.01- $34.01-
$20.00 $27.00 $34.00 $41.00
------- ------- ------- -------
<S> <C> <C> <C> <C>
Options outstanding......................... 2,424 414 1,469 385
Weighted average remaining life (years)..... 8.4 5.7 5.7 6.5
Weighted average exercise price............. $16.66 $22.64 $29.63 $38.06
Options exercisable......................... 1,235 259 1,394 385
Weighted average price of options
exercisable............................... $18.32 $22.89 $29.73 $38.06
</Table>
If the company accounted for its stock-based compensation plans using the
fair value method provided by SFAS 123, the company's 2001, 2000 and 1999 net
income and earnings per share would have been reduced to pro forma net income of
$32 million, $212 million and $188 million, respectively, and pro forma earnings
per share of $0.48, $4.01 and $3.63, respectively. The weighted average fair
value of options granted was $3.93,
44
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$8.16 and $7.79 per share in 2001, 2000 and 1999, respectively. The fair value
of each option was estimated on the date of grant using the Black-Scholes
pricing model utilizing the following assumptions:
<Table>
<Caption>
2001 2000 1999
------- ------- -------
<S> <C> <C> <C>
Volatility......................................... 37.0% 35.0% 31.0%
Life............................................... 5 years 5 years 5 years
Dividend yield rate................................ 5.0% 5.0% 2.0%
Risk-free interest rate............................ 5.7% 6.1% 4.8%
</Table>
16. RETIREMENT MEDICAL PLANS
ArvinMeritor has retirement medical plans that cover the majority of its
U.S. and certain non-U.S. employees and provide for medical payments to eligible
employees and dependents upon retirement.
The components of retirement medical expense are as follows (in millions):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $ 4 $ 2 $ 3
Interest cost.............................................. 36 33 29
Amortization of unrecognized amounts....................... 1 (1) 1
--- --- ---
Retirement medical expense................................. $41 $34 $33
=== === ===
</Table>
The accumulated benefit obligation is summarized as follows (in millions):
<Table>
<Caption>
2001 2000
---- ----
<S> <C> <C>
Accumulated benefit obligation:
Retirees.................................................. $425 $397
Employees eligible to retire.............................. 18 22
Employees not eligible to retire.......................... 50 46
---- ----
Total accumulated benefit obligation........................ $493 $465
==== ====
</Table>
45
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reconciles the change in retiree medical accumulated benefit
obligation and the amounts included in the balance sheet (in millions):
<Table>
<Caption>
2001 2000
----- -----
<S> <C> <C>
Change in accumulated benefit obligation:
Accumulated benefit obligation at beginning of year....... $ 465 $ 437
Service cost.............................................. 4 2
Interest cost............................................. 36 33
Plan amendments........................................... 5 (1)
Acquisitions.............................................. -- 47
Divestitures.............................................. -- (2)
Actuarial losses (gains).................................. 36 (2)
Benefits paid ($41 million in fiscal 1999)................ (53) (49)
----- -----
Accumulated benefit obligation at end of year............... 493 465
Items not recognized in the balance sheet:
Plan amendments........................................... 7 10
Actuarial losses.......................................... (182) (150)
----- -----
Recorded liability at September 30.......................... $ 318 $ 325
===== =====
</Table>
The discount rates (using a June 30 measurement date) were 7.5 percent in
fiscal 2001 and 8.0 percent in fiscal 2000. For measurement purposes, a 7.1
percent and 8.5 percent annual increase in the pre- and post-65 per capita cost
of covered health care benefits was assumed for 2001. The rate was assumed to
decrease gradually to 5.0 percent for 2011 and remain at that level thereafter.
Increasing the health care cost trend rates by one percentage point would
increase the accumulated obligation at September 30, 2001, by approximately $42
million and would increase total expense by approximately $4 million. Decreasing
the health care cost trend rates by one percentage point would decrease the
accumulated obligation at September 30, 2001, by approximately $38 million and
would decrease total expense by approximately $4 million.
17. RETIREMENT PENSION PLANS
ArvinMeritor sponsors defined benefit pension plans that cover most of its
U.S. employees and certain non-U.S. employees. Pension benefits for salaried
employees are based on years of credited service and compensation. Pension
benefits for hourly employees are based on years of service and specified
benefit amounts. The company's funding policy provides that annual contributions
to the pension trusts will be at least equal to the minimum amounts required by
ERISA in the U.S. and the actuarial recommendations or statutory requirements in
other countries.
Certain of the company's non-U.S. subsidiaries provide limited non-pension
benefits to retirees in addition to government-sponsored programs. The cost of
these programs is not significant to the company. Most retirees outside the U.S.
are covered by government-sponsored and administered programs.
46
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension expense consisted of the following (in millions):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $ 31 $ 22 $ 21
Interest cost........................................... 62 37 22
Assumed return on plan assets........................... (74) (40) (25)
Amortization of unrecognized amounts.................... 2 5 1
---- ---- ----
Net pension expense..................................... $ 21 $ 24 $ 19
==== ==== ====
</Table>
The following reconciles the change in pension projected benefit
obligation, the change in plan assets and the amounts included in the balance
sheet (in millions):
<Table>
<Caption>
2001 2000
----- ----
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year......... $ 852 $445
Service cost.............................................. 31 22
Interest cost............................................. 62 37
Participant contributions................................. 2 1
Plan amendments........................................... -- (1)
Acquisitions.............................................. -- 423
Divestitures.............................................. (2) (4)
Actuarial losses (gains).................................. 78 (21)
Special termination benefits and early retirement......... 18 --
Benefits paid............................................. (53) (21)
Foreign currency rate changes............................. (2) (29)
----- ----
Projected benefit obligation at end of year................. 986 852
----- ----
Change in plan assets:
Fair value of plan assets at beginning of year............ 830 368
Actual return on plan assets.............................. (45) 29
Employer contributions.................................... 44 40
Plan participants' contributions.......................... 2 1
Acquisitions.............................................. -- 443
Divestitures.............................................. (2) (2)
Benefits paid............................................. (53) (21)
Foreign currency rate changes............................. (6) (28)
----- ----
Fair value of plan assets at end of year.................... 770 830
----- ----
Funded status............................................... $(216) $(22)
Items not recognized in the balance sheet:
Actuarial losses.......................................... 224 26
Prior service cost........................................ 7 9
Net initial asset......................................... (8) (9)
----- ----
Net prepaid pension costs................................... $ 7 $ 4
===== ====
</Table>
47
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts recognized in the balance sheet at September 30 consisted of:
<Table>
<Caption>
2001 2000
----- ----
<S> <C> <C>
Prepaid pension asset....................................... $ 87 $ 78
Accrued pension liability................................... (158) (76)
Intangible asset............................................ 3 2
Deferred tax asset.......................................... 29 --
Accumulated other comprehensive loss........................ 46 --
----- ----
Net amount recognized....................................... $ 7 $ 4
===== ====
</Table>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $641 million, $548 million and $398 million,
respectively, as of September 30, 2001, and $73 million, $61 million and $0
million, respectively, as of September 30, 2000.
Assumptions used (June 30 measurement date):
<Table>
<Caption>
2001 2000
----------- ----------
<S> <C> <C>
Discount rate..................................... 6.0 - 7.5% 6.3 - 8.0%
Compensation increase rate........................ 2.5 - 4.25% 2.8 - 4.5%
Long-term rate of return on plan assets........... 9.0 - 9.5% 9.0 - 9.5%
</Table>
The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $11 million, $8 million
and $6 million for fiscal 2001, 2000 and 1999, respectively.
18. INCOME TAXES
The components of the Provision for Income Taxes are summarized as follows
(in millions):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
U.S. ................................................. $ 23 $ 17 $ 38
Foreign............................................... 61 91 64
State and local....................................... (6) 1 10
---- ---- ----
Total current tax expense..................... 78 109 112
---- ---- ----
Deferred tax expense (benefit):
U.S. ................................................. (32) 30 13
Foreign............................................... (24) (3) 3
State and local....................................... (1) 5 1
---- ---- ----
Total deferred tax expense (benefit).......... (57) 32 17
---- ---- ----
Provision for income taxes.............................. $ 21 $141 $129
==== ==== ====
</Table>
The deferred tax expense represents tax deductions related to previously
accrued expenses. The deferred tax benefit represents the tax impact related to
certain accrued expenses that have been recorded for financial statement
purposes but are not deductible for income tax purposes until paid.
48
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income tax benefits included in Other Current Assets in the
accompanying Consolidated Balance Sheet consist of the tax effects of temporary
differences related to the following (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Accrued compensation and benefits........................... $ 36 $ 36
Accrued product warranties.................................. 32 32
Inventory costs............................................. 21 29
Receivables................................................. 19 16
Accrued restructuring....................................... 16 5
Other-net................................................... 14 4
---- ----
Current deferred income taxes............................... $138 $122
==== ====
</Table>
Net deferred income tax benefits included in Other Assets in the
accompanying Consolidated Balance Sheet consist of the tax effects of temporary
differences related to the following (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2001 2000
----- -----
<S> <C> <C>
Accrued retirement medical costs............................ $103 $111
Loss and credit carryforwards............................... 91 38
Pensions.................................................... 12 (16)
Taxes on undistributed income............................... (30) (28)
Property.................................................... (54) (99)
Other....................................................... 6 18
---- ----
Subtotal.................................................... 128 24
Valuation allowance......................................... (9) (15)
---- ----
Long-term deferred income taxes............................. $119 $ 9
==== ====
</Table>
Management believes it is more likely than not that current and long-term
deferred tax benefits will reduce future current income tax expense and
payments. Significant factors considered by management in its determination of
the probability of the realization of the deferred tax benefits included: (a)
historical operating results, (b) expectations of future earnings and (c) the
extended period of time over which the retirement medical liability will be
paid. The valuation allowance represents the amount of tax benefits related to
net operating loss and tax credit carryforwards, which management believes are
not likely to be realized. The carryforward periods for $55 million of net
operating losses and tax credit carryforwards expire between 2002 and 2021. The
carryforward period for the remaining net operating losses and tax credits is
indefinite.
The company's effective tax rate was different from the U.S. statutory rate
for the reasons set forth below:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate........................................ 35.0% 35.0% 35.0%
State and local income taxes.............................. (4.3) 1.2 2.3
Foreign income taxes...................................... (2.8) 0.7 0.7
Goodwill.................................................. 7.2 1.0 0.5
Recognition of basis differences.......................... (8.9) (0.4) (1.2)
Tax on undistributed foreign earnings..................... 3.2 0.7 1.2
Other..................................................... 4.1 -- 0.3
---- ---- ----
Effective tax rate........................................ 33.5% 38.2% 38.8%
==== ==== ====
</Table>
49
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
U.S. income (loss)...................................... $(31) $139 $160
Foreign income.......................................... 94 230 173
---- ---- ----
Total................................................... $ 63 $369 $333
==== ==== ====
</Table>
No provision has been made for U.S., state or additional foreign income
taxes related to approximately $154 million of undistributed earnings of foreign
subsidiaries that have been or are intended to be permanently reinvested.
19. SUPPLEMENTAL FINANCIAL INFORMATION
<Table>
<Caption>
2001 2000 1999
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Maintenance and repairs expense....................... $ 87 $ 86 $ 74
Research, development and engineering expense......... 136 115 117
Rental expense........................................ 21 26 23
STATEMENT OF CASH FLOWS DATA:
Interest payments..................................... $139 $ 95 $ 61
Income tax payments................................... 79 100 95
</Table>
20. CONTINGENT LIABILITIES
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have, and will continue to have, an impact
on the manufacturing operations of the company. Thus far, compliance with
environmental requirements and resolution of environmental claims has been
accomplished without material effect on the company's liquidity and capital
resources, competitive position or financial statements.
The company has been designated as a potentially responsible party at 10
Superfund sites, excluding sites as to which the company's records disclose no
involvement or as to which the company's potential liability has been finally
determined. In the fourth quarter of fiscal 2001, the company recorded a charge
of $5 million ($3 million after-tax, or $0.05 per basic and diluted share) to
accrue additional liability associated with a Superfund site . The additional
liability was recorded upon review of a recent EPA proposal which increased the
probable expenditures for remediation of the site by $5 million and the
reasonably possible expenditures by $17 million. Management estimates the total,
reasonably possible costs the company could incur for the remediation of
Superfund sites at September 30, 2001, to be approximately $36 million, of which
$18 million has been accrued.
Various other lawsuits, claims and proceedings have been asserted against
the company, alleging violations of federal, state and local environmental
protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously disposed-of properties. For these
matters, management has estimated the total, reasonably possible costs the
company could incur at September 30, 2001, to be approximately $53 million, of
which $25 million has been recorded.
50
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on its assessment, management believes that the company's
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on the company's liquidity and capital resources, competitive
position or financial statements. Management cannot assess the possible effect
of compliance with future requirements.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the company, relating to the conduct of its
business, including those pertaining to product liability, intellectual
property, safety and health, and employment matters. Included in these matters
are claims for alleged asbestos-related personal injuries, which arose from
products manufactured prior to 1977 by a subsidiary acquired by Arvin in 1986.
During fiscal years 1996 through 2001, the company and its predecessors paid
asbestos-related claims of approximately $40 million, substantially all of which
were reimbursed by insurance. As of September 30, 2001, the company has accrued
approximately $71 million for contingent asbestos-related liabilities, and
recorded assets of $60 million for probable recoveries from third parties and
insurance. Management believes that existing insurance coverage will reimburse
substantially all of the potential liabilities and expenses related to pending
cases.
Prior to February 1, 2001, the Center for Claims Resolution (the "CCR")
handled the processing and settlement of asbestos claims on behalf of the
company. The company shared in the payments of defense costs and settlements of
the asbestos claims with other CCR members. Several members of the CCR have
filed for bankruptcy protection, and these members have failed, or may fail, to
pay certain financial obligations with respect to settlements that were reached
while they were CCR members. The company expects to be subject to claims for
payment of a portion of the defaulted shares and an estimate of this payment has
been included in the recorded reserves. The company and its insurers are engaged
in proceedings to determine whether existing insurance coverage should reimburse
any potential liability related to this issue.
Although the outcome of litigation cannot be predicted with certainty, and
some lawsuits, claims or proceedings may be disposed of unfavorably to the
company, management believes the disposition of matters that are pending or
asserted will not have a material adverse effect on the company's financial
statements.
21. BUSINESS SEGMENT INFORMATION
ArvinMeritor currently has three reportable operating segments: Light
Vehicle Systems (LVS), Commercial Vehicle Systems (CVS) and Light Vehicle
Aftermarket (LVA). LVS is a major supplier of aperture systems (primarily roof,
door and access control systems and motion control products), undercarriage
systems (primarily suspension, ride control and wheel products) and exhaust
systems for passenger cars, light trucks and sport utility vehicles to original
equipment manufacturers. CVS is a leading supplier of drivetrain systems and
components, including axles, brakes, drivelines and ride control products, for
medium- and heavy-duty trucks, trailers and off-highway equipment and specialty
vehicles. LVA supplies exhaust, ride control, filter products and accessories to
the light vehicle aftermarket. Business units that are not focused on automotive
products are classified as "Other." The company's Coil Coating operation is the
primary component of this classification. Revenues are attributed to geographic
areas, based on the location of the assets producing the revenues.
51
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment information is summarized as follows (in millions):
Sales:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
Light Vehicle Systems..................................... $3,588 $2,031 $1,575
Commercial Vehicle Systems................................ 2,199 2,872 2,875
Light Vehicle Aftermarket................................. 859 209 --
Other..................................................... 159 41 --
------ ------ ------
Total..................................................... $6,805 $5,153 $4,450
====== ====== ======
</Table>
Earnings:
<Table>
<Caption>
2001 2000 1999
----- ----- -----
<S> <C> <C> <C>
Operating income:
Light Vehicle Systems..................................... $ 213 $ 149 $ 130
Commercial Vehicle Systems................................ 32 221 233
Light Vehicle Aftermarket................................. 44 6 --
Other..................................................... (10) -- --
----- ----- -----
Segment operating income............................... 279 376 363
Restructuring costs and other charges..................... (84) (26) (28)
Merger expenses........................................... -- (10) --
Gain on sale of business and other........................ -- 89 24
----- ----- -----
Operating income....................................... 195 429 359
Equity in earnings of affiliates.......................... 4 29 35
Interest expense, net and other........................... (136) (89) (61)
----- ----- -----
Income before income taxes................................ 63 369 333
Provision for income taxes................................ (21) (141) (129)
Minority interests........................................ (7) (10) (10)
----- ----- -----
Net income................................................ $ 35 $ 218 $ 194
===== ===== =====
</Table>
Depreciation and Amortization:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Light Vehicle Systems..................................... $ 98 $ 55 $ 45
Commercial Vehicle Systems................................ 93 98 86
Light Vehicle Aftermarket................................. 19 7 --
Other..................................................... 7 2 --
---- ---- ----
Total depreciation and amortization....................... $217 $162 $131
==== ==== ====
</Table>
52
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital Expenditures:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Light Vehicle Systems..................................... $110 $106 $ 55
Commercial Vehicle Systems................................ 73 112 115
Light Vehicle Aftermarket................................. 18 5 --
Other..................................................... 5 2 --
---- ---- ----
Total capital expenditures................................ $206 $225 $170
==== ==== ====
</Table>
Segment Assets:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
Light Vehicle Systems..................................... $1,755 $1,775 $ 701
Commercial Vehicle Systems................................ 1,577 1,785 1,814
Light Vehicle Aftermarket................................. 723 726 --
Other..................................................... 201 228 --
------ ------ ------
Segment total assets................................... 4,256 4,514 2,515
Corporate................................................... 106 206 281
------ ------ ------
Total assets................................................ $4,362 $4,720 $2,796
====== ====== ======
</Table>
Corporate assets consist primarily of cash, taxes and prepaid pension
costs. For fiscal 2001, segment assets include $211 million of receivables sold
under the accounts receivable securitization program (see Note 4). As a result,
corporate assets are reduced by $211 million to account for the impact of the
sale.
Information on the company's geographic areas is summarized as follows:
Sales by Geographic Area:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
U.S. ..................................................... $3,476 $2,576 $2,249
Canada.................................................... 507 441 476
Mexico.................................................... 312 235 145
------ ------ ------
Total North America............................... 4,295 3,252 2,870
France.................................................... 384 394 398
U.K. ..................................................... 481 345 271
Other Europe.............................................. 1,159 769 584
------ ------ ------
Total Europe...................................... 2,024 1,508 1,253
Other....................................................... 486 393 327
------ ------ ------
Total sales................................................. $6,805 $5,153 $4,450
====== ====== ======
</Table>
53
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets by Geographic Area:
<Table>
<Caption>
2001 2000 1999
------ ------ ------
<S> <C> <C> <C>
U.S. ..................................................... $2,289 $2,537 $1,375
Canada.................................................... 166 176 150
Mexico.................................................... 130 135 83
------ ------ ------
Total North America............................... 2,585 2,848 1,608
U.K. ..................................................... 566 542 346
France.................................................... 203 226 191
Other Europe.............................................. 692 725 402
------ ------ ------
Total Europe...................................... 1,461 1,493 939
Other....................................................... 316 379 249
------ ------ ------
Total assets................................................ $4,362 $4,720 $2,796
====== ====== ======
</Table>
Sales to one original equipment manufacturer (OEM) represented 15 percent
of the company's sales in fiscal 2001, 18 percent in fiscal 2000, and 23 percent
in fiscal 1999. These sales include other customers acquired or merged with this
customer. Sales to one other OEM comprised 12 percent of the company's sales in
fiscal 2001. No other customer comprised 10 percent or more of the company's
sales in the three years ended September 30, 2001.
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a condensed summary of the company's unaudited quarterly
results of operations for fiscal 2001 and 2000 and stock price data for fiscal
2001. The per share amounts are based on the weighted average shares outstanding
for that quarter. All historical per share amounts, including stock prices,
prior to the merger date have been adjusted for the one for 0.75 exchange ratio
as part of the merger (see Note 3).
<Table>
<Caption>
2001 FISCAL QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH 2001
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<S> <C> <C> <C> <C> <C>
Sales............................................... $1,659 $1,787 $1,794 $1,565 $6,805
Cost of sales....................................... 1,487 1,600 1,597 1,390 6,074
Net income (loss)................................... (10) 21 30 (6) 35
Net income (loss) per share (basic and diluted)..... (0.15) 0.32 0.46 (0.09) 0.53
Stock Prices
High.............................................. $17.06 $17.00 $16.80 $21.87 $21.87
Low............................................... $ 8.88 $11.00 $12.78 $12.10 $ 8.88
</Table>
First quarter 2001 net income included a restructuring charge of $46
million ($30 million after-tax, or $0.45 per share), second quarter 2001 net
income included a restructuring charge of $9 million ($6 million after-tax, or
$0.09 per share), third quarter 2001 net income included a restructuring charge
of $(1) million ($(1) million after-tax, or $(0.02) per share), and fourth
quarter 2001 net income included a restructuring charge of $13 million ($10
million after-tax, or $0.15 per share), a charge associated with an employee
54
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
separation agreement of $12 million ($8 million after-tax, or $0.12 per share),
and a charge of $5 million ($3 million after-tax, or $0.05 per share) for
additional environmental liability (see Note 5).
<Table>
<Caption>
2000 FISCAL QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH 2000
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<S> <C> <C> <C> <C> <C>
Sales............................................... $1,136 $1,196 $1,141 $1,680 $5,153
Cost of sales....................................... 966 1,000 956 1,488 4,410
Net income.......................................... 97 57 40 24 218
Net income per share (basic and diluted)............ 1.94 1.22 0.86 0.35 4.12
</Table>
First quarter 2000 net income included a gain on sale of business of $83
million ($51 million after-tax, or $1.02 per share) (see Note 23) and third
quarter 2000 net income included a restructuring charge of $26 million ($16
million after-tax, or $0.34 per share) (see Note 5), and a gain on the sale of
land of $6 million ($3 million after-tax, or $0.06 per share). Third and fourth
quarters include merger expenses of $2 million and $8 million, respectively ($1
million and $5 million after-tax, respectively and $0.02 and $0.07 per share,
respectively).
23. ACQUISITION AND SALE OF BUSINESSES
During fiscal 1999, the company completed the acquisitions of Euclid
Industries, the heavy truck axle manufacturing operations of Volvo Truck
Corporation and the Heavy Vehicle Braking Systems business of LucasVarity plc.
The excess of the purchase price of these acquisitions over the fair market
value of assets acquired of $424 million is included in Net Goodwill in the
accompanying Consolidated Balance Sheet and is being amortized on a
straight-line basis over 40 years. These acquisitions would have added pro forma
sales of $173 million with no impact on net income on a pro forma basis in 1999,
assuming the acquisitions occurred at the beginning of 1999.
In the first quarter of 2000, the company completed the sale of its LVS
seat adjusting systems business for approximately $135 million cash, resulting
in a one-time gain of $83 million ($51 million after-tax, or $0.96 per basic and
diluted share). The seat adjusting systems business had fiscal 1999 sales of
approximately $130 million.
In the fourth quarter of 1999, a one-time gain of $24 million ($18 million
after-tax, or $0.34 per basic and diluted share) was recorded to reflect the
formation of a transmission and clutch joint venture with ZF Friedrichshafen AG
(ZF). ArvinMeritor and ZF each own 50 percent of the joint venture.
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
See the information under the captions Election of Directors and
Information as to Nominees for Directors and Continuing Directors in the 2002
Proxy Statement. No nominee for director was selected pursuant to any
arrangement or understanding between the nominee and any person other than
ArvinMeritor pursuant to which such person is or was to be selected as a
director or nominee. There are no family relationships, as defined in Item 401
of Regulation S-K, between any of the directors or nominees for directors and
any other director, executive officer or person nominated to become a director
or executive officer. See also the information with respect to executive
officers of ArvinMeritor under Item 4a of Part I.
ITEM 11. EXECUTIVE COMPENSATION.
See the information under the captions Compensation of Directors, Executive
Compensation, Agreements with V. William Hunt and Retirement Benefits in the
2002 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information under the captions Voting Securities and Ownership by
Management of Equity Securities in the 2002 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are those
of the company and its consolidated subsidiaries):
Statement of Consolidated Income, years ended September 30, 2001, 2000 and
1999.
Consolidated Balance Sheet, September 30, 2001 and 2000.
Statement of Consolidated Cash Flows, years ended September 30, 2001, 2000
and 1999.
Statement of Consolidated Shareowners' Equity, years ended September 30,
2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2001,
2000 and 1999.
<Table>
<Caption>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ S-1
</Table>
Schedules not filed with this Annual Report on Form 10-K are omitted
because of the absence of conditions under which they are required or because
the information called for is shown in the financial statements or related
notes.
56
<PAGE>
(3) Exhibits
<Table>
<S> <C>
3-a Restated Articles of Incorporation of the company, filed as
Exhibit 4.01 to the company's Registration Statement on Form
S-4, as amended (Registration Statement No. 333-36448)
("Form S-4"), is incorporated by reference.
3-b By-laws of the company, filed as Exhibit 3 to the company's
Quarterly Report on Form 10-Q for the quarterly period ended
April 1, 2000 (File No. 1-15983), is incorporated by
reference.
4-a Rights Agreement, dated as of July 3, 2000, between the
company and EquiServe Trust Company, N.A., as rights agent,
filed as Exhibit 4.03 to the Form S-4, is incorporated by
reference.
4-b Indenture, dated as of April 1, 1998, between the company
and BNY Midwest Trust Company (successor to The Chase
Manhattan Bank), as trustee, filed as Exhibit 4 to Meritor's
Registration Statement on Form S-3 (Registration No.
333-49777), is incorporated by reference.
4-b-1 First Supplemental Indenture, dated as of July 7, 2000, to
the Indenture, dated as of April 1, 1998, between the
company and BNY Midwest Trust Company (successor to The
Chase Manhattan Bank), as trustee, filed as Exhibit 4-b-1 to
the company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2000 (File No. 1-15983) ("2000 Form
10-K"), is incorporated by reference.
4-c Indenture, dated as of July 3, 1990, as supplemented by a
First Supplemental Indenture dated as of March 31, 1994,
between the company and Harris Trust and Savings Bank, as
trustee, filed as Exhibit 4-4 to Arvin's Registration
Statement on Form S-3 (Registration No. 33-53087), is
incorporated by reference.
4-c-1 Second Supplemental Indenture, dated as of July 7, 2000, to
the Indenture dated as of July 3, 1990, between the company
and Harris Trust and Savings Bank, as trustee, filed as
Exhibit 4-c-1 to the 2000 Form 10-K, is incorporated by
reference.
4-d Indenture, dated as of January 28, 1997, between the company
and Wilmington Trust Company, as trustee, filed as Exhibit
4.4 to Arvin's Registration Statement on Form S-3
(Registration No. 333-18521), is incorporated by reference.
4-d-1 First Supplemental Indenture, dated as of January 28, 1997,
to Indenture dated as of January 28, 1997, between the
company and Wilmington Trust Company, as trustee, filed as
Exhibit 4.5 to Arvin's Current Report on Form 8-K dated
February 10, 1997 (File No. 1-302), is incorporated by
reference.
4-d-2 Second Supplemental Indenture, dated as of July 7, 2000, to
Indenture dated as of January 28, 1997, between the company
and Wilmington Trust Company, filed as Exhibit 4-d-2 to the
2000 Form 10-K, is incorporated by reference.
10-a Agreement and Plan of Reorganization dated as of April 6,
2000, between Meritor, Arvin and Mu Sub, Inc., filed as
Exhibit 2.1 to Meritor's Current Report on Form 8-K dated
April 14, 2000 (File No. 1-13093), is incorporated by
reference.
10-b-1 Amended and Restated Five-Year Revolving Credit Agreement
dated as of June 27, 2001, among the company, the foreign
subsidiary borrowers and lenders from time to time party to
the agreement, Bank One, NA, as Administrative Agent, The
Chase Manhattan Bank as Syndication Agent, and Citicorp USA,
Inc. and Bank of America, NA, as Documentation Agents, filed
as Exhibit 10-b to the company's Quarterly Report on Form
10-Q for the quarterly period ended July 1, 2001 (File No.
1-15983), is incorporated by reference.
10-b-2 364-Day Credit Agreement dated as of June 27, 2001, among
the company, the lenders from time to time party to the
agreement, Bank One, NA, as Administrative Agent, The Chase
Manhattan Bank as Syndication Agent, and Citicorp USA, Inc.,
Bank of America, NA, and Deutsche Bank AG New York Branch,
as Documentation Agents, filed as Exhibit 10-a to the
company's Quarterly Report on Form 10-Q for the quarterly
period ended July 1, 2001 (File No. 1-15983), is
incorporated by reference.
</Table>
57
<PAGE>
<Table>
<S> <C>
*10-c-1 1997 Long-Term Incentives Plan, filed as Exhibit 10-a-1 to
Meritor's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 (File No. 1-13093) ("1997 Form
10-K"), is incorporated by reference.
*10-c-2 Form of Restricted Stock Agreement under the 1997 Long-Term
Incentives Plan, filed as Exhibit 10-a-2 to the 1997 Form
10-K, is incorporated by reference.
*10-c-3 Form of Option Agreement under the 1997 Long-Term Incentives
Plan, filed as Exhibit 10(a) to Meritor's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998
(File No. 1-13093), is incorporated by reference.
*10-d-1 Directors Stock Plan, filed as Exhibit 10-b-1 to the 1997
Form 10-K, is incorporated by reference.
*10-d-2 Form of Restricted Stock Agreement under the Directors Stock
Plan, filed as Exhibit 10-b-2 to the 1997 Form 10-K, is
incorporated by reference.
*10-d-3 Form of Option Agreement under the Directors Stock Plan,
filed as Exhibit 10(b) to Meritor's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 (File No.
1-13093), is incorporated by reference.
*10-e Incentive Compensation Plan, filed as Exhibit 10-c-1 to the
1997 Form 10- K, is incorporated by reference.
*10-f Copy of resolution of the Board of Directors of the company,
adopted on July 6, 2000, providing for its Deferred
Compensation Policy for Non-Employee Directors, filed as
Exhibit 10-f to the 2000 Form 10-K, is incorporated by
reference.
*10-g Deferred Compensation Plan, filed as Exhibit 10-e-1 to
Meritor's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 (File No. 1-13093), is incorporated
by reference.
*10-h 1998 Stock Benefit Plan, as amended, filed as Exhibit (d)(2)
to the company's Schedule TO, Amendment No. 3 (File No.
5-61023), is incorporated by reference.
*10-i Employee Stock Benefit Plan, as amended, filed as Exhibit
(d)(3) to the company's Schedule TO, Amendment No. 3 (File
No. 5-61023), is incorporated by reference.
*10-j 1988 Stock Benefit Plan, as amended, filed as Exhibit 10 to
Arvin's Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 1988, and as Exhibit 10(E) to Arvin's
Quarterly Report on Form 10-Q for the quarterly period ended
July 4, 1993 (File No. 1-302), is incorporated by reference.
*10-k Employment Agreement, dated as of April 6, 2000, among the
company, Arvin and V. William Hunt, filed as Exhibit 10.01
to the Form S-4, is incorporated by reference.
*10-k-1 Agreement, dated as of August 10, 2001, between the company
and V. William Hunt.
*10-l Form of Arvin Change of Control Agreement, filed as Exhibit
10(I) to Arvin's Annual Report on Form 10-K for the fiscal
year ended December 28, 1997 (File No. 1-302), is
incorporated by reference.
10-m Amended and Restated Receivables Sale Agreement, dated
September 27, 2001, among ArvinMeritor Receivables
Corporation, the company, Amsterdam Funding Corporation, ABN
AMRO Bank N.V., Giro Balanced Funding Corporation, Atlantic
Asset Securitization Corp., Bayerische Landesbank Cayman
Islands Branch, Bayerische Landesbank, New York Branch, and
Credit Lyonnais.
10-n Amended and Restated Purchase and Sale Agreement, dated
September 27, 2001, among the originators named therein and
ArvinMeritor Receivables Corporation.
12 Computation of ratio of earnings to fixed charges.
21 List of subsidiaries of the company.
23-a Consent of M. Lee Murrah, Esq., Chief Intellectual Property
Counsel of the company.
23-b Consent of Vernon G. Baker, II, Esq., Senior Vice President
and General Counsel of the company.
</Table>
58
<PAGE>
<Table>
<S> <C>
23-c Independent auditors' consent.
24 Power of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors
and officers of the company.
</Table>
- ---------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The company filed a Current Report on Form 8-K, dated August 18, 2001,
reporting under Item 5, Other Matters, a charge against the company's earnings,
recorded in the fourth quarter of fiscal year 2001, related to an agreement
between the company and V. William Hunt.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARVINMERITOR, INC.
By: /s/ VERNON G. BAKER, II
------------------------------------
Vernon G. Baker, II
Senior Vice President and General
Counsel
Date: December 19, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 19th day of December, 2001 by the following
persons on behalf of the registrant and in the capacities indicated.
<Table>
<C> <S>
Larry D. Yost* Chairman of the Board and Chief Executive
Officer (principal executive officer) and
Director
Joseph B. Anderson, Jr. Directors
Steven C. Beering,
Rhonda L. Brooks, Joseph P. Flannery,
William D. George, Jr., Richard W. Hanselman,
Charles H. Harff, Victoria B. Jackson,
James E. Marley, James E. Perrella,
Harold A. Poling and Martin D. Walker *
S. Carl Soderstrom* Senior Vice President and Chief Financial
Officer (principal financial officer)
Diane S. Bullock* Vice President and Controller
(principal accounting officer)
*By: /s/ BONNIE WILKINSON
------------------------------------------------
Bonnie Wilkinson
Attorney-in-fact**
**By authority of powers of attorney filed herewith
</Table>
60
<PAGE>
SCHEDULE II
ARVINMERITOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
<Table>
<Caption>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS OTHER END
DESCRIPTION OF YEAR (A) AND EXPENSES DEDUCTIONS OTHER OF YEAR(A)
----------- ----------- ------------ ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 2001:
Allowance for doubtful
accounts........................ $21.7 $10.2 $14.0(b) $ 0.2 $18.1
Year ended September 30, 2000:
Allowance for doubtful
accounts........................ $10.4 $ 2.8 $ 2.4(b) $10.9(d) $21.7
Year ended September 30, 1999:
Allowance for doubtful
accounts........................ $13.8 $ 1.2 $ 3.9(b) (0.7)(c) $10.4
</Table>
- ---------------
(a) Includes allowances for trade and other long-term receivables.
(b) Uncollectible accounts written off.
(c) Includes increase in allowance of $1.8 million due to acquisition of
businesses, less reversal of reserve of $2.5 million due to change in
estimate of collectibility of note receivable.
(d) Includes increase in allowance of $11.9 million due to Merger.
S-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.K.1
<SEQUENCE>3
<FILENAME>y55526ex10-k_1.txt
<DESCRIPTION>AGREEMENT WITH V WILLIAM HUNT
<TEXT>
<PAGE>
Exhibit 10-k-1
[Letterhead of ArvinMeritor, Inc.]
August 10, 2001
Mr. V. William Hunt
5775 Sunset Lane
Indianapolis, Indiana 46228
Dear Bill:
This letter will confirm the substance of our conversations regarding
your resignation from ArvinMeritor, Inc. (the "Company"). In consideration of
the mutual covenants and agreements contained herein, you and the Company agree
as follows:
1. Pursuant to this Letter Agreement, you hereby resign voluntarily
from your employment with the Company, including your position as Vice Chairman
and President of the Company, and all your other positions with subsidiaries and
affiliates of the Company, which resignations will be effective as of August 18,
2001 (the "Resignation Date"). In addition, you hereby resign voluntarily,
effective as of the Resignation Date, from your position as a director of the
Company and as a director of any of its subsidiaries and affiliates. The Company
accepts your resignations set forth above.
2. Effective upon the Resignation Date, the Company will pay or
provide to you the amounts or benefits described in Section 5(a) of the
Agreement by and among the Company (formerly named Mu Sub, Inc.), Arvin
Industries, Inc. and you dated as of the 6th day of April, 2000 (the "Employment
Agreement") as and when such payments or benefits would be paid or provided
under Section 5(a) of the Employment Agreement as if that Section were
applicable pursuant to the terms of the Employment Agreement, provided that for
purposes of determining the amount or other terms of any payment or benefit
under Section 5(a) of the Employment Agreement or the date of payment or
provision thereof, the term "Date of Termination" in Section 5(a) of the
Employment Agreement will be deemed to refer to the Resignation Date. You agree
that Schedule A attached hereto sets forth a complete and accurate list of all
payments and benefits to be paid or provided to you under this paragraph 2. In
addition, you acknowledge that you have received from the Company (i) detailed
calculations of all amounts set forth on Schedule A and Exhibit 2 and you agree
that such calculations are complete and accurate and (ii) a summary of retiree
health benefits.
3. The provisions of Section 8, Section 9 and the first two sentences
of Section 7 of the Employment Agreement are incorporated herein as if set forth
in their
<PAGE>
entirety herein and as if those provisions were applicable pursuant to the terms
of the Employment Agreement, provided that the period applicable to your
obligations under Sections 9(b) and 9(c) of the Employment Agreement will be
deemed to be a period of one year following the Resignation Date and that it
shall not be deemed a violation of such Section 9(b) for you to (i) serve as a
non-employee director of any person, firm, corporation or other entity or (ii)
serve as a consultant to any person, firm, corporation or other entity that may,
when taken as a whole, engage in businesses that are in substantial and direct
competition with the Company, provided that your consulting services relate
solely to aspects of such entity's business that are not in substantial and
direct competition with the Company.
4. The Company agrees to issue a press release on or promptly after
the Resignation Date regarding your resignation in the form attached hereto as
Exhibit 1.
5. (a) You will not disparage, portray in a negative light, or take
any action which would be harmful to, or lead to unfavorable publicity for, the
Company or its subsidiaries or divisions, or any of its or their current or
former officers, directors, employees, agents, consultants, contractors, owners,
divisions, parents or successors, whether public or private, including without
limitation, in any and all interviews, oral statements, written materials,
electronically displayed materials and materials or information displayed on
Internet- or intranet-related sites; provided that this paragraph 5(a) will not
apply to the extent you (i) are seeking to enforce your rights under this Letter
Agreement or (ii) are making truthful statements when required by order of a
court or other legal body having jurisdiction, provided you have given the
Company reasonable prior notice of, and a reasonable opportunity to contest,
such order. In the event of a breach or threatened breach of this paragraph
5(a), you agree that the Company will be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened breach
and you acknowledge that damages would be inadequate and insufficient.
(b) The Company will not, and will take reasonable measures to
cause its senior officers (senior vice presidents or higher level officers) and
directors not to, disparage, portray in a negative light, or take any action
which would be harmful to, or lead to unfavorable publicity for, you, including
without limitation, in any and all interviews, oral statements, written
materials, electronically displayed materials and materials or information
displayed on Internet- or intranet- related sites; provided that this paragraph
5(b) will not apply to the extent the Company (i) is seeking to enforce its
rights under this Letter Agreement or (ii) is making truthful statements when
required by order of a court or other legal body having jurisdiction, provided
the Company has given you reasonable prior notice of, and a reasonable
opportunity to contest, such order. In the event of a breach or threatened
breach of this paragraph 5(b), the Company agrees that you will be entitled to
injunctive relief in a court of appropriate jurisdiction to remedy
2
<PAGE>
any such breach or threatened breach and the Company acknowledges that damages
would be inadequate and insufficient.
6. You will deliver promptly to the Company (and not keep in your
possession or deliver to any other person or entity) any and all property
belonging to the Company in your possession or under your control, including
without limitation, credit cards, computer hardware and software, palm pilots,
pagers, other electronic equipment, records, data, notes, reports,
correspondence, financial information, customer files and information and other
documents or information (including any and all copies of such Company
property). Notwithstanding the foregoing, you may retain the laptop computer and
docking station that the Company provided to you during the course of your
employment, provided, that you will promptly remove and permanently delete any
of the Company's proprietary and/or confidential information stored on such
equipment.
7. For a period of three (3) years following the Resignation Date, the
Company will pay or reimburse you for your annual membership dues with respect
to your Company-sponsored country club membership in effect as of the date
hereof, and following such period the Company will consent to your retention of
such country club membership upon your reimbursement of the Company for any
equity interest in such country club. Within thirty (30) days after your
submission to the Company of an invoice for a country club initiation fee for
such club membership, the Company will reimburse you in an amount not to exceed
$60,000 for such initiation fee.
8. The Company will make the lease payments under the lease in effect
on the date hereof with respect to your present Company vehicle for the
remaining term of such lease, it being understood that the Company will have no
obligation to pay or reimburse you for any other amounts with respect to such
vehicle, including without limitation, fuel, maintenance, insurance or
registration fees. You agree to comply with all other terms and conditions of
such lease. At the conclusion of such lease you may purchase such vehicle in
accordance with the terms of such lease or the Company policy, whichever is more
favorable to you.
9. For a period of three (3) years following the Resignation Date, the
Company will pay or reimburse you for the costs of financial counseling services
actually incurred by you in an amount per year not to exceed $10,000.
10. The Company will reimburse you for any reasonable costs invoiced
to you by one moving company hired to relocate your possessions from your
apartment in Troy, Michigan to one location in the Columbus, Indiana area.
11. For a period of ninety (90) days following the Resignation Date,
the Company will make available to you at the Company's Troy, Michigan and
Columbus,
3
<PAGE>
Indiana executive offices during regular business hours secretarial services at
a level substantially comparable to the level of secretarial services provided
to you as of the date hereof.
12. You agree, on behalf of yourself, your heirs, executors,
administrators and assigns, to release, acquit and forever discharge the Company
and its subsidiaries and divisions and its and their respective current and
former officers, directors, employees, agents, owners, affiliates, successors
and assigns (the "Company Released Parties") of and from any and all manner of
actions and causes of action, suits, debts, damages, dues, accounts, bonds,
covenants, contracts, agreements, judgments, charges, claims, rights and demands
whatsoever, whether known or unknown ("Losses"), which you, your heirs,
executors, administrators and assigns ever had, now have or may hereafter have,
against the Company Released Parties or any of them arising out of or by reason
of any cause, matter or thing whatsoever from the beginning of the world to the
date hereof, including without limitation, any and all matters relating to your
employment by the Company and its predecessors and the cessation thereof, any
and all matters relating to your compensation and benefits by or from the
Company and its predecessors and any and all matters arising under any federal,
state or local statute, rule, regulation or principle of contract law or common
law, including but not limited to, Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. Sections 2000e et seq., the Age Discrimination in Employment
Act of 1967, as amended, 29 U.S.C. Sections 621 et seq. (the "ADEA"), the
Americans with Disabilities Act of 1990, as amended, 42 U.S.C. Sections 12101 et
seq., the Indiana Civil Rights Law, Burns Ind. Code Ann. Section 22-9 et seq.,
as amended, and any other equivalent or similar federal, state or local statute;
provided, however, that you do not release, acquit or discharge the Company
Released Parties from (i) any of the Company's express obligations arising out
of or in connection with this Letter Agreement, (ii) any Losses under the ADEA
arising after the Resignation Date which relate to occurrences after the
Resignation Date, (iii) any express rights you have under stock option plans or
agreements in effect on the date hereof with respect to stock options owned by
you and set forth on Exhibit 2 or (iv) the Company's obligation to indemnify you
for your acts prior to the Resignation Date to the same extent and only to such
extent that the Company is obligated to provide such indemnification to its
former officers and former directors generally, which shall in no event be less
favorable than the indemnification provided to former Arvin Industries, Inc.
officers and directors pursuant to Section 6.8(a) of the Agreement and Plan of
Reorganization dated as of April 6, 2000 by and among Meritor Automotive, Inc.,
the Company and Arvin Industries, Inc. It is understood that nothing in this
paragraph 12 is to be construed as an admission on behalf of the Company
Released Parties of any wrongdoing with respect to you, any such wrongdoing
being expressly denied.
4
<PAGE>
You understand that as a result of this paragraph 12, you will not
have the right to assert that the Company unlawfully terminated your employment
or violated any of your rights in connection with your employment.
You understand that you have the right to take up to twenty-one (21)
days to consider whether to execute this Letter Agreement; however, having had
the advice of counsel, by execution hereof, you hereby knowingly waive such
21-day period to consider whether to execute this Letter Agreement. Upon your
execution of this Letter Agreement you will have seven (7) days following such
execution to revoke the provisions of this Letter Agreement, which revocation
will only be effective upon receipt by the Company of written notice of such
revocation in accordance with paragraph 20 below. Upon the Company's receipt of
any such revocation, this Letter Agreement (with the exception of paragraph 14
below, which will remain in full force and effect) will be void ab initio and
the Company will have no obligation to you hereunder. If seven (7) days pass
following your execution hereof without such notice of revocation, this Letter
Agreement, including without limitation this paragraph 12, will become binding
and effective on the eighth (8th) day following such execution.
You affirm that you have not filed, and agree not to initiate or cause
to be initiated on your behalf, any complaint, charge, claim or proceeding
against the Company Released Parties before any federal, state or local agency,
court or other body relating to your employment, the cessation thereof or any
other matters covered by the terms of this paragraph 12, and agree not to
voluntarily participate in such a proceeding.
13. The Company agrees, on behalf of itself and its current and former
officers, directors, agents, subsidiaries, affiliates, divisions, successors and
assigns, to release, acquit and forever discharge you and your heirs, executors,
administrators and assigns (the "Executive Released Parties") of and from any
and all manner of Losses which the Company, its current and former officers,
directors, agents, subsidiaries, affiliates, divisions, successors and assigns
ever had, now have or may hereafter have, against the Executive Released Parties
or any of them arising out of or by reason of any act or omission undertaken by
you in the scope of your duties with the Company and its affiliates from the
beginning of the world to the date hereof; provided, however, that the Company
does not release, acquit or discharge the Executive Released Parties from: (i)
any of your express obligations arising out of or in connection with this Letter
Agreement; and (ii) any of your acts or omissions involving fraud, dishonesty,
gross negligence or willful malfeasance. It is understood that nothing in this
paragraph 13 is to be construed as an admission on behalf of the Executive
Released Parties of any wrongdoing with respect to the Company, any such
wrongdoing being expressly denied.
The Company affirms that it has not filed, and agrees not to initiate
or cause to be initiated on its behalf, any complaint, charge, claim or
proceeding against the
5
<PAGE>
Executive Released Parties before any federal, state or local agency, court or
other body relating to any matters covered by the terms of this paragraph 13 and
agrees not to voluntarily participate in such a proceeding.
14. The Company and you agree that the terms and conditions of this
Letter Agreement are confidential and that neither party will disclose the terms
of this Letter Agreement to any third parties, other than (i) disclosure by you
to your spouse as of the date hereof, (ii) disclosure by the Company or you to
its or your respective attorneys, auditors, financial advisors and accountants,
(iii) as may be required by law (including securities laws) or (iv) as may be
necessary to enforce this Letter Agreement. Without limiting the generality of
the foregoing, you acknowledge that the Company may, to the extent required by
applicable law, describe or incorporate the terms of this Letter Agreement in,
and/or file or incorporate this Letter Agreement as an exhibit to, one or more
filings with the Securities and Exchange Commission.
15. The Company will cause to be maintained for a period of six years
after the Resignation Date your coverage under the current policies of
directors' and officers' liability insurance maintained by the Company (provided
that the Company may substitute therefor policies of at least the same coverage
and amounts containing terms and conditions which are, in the aggregate, no less
advantageous to you) with respect to claims arising from facts or events that
occurred on or before the Resignation Date; provided, however, that in no event
shall the Company be required to expend in any one year an amount in excess of
200% of the annual premiums currently paid by the Company for such insurance;
and, provided, further, that if the annual premiums of such insurance coverage
exceed such amount, the Company shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
16. You represent and warrant that you are entering voluntarily into
this Letter Agreement, and that, except as set forth herein, no promises or
inducements for this Letter Agreement have been made, and you enter into this
Letter Agreement without reliance upon any statement or representation by any of
the Company Released Parties or any other person, concerning any fact material
hereto. You agree and acknowledge that it is your responsibility, in conjunction
with your tax advisors, to consider the effect of this Letter Agreement on your
individual tax situation and that the Company Released Parties make no
representations with regard thereto.
17. You declare and represent that you have carefully read and fully
understand the terms of this Letter Agreement, have had the advice and
assistance of counsel with respect thereto, and knowingly and of your own free
will, without any duress, being fully informed and after due deliberation,
voluntarily accept the terms of this Letter Agreement and sign the same as your
own free act.
6
<PAGE>
18. (a) This Letter Agreement is personal to you and without the prior
written consent of the Company will not be assignable by you otherwise than by
will or the laws of descent and distribution. This Letter Agreement will inure
to the benefit of and be enforceable by your legal representatives.
(b) This Letter Agreement will inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Letter Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Letter Agreement, "Company" will
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Letter
Agreement by operation of law or otherwise.
19. This Letter Agreement will be governed by and construed in
accordance with the laws of the State of Indiana, without reference to
principles of conflict of laws. This Letter Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
7
<PAGE>
20. All notices and other communications hereunder will be in writing
and will be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to you: V. William Hunt
5775 Sunset Lane
Indianapolis, Indiana 46228
If to the Company: ArvinMeritor, Inc.
2135 West Maple Road
Troy, Michigan 48084
Attention: Vernon G. Baker, II, Esq.
Senior Vice President, General
Counsel and Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications will be effective
when actually received by the addressee.
21. The invalidity or unenforceability of any provision of this Letter
Agreement will not affect the validity or enforceability of any other provision
of this Letter Agreement.
22. The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
23. The failure by you or the Company to insist upon strict compliance
with any provision of this Letter Agreement, or the failure to assert any right
you or the Company may have hereunder, will not be deemed to be a waiver of such
provision or right or any other provision of or right under this Letter
Agreement.
24. You and the Company agree that effective on the Resignation Date,
without limiting the force and effect of paragraphs 2 and 3 above, the
Employment Agreement will be terminated and of no further force or effect. This
Letter Agreement constitutes the entire agreement between you and the Company
with respect to the subject matter hereof and this Letter Agreement will
supersede all prior negotiations, agreements or understandings, including
without limitation, any other employment, severance or change of control
agreement, between you and the Company with respect to the subject matter
hereof.
8
<PAGE>
25. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which you may reasonably incur as
a result of any contest including arbitration (regardless of the outcome
thereof) by you arising out of the Company's failure to pay or provide you
payments or benefits expressly specified to be paid or provided by the Company
under this Letter Agreement, plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended.
26. This Letter Agreement may be executed in several counterparts,
each of which will be deemed to be an original but all of which together will
constitute one and the same instrument below.
Please indicate your agreement with the foregoing by signing below
where indicated.
Sincerely,
ARVINMERITOR, INC.
By: /s/ Larry D. Yost
-----------------------------------
Name: Larry D. Yost
Title: Chairman of the Board
and Chief Executive Officer
ACCEPTED AND AGREED TO
as of the date first written above:
/s/ V. William Hunt
- -------------------------------------
V. William Hunt
Date:
--------------------------------
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.M
<SEQUENCE>4
<FILENAME>y55526ex10-m.txt
<DESCRIPTION>AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
<TEXT>
<PAGE>
Exhibit 10-m
================================================================================
AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
DATED AS OF SEPTEMBER 27, 2001
AMONG
ARVINMERITOR RECEIVABLES CORPORATION,
AS THE SELLER,
ARVINMERITOR, INC.,
AS THE INITIAL COLLECTION AGENT,
ABN AMRO BANK N.V.,
AS THE AGENT AND AS A PURCHASER AGENT,
BAYERISCHE LANDESBANK, NEW YORK BRANCH,
AS A PURCHASER AGENT
CREDIT LYONNAIS,
ACTING THROUGH ITS NEW YORK BRANCH,
AS A PURCHASER AGENT
THE OTHER PURCHASER AGENTS
FROM TIME TO TIME HERETO,
THE RELATED COMMITTED PURCHASERS
FROM TIME TO TIME PARTY HERETO,
AMSTERDAM FUNDING CORPORATION,
AS A CONDUIT PURCHASER,
GIRO BALANCED FUNDING CORPORATION,
AS A CONDUIT PURCHASER,
ATLANTIC ASSET SECURITIZATION CORP.,
AS A CONDUIT PURCHASER,
AND
THE OTHER CONDUIT PURCHASERS
FROM TIME TO TIME PARTY HERETO
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I PURCHASES FROM SELLER AND SETTLEMENTS..................................1
Section 1.1. Sales..................................................................1
Section 1.2. Interim Liquidations...................................................4
Section 1.3. Selection of Discount Rates and Tranche Periods........................4
Section 1.4. Fees and Other Costs and Expenses......................................4
Section 1.5. Maintenance of Sold Interest; Deemed Collection........................4
Section 1.6. Reduction in Commitments...............................................5
Section 1.7. Repurchases............................................................5
Section 1.8. Security Interest......................................................5
ARTICLE II SALES TO AND FROM CONDUIT PURCHASERS; ALLOCATIONS......................6
Section 2.1. Required Purchases from a Conduit Purchaser............................6
Section 2.2. Purchases by a Conduit Purchaser.......................................7
Section 2.3. Allocations and Distributions..........................................7
ARTICLE III ADMINISTRATION AND COLLECTIONS.........................................8
Section 3.1. Appointment of Collection Agent........................................8
Section 3.2. Duties of Collection Agent.............................................9
Section 3.3. Reports...............................................................10
Section 3.4. Lock-Box Arrangements.................................................10
Section 3.5. Enforcement Rights....................................................10
Section 3.6. Collection Agent Fee..................................................11
Section 3.7. Responsibilities of the Seller........................................11
Section 3.8. Actions by Seller.....................................................11
Section 3.9. Indemnities by the Collection Agent...................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................13
Section 4.1. Representations and Warranties of the Seller..........................13
Section 4.2. Representations and Warrants of the Initial Collection Agent..........15
ARTICLE V COVENANTS.............................................................17
Section 5.1. Covenants of the Seller...............................................17
Section 5.2. Covenants of the Initial Collection Agent.............................22
ARTICLE VI INDEMNIFICATION.......................................................25
Section 6.1. Indemnities by the Seller.............................................25
Section 6.2. Increased Cost and Reduced Return.....................................26
Section 6.3. Other Costs and Expenses..............................................27
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 6.4. Withholding Taxes.....................................................28
Section 6.5. Payments and Allocations..............................................28
ARTICLE VII CONDITIONS PRECEDENT..................................................28
Section 7.1. Conditions to Closing.................................................28
Section 7.2. Conditions to Each Purchase...........................................29
ARTICLE VIII THE AGENT.............................................................30
Section 8.1. Appointment and Authorization.........................................30
Section 8.2. Delegation of Duties..................................................31
Section 8.3. Exculpatory Provisions................................................31
Section 8.4. Reliance by Agent and Purchaser Agents................................31
Section 8.5. Assumed Payments......................................................32
Section 8.6. Notice of Termination Events..........................................32
Section 8.7. Non-Reliance on Agent and Other Purchasers............................32
Section 8.8. Agent, Purchaser Agents and Affiliates................................33
Section 8.9. Indemnification.......................................................33
Section 8.10. Successor Agent.......................................................33
ARTICLE IX MISCELLANEOUS.........................................................34
Section 9.1. Termination...........................................................34
Section 9.2. Notices...............................................................34
Section 9.3. Payments and Computations.............................................34
Section 9.4. Sharing of Recoveries.................................................35
Section 9.5. Right of Setoff.......................................................35
Section 9.6. Amendments............................................................35
Section 9.7. Waivers...............................................................36
Section 9.8. Successors and Assigns; Participations; Assignments...................36
Section 9.9. Waiver of Confidentiality.............................................38
Section 9.10. Confidentiality of Agreement..........................................38
Section 9.11. Agreement Not to Petition.............................................39
Section 9.12. Excess Funds..........................................................39
Section 9.13. No Recourse...........................................................40
Section 9.14. Headings; Counterparts................................................40
Section 9.15. Cumulative Rights and Severability....................................40
Section 9.16. Governing Law; Submission to Jurisdiction.............................40
Section 9.17. Waiver of Trial by Jury...............................................40
Section 9.18. Intended Tax Characterization.........................................40
Section 9.19. Entire Agreement......................................................40
Section 9.20. Extensions of Scheduled Termination Date..............................41
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SCHEDULES DESCRIPTION
Schedule I Definitions
Schedule II Purchasers
EXHIBITS DESCRIPTION
Exhibit A Form of Incremental Purchase Request
Exhibit B Form of Periodic Report
Exhibit C Addresses and Names of Seller and Originators
Exhibit D Lock-Boxes and Lock-Box Banks
Exhibit E Form of Lock-Box Letter
Exhibit F Form of Compliance Certificate
Exhibit G Credit and Collection Policy
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
THIS AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of
September 27, 2001, among ArvinMeritor Receivables Corporation, a Delaware
corporation (the "Seller"), ArvinMeritor, Inc., an Indiana corporation (the
"Initial Collection Agent," and, together with any successor thereto, the
"Collection Agent"), the Related Committed Purchasers party hereto (the "Related
Committed Purchasers"), Amsterdam Funding Corporation, a Delaware corporation
("Amsterdam"), Giro Balanced Funding Corporation ("GBFC"), Atlantic Asset
Securitization Corp. ("Atlantic"), the other Conduit Purchasers from time to
time party hereto, ABN AMRO Bank N.V., as agent for the Purchasers (the "Agent")
and as a Purchaser Agent, Bayerische Landesbank, New York Branch ("BLB"), as a
Purchaser Agent, Credit Lyonnais ("CL"), acting through its New York Branch, as
a Purchaser Agent, and the other Purchaser Agents from time to time to the party
hereto. Certain capitalized terms used herein, and certain rules of
construction, are defined in Schedule I.
PRELIMINARY STATEMENT
The Seller, Initial Collection Agent, Agent, Amsterdam, ABN AMRO as the
enhancer, and certain liquidity providers are parties to a Receivables Sale
Agreement, dated as of March 30, 2001 (the "Original Agreement"); and
Subject to and upon the terms and conditions set forth herein, the
parties desire to amend and restate the Original Agreement in the form of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and the other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
PURCHASES FROM SELLER AND SETTLEMENTS
Section 1.1. Sales. (a) The Sold Interest. Subject to the terms and
conditions hereof, the Seller may, from time to time before the Termination
Date, sell to the Conduit Purchasers or, only if a Conduit Purchaser declines to
make the applicable purchase, ratably to the Related Committed Purchasers for
such Conduit Purchaser, an undivided percentage ownership interest in the
Receivables, the Related Security and all related Collections. Any such purchase
(a "Purchase") shall be made by each relevant Purchaser remitting funds to the
Seller, through the Agent, pursuant to Section 1.1(c) or by the Collection Agent
remitting Collections to the Seller pursuant to Section 1.1(d). The aggregate
percentage ownership interest so acquired by a Purchaser in the Receivables, the
Related Security and related Collections (its "Purchase Interest") shall equal
at any time the sum of the following percentages:
<PAGE>
I + PRP
---------
ER
where:
I = the outstanding Investment of such Purchaser at such time;
ER = the Eligible Receivables Balance at such time; and
PRP = the Purchaser Reserve Percentage at such time.
Except during a Liquidation Period for a Purchaser, such Purchaser's Purchase
Interest will change whenever its Investment, its Purchaser Reserve Percentage
or the Eligible Receivables Balance changes. During a Liquidation Period for a
Purchaser its Purchase Interest shall remain constant at the percentage in
effect as of the day immediately preceding the commencement of the relevant
Liquidation Period, except for redeterminations to reflect Investment acquired
from or transferred to another Purchaser under the Transfer Agreement. The sum
of all Purchasers' Purchase Interests at any time is referred to herein as the
"Sold Interest," which at any time is the aggregate percentage ownership
interest then held by the Purchasers in the Receivables, the Related Security
and Collections.
(b) Conduit Purchasers' Purchase Option and Committed Purchasers'
Commitments. Subject to Section 1.1(d) concerning Reinvestment Purchases, at no
time will a Conduit Purchaser have any obligation to make a Purchase. Each
Committed Purchaser severally hereby agrees, subject to Section 7.2 and the
other terms and conditions hereof, (including, in the case of an Incremental
Purchase (as defined below), that the related Conduit Purchaser has refused to
make a requested Purchase), to make Purchases before the Termination Date, based
on the applicable Purchaser Group's Ratable Share of each Purchase (and, in the
case of each Committed Purchaser, its Commitment Percentage of its Purchaser
Group's Ratable Share of such Purchase), to the extent its Investment would not
thereby exceed its Commitment and the Matured Aggregate Investment would not
thereby exceed the Aggregate Commitments. Each Purchaser's first Purchase and
each additional Purchase by such Purchaser not made from Collections pursuant to
Section 1.1(d) is referred to herein as an "Incremental Purchase." Each Purchase
made by a Purchaser with the proceeds of Collections in which it has a Purchase
Interest, which does not increase the outstanding Investment of such Purchaser,
is referred to herein as a "Reinvestment Purchase." All Purchases hereunder
shall be made ratably by each Purchaser Group in accordance with the Commitment
of such Purchaser Group.
(c) Incremental Purchases. In order to request an Incremental Purchase
from a Purchaser, the Seller must provide to the Agent and each Purchaser Agent
an irrevocable written request (including by telecopier or other facsimile
communication) substantially in the form of Exhibit A, by (i) 10:00 a.m.
(Chicago time) three Business Days before the requested date (the "Purchase
Date") of such Purchase, in the case of each Purchase by a Conduit Purchaser and
in the case of each Purchase by the Committed Purchasers that is to accrue
Discount at the Eurodollar Rate and (ii) 10:00 a.m. (Chicago time) one Business
Day before the requested Purchase Date in the case of each Purchase by the
Committed Purchasers that is to accrue Discount at the Prime Rate. Each such
notice shall specify the requested Purchase Date (which
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<PAGE>
must be a Business Day) and the requested amount (the "Purchase Amount") of such
Purchase, which must be in a minimum amount of $1,000,000 and multiples thereof
(or, if less, an amount equal to the Maximum Incremental Purchase Amount). All
Incremental Purchases must be requested ratably from all Conduit Purchasers
unless upon such request, a Conduit Purchaser, in its sole discretion,
determines not to make its Ratable Share of the requested Purchase (which
determination shall be made within one Business Day after the Seller's request
for an Incremental Purchase), in which case the Seller may request such Ratable
Share of the Incremental Purchase be made by the Related Committed Purchasers of
such Conduit Purchaser on the originally requested Purchase Date. Each Purchaser
Agent shall promptly notify the related Purchasers from which a Purchase is
requested of the contents of such request. If a Ratable Share of an Incremental
Purchase is requested from a Conduit Purchaser and such Conduit Purchaser
determines, in its sole discretion, to make the requested Purchase, such Conduit
Purchaser shall transfer to the Agent's Account its Ratable Share of such
Incremental Purchase by no later than 12:00 noon (Chicago time) on the Purchase
Date. If a Ratable Share of an Incremental Purchase is requested from the
Committed Purchasers for a Purchaser Group, subject to Section 7.2 and the other
terms and conditions hereof, each Committed Purchaser for a Purchaser Group
shall transfer the applicable Purchaser Group's Ratable Share of the requested
Purchase Amount (and, in the case of each Committed Purchaser, its Commitment
Percentage of its Purchaser Group's Ratable Share of such Purchase) into the
Agent's Account by no later than 12:00 noon (Chicago time) on the Purchase Date.
The Agent shall transfer to the Seller Account the proceeds of any Incremental
Purchase delivered into the Agent's Account.
(d) Reinvestment Purchases. Unless a Conduit Purchaser has provided to
the Agent, its Purchaser Agent, the Seller, and the Collection Agent a notice
(which notice has not been revoked) that it no longer wishes to make
Reinvestment Purchases (in which case such Conduit Purchaser's Reinvestment
Purchases, but not those of its Related Committed Purchasers shall cease), on
each day before the Termination Date that any Collections are received by the
Collection Agent and no Interim Liquidation is in effect a Purchaser's Purchase
Interest in such Collections shall automatically be used to make a Reinvestment
Purchase by such Purchaser, but only to the extent such Reinvestment Purchase
would not cause the Purchaser's Investment to increase above the amount of such
Investment at the start of the day plus any Incremental Purchases made by the
Purchaser on that day. A Conduit Purchaser may revoke any notice provided under
the first sentence of this Section 1.1(d) by notifying the Agent, its Purchaser
Agent, the Seller and the Collection Agent that it will make Reinvestment
Purchases.
(e) Assignments. Pursuant to the Original Agreement, the Agent (on behalf
of Amsterdam) has from time to time purchased Receivables which are currently
outstanding in the amount of $100,000,000. The parties hereto are amending and
restating the Original Agreement in order to add GBFC and Atlantic,
respectively, as Conduit Purchasers hereunder and BLB and CL, respectively, as
the respective Purchaser Agent for the related Conduit Purchaser. Amsterdam
hereby sells and assigns to each of GBFC and Atlantic, and GBFC and Atlantic
each hereby purchases and assumes from Amsterdam, a Purchased Interest in the
Receivables which are held by the Agent for the benefit of Amsterdam each in the
amount of $30,000,000 such that the Purchased Interests of GBFC and Atlantic in
Receivables which are on the date hereof shall each equal such amount and the
Purchased Interest of Amsterdam shall equal $40,000,000. Amsterdam represents
and warrants that it is the legal and beneficial owner of the Purchased
-3-
<PAGE>
Interest assigned by it hereunder and that such Purchased Interest is free and
clear of any Adverse Claim created by the Agent and/or Amsterdam.
Section 1.2. Interim Liquidations. (a) Optional. The Seller may at any time
direct that Reinvestment Purchases cease and that an Interim Liquidation
commence for all Purchasers by giving the Agent, each Purchaser Agent and the
Collection Agent at least three Business Days' prior written (including telecopy
or other facsimile communication) notice specifying the date on which the
Interim Liquidation shall commence and, if desired, when such Interim
Liquidation shall cease (identified as a specific date prior to the Termination
Date or as when the Aggregate Investment is reduced to a specified amount). If
the Seller does not so specify the date on which an Interim Liquidation shall
cease, it may cause such Interim Liquidation to cease at any time before the
Termination Date, subject to Section 1.2(b) below, by notifying the Agent, each
Purchaser Agent and the Collection Agent in writing (including by telecopy or
other facsimile communication) at least three Business Days before the date on
which it desires such Interim Liquidation to cease.
(b) Mandatory. If at any time before the Termination Date any condition
in Section 7.2 is not fulfilled, the Seller shall immediately notify the Agent,
each Purchaser Agent and the Collection Agent, whereupon Reinvestment Purchases
shall cease and an Interim Liquidation shall commence, which shall only cease
upon the Seller confirming to the Agent that the conditions in Section 7.2 are
fulfilled.
Section 1.3. Selection of Discount Rates and Tranche Periods. The Discount
Rates, Tranche Periods and related matters for all Investment of each Purchaser
Group shall be set forth in and governed by the terms of, the Rate Supplement
for such Purchaser Group. Each such Rate Supplement shall supplement this
Agreement with respect to the terms and provisions set forth therein.
Section 1.4. Fees and Other Costs and Expenses. (a) The Seller shall pay to
each Purchaser Agent for the benefit of its Purchaser Group, such amounts as
agreed to with the Seller in the Fee Letter for such Purchaser Group.
(b) Investment and Discount shall be payable solely from Collections and
from amounts payable under Sections 1.5, 1.7 and 6.1 (to the extent amounts paid
under Section 6.1 indemnify against reductions in or non-payment of
Receivables). The Seller shall pay, as a full recourse obligation, all other
amounts payable hereunder and under the Rate Supplements (other than Discount),
including, without limitation, fees described in the Fee Letters and amounts
payable under Article VI.
Section 1.5. Maintenance of Sold Interest; Deemed Collection. (a) General.
If at any time before the Termination Date the Eligible Receivables Balance is
less than the sum of the Aggregate Investment (or, if a Termination Event
exists, the Matured Aggregate Investment) plus the Total Reserve, the Seller
shall immediately pay to the Agent an amount equal to such deficiency for
application to reduce the Investments of the Purchasers ratably in accordance
with the principal amount of their respective Investments, applied with respect
to each such Purchaser first to such Purchaser's Prime Tranches, if any, and
second to the other Tranches applicable to
-4-
<PAGE>
the Investment of such Purchaser with the shortest remaining maturities unless
otherwise specified by the Seller.
(b) Deemed Collections. If on any day the outstanding balance of a
Receivable is reduced or cancelled as a result of any defective or rejected
goods or services, any cash discount or adjustment (including any adjustment
resulting from the application of any special refund or other discounts or any
reconciliation), any setoff or credit (whether such claim or credit arises out
of the same, a related, or an unrelated transaction) or any other reason other
than the financial inability of the Obligor to pay undisputed indebtedness, the
Seller shall be deemed to have received on such day a Collection on such
Receivable in the amount of such reduction or cancellation. If on any day any
representation, warranty, covenant or other agreement of the Seller related to a
Receivable is not true or is not satisfied, the Seller shall be deemed to have
received on such day a Collection in the amount of the outstanding balance of
such Receivable. All such Collections deemed received by the Seller under this
Section 1.5(b) shall be remitted by the Seller to the Collection Agent in
accordance with Section 5.1(i).
(c) Adjustment to Sold Interest. At any time before the Termination Date
that the Seller is deemed to have received any Collection under Section 1.5(b)
("Deemed Collections") that derives from a Receivable that is otherwise reported
as an Eligible Receivable, so long as no Liquidation Period then exists, the
Seller may satisfy its obligations to deliver such amount to the Collection
Agent by instead notifying the Agent that the Sold Interest should be
recalculated by decreasing the Eligible Receivables Balance by the amount of
such Deemed Collections, so long as such adjustment does not cause the Sold
Interest to exceed 100%.
(d) Payment Assumption. Unless an Obligor otherwise specifies or another
application is required by contract or law, any payment received by the Seller
from any Obligor shall be applied as a Collection of Receivables of such Obligor
(starting with the oldest such Receivable) and remitted to the Collection Agent
as such.
Section 1.6. Reduction in Commitments. The Seller may, upon thirty days'
notice to the Agent and each Purchaser Agent, reduce the Aggregate Commitment in
increments of $1,000,000, so long as the Aggregate Commitment as so reduced is
no less than the Matured Aggregate Investment. Each such reduction in the
Aggregate Commitment shall reduce the Commitment of each Purchaser Group in
accordance with its Ratable Share (and, in the case of each Committed Purchaser,
its Commitment in accordance with its Commitment Percentage of its Purchaser
Group's Ratable Share of such reduction).
Section 1.7. Optional Repurchases. At any time that the Aggregate
Investment is less than 10% of the Aggregate Commitment in effect on the date
hereof, the Seller may, upon thirty days' notice to the Agent and each Purchaser
Agent, repurchase the entire Sold Interest from the Purchasers at a price equal
to the outstanding Matured Aggregate Investment and all other amounts then owed
hereunder.
Section 1.8. Security Interest. (a) The Seller hereby grants to the Agent,
for its own benefit and for the ratable benefit of the Purchaser Agents and
Purchasers, a security interest in all Receivables, Related Security,
Collections and Lock-Box Accounts to secure the payment of
-5-
<PAGE>
all amounts other than Investment owing hereunder and (to the extent of the Sold
Interest) to secure the repayment of all Investment.
(b) The Seller hereby assigns and otherwise transfers to the Agent (for
the benefit of the Agent, each Purchaser Agent, each Purchaser and any other
Person to whom any amount is owed hereunder), all of the Seller's right, title
and interest in, to and under the Purchase Agreement. The Seller shall execute,
file and record all financing statements, continuation statements and other
documents required to perfect or protect such assignment. This assignment
includes (a) all monies due and to become due to the Seller from the Originators
under or in connection with the Purchase Agreement (including fees, expenses,
costs, indemnities and damages for the breach of any obligation or
representation related to such agreements) and (b) all rights, remedies, powers,
privileges and claims of the Seller against the Originators under or in
connection with the Purchase Agreement. All provisions of the Purchase Agreement
shall inure to the benefit of, and may be relied upon by, the Agent, each
Purchaser Agent, each Purchaser and each such other Person. At any time that a
Termination Event has occurred and is continuing, the Agent shall have the sole
right to enforce the Seller's rights and remedies under the Purchase Agreement
to the same extent as the Seller could absent this assignment, but without any
obligation on the part of the Agent, any Purchaser Agent, any Purchaser or any
other such Person to perform any of the obligations of the Seller under the
Purchase Agreement (or the promissory note executed thereunder). All amounts
distributed to the Seller under the Purchase Agreement from Receivables sold to
the Seller thereunder shall constitute Collections hereunder and shall be
applied in accordance herewith.
(c) This agreement shall be a security agreement for purposes of the UCC.
Upon the occurrence of a Termination Event, the Agent shall have all rights and
remedies provided under the UCC as in effect in all applicable jurisdictions.
ARTICLE II
SALES TO AND FROM CONDUIT PURCHASERS; ALLOCATIONS
Section 2.1. Required Purchases from a Conduit Purchaser. (a) Each Conduit
Purchaser may, at any time, sell to its Related Committed Purchasers pursuant to
the relevant Transfer Agreement any percentage designated by such Conduit
Purchaser of such Conduit Purchaser's Investment and its related Conduit
Purchaser Settlement (each, a "Put").
(b) Any portion of any Investment of a Conduit Purchaser and related
Conduit Purchaser Settlement purchased by a Committed Purchaser shall be
considered part of such Committed Purchaser's Investment and related Conduit
Purchaser Settlement from the date of the relevant Put. Immediately upon any
purchase by a Committed Purchaser of any portion of the relevant Conduit
Purchaser's Investment, the Seller shall pay to the relevant Purchaser Agent
(for the ratable benefit of each such Purchaser) an amount equal to the sum of
(i) the Assigned Settlement and (ii) all unpaid Discount owed to such Conduit
Purchaser (whether or not then due) to the end of each applicable Tranche Period
to which any Investment being Put has been allocated, (iii) all accrued but
unpaid fees (whether or not then due) payable to such Conduit
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<PAGE>
Purchaser in connection herewith at the time of such purchase and (iv) all
accrued and unpaid costs, expenses and indemnities due to such Conduit Purchaser
from the Seller in connection herewith.
Section 2.2. Purchases by a Conduit Purchaser. Each Conduit Purchaser may
at any time deliver to its Purchaser Agent and each of its Related Committed
Purchasers a notification of assignment in substantially the form provided by
the relevant Transfer Agreement. If a Conduit Purchaser delivers such notice,
each of its Related Committed Purchasers shall sell to such Conduit Purchaser
and such Conduit Purchaser shall purchase in full from each such Related
Committed Purchasers, the Investment of such Related Committed Purchasers on the
last day of the relevant Tranche Periods, at a purchase price equal to such
Investment plus accrued and unpaid Discount thereon. Any sale from any Related
Committed Purchaser to the relevant Conduit Purchaser pursuant to this Section
2.2 shall be without recourse, representation or warranty except for the
representation and warranty that the Investment sold by such Related Committed
Purchaser is free and clear of any Adverse Claim created or granted by such
Related Committed Purchaser and that such Related Committed Purchaser has not
suffered a Bankruptcy Event.
Section 2.3. Allocations and Distributions.
(a) Non-Reinvestment Periods. Before the Termination Date unless an
Interim Liquidation is in effect, on each day during a period that a Conduit
Purchaser is not making Reinvestment Purchases (as established under Section
1.1(d)), the Collection Agent (i) shall set aside and hold in trust solely for
the benefit of the applicable Conduit Purchaser (or deliver to the applicable
Purchaser Agent, if so instructed pursuant to Section 3.2(a)) such Conduit
Purchaser's Purchase Interest in all Collections received on such day and (ii)
shall distribute on the last day of each CP Tranche Period to the applicable
Purchaser Agent (for the benefit of such Conduit Purchaser) the amounts so set
aside up to the amount of such Conduit Purchaser's Purchase Interest and, to the
extent not already paid in full, all Discount thereon and all other amounts then
due from the Seller in connection with such Purchase Interest and Tranche
Period. If any part of the Sold Interest in any Collections is applied to pay
any such amounts pursuant to this Section 2.3(a) and after giving effect to such
application the Sold Interest is greater than 100%, the Seller shall pay for
distribution as part of the Sold Interest in Collections, to the Collection
Agent the amount so applied to the extent necessary so that after giving effect
to such payment the Sold Interest is no greater than 100%.
(b) Termination Date and Interim Liquidations. On each day during any
Interim Liquidation and on each day on and after the Termination Date, the
Collection Agent shall set aside and hold solely for the account of each
Purchaser Agent, for the benefit of each Purchaser Group to the extent provided
below, (or deliver to each Purchaser Agent, if so instructed pursuant to Section
3.2(a)) and for the account of the Agent, the Sold Interest in all Collections
received on such day and such Collections shall be allocated as follows:
(i) first, to the Collection Agent until all amounts owed to the
Collection Agent under the Agreement have been paid in full;
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(ii) second, ratably to each Purchase Group until all Investment
of, and Discount and interest due but not already paid to, each
Purchaser Group has been paid in full; and
(iii) third, ratably to such Purchaser Group until all other
amounts owed to such Purchaser Group under the Transaction Documents
have been paid in full.
(iv) fourth, to the Agent until all amounts owed to the Agent
(other than amounts owing the Agent in its role as a Purchaser Agent)
have been paid in full;
(v) fifth, to each Purchaser Agent until all amounts owed to the
Purchaser Agents under the Transaction Documents have been paid in full;
(vi) sixth, to any other Person to whom any amounts are owed under
the Transaction Documents until all such amounts have been paid in full;
and
(vii) seventh, to the Seller (or as otherwise required by
applicable law).
Unless an Interim Liquidation has ended by such date (in which case Reinvestment
Purchases shall resume to the extent provided in Section 1.1(d)), on the last
day of each Tranche Period (unless otherwise instructed by a Purchaser Agent
pursuant to Section 3.2(a)), the Collection Agent shall pay to the appropriate
parties, from such set aside Collections, all amounts allocated to such Tranche
Period and all Tranche Periods that ended before such date that are due in
accordance with the priorities in clauses (ii) and (iii) above. No distributions
shall be made to pay amounts under clauses (iv), (v), (vi) and (vii) above until
sufficient Collections have been set aside to pay all amounts described in
clauses (ii) and (iii) that may become payable for all outstanding Tranche
Periods. All distributions by the Agent shall be made ratably within each
priority level in accordance with the respective amounts then due each Person
included in such level unless otherwise agreed by all Purchaser Agents. If any
part of the Sold Interest in any Collections is applied to pay any amounts,
payable hereunder that are obligations of the Seller pursuant to Section 1.4(b)
and after giving effect to such application the Sold Interest is greater than
100%, the Seller shall pay for distribution in respect of each applicable
Purchaser's Investment as part of the Sold Interest in Collections, to the
Collection Agent the amount so applied to the extent necessary so that after
giving effect to such payment the Sold Interest is no greater than 100%.
ARTICLE III
ADMINISTRATION AND COLLECTIONS
Section 3.1. Appointment of Collection Agent. (a) The servicing,
administering and collecting of the Receivables shall be conducted by a Person
(the "Collection Agent") designated to so act on behalf of the Purchasers under
this Article III. As the Initial Collection Agent, the Parent is hereby
designated as, and agrees to perform the duties and obligations of, the
Collection Agent. The Initial Collection Agent acknowledges that the Agent, each
Purchaser
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Agent, and each Purchaser have relied on the Initial Collection Agent's
agreement to act as Collection Agent (and the agreement of any of the
sub-collection agents to so act) in making the decision to execute and deliver
this Agreement and agrees that it will not voluntarily resign as Collection
Agent nor permit any sub-collection agent to voluntarily resign as a
sub-collection agent. At any time after the occurrence and during the
continuance of a Termination Event, the Agent may designate a new Collection
Agent to succeed the Initial Collection Agent (or any successor Collection
Agent).
(b) The Initial Collection Agent may, and if requested by the Agent
shall, delegate its duties and obligations as Collection Agent to an Affiliate
of the Initial Collection Agent (acting as a sub-collection agent). The Initial
Collection Agent shall delegate certain duties with respect to Receivables
originated by such respective Originator to that respective Originator pursuant
to the terms of the Letter Agreement. Notwithstanding such delegation, the
Initial Collection Agent shall remain primarily liable for the performance of
the duties and obligations so delegated, and the Agent, each Purchaser Agent and
each Purchaser shall have the right to look solely to the Initial Collection
Agent for such performance. The Agent may at any time remove or replace any
sub-collection agent.
(c) If replaced, the Collection Agent agrees it will terminate, and will
cause each existing sub-collection agent to terminate, its collection activities
in a manner requested by the Agent to facilitate the transition to a new
Collection Agent. The Collection Agent shall cooperate with and assist any new
Collection Agent (including providing access to, and transferring, all Records
and allowing (to the extent permitted by applicable law and contract) the new
Collection Agent to use all licenses, hardware or software necessary or
desirable to collect the Receivables). The Initial Collection Agent irrevocably
agrees to act (if requested to do so) as the data-processing agent for any new
Collection Agent (in substantially the same manner as the Initial Collection
Agent conducted such data-processing functions while it acted as the Collection
Agent).
Section 3.2. Duties of Collection Agent. (a) The Collection Agent shall
take, or cause to be taken, all action necessary or advisable to collect each
Receivable in accordance with this Agreement, the Credit and Collection Policy
and all applicable laws, rules and regulations using the skill and attention the
Collection Agent exercises in collecting other receivables or obligations owed
solely to it. The Collection Agent shall, in accordance herewith, set aside all
Collections to which a Purchaser is entitled and pay from such Collections all
Discount and the fees set forth in the Fee Letters when due. If so instructed by
the Agent, the Collection Agent shall transfer to the Agent the amount of
Collections to which the Agent, each Purchaser Agent and the Purchasers are
entitled by the Business Day following receipt. Each party hereto hereby
appoints the Collection Agent to enforce such Person's rights and interests in
the Receivables, but (notwithstanding any other provision in any Transaction
Document) the Agent shall at all times have the sole right to direct the
Collection Agent to commence or settle any legal action to enforce collection of
any Receivable.
(b) If no Termination Event exists and the Collection Agent determines
that such action is appropriate in order to maximize the Collections, the
Collection Agent may, in accordance with the applicable Credit and Collection
Policy, extend the maturity of any Receivable, and
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extend the maturity or adjust the outstanding balance of any Defaulted
Receivables as the Collection Agent may determine to be appropriate to maximize
collections thereof; provided, however, that if a Termination Event has occurred
the Collection Agent may make such extension or adjustment only upon written
approval of the Agent. Any such extension or adjustment shall not alter the
status of a Receivable as a Defaulted Receivable, affect the computation of the
Delinquency Ratio or limit any rights of the Agent or the Purchasers hereunder.
If a Termination Event exists, the Collection Agent may make such extensions or
adjustments only with the prior consent of the Instructing Group.
(c) The Collection Agent shall turn over to the Seller (i) any percentage
of Collections in excess of the Sold Interest, less all reasonable costs and
expenses of the Collection Agent for servicing, collecting and administering the
Receivables and (ii) subject to Section 1.5(d), the collections and records for
any indebtedness owed to the Seller that is not a Receivable. The Collection
Agent shall have no obligation to remit any such funds or records to the Seller
until the Collection Agent receives evidence (satisfactory to the Agent) that
the Seller is entitled to such items. The Collection Agent has no obligations
concerning indebtedness that is not a Receivable other than to deliver the
collections and records for such indebtedness to the Seller when required by
this Section 3.2(c).
Section 3.3. Reports. On or before the 25th day of each month, and at such
other times covering such other periods as is requested by the Agent or the
Instructing Group (which such other periods shall not be shorter than a calendar
month if no Termination Event has occurred), the Collection Agent shall deliver
to the Agent and each Purchaser Agent a report reflecting information as of the
close of business of the Collection Agent for the immediately preceding calendar
month or such other preceding period as is requested (each a "Periodic Report"),
containing the information described on Exhibit B (with such modifications or
additional information as requested by the Agent or the Instructing Group).
Section 3.4. Lock-Box Arrangements. The Agent is hereby authorized to give
notice at any time to any or all Lock-Box Banks that the Agent is exercising its
rights under the Lock-Box Letters and to take all actions permitted under the
Lock-Box Letters. The Seller agrees to take any action requested by the Agent to
facilitate the foregoing. After the Agent takes any such action under the
Lock-Box Letters, the Seller shall immediately deliver to the Agent any
Collections received by the Seller. If the Agent takes control of any Lock-Box
Account, the Agent shall distribute Collections it receives in accordance
herewith and shall deliver to the Collection Agent, for distribution under
Section 3.2, all other amounts it receives from such Lock-Box Account.
Section 3.5. Enforcement Rights. (a) The Agent may, at any time, direct the
Obligors and the Lock-Box Banks to make all payments on the Receivables directly
to the Agent or its designee. The Agent may, and the Seller shall at the Agent's
request, withhold the identity of the Purchasers from the Obligors and Lock-Box
Banks. Upon the Agent's request and only after a Potential Termination Event,
the Seller (at the Seller's expense) shall (i) give notice to each Obligor of
the Purchasers' ownership of the Sold Interest and direct that payments on
Receivables be made directly to the Agent or its designee, (ii) assemble for the
Agent all Records and collateral security for the Receivables and the Related
Security and transfer to the Agent (or
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its designee), or (to the extent permitted by applicable law and contract)
license to the Agent (or its designee) the use of, all software useful to
collect the Receivables and (iii) segregate in a manner acceptable to the Agent
all Collections the Seller receives and, promptly upon receipt, remit such
Collections in the form received, duly endorsed or with duly executed
instruments of transfer, to the Agent or its designee.
(b) The Seller hereby irrevocably appoints the Agent as its
attorney-in-fact coupled with an interest, with full power of substitution and
with full authority in the place of the Seller, to take any and all steps deemed
desirable by the Agent, in the name and on behalf of the Seller to (i) collect
any amounts due under any Receivable, including endorsing the name of the Seller
on checks and other instruments representing Collections and enforcing such
Receivables and the Related Security, and (ii) exercise any and all of the
Seller's rights and remedies under the Purchase Agreement. The Agent's powers
under this Section 3.5(b) shall not subject the Agent to any liability if any
action taken by it proves to be inadequate or invalid, nor shall such powers
confer any obligation whatsoever upon the Agent.
(c) None of the Agent, any Purchaser Agent or any Purchaser shall have
any obligation to take or consent to any action to realize upon any Receivable
or Related Security or to enforce any rights or remedies related thereto.
Section 3.6. Collection Agent Fee. On or before the 25th day of each
calendar month, the Seller shall pay to the Collection Agent a fee for the
immediately preceding calendar month as compensation for its services (the
"Collection Agent Fee") equal to (a) at all times the Initial Collection Agent
or an Affiliate of the Initial Collection Agent is the Collection Agent, the
Seller Servicing Fee, the sufficiency of which is hereby acknowledged, and (b)
at all times any other Person is the Collection Agent, the Outside Servicing
Fee. The Agent may, with the consent of the Instructing Group, pay the
Collection Agent Fee to the Collection Agent from the Sold Interest in
Collections. The Seller shall be obligated to reimburse any such payment to the
extent required by Section 1.5 or 2.3.
Section 3.7. Responsibilities of the Seller. The Seller shall pay when due
all Taxes payable in connection with the Receivables and the Related Security or
their creation or satisfaction. The Seller shall cause each Originator to
perform all of its obligations under agreements related to the Receivables and
the Related Security to the same extent as if interests in the Receivables and
the Related Security had not been transferred hereunder or under the Purchase
Agreement. The Agent's or any Purchaser's exercise of any rights hereunder shall
not relieve the Seller or an Originator from such obligations. None of the
Agent, any Purchaser Agent or any Purchaser shall have any obligation to perform
any obligation of the Seller or an Originator or any other obligation or
liability in connection with the Receivables or the Related Security.
Section 3.8. Actions by Seller. If any goods related to a Receivable are
repossessed, the Seller agrees to resell, or to have the related Originator or
another Affiliate resell, such goods in a commercially reasonable manner for the
account of the Agent and remit, or have remitted, to the Agent the Purchasers'
share in the gross sale proceeds thereof net of any out-of-pocket expenses and
any equity of redemption of the Obligor thereon. Any such moneys collected by
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the Seller or the related Originator or other Affiliate of the Seller pursuant
to this Section 3.8 shall be segregated and held in trust for the Agent and
remitted to the Agent's Account within one Business Day of receipt as part of
the Sold Interest in Collections for application as provided herein.
Section 3.9. Indemnities by the Collection Agent. Without limiting any
other rights any Person may have hereunder or under applicable law, the
Collection Agent hereby indemnifies and holds harmless the Agent, each Purchaser
Agent and each Purchaser and their respective officers, directors, agents and
employees (each a "Collection Agent Indemnified Party") from and against any and
all damages, losses, claims, liabilities, penalties, Taxes, costs and expenses
(including reasonable attorneys' fees and court costs) (all of the foregoing
collectively, the "Collection Agent Indemnified Losses") at any time imposed on
or incurred by any Collection Agent Indemnified Party arising out of or
otherwise relating to:
(i) any representation or warranty made by, on behalf of or in
respect of, the Collection Agent in this Agreement, any other
Transaction Document, any Periodic Report or any other information or
report delivered by the Collection Agent pursuant hereto, which shall
have been false or incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply with any
applicable law, rule or regulation related to any Receivable or the
Related Security;
(iii) any loss of a perfected security interest (or in the priority
of such security interest) as a result of any commingling by the
Collection Agent of funds to which the Agent, any Purchaser Agent or any
Purchaser is entitled hereunder with any other funds;
(iv) the imposition of any Adverse Claim with respect to any
Receivable, Related Security or Lock-Box Account as a result of any
action taken by the Collection Agent; or
(v) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement
(including, without limitation, compliance with the Credit and
Collection Policy) or any other Transaction Document to which the
Collection Agent is a party;
whether arising by reason of the acts to be performed by the Collection Agent
hereunder or otherwise, excluding only Collection Agent Indemnified Losses to
the extent (a) a final judgment of a court of competent jurisdiction determined
that such Collection Agent Indemnified Losses resulted from gross negligence or
willful misconduct of the Collection Agent Indemnified Party seeking
indemnification, (b) solely due to the credit risk of the Obligor and for which
reimbursement would constitute recourse to the Collection Agent for uncollected
or uncollectible Receivables, or (c) such Collection Agent Indemnified Losses
include Taxes on, or measured by, the overall net income of the Agent or any
Purchaser computed in accordance with the Intended Tax Characterization;
provided, however, that nothing contained in this sentence shall limit the
liability of the Collection Agent or limit the recourse of the Agent, any
Purchaser Agent and each
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Purchaser to the Collection Agent for any amounts otherwise specifically
provided to be paid by the Collection Agent hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Seller. The Seller
represents and warrants to the Agent, each Purchaser Agent and each Purchaser
that:
(a) Corporate Existence and Power. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware and in each jurisdiction in which the conduct of
its business requires that it be qualified to do business in such
jurisdiction and has all corporate power and authority and all
governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is
now conducted, except where failure to obtain such license,
authorization, consent or approval would not have a material adverse
effect on (i) its ability to perform its obligations under, or the
enforceability of, any Transaction Document, (ii) its business or
financial condition, (iii) the interests of the Agent, any Purchaser
Agent or any Purchaser under any Transaction Document or (iv) the
enforceability or collectibility of any material portion of the
Receivables.
(b) Corporate Authorization and No Contravention. The execution,
delivery and performance by the Seller of each Transaction Document to
which it is a party (i) are within its corporate powers, (ii) have been
duly authorized by all necessary corporate action, (iii) do not
contravene or constitute a default under (A) any applicable law, rule or
regulation, (B) its charter or by-laws or (C) any agreement, order or
other instrument to which it is a party or its property is subject and
(iv) will not result in any Adverse Claim on any Receivable, the Related
Security or Collections (other than the Sold Interest) or give cause for
the acceleration of any indebtedness of the Seller.
(c) No Consent Required. No approval, authorization or other
action by, or filings with, any Governmental Authority or other Person
is required in connection with the execution, delivery and performance
by the Seller of any Transaction Document or any transaction
contemplated thereby.
(d) Binding Effect. Each Transaction Document to which the Seller
is a party constitutes the legal, valid and binding obligation of the
Seller enforceable against it in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditor's
rights generally.
(e) Perfection of Ownership Interest. The Seller owns the
Receivables free of any Adverse Claim other than the interests of the
Agent, the Purchaser Agent and the Purchasers therein that are created
hereby, and each Purchaser shall at all times have a
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valid undivided percentage ownership interest, which shall be a first
priority perfected security interest for purposes of Article 9 of the
applicable Uniform Commercial Code, in the Receivables, the Related
Security and Collections to the extent of its Purchase Interest then in
effect.
(f) Accuracy of Information. All written information furnished by
the Seller to the Agent, any Purchaser Agent or any Purchaser in
connection with any Transaction Document, or any transaction
contemplated thereby, is true and accurate in all material respects as
of the date of such information or the date furnished, as applicable
(and is not incomplete by omitting any information necessary to prevent
such information from being materially misleading as of the date of such
information or the date furnished, as applicable).
(g) No Actions, Suits. There are no actions, suits or other
proceedings (including matters relating to environmental liability)
pending or threatened against or affecting the Seller or any of its
properties, that (i) if adversely determined (individually or in the
aggregate), may have a material adverse effect on the financial
condition of the Seller or on the collectibility of the Receivables or
(ii) involve any Transaction Document or any transaction contemplated
thereby. The Seller is not in default of any contractual obligation or
in violation of any order, rule or regulation of any Governmental
Authority, which default or violation may have a material adverse effect
upon (i) the financial condition of the Seller or (ii) the
collectibility of the Receivables.
(h) No Material Adverse Change. Since the date of its formation
there has been no material adverse change in the collectibility of the
Receivables or the Seller's (i) financial condition, business,
operations or prospects or (ii) ability to perform its obligations under
any Transaction Document.
(i) Accuracy of Exhibits; Lock-Box Arrangements. All information
on Exhibits C-D (listing offices and states of organization of the
Seller and the Originators and where they maintain Records; and
Lock-Boxes) is true and complete, subject to any changes permitted by,
and notified to the Agent in accordance with, Article V. The Seller has
not granted any interest in any Lock-Box or Lock-Box Account to any
Person other than the Agent and, upon execution and delivery of the
Lock-Box Agreements and delivery to a Lock-Box Bank of the related
Lock-Box Letter, the Seller will have title to each Lock-Box Account and
the Agent will have exclusive ownership and control of the Lock-Box
Account at such Lock-Box Bank.
(j) Sales by an Originator. Each sale by each Originator to the
Seller of an interest in Receivables originated by such Originator and
Collections thereof has been made in accordance with the terms of the
Purchase Agreement, including the payment by the Seller to such
Originator of the purchase price described in the Purchase Agreement.
Each such sale has been made for "reasonably equivalent value" (as such
term is used in Section 548 of the Bankruptcy Code) and not for or on
account of "antecedent debt" (as such term is used in Section 547 of the
Bankruptcy Code) owed by such Originator to the Seller.
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(k) No Potential Termination Event. No Potential Termination
Event has occurred and is continuing.
(l) Eligible Receivables. Each Receivable included in the
Eligible Receivables Balance as an Eligible Receivable on the date of
any Purchase or Incremental Purchase or listed as such on a Periodic
Report is an Eligible Receivable.
(m) Underwriting/Collection Practices. To the extent that the
Initial Collection Agent is the Collection Agent and the Originators are
sub-collection agents, it has complied with the Credit and Collection
Policy in all material respects, and such policy has not changed in any
material respect since the date hereof.
Section 4.2. Representations and Warrants of the Initial Collection Agent.
The Initial Collection Agent represents and warrants to the Agent, each
Purchaser Agent and each Purchaser that:
(a) Corporate Existence and Power. The Initial Collection Agent
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Indiana and in each jurisdiction in which
the conduct of its business requires that it be qualified to do business
in such jurisdiction and has all corporate power and authority and all
governmental licenses, authorizations, consents and approvals required
to carry on its business in each jurisdiction in which its business is
now conducted, except where failure to obtain such license,
authorization, consent or approval would not have a material adverse
effect on (i) its ability to perform its obligations under, or the
enforceability of, any Transaction Document, (ii) its business or
financial condition, (iii) the interests of the Agent, any Purchaser
Agent or any Purchaser under any Transaction Document or (iv) the
enforceability or collectibility of any material portion of the
Receivables.
(b) Corporate Authorization and No Contravention. The execution,
delivery and performance by the Initial Collection Agent of each
Transaction Document to which it is a party (i) are within its corporate
powers, (ii) have been duly authorized by all necessary corporate
action, (iii) do not contravene or constitute a default under (A) any
applicable law, rule or regulation, (B) its charter or by-laws or (C)
any agreement, order or other instrument to which it is a party or its
property is subject where the contravention or default would have a
material adverse effect on (w) its ability to perform its obligations
under, or the enforceability of, any Transaction Document, (x) its
business or financial condition, (y) the interests of the Agent, any
Purchaser Agent or any Purchaser under any Transaction Document or (z)
the enforceability or collectibility of any material portion of the
Receivables and (iv) will not result in any Adverse Claim on any
Receivable, the Related Security or Collections other than the Sold
Interest or give cause for the acceleration of any indebtedness of the
Initial Collection Agent.
(c) No Consent Required. No approval, authorization or other
action by, or filings with, any Governmental Authority or other Person
is required in connection with
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the execution, delivery and performance by the Initial Collection Agent
of any Transaction Document or any transaction contemplated thereby.
(d) Binding Effect. Each Transaction Document to which the
Initial Collection Agent is a party constitutes the legal, valid and
binding obligation of the Initial Collection Agent enforceable against
it in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditor's rights generally.
(e) Accuracy of Information. All written information furnished by
the Initial Collection Agent to the Agent, any Purchaser Agent or any
Purchaser in connection with any Transaction Document, or any
transaction contemplated thereby, is true and accurate in all material
respects as of the date of such information or the date furnished, as
applicable (and is not incomplete by omitting any information necessary
to prevent such information from being materially misleading as of the
date of such information or the date furnished, as applicable).
(f) No Actions, Suits. There are no actions, suits or other
proceedings (including matters relating to environmental liability)
pending or threatened against or affecting the Initial Collection Agent,
or any of its properties, that (i) if adversely determined (individually
or in the aggregate), is likely to have a material adverse effect on the
financial condition of the Initial Collection Agent and its
Subsidiaries, taken as whole, or on the collectibility of the
Receivables or (ii) involve any Transaction Document or any transaction
contemplated thereby. The Initial Collection Agent is not in default of
any contractual obligation or in violation of any order, rule or
regulation of any Governmental Authority, which default or violation is
likely to have a material adverse effect upon (i) the financial
condition of the Initial Collection Agent and its Subsidiaries, taken as
whole, or (ii) the collectibility of the Receivables.
(g) No Material Adverse Change. Since December 31, 2000, there
has been no material adverse change in the collectibility of the
Receivables or the Initial Collection Agent's (i) financial condition,
business, operations or prospects other than as publicly disclosed prior
to the date hereof or (ii) ability to perform its obligations under any
Transaction Document.
(h) Accuracy of Exhibits; Lock-Box Arrangements. All information
on Exhibits C-D (listing offices of the Initial Collection Agent and the
Originators and where they maintain Records; and Lock-Boxes) is true and
complete, subject to any changes permitted by, and notified to the Agent
in accordance with, Article V.
(i) No Potential Termination Event. No Potential Termination
Event has occurred and is continuing.
(j) Underwriting/Collection Practices. To the extent that the
Initial Collection Agent is the Collection Agent and the Originators are
sub-collection agents, it
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has complied with the Credit and Collection Policy in all material
respects, and such policy has not changed in any material respect since
the date hereof.
ARTICLE V
COVENANTS
Section 5.1. Covenants of the Seller. The Seller hereby covenants and
agrees to comply with the following covenants and agreements, unless the Agent
(with the consent of the Instructing Group) shall otherwise consent:
(a) Financial Reporting. The Seller will maintain a system of
accounting established and administered in accordance with GAAP and will
furnish to the Agent, each Purchaser Agent and each Purchaser:
(i) Annual Financial Statements. Within 120 days after
each fiscal year of the Seller copies of its annual balance sheet
(and an annual profit and loss statement), certified by a
Designated Financial Officer thereof, prepared on a consolidated
basis in conformity with GAAP;
(ii) Quarterly Financial Statements. Within 60 days after
each (except the last) fiscal quarter of each fiscal year of the
Seller, copies of its quarterly balance sheet (and a profit and
loss statement) for the period from the beginning of the fiscal
year to the close of such quarter), certified by a Designated
Financial Officer and prepared in a manner consistent with the
financial statements described in clause (i) of this Section
5.l(a);
(iii) Officer's Certificate. Each time financial statements
are furnished pursuant to clause (i) or (ii) of Section 5.1(a), a
compliance certificate (in substantially the form of Exhibit F)
signed by a Designated Financial Officer, dated the date of such
financial statements;
(iv) Public Reports. Promptly upon becoming available, a
copy of each report or proxy statement filed by the Parent with
the Securities and Exchange Commission or any securities exchange;
and
(v) Other Information. With reasonable promptness, such
other information (including non-financial information)
respecting the Receivables or the conditions and operations,
financial or otherwise, of the Seller and any Seller Entity as
the Agent or any Purchaser Agent from time to time reasonably may
request in order to protect the interests of the Agent or
Committed Purchasers under this Agreement.
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(b) Notices. As soon as possible and in any event within 5
Business Days of becoming actually aware of any of the following the
Seller will notify the Agent and each Purchaser Agent and provide a
description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Downgrading. The downgrading, withdrawal or
suspension of any rating by any rating agency of any indebtedness
of any Special Obligor or of the Parent; or
(iii) Further Information. Any other information that the
Parent is required to deliver pursuant to the Credit Agreement at
the same time the Parent delivers such information to the
required parties pursuant to the Credit Agreement.
(c) Conduct of Business. The Seller will perform all actions
necessary to remain duly incorporated, validly existing and in good
standing in its jurisdiction of incorporation and to maintain all
requisite authority to conduct its business in each jurisdiction in
which it conducts business.
(d) Compliance with Laws. The Seller will comply with all laws,
regulations, judgments and other directions or orders imposed by any
Governmental Authority to which it or any Receivable, any Related
Security or Collection may be subject.
(e) Furnishing Information and Inspection of Records. The Seller
will furnish to the Agent, the Purchaser Agents and the Purchasers such
information concerning the Receivables and the Related Security as the
Agent, a Purchaser Agent or a Purchaser may request. The Seller will,
and will cause each Originator to, permit, at any time during regular
business hours upon reasonable notice to the Seller, the Agent, any
Purchaser (or any representatives thereof) (i) to examine and make
copies of all Records, (ii) to visit the offices and properties of the
Seller and each Originator for the purpose of examining the Records and
(iii) to discuss matters relating hereto with any of the Seller's or
such Originator's officers, directors, employees or independent public
accountants having knowledge of such matters. No more than once a
calendar year or any time after the occurrence of a Termination Event,
the Agent may (at the expense of the Seller) or at any time (at the
expense of the Purchasers) have an independent public accounting firm
conduct an audit of the Records or make test verifications of the
Receivables and Collections.
(f) Keeping Records. (i) The Seller will, and will cause each
Originator to, have and maintain (A) administrative and operating
procedures (including an ability to recreate Records if originals are
destroyed), (B) adequate facilities, personnel and equipment and (C) all
Records and other information necessary or advisable for collecting the
Receivables (including Records adequate to permit the immediate
identification of each new Receivable and all Collections of, and
adjustments to, each
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existing Receivable). The Seller will give the Agent prior notice of any
material change in such administrative and operating procedures.
(ii) The Seller will, (A) at all times from and after the date
hereof, clearly and conspicuously mark its computer and master data
processing books and records with a legend describing the Agent's and
the Purchasers' interest in the Receivables and the Collections and (B)
upon the request of the Agent, so mark each contract relating to a
Receivable and deliver to the Agent all such contracts (including all
multiple originals of such contracts), with any appropriate endorsement
or assignment, or segregate (from all other receivables then owned or
being serviced by the Seller) the Receivables and all contracts relating
to each Receivable and hold in trust and safely keep such contracts so
legended in separate filing cabinets or other suitable containers at
such locations as the Agent may specify.
(g) Perfection. (i) The Seller will, and will cause each
Originator to, at its expense, promptly execute and deliver all
instruments and documents and take all action necessary or requested by
the Agent (including the execution and filing of financing or
continuation statements, amendments thereto or assignments thereof) to
enable the Agent to exercise and enforce all its rights hereunder and to
vest and maintain vested in the Agent a valid, first priority perfected
security interest in the Receivables, the Collections, the Related
Security, the Purchase Agreement, the Lock-Box Accounts and proceeds
thereof free and clear of any Adverse Claim other than the Seller's
interest therein (and a perfected ownership interest in the Receivables,
Related Security and Collections to the extent of the Sold Interest).
The Agent will be permitted to sign and file any continuation
statements, amendments thereto and assignments thereof without the
Seller's signature, but shall provide prompt notice to the Seller of any
such filing.
(ii) The Seller will only change its name, identity or corporate
structure or relocate its state of organization or its chief executive
office or the Records following notice to the Agent and the delivery to
the Agent of all financing statements, instruments and other documents
(including direction letters) requested by the Agent.
(iii) The Seller will at all times maintain its chief executive
offices within a jurisdiction in the USA (other than in the states of
Alabama, Florida, Maryland and Tennessee) in which Article 9 of the UCC
is in effect. If the Seller or an Originator moves its chief executive
office to a location that imposes Taxes, fees or other charges to
perfect the Agent's and the Purchasers' interests hereunder or the
Seller's interests under the Purchase Agreement, the Seller will pay all
such amounts and any other costs and expenses incurred in order to
maintain the enforceability of the Transaction Documents, the Sold
Interest and the interests of the Agent, the Purchaser Agents and the
Purchasers in the Receivables, the Related Security, Collections,
Purchase Agreement and Lock-Box Accounts.
(h) Performance of Duties. The Seller will perform its duties or
obligations in accordance with the provisions of each of the Transaction
Documents. The Seller (at its expense) will (i) fully and timely perform
in all material respects all agreements required
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to be observed by it in connection with each Receivable, (ii) comply in
all material respects with the Credit and Collection Policy, and (iii)
refrain from any action that may impair the rights of the Agent, the
Purchaser Agents or the Purchasers in the Receivables, the Related
Security, Collections, Purchase Agreement or Lock-Box Accounts.
(i) Payments on Receivables, Lock-Box Accounts. The Seller will,
and will cause each Originator to, at all times instruct all Obligors to
deliver payments on the Receivables (including Deemed Collections) to a
Lock-Box or Lock-Box Account and will not change any such instructions
without the prior written consent of the Agent. If any such payments or
other Collections are received by the Seller, it shall hold such
payments in trust for the benefit of the Agent, the Purchaser Agents and
the Purchasers and promptly (but in any event within two Business Days
after receipt) remit such funds into a Lock-Box Account. The Seller will
cause each Lock-Box Bank to comply with the terms of each applicable
Lock-Box Letter. The Seller will only permit Collections to be deposited
into any Lock-Box Account, except with respect to the AM Canada Account,
but only through November 30, 2001. If such funds are nevertheless
deposited into any Lock-Box Account, the Seller will promptly identify
and separate such funds for segregation. The Seller will not, and will
not permit any Collection Agent or other Person to, commingle
Collections or other funds to which the Agent or any Purchaser is
entitled with any other funds (other than funds of Affiliates of the
Seller in concentration accounts). The Seller shall only add a Lock-Box
Bank, Lock-Box, or Lock-Box Account to those listed on Exhibit D if the
Agent has received notice of and has consented to such addition, a copy
of any new Lock-Box Agreement and an executed and acknowledged copy of a
Lock-Box Letter substantially in the form of Exhibit E (with such
changes as are acceptable to the Agent) from any new Lock-Box Bank. The
Seller shall only terminate a Lock-Box Bank or Lock-Box, or close a
Lock-Box Account, upon 30 days advance notice to the Agent.
(j) Sales and Adverse Claims Relating to Receivables or Related
Security. Except as otherwise provided herein, the Seller will not (by
operation of law or otherwise), dispose of or otherwise transfer, or
create or suffer to exist any Adverse Claim upon, any Receivables,
Related Security or any proceeds thereof.
(k) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 3.2(b) and then subject to Section 1.5, the Seller
will not extend, amend, rescind or cancel any Receivable.
(l) Change in Credit and Collection Policy. The Seller will not
make any change in its Credit and Collection Policy which change would
impair the collectibility of any Receivable.
(m) Accounting for Sale. The Seller will not, account for, or
otherwise treat, the transactions contemplated hereby other than as a
sale of Receivables or inconsistent with the Purchasers' ownership
interests in the Receivables, Related Security and Collections.
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(n) Certain Agreements. Except as otherwise permitted by this
Agreement, the Seller will not amend, modify, waive, revoke or terminate
any Transaction Document to which it is a party or any provision of
Seller's certificate of incorporation or by-laws.
(o) Other Business. The Seller will not: (i) engage in any
business other than the transactions contemplated by the Transaction
Documents, (ii) create, incur or permit to exist any Debt of any kind
(or cause or permit to be issued for its account any letters of credit
or bankers' acceptances) other than pursuant to this Agreement and the
Subordinated Notes, or (iii) form any Subsidiary or make any investments
in any other Person; provided, however, that the Seller shall be
permitted to incur minimal obligations to the extent necessary for the
day-to-day operations of the Seller (such as expenses for stationery,
audits, maintenance of legal status, etc.).
(p) Net Worth. The Seller shall not, as of the last day of each
calendar quarter, permit Net Worth to be less than $9,000,000.
(q) Nonconsolidation. The Seller will operate in such a manner
that the separate corporate existence of the Seller and each Seller
Entity and Affiliate thereof would not be disregarded in the event of
the bankruptcy or insolvency of any Seller Entity and Affiliate thereof
and, without limiting the generality of the foregoing:
(i) the Seller will not engage in any activity other than
those activities expressly permitted under the Seller's
organizational documents and the Transaction Documents, nor will
the Seller enter into any agreement other than this Agreement,
the other Transaction Documents to which it is a party and, with
the prior written consent of the Agent, any other agreement
necessary to carry out more effectively the provisions and
purposes hereof or thereof;
(ii) the Seller will cause the financial statements and
books and records of the Seller and each Seller Entity to reflect
the separate corporate existence of the Seller;
(iii) except as otherwise expressly permitted hereunder,
under the other Transaction Documents and under the Seller's
organizational documents, the Seller will not permit any Seller
Entity or Affiliate thereof to (A) pay the Seller's expenses, (B)
guarantee the Seller's obligations, or (C) advance funds to the
Seller for the payment of expenses or otherwise;
(iv) the Seller will not act as agent for any Seller
Entity or Affiliate, but instead will present itself to the
public as a corporation separate from each such Person and
independently engaged in the business of purchasing and financing
Receivables; and
(v) the Seller will always have an independent director
on its Board of Directors.
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(r) Lock-Box Letters. Not later than October 30, 2001 the Seller
shall deliver to the Agent fully executed Lock-Box Letters with respect
to each Lock-Box set forth on Exhibit D hereto.
Section 5.2. Covenants of the Initial Collection Agent. The Initial
Collection Agent hereby covenants and agrees to comply with the following
covenants and agreements, unless the Agent (with the consent of the Instructing
Group) shall otherwise consent:
(a) Financial Reporting. The Initial Collection Agent will
maintain a system of accounting established and administered in
accordance with GAAP and will furnish to the Agent, each Purchaser Agent
and each Purchaser:
(i) Annual Financial Statements. Within 120 days after
each fiscal year of the Parent copies of its annual audited
financial statements (including a consolidated balance sheet,
consolidated statement of income and retained earnings and
statement of cash flows, with related footnotes) certified by
Deloitte & Touche, LLP or another firm of independent certified
public accountants of nationally recognized standing (which
accountants shall have acknowledged the reliance of the Agent,
the Purchaser Agents and the Purchasers on the financial
statements audited by such accountants) and prepared on a
consolidated basis in conformity with GAAP;
(ii) Quarterly Financial Statements. Within 60 days after
each (except the last) fiscal quarter of each fiscal year of the
Parent, copies of its unaudited financial statements (including
at least a consolidated balance sheet as of the close of such
quarter and statements of earnings and sources and applications
of funds for the period from the beginning of the fiscal year to
the close of such quarter) certified by a Designated Financial
Officer and prepared in a manner consistent with the financial
statements described in clause (i) of this Section 5.l(a);
(iii) Officer's Certificate. Each time financial
statements are furnished pursuant to clause (i) or (ii) of
Section 5.1(a), a compliance certificate (in substantially the
form of Exhibit F) signed by a Designated Financial Officer,
dated the date of such financial statements;
(iv) Public Reports. Promptly upon becoming available,
a copy of each report or proxy statement filed by the Parent
with the Securities and Exchange Commission or any securities
exchange; and
(v) Other Information. With reasonable promptness, such
other information (including non-financial information)
respecting the Receivables or the conditions and operations,
financial or otherwise, of the Initial Collection Agent and any
Seller Entity as the Agent from time to time reasonably may
request in order to protect the interests of the Agent or
Committed Purchasers under this Agreement.
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(b) Notices. As soon as possible and in any event within 5
Business Days of becoming actually aware of any of the following the
Initial Collection Agent will notify the Agent and each Purchaser Agent
and provide a description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Downgrading. The downgrading, withdrawal or
suspension of any rating by any rating agency of any
indebtedness of any Special Obligor or of the Parent; or
(iii) Further Information. Any other information that the
Parent is required to deliver pursuant to the Credit Agreement at
the same time the Parent delivers such information to the
required parties pursuant to the Credit Agreement.
If the Agent or any Purchaser Agent receives such a notice, the Agent or
such Purchaser Agent shall promptly give notice thereof to each
Purchaser and, until each Conduit Purchaser has no Investment after the
Termination Date, to each CP Dealer and each Rating Agency.
(c) Conduct of Business. The Initial Collection Agent will
perform all actions necessary to remain duly incorporated, validly
existing and in good standing in its jurisdiction of incorporation and
to maintain all requisite authority to conduct its business in each
jurisdiction in which it conducts business.
(d) Compliance with Laws. The Initial Collection Agent will
comply with all laws, regulations, judgments and other directions or
orders imposed by any Governmental Authority to which it or any
Receivable, any Related Security or Collection may be subject.
(e) Furnishing Information and Inspection of Records. The Initial
Collection Agent will furnish to the Agent, the Purchaser Agents and the
Purchasers such information concerning the Receivables and the Related
Security as the Agent, a Purchaser Agent or a Purchaser may request. The
Initial Collection Agent will, and will cause each Originator to,
permit, at any time during regular business hours upon reasonable notice
to the Initial Collection Agent, the Agent, any Purchaser Agent or any
Purchaser (or any representatives thereof) (i) to examine and make
copies of all Records, (ii) to visit the offices and properties of the
Initial Collection Agent and each Originator for the purpose of
examining the Records and (iii) to discuss matters relating hereto with
any of the Initial Collection Agent's or such Originator's officers,
directors, employees or independent public accountants having knowledge
of such matters. No more than once a calendar year or any time after the
occurrence of a Termination Event, the Agent may (at the expense of the
Initial Collection Agent) or at any time (at the expense of the
Purchasers) have an independent public accounting firm conduct an audit
of the Records or make test verifications of the Receivables and
Collections; provided, however, that the
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Agent (may at the expense of the Initial Collection Agent) conduct its
standard "due diligence" with respect to Meritor Heavy Vehicle Systems,
LLC, Euclid Industries, LLC, and ArvinMeritor OE, LLC, within four
months of the date hereof.
(f) Keeping Records. (i) The Initial Collection Agent will, and
will cause each Originator to, have and maintain (A) administrative and
operating procedures (including an ability to recreate Records if
originals are destroyed), (B) adequate facilities, personnel and
equipment and (C) all Records and other information necessary or
advisable for collecting the Receivables (including Records adequate to
permit the immediate identification of each Obligor and each new
Receivable and all Collections of, and adjustments to, each existing
Receivable). The Initial Collection Agent will give the Agent prior
notice of any material change in such administrative and operating
procedures.
(ii) The Initial Collection Agent will, (A) at all times from and
after the date hereof, clearly and conspicuously mark its computer and
master data processing books and records with a legend describing the
Agent's and the Purchasers' interest in the Receivables and the
Collections and (B) upon the request of the Agent, so mark each contract
relating to a Receivable and deliver to the Agent all such contracts
(including all multiple originals of such contracts), with any
appropriate endorsement or assignment, or segregate (from all other
receivables then owned or being serviced by the Initial Collection
Agent) the Receivables and all contracts relating to each Receivable and
hold in trust and safely keep such contracts so legended in separate
filing cabinets or other suitable containers at such locations as the
Agent may specify.
(g) Performance of Duties. The Initial Collection Agent will
perform its duties or obligations in accordance with the provisions of
each of the Transaction Documents. The Initial Collection Agent (at its
expense) will (i) fully and timely perform in all material respects all
agreements required to be observed by it in connection with each
Receivable, (ii) comply in all material respects with the Credit and
Collection Policy, and (iii) refrain from any action that may impair the
rights of the Agent, the Purchaser Agents or the Purchasers in the
Receivables, the Related Security, Collections, Purchase Agreement or
Lock-Box Accounts.
(h) Payments on Receivables, Lock-Box Accounts. If any payments
on Receivables or other Collections are received by the Initial
Collection Agent, it shall hold such payments in trust for the benefit
of the Agent, the Purchaser Agents and the Purchasers and promptly (but
in any event within two Business Days after receipt) remit such funds
into a Lock-Box Account. Except as set forth in Section 5.1(i) hereof,
the Initial Collection Agent will only permit Collections to be
deposited into any Lock-Box Account, except with respect to the AM
Canada Account, but only through November 30, 2001. If such funds of any
Affiliate or Seller Entity are deposited into any Lock-Box Account, the
Initial Collection Agent will promptly identify and separate such funds
for segregation. Except as set forth in Section 5.1(i) hereof, the
Initial Collection Agent will not, and will not permit any other Person
to, commingle Collections or other funds to which the Agent or any
Purchaser is entitled with any other funds.
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(i) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 3.2(b) and then subject to Section 1.5, the Initial
Collection Agent will not extend, amend, rescind or cancel any
Receivable.
(j) Change in Business or Credit and Collection Policy. The
Initial Collection Agent will not make any change in its business or in
the Originator's Credit and Collection Policy which change would impair
the collectibility of any Receivable.
ARTICLE VI
INDEMNIFICATION
Section 6.1. Indemnities by the Seller. Without limiting any other rights
any such Person may have hereunder or under applicable law, the Seller hereby
indemnifies and holds harmless, on an after-Tax basis, the Agent, each Purchaser
Agent and each Purchaser and their respective officers, directors, agents and
employees (each an "Indemnified Party") from and against any and all damages,
losses, claims, liabilities, penalties, Taxes, costs and expenses (including
reasonable attorneys' fees and court costs) (all of the foregoing collectively,
the "Indemnified Losses") at any time imposed on or incurred by any Indemnified
Party arising out of or otherwise relating to any Transaction Document, the
transactions contemplated thereby or the acquisition of any portion of the Sold
Interest, any commingling of funds, any failure of a Lock-Box Bank to comply
with the terms of a Lock-Box Letter, any Receivables or Collections, or any
action taken or omitted by any of the Indemnified Parties (including any action
taken by the Agent as attorney-in-fact for the Seller pursuant to Section
3.5(b)), whether arising by reason of the acts to be performed by the Seller
hereunder or otherwise, excluding only Indemnified Losses to the extent (a) such
Indemnified Losses to the extent such losses result from gross negligence or
willful misconduct of the Indemnified Party seeking indemnification, (b) solely
due to the credit risk of the Obligor and for which reimbursement would
constitute recourse to the Seller or the Collection Agent for uncollected or
uncollectible Receivables or (c) such Indemnified Losses are, or include Taxes
on, or measured by, the overall net income or gross receipts of the Agent, any
Purchaser Agent or any Purchaser computed in accordance with the Intended Tax
Characterization; provided, however, that nothing contained in this sentence
shall limit the liability of the Seller or the Collection Agent or limit the
recourse of the Agent, each Purchaser Agent and each Purchaser to the Seller or
the Collection Agent for any amounts otherwise specifically provided to be paid
by the Seller or the Collection Agent hereunder. Without limiting the foregoing
indemnification, but subject to the limitation set forth in clauses (a), (b) and
(c) of the previous sentence, the Seller shall indemnify the Agent, each
Purchaser Agent and each Purchaser for Indemnified Losses (including losses in
respect of uncollectible Receivables, regardless of whether reimbursement
therefor would constitute recourse to the Seller or the Collection Agent)
relating to or resulting from:
(i) reliance on any representation or warranty made by the Seller
or Collection Agent (or any officers of the Seller or the Collection
Agent) under or in connection with this Agreement, any Periodic Report
or any other information or report
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delivered by the Seller or the Collection Agent pursuant hereto, which
shall have been false or incorrect in any material respect when made or
deemed made;
(ii) the failure by the Seller or any Seller Entity to comply with
any applicable law, rule or regulation with respect to any Receivable,
or the nonconformity of any Receivable with any such applicable law,
rule or regulation;
(iii) the failure of the Seller to vest and maintain vested in the
Agent, for the benefit of the Purchaser Agents and the Purchasers, a
perfected interest in the Sold Interest and the property conveyed
pursuant to Section 1.1(a) and Section 1.8, free and clear of any
Adverse Claim;
(iv) any commingling of funds to which the Agent, any Purchaser
Agent or any Purchaser is entitled hereunder with any other funds;
(v) failure of any Lock Box Bank (if appointed or designated by
the Seller or if otherwise a Lock Box Bank on the date hereof) to comply
with the terms of the applicable Lock Box Letter;
(vi) any dispute, claim, offset or defense (other than discharge
in bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable resulting from the sale or lease of goods or the rendering of
services related to such Receivable or the furnishing or failure to
furnish any such goods or services;
(vii) any failure of the Seller or any Seller Entity to perform its
duties or obligations in accordance with the provisions of this
Agreement and each of the other Transaction Documents to which it is a
party; or
(viii) any environmental liability claim, products liability claim
or personal injury or property damage suit or other similar or related
claim or action of whatever sort, arising out of or in connection with
any Receivable or any other suit, claim or action of whatever sort
relating to any of the Transaction Documents.
Section 6.2. Increased Cost and Reduced Return. By way of clarification,
and not of limitation, of Section 6.1, if the adoption of any applicable law,
rule or regulation not in effect as of the date hereof, or any change therein,
or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance by any Funding Source, the Agent, any Purchaser Agent or
any Purchaser (collectively, the "Funding Parties") with any request or
directive (whether or not having the force of law) of any such Governmental
Authority (a "Regulatory Change") (a) subjects any Funding Party to any charge
or withholding on or in connection with a Funding Agreement or this Agreement
(collectively, the "Funding Documents") or any Receivable, (b) changes the basis
of taxation of payments to any of the Funding Parties of any amounts payable
under any of the Funding Documents (except for changes in the rate of Tax on the
overall net income of such Funding Party), (c) imposes, modifies or deems
applicable any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account
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of, or any credit extended by, any of the Funding Parties, (d) has the effect of
reducing the rate of return on such Funding Party's capital to a level below
that which such Funding Party could have achieved but for such adoption, change
or compliance (taking into consideration such Funding Party's policies
concerning capital adequacy) or (e) imposes any other condition, and the result
of any of the foregoing is (x) to impose a cost on, or increase the cost to, any
Funding Party of its commitment under any Funding Document or of purchasing,
maintaining or funding any interest acquired under any Funding Document, (y) to
reduce the amount of any sum received or receivable by, or to reduce the rate of
return of, any Funding Party under any Funding Document or (z) to require any
payment calculated by reference to the amount of interests held or amounts
received by it hereunder, then, upon demand by the Agent, the Seller shall pay
to the Agent for the account of the Person such additional amounts as will
compensate such Agent, such Purchaser Agent or such Purchaser (or, in the case
of a Conduit Purchaser, will enable a Conduit Purchaser to compensate any
Funding Source) for such increased cost or reduction. Without limiting the
foregoing, the Seller acknowledges and agrees that the fees and other amounts
payable by the Seller to the Purchasers and the Agent have been negotiated on
the basis that the unused portion of each Committed Purchaser's Commitment is
treated as a "short term commitment" for which there is no regulatory capital
requirement. If any Committed Purchaser determines it is required to maintain
capital against its Unused Commitment (or any Purchaser is required to maintain
capital against its Investment) in excess of the amount of capital it would be
required to maintain against a funded loan in the same amount, such Purchaser
shall be entitled to compensation under this Section 6.2.
Section 6.3. Other Costs and Expenses. Also by way of clarification, and
not of limitation, of Section 6.1, the Seller shall pay to the Agent (with
respect to amounts owned to it) or the applicable Purchaser Agent (with respect
to amounts owed to it or any Purchaser in its Purchaser Group) on demand all
costs and expenses in connection with (a) the preparation, execution, delivery
and administration (including amendments of any provision) of the Transaction
Documents, (b) the sale of the Sold Interest, (c) the perfection of the Agent's
rights in the Receivables, Related Security and Collections, (d) the enforcement
by the Agent, any Purchaser Agent or the Purchasers of the obligations of the
Seller under the Transaction Documents or of any Obligor under a Receivable and
(e) the maintenance by the Agent of the Lock-Boxes and Lock-Box Accounts,
including fees, costs and expenses of legal counsel for the Agent and each
Purchaser Agent relating to any of the foregoing or to advising the Agent, any
Purchaser Agent and any Funding Source about its rights and remedies under any
Transaction Document or any related Funding Agreement and all costs and expenses
(including counsel fees and expenses) of the Agent, each Purchaser Agent, each
Purchaser and each Funding Source in connection with the enforcement of the
Transaction Documents or any Funding Agreement and in connection with the
administration of the Transaction Documents following a Termination Event. The
Seller shall reimburse the Agent and each Conduit Purchaser for the cost of the
Agent's or such Conduit Purchaser's auditors (which may be employees of such
Person) auditing the books, records and procedures of the Seller. The Seller
shall reimburse each Conduit Purchaser for any amounts such Conduit Purchaser
must pay to any Committed Purchaser pursuant to the related Transfer Agreement,
this Agreement and the Funding Agreements related thereto on account of any Tax.
The Seller shall reimburse each Conduit Purchaser on demand for all other costs
and expenses incurred by such Conduit Purchaser or any shareholder of such
Conduit Purchaser in connection with the Transaction Documents or the
transactions
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contemplated thereby, including the cost of auditing such Conduit Purchaser's
books by certified public accountants, the cost of the Ratings and the fees and
out-of-pocket expenses of counsel of the Agent, each Conduit Purchaser or any
shareholder, or administrator, of such Conduit Purchaser for advice relating to
such Conduit Purchaser's operation.
Section 6.4. Withholding Taxes. (a) All payments made by the Seller
hereunder shall be made without withholding for or on account of any present or
future taxes (other than overall net income taxes on the recipient). If any such
withholding is so required, the Seller shall make the withholding, pay the
amount withheld to the appropriate authority before penalties attach thereto or
interest accrues thereon and pay such additional amount as may be necessary to
ensure that the net amount actually received by each Purchaser, each Purchaser
Agent and the Agent free and clear of such taxes (including such taxes on such
additional amount) is equal to the amount that such Purchaser, such Purchaser
Agent or the Agent (as the case may be) would have received had such withholding
not been made. If the Agent, any Purchaser Agent or any Purchaser pays any such
taxes, penalties or interest the Seller shall reimburse the Agent, Purchaser
Agent or such Purchaser for that payment on demand. If the Seller pays any such
taxes, penalties or interest, it shall deliver official tax receipts evidencing
that payment or certified copies thereof to the Purchaser, each Purchaser Agent
or the Agent on whose account such withholding was made (with a copy to the
Agent if not the recipient of the original) on or before the thirtieth day after
payment.
(b) Before the first date on which any amount is payable hereunder for
the account of any Purchaser not incorporated under the laws of the USA such
Purchaser shall deliver to the Seller and the Agent each two (2) duly completed
copies of United States Internal Revenue Service Form W-8BEN or W-8ECI (or
successor applicable form) certifying that such Purchaser is entitled to receive
payments hereunder without deduction or withholding of any United States federal
income taxes. Each such Purchaser shall replace or update such forms when
necessary to maintain any applicable exemption and as requested by the Agent or
the Seller.
Section 6.5. Payments and Allocations. If any Person seeks compensation
pursuant to this Article VI, such Person shall deliver to the Seller and its
Purchaser Agent a certificate setting forth the amount due to such Person, a
description of the circumstance giving rise thereto and the basis of the
calculations of such amount, which certificate shall be conclusive absent
manifest error. The Seller shall pay to the Agent amounts owed to it or to the
applicable Purchaser Agent amounts owed to such Purchaser Agent or owed to any
Purchaser in its Purchase Group, for the account of such Person the amount shown
as due on any such certificate within thirty (30) days after receipt of the
notice.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1. Conditions to Closing. This Agreement shall become effective
on the first date all conditions in this Section 7.1 are satisfied. On or before
such date, the Seller (or, in the
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case of Section 7.1(e)(ii), the Committed Purchasers) shall deliver to the Agent
the following documents in form, substance and quantity acceptable to the Agent:
(a) A certificate of the Secretary of the Seller and each Seller
Entity certifying (i) the resolutions of the Seller's and each Seller
Entity's board of directors approving each Transaction Document to which
it is a party, (ii) the name, signature, and authority of each officer
who executes on the Seller's or each Seller Entity's behalf a
Transaction Document (on which certificate the Agent, each Purchaser
Agent and each Purchaser may conclusively rely until a revised
certificate is received), (iii) the Seller's and each Seller Entity's
certificate or articles of incorporation or limited liability company
agreement, as applicable, certified by the Secretary or Assistant
Secretary of such entity, (iv) a copy of the Seller's and each Seller
Entity's by-laws and (v) good standing certificates issued by the
Secretaries of State of each jurisdiction where the Seller and each
Seller Entity is organized.
(b) All instruments and other documents required, or deemed
desirable by the Agent, to perfect the Agent's first priority interest
in the Receivables, Related Security, Collections, the Purchase
Agreement and the Lock-Box Accounts in all appropriate jurisdictions.
(c) UCC search reports from all jurisdictions the Agent requests.
(d) Executed copies of (i) all consents and authorizations
necessary in connection with the Transaction Documents (ii) direction
letters executed by the Seller authorizing the Agent to inspect and make
copies from the Seller's books and records maintained at any off-site
data processing or storage facilities, (iii) a Periodic Report covering
the month ended August 31, 2001, and (iv) each Transaction Document.
(e) Favorable opinions of counsel to the Seller and each Seller
Entity covering such matters as any Purchaser Agent or the Agent may
request.
(f) Such other approvals, opinions or documents as the Agent or
any Purchaser Agent may reasonably request.
Section 7.2. Conditions to Each Purchase. The obligation of each Committed
Purchaser to make any Purchase, and the right of the Seller to request or accept
any Purchase, are subject to the conditions (and each Purchase shall evidence
the Seller's representation and warranty that clauses (a)-(d) of this Section
7.2 have been satisfied) that on the date of such Purchase before and after
giving effect to the Purchase:
(a) no Potential Termination Event shall then exist or shall
occur as a result of the Purchase;
(b) the Termination Date has not occurred and, after giving
effect to the application of the proceeds of such Purchase, the
outstanding Matured Aggregate Investment would not exceed the Aggregate
Commitment;
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(c) the representations and warranties of the Seller, each
Originator and the Collection Agent contained herein or in any other
Transaction Document are true and correct in all material respects on
and as of such date (except to the extent such representations and
warranties relate solely to an earlier date and then as of such earlier
date);
(d) each of the Seller and each Seller Entity is in full
compliance with the Transaction Documents to which it is a party
(including all covenants and agreements in Article V); and
(e) all legal matters related to the Purchase are reasonably
satisfactory to the Purchasers.
Nothing in this Section 7.2 limits the obligations (including those in Section
2.1) of each Related Committed Purchaser to its related Conduit Purchaser
(including any applicable Transfer Agreement).
ARTICLE VIII
THE AGENT
Section 8.1. Appointment and Authorization. (a) Each Purchaser and each
Purchaser Agent hereby irrevocably designates and appoints ABN AMRO Bank N.V. as
the "Agent" under the Transaction Documents and authorizes the Agent to take
such actions and to exercise such powers as are delegated to the Agent hereby
and to exercise such other powers as are reasonably incidental thereto. The
Agent shall hold, in its name, for the benefit of each Purchaser, the Purchase
Interest of such Purchaser. The Agent shall not have any duties other than those
expressly set forth in the Transaction Documents or any fiduciary relationship
with any Purchaser, and no implied obligations or liabilities shall be read into
any Transaction Document, or otherwise exist, against the Agent. The Agent does
not assume, nor shall it be deemed to have assumed, any obligation to, or
relationship of trust or agency with, the Seller. Notwithstanding any provision
of this Agreement or any other Transaction Document, in no event shall the Agent
ever be required to take any action which exposes the Agent to personal
liability or which is contrary to the provision of any Transaction Document or
applicable law.
(b) Each Purchaser hereby irrevocably designates and appoints the
respective institution identified on the applicable signature page hereto or in
the related Transfer Supplement (as applicable) as its Purchaser Agent
hereunder, and each authorizes such Purchaser Agent to take such action on its
behalf under the provisions of this Agreement and to exercise such powers and
perform such duties as are expressly delegated to such Purchaser Agent by the
terms of this Agreement, if any, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Purchaser Agent shall have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Purchaser or other Purchaser Agent or the Agent, and no
implied obligations or liabilities on the part of such Purchaser Agent shall be
read into this Agreement or
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otherwise exist against such Purchaser Agent. No Purchaser Agent assumes, nor
shall it be deemed to have assumed, any obligation to, or relationship of trust
or agency with, the Seller.
Section 8.2. Delegation of Duties. The Agent and each Purchaser Agent may
execute any of its duties through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Neither the Agent nor any Purchaser Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
Section 8.3. Exculpatory Provisions. None of the Agent, any Purchaser Agent
or any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted (i) with the consent or at the direction
of the Instructing Group or (ii) in the absence of such Persons gross negligence
or willful misconduct. Neither the Agent nor any Purchaser Agent shall be
responsible to any Purchaser or other Person for any recitals, representations,
warranties or other statements made by the Seller, any Seller Entity or any of
its Affiliates, (ii) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any Transaction Document, (iii) any failure of
the Seller, and Seller Entity or any of its Affiliates to perform any obligation
or (iv) the satisfaction of any condition specified in Article VII. Neither the
Agent nor any Purchaser Agent shall have any obligation to any Purchaser to
ascertain or inquire about the observance or performance of any agreement
contained in any Transaction Document or to inspect the properties, books or
records of the Seller, any Seller Entity or any of its Affiliates.
Section 8.4. Reliance by Agent and Purchaser Agents. (a) The Agent and each
Purchaser Agent shall in all cases be entitled to rely, and shall be fully
protected in relying, upon any document, other writing or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person and upon advice and statements of legal counsel (including counsel
to the Seller), independent accountants and other experts selected by the Agent
or such Purchaser Agent. The Agent and each Purchaser Agent shall in all cases
be fully justified in failing or refusing to take any action under any
Transaction Document unless it shall first receive such advice or concurrence of
the Purchasers, and assurance of its indemnification, as it deems appropriate.
(b) The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of the
Instructing Group, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all Purchasers, the Agent and Purchaser
Agents.
(c) Each Purchaser Agent shall determine with its Purchaser Group the
number of such Purchasers (each, a "Voting Block"), which shall be required to
request or direct such Purchaser Agent to take action, or refrain from taking
action, under this Agreement on behalf of such Purchasers. Such Purchaser Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement in accordance with a request of its appropriate Voting
Block, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of such Purchaser Agent's Purchasers.
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(d) Unless otherwise advised in writing by a Purchaser Agent or by any
Purchaser on whose behalf such Purchaser Agent is purportedly acting, each party
to this Agreement may assume that (i) such Purchaser Agent is acting for the
benefit and on behalf of each of the Purchasers in respect of which such
Purchaser Agent is identified as being the "Purchaser Agent" in the definition
of "Purchaser Agent" hereto, as well as for the benefit of each assignee or
other transferee from any such Person, and (ii) each action taken by such
Purchaser Agent has been duly authorized and approved by all necessary action on
the part of the Purchasers on whose behalf it is purportedly acting. Each
Purchaser Agent and the Purchasers in its Purchaser Group shall agree amongst
themselves as to the circumstances and procedures for removal and resignation of
such Purchaser Agent.
Section 8.5. Assumed Payments. Unless the Agent shall have received notice
from the applicable Purchaser Agent before the date of any Incremental Purchase
that the applicable Purchaser Group will not make available to the Agent the
amount it is scheduled to remit as part of such Incremental Purchase, the Agent
may assume such Purchaser Group has made such amount available to the Agent when
due (an "Assumed Payment") and, in reliance upon such assumption, the Agent may
(but shall have no obligation to) make available such amount to the appropriate
Person. If and to the extent that any Purchaser in a Purchaser Group shall not
have made its Assumed Payment available to the Agent, such Purchaser and the
Seller hereby agree to pay the Agent forthwith on demand such unpaid portion of
such Assumed Payment up to the amount of funds actually paid by the Agent,
together with interest thereon for each day from the date of such payment by the
Agent until the date the requisite amount is repaid to the Agent, at a rate per
annum equal to the Federal Funds Rate for the first three days such amounts are
past due and thereafter at a rate per annum equal to the Federal Funds Rate plus
2%.
Section 8.6. Notice of Termination Events. Neither any Purchaser Agent nor
the Agent shall be deemed to have knowledge or notice of the occurrence of any
Potential Termination Event unless the Agent or such Purchaser Agent has
received notice from any Purchaser or the Seller stating that a Potential
Termination Event has occurred hereunder and describing such Potential
Termination Event. If the Agent receives such a notice, it shall promptly give
notice thereof to each Purchaser Agent whereupon each Purchaser Agent shall
promptly give notice thereof to the members of its Purchaser Group. If a
Purchaser Agent receives such a notice from any Person other than the Agent, it
shall promptly give notice thereof to the Agent and each Purchaser Agent
whereupon each Purchaser Agent shall promptly give notice thereof to the members
of its Purchaser Group. The Agent shall take such action concerning a Potential
Termination Event as may be directed by the Instructing Group (or, if required
for such action, all of the Purchasers), but until the Agent receives such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, as the Agent deems advisable and in the best
interests of the Purchasers.
Section 8.7. Non-Reliance on Agent and Other Purchasers. Each Purchaser
expressly acknowledges that none of the Agent, the Purchaser Agents nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of the Seller or
any Seller Entity, shall be deemed to constitute any representation or warranty
by the Agent. Each Purchaser represents and warrants to the Agent and the
Purchaser Agents that,
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independently and without reliance upon the Agent, any Purchaser Agent or any
other Purchaser and based on such documents and information as it has deemed
appropriate, it has made and will continue to make its own appraisal of and
investigation into the business, operations, property, prospects, financial and
other conditions and creditworthiness of the Seller, the Seller Entities and the
Receivables and its own decision to enter into this Agreement and to take, or
omit, action under any Transaction Document. The Agent shall deliver each month
to any Purchaser that so requests a copy of the Periodic Report(s) received
covering the preceding calendar month. Except for items specifically required to
be delivered hereunder, the Agent shall not have any duty or responsibility to
provide any Purchaser or any Purchaser Agent with any information concerning the
Seller, any Seller Entity or any of its Affiliates that comes into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
Section 8.8. Agent, Purchaser Agents and Affiliates. The Agent, each
Purchaser Agent and their respective Affiliates may extend credit to, accept
deposits from and generally engage in any kind of business with the Seller, any
Seller Entity or any of their Affiliates and ABN AMRO may exercise or refrain
from exercising its rights and powers as if it were not the Agent. The parties
acknowledge that ABN AMRO acts as agent for Amsterdam and subagent for
Amsterdam's management company in various capacities, as well as providing
credit facilities and other support for Amsterdam not contained in the
Transaction Documents.
Section 8.9. Indemnification. Each Purchaser Group shall indemnify and hold
harmless the Agent and its officers, directors, employees, representatives and
agents (to the extent not reimbursed by the Seller or any Seller Entity and
without limiting the obligation of the Seller or any Seller Entity to do so),
ratably in accordance with its Ratable Share from and against any and all
liabilities, claims, obligations, losses, damages, penalties, costs, expenses
and disbursements of any kind whatsoever that may at any time be imposed on,
incurred by or asserted against the Agent or such Person as a result of or
related to, any of the transactions contemplated by the Transaction Documents or
the execution, delivery or performance of the Transaction Documents or any other
document furnished in connection therewith (but excluding any such liabilities,
claims, obligations, losses, damages, penalties, costs, expenses or
disbursements resulting solely from the gross negligence or willful misconduct
of the Agent or such Person as finally determined by a court of competent
jurisdiction).
Section 8.10. Successor Agent. The Agent may, upon at least five (5) days
notice to the Seller and each Purchaser Agent, resign as Agent. Such resignation
shall not become effective until a successor agent is appointed by an
Instructing Group and has accepted such appointment. Upon such acceptance of its
appointment as Agent hereunder by a successor Agent, such successor Agent shall
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents. After any retiring Agent's
resignation hereunder, the provisions of Article VI and this Article VIII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent.
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ARTICLE IX
MISCELLANEOUS
Section 9.1. Termination. Each Conduit Purchaser shall cease to be a party
hereto when the Termination Date has occurred, such Conduit Purchaser holds no
Investment and all amounts payable to it hereunder have been indefeasibly paid
in full. This Agreement shall terminate following the Termination Date when no
Investment is held by a Purchaser and all other amounts payable hereunder have
been indefeasibly paid in full, but the rights and remedies of the Agent, each
Purchaser Agent and each Purchaser concerning any representation, warranty or
covenant made, or deemed to be made, by the Seller, and under Section 3.9,
Article VI, Section 8.9, Section 9.12 and Section 9.13, shall survive such
termination.
Section 9.2. Notices. Unless otherwise specified, all notices and other
communications hereunder shall be in writing (including by telecopier or other
facsimile communication), given to the appropriate Person at its address or
telecopy number set forth on the signature pages hereof or at such other address
or telecopy number as such Person may specify, and effective when received at
the address specified by such Person. Each party hereto, however, authorizes the
Agent and each Purchaser Agent to act on telephone notices of Purchases and
Discount Rate and Tranche Period selections from any person the Agent or such
Purchaser Agent in good faith believes to be acting on behalf of the relevant
party and, at the Agent's or such Purchaser Agent's option, to tape record any
such telephone conversation. Each party hereto agrees to deliver promptly to the
Agent and each Purchaser Agent a confirmation of each telephone notice given or
received by such party (signed by an authorized officer of such party), but the
absence of such confirmation shall not affect the validity of the telephone
notice. The Agent's or such Purchaser Agent's records of all such conversations
shall be deemed correct and, if the confirmation of a conversation differs in
any material respect from the action taken by the Agent or such Purchaser Agent,
the records of the Agent or such Purchaser Agent shall govern absent manifest
error. The number of days for any advance notice required hereunder may be
waived (orally or in writing) by the Person receiving such notice and, in the
case of notices to the Agent or such Purchaser Agent, the consent of each Person
to which the Agent or such Purchaser Agent is required to forward such notice.
Section 9.3. Payments and Computations. Notwithstanding anything herein to
the contrary, any amounts to be paid or transferred by the Seller or the
Collection Agent to, or for the benefit of, any Purchaser, or any other Person
shall be paid or transferred to the Agent or the appropriate Purchaser Agent
(for the benefit of such Purchaser or other Person). The Agent or the
appropriate Purchaser Agent shall promptly (and, if reasonably practicable, on
the day it receives such amounts) forward each such amount to the Person
entitled thereto and such Person shall apply the amount in accordance herewith.
All amounts to be paid or deposited hereunder shall be paid or transferred on
the day when due in immediately available Dollars (and, if due from the Seller
or Collection Agent, by 11:00 a.m. (Chicago time), with amounts received after
such time being deemed paid on the Business Day following such receipt). The
Seller hereby authorizes the Agent to debit the Seller Account for application
to any amounts owed by the Seller hereunder. The Seller shall, to the extent
permitted by law, pay to the Agent or the appropriate Purchaser Agent upon
demand, for the account of the applicable Person, interest on
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all amounts not paid or transferred by the Seller or the Collection Agent when
due hereunder at a rate equal to the Prime Rate plus 1%, calculated from the
date any such amount became due until the date paid in full. Any payment or
other transfer of funds scheduled to be made on a day that is not a Business Day
shall be made on the next Business Day, and any Discount Rate or interest rate
accruing on such amount to be paid or transferred shall continue to accrue to
such next Business Day. All computations of interest, fees and Discount shall be
calculated for the actual days elapsed based on a 360 day year.
Section 9.4. Sharing of Recoveries. Each Purchaser agrees that if it
receives any recovery, through set-off, judicial action or otherwise, on any
amount payable or recoverable hereunder in a greater proportion than should have
been received hereunder or otherwise inconsistent with the provisions hereof,
then the recipient of such recovery shall purchase for cash an interest in
amounts owing to the other Purchasers (as return of Investment or otherwise),
without representation or warranty except for the representation and warranty
that such interest is being sold by each such other Purchaser free and clear of
any Adverse Claim created or granted by such other Purchaser, in the amount
necessary to create proportional participation by the Purchasers in such
recovery (as if such recovery were distributed pursuant to Section 2.3). If all
or any portion of such amount is thereafter recovered from the recipient, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
Section 9.5. Right of Setoff. During a Termination Event, each Purchaser is
hereby authorized (in addition to any other rights it may have) to setoff,
appropriate and apply (without presentment, demand, protest or other notice
which are hereby expressly waived) any deposits and any other indebtedness held
or owing by such Purchaser (including by any branches or agencies of such
Purchaser) to, or for the account of, the Seller against amounts owing by the
Seller hereunder (even if contingent or unmatured).
Section 9.6. Amendments. Except as otherwise expressly provided herein, no
amendment or waiver hereof shall be effective unless signed by the Seller and
the Instructing Group. In addition, no amendment of any Transaction Document
shall, without the consent of (a) all the Related Committed Purchasers, (i)
extend the Termination Date (including an extension effected through a waiver of
a Termination Event) or the date of any payment or transfer of Collections by
the Seller to the Collection Agent or by the Collection Agent to the Agent, (ii)
reduce the rate or extend the time of payment of Discount for any Eurodollar
Tranche or Prime Tranche, (iii) reduce or extend the time of payment of any fee
payable to the Related Committed Purchasers, (iv) except as provided herein,
release, transfer or modify any Committed Purchaser's Purchase Interest or
change any Commitment, (v) amend the definition of Instructing Group,
Termination Event or Section 1.1, 1.2, 1.5, 1.8, 2.1, 2.2, 2.3, 6.1, 6.2, 6.3,
6.4, 7.2 or 9.6 or any provision of the Limited Guaranty, (vi) consent to the
assignment or transfer by the Seller or any Originator of any interest in the
Receivables other than transfers hereunder, or (vii) amend any defined term
relevant to the restrictions in clauses (i) through (vi) in a manner which would
circumvent the intention of such restrictions or (b) the Agent and each affected
Purchaser Agent, amend any provision hereof if the effect thereof is to affect
the indemnities to, or the rights or duties of, the Agent or any Purchaser Agent
or to reduce any fee payable for the Agent's or such Purchaser Agent's own
account. Notwithstanding the foregoing, the amount of any fee or other payment
due and payable from the Seller to any Person may be
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changed or otherwise adjusted solely with the consent of the Seller and the
party to which such payment is payable. Any amendment hereof shall apply to each
Purchaser equally and shall be binding upon the Seller, the Purchasers, each
Purchaser Agent and the Agent. If required by the Rating Agencies for any
Conduit Purchaser, no material amendment hereof or assignment, termination,
resignation or removal hereunder shall be effective unless a statement is
obtained from the applicable Rating Agencies that its Rating will not be
downgraded, withdrawn or suspended as a result of such amendment, assignment,
termination, resignation or removal.
Section 9.7. Waivers. No failure or delay of the Agent, any Purchaser Agent
or any Purchaser in exercising any power, right, privilege or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right, privilege or remedy preclude any other or further
exercise thereof or the exercise of any other power, right, privilege or remedy.
Any waiver hereof shall be effective only in the specific instance and for the
specific purpose for which such waiver was given; provided that any waiver of a
Termination Event shall be in writing. After any waiver, the Seller, the
Purchasers, the Purchaser Agents and the Agent shall be restored to their former
position and rights and any Potential Termination Event waived shall be deemed
to be cured and not continuing, but no such waiver shall extend to (or impair
any right consequent upon) any subsequent or other Potential Termination Event.
Any additional Discount that has accrued after a Termination Event before the
execution of a waiver thereof, solely as a result of the occurrence of such
Termination Event, may be waived by the Agent or related Purchaser Agent at the
direction of the Purchaser entitled thereto.
Section 9.8. Successors and Assigns; Participations; Assignments. (a)
Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Except as otherwise provided herein, the Seller may not assign or transfer any
of its rights or delegate any of its duties without the prior consent of the
Agent and the Purchasers Agents.
(b) Participations. Any Purchaser may sell to one or more Persons
affiliated with the Purchaser without the prior consent of the Seller, and to
one or more other Persons with the prior consent of the Seller (which consent
shall not be unreasonably withheld) (each a "Participant") participating
interests in the interests of such Purchaser hereunder and under the applicable
Transfer Agreement. Such Purchaser shall remain solely responsible for
performing its obligations hereunder, and the Seller, the applicable Purchaser
Agent and the Agent shall continue to deal solely and directly with such
Purchaser in connection with such Purchaser's rights and obligations hereunder
and under the applicable Transfer Agreement. Each Participant shall be entitled
to the benefits of Article VI and shall have the right of setoff through its
participation in amounts owing hereunder and under the applicable Transfer
Agreement to the same extent as if it were a Purchaser hereunder and under the
applicable Transfer Agreement, which right of setoff is subject to such
Participant's obligation to share with the Purchasers as provided in Section
9.4. A Purchaser shall not agree with a Participant to restrict such Purchaser's
right to agree to any amendment hereto or to the applicable Transfer Agreement,
except amendments described in clause (a) of Section 9.6.
(c) Assignments by Related Committed Purchasers. Any Related Committed
Purchaser may assign to one or more Persons ("Purchasing Committed Purchasers"),
acceptable to the
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applicable Purchaser Agent in its sole discretion and, prior to the occurrence
of a Termination Event, subject to the prior written consent of the Seller
(which consent will not be unreasonably withheld) any portion of its Commitment
as a Related Committed Purchaser hereunder and under the applicable Transfer
Agreement and Purchase Interest pursuant to a supplement hereto and to the
Transfer Agreement (a "Transfer Supplement") in form satisfactory to the
applicable Purchaser Agent executed by each such Purchasing Committed Purchaser,
such selling Committed Purchaser and the applicable Purchaser Agent. Any such
assignment by a Related Committed Purchaser must be for an amount of at least
Ten Million Dollars. Each Purchasing Committed Purchaser shall pay a fee of
Three Thousand Dollars to the applicable Purchaser Agent. Any partial assignment
shall be an assignment of an identical percentage of such selling Related
Committed Purchaser Investment and its Commitment as a Related Committed
Purchaser hereunder and under any applicable Transfer Agreement. Upon the
execution and delivery to the applicable Purchaser Agent of the Transfer
Supplement and payment by the Purchasing Committed Purchaser to the selling
Related Committed Purchaser of the agreed purchase price, such selling Related
Committed Purchaser shall be released from its obligations hereunder and under
the applicable Transfer Agreement to the extent of such assignment and such
Purchasing Committed Purchaser shall for all purposes be a Related Committed
Purchaser party hereto and shall have all the rights and obligations of a
Related Committed Purchaser hereunder to the same extent as if it were an
original party hereto and to the applicable Transfer Agreement with a Commitment
as a Related Committed Purchaser, any Investment and any related Assigned
Settlement described in the Transfer Supplement.
(d) Replaceable Related Committed Purchaser. If any Related Committed
Purchaser other than a Committed Purchaser (including ABN AMRO) that provides
program enhancement to a Conduit Purchaser (a "Replaceable Purchaser") shall (i)
petition the Seller for any amounts under Section 6.2 or 6.4 or (ii) have a
short-term debt rating lower than the "A-1" by S&P and "P-1" by Moody's, and, if
the commercial paper of the applicable Conduit Purchaser is rated by Fitch, "F1"
by Fitch, the Seller or applicable Conduit Purchaser may designate a replacement
financial institution (a "Replacement Related Committed Purchaser") acceptable
to the Agent and the applicable Conduit Purchaser, in its sole discretion and,
prior to the occurrence of a Termination Event, subject to the prior written
consent of the Seller (which consent will not be unreasonably withheld) to which
such Replaceable Related Committed Purchaser shall, subject to its receipt of an
amount equal to its Investment, any related Assigned Settlement, and accrued
Discount and fees thereon (plus, from the Seller, any Early Payment Fee that
would have been payable if such transferred Investment had been paid on such
date) and all amounts payable under Section 6.2, promptly assign all of its
rights, obligations and Commitment hereunder and under the applicable Transfer
Agreement, together with all of its Purchase Interest, and any related Assigned
Settlement, to the Replacement Related Committed Purchaser in accordance with
Section 9.8(c).
(e) Assignment by Conduit Purchasers. Each party hereto agrees and
consents (i) to each Conduit Purchaser's assignment, participation, grant of
security interests in or other transfers of any portion of not less than
$25,000,000 of, or any of its beneficial interest in, the Purchase Interest and
the related Assigned Settlement and (ii) to the complete assignment by such
Conduit Purchaser of all of its rights and obligations hereunder to any Person
reasonably acceptable to Agent, and upon such assignment such Conduit Purchaser
shall be released from
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<PAGE>
all obligations and duties hereunder; provided, however, that a Conduit
Purchaser may not, without the prior consent of its Related Committed Purchaser,
transfer any of its rights under the related Transfer Agreement to cause its
Related Committed Purchaser to purchase the Purchaser Interest of such Conduit
Purchaser and the Assigned Settlement unless the assignee (i) is a corporation
whose principal business is the purchase of assets similar to the Receivables,
(ii) has the related Purchaser Agent as its administrative agent and (iii)
issues commercial paper with credit ratings substantially comparable to the then
current ratings of such Conduit Purchaser. Each new Conduit Purchaser shall pay
a fee of Three Thousand Dollars to the Agent. Each Conduit Purchaser shall
notify the Seller prior to any such assignment and shall promptly notify each
other party hereto of any such assignment. Upon such an assignment of any
portion of a Conduit Purchaser's Purchase Interest and the related Assigned
Settlement and the payment to the Agent of the fee specified above, the assignee
shall have all of the rights of such Conduit Purchaser hereunder relate to such
Purchase Interest and related Assigned Settlement.
(f) Opinions of Counsel. If required by the Agent or any Purchaser Agent
or to maintain the Ratings, each Transfer Supplement must be accompanied by an
opinion of counsel of the assignee as to such matters as the Agent or such
Purchaser Agent may reasonably request.
Section 9.9. Waiver of Confidentiality. The Seller hereby consents to the
disclosure of any nonpublic information relating thereto among the Agent, the
Purchaser Agents and the Purchasers and by the Agent, the Purchaser Agents or
the Purchasers to (i) any officers, directors, members, managers, employees or
outside accountants, auditors or attorneys thereof, (ii) any prospective or
actual assignee or participant, (iii) any rating agency, surety, guarantor or
credit or liquidity enhancer to the Agent, any Purchaser Agent or any Purchaser,
(iv) any entity organized to purchase, or make loans secured by, financial
assets for which a Purchaser Agent provides managerial services or acts as an
administrative agent, (v) any Conduit Purchaser's administrator, management
company, referral agents, issuing agents or depositaries or CP Dealers and (vi)
Governmental Authorities with appropriate jurisdiction.
Section 9.10. Confidentiality of Agreement. (a) Unless otherwise required by
applicable law, order of any court or administrative agency, or otherwise by any
governmental authority, the Seller agrees to maintain the confidentiality of the
Transaction Documents (and all drafts thereof) in its communications with third
parties and otherwise; provided, however, that the Transaction Documents may be
disclosed to third parties to the extent such disclosure is (i) required in
connection with a sale of receivables of Seller, (ii) made solely to Persons who
are legal counsel for the purchaser of such receivables, and (iii) made pursuant
to a written agreement of confidentiality in form and substance reasonably
satisfactory to the Agent and each Purchaser Agent; provided further, however,
that the Transaction Documents may be disclosed to the Seller's legal counsel
and independent auditors; and provided further, however, that neither the Seller
nor the Collection Agent have any obligation of confidentiality in respect of
any information which may be generally available to the public or becomes
available to the public through no fault of the Seller or the Collection Agent.
(b) Unless otherwise required by applicable law, order of any court or
administrative agency, or otherwise by any Governmental Authority, the Agent and
each Purchaser Agent agree to maintain the confidentiality, in its
communications with third parties and otherwise, of any
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<PAGE>
information regarding the Seller obtained in connection with the Transaction
Documents which has been identified by the Seller to the Agent as confidential
in nature (the "Confidential Material"); provided, however, that the
Confidential Material may be disclosed to third parties to the extent such
disclosure is (i) to a Rating Agency, (ii) required in connection with the
exercise of any remedy hereunder or under any related documents, instruments and
agreements, or (iii) to any actual or proposed participant or assignee of all or
part of its rights hereunder, or an actual or proposed liquidity or enhancement
provider, in each case which has agreed in writing to be bound by the provisions
of this Section, or (iv) to any Committed Purchaser; provided further, however,
that the Transaction Documents may be disclosed to each of the Purchaser Agent's
and the Agent's respective legal counsel and independent auditors; and provided
further, however, that the Agent and each Purchaser Agent shall not have any
obligation of confidentiality in respect of any information which may be
generally available to the public or becomes available to the public through no
fault of such Person.
Section 9.11. Agreement Not to Petition. Each party hereto agrees, for the
benefit of the holders of the privately or publicly placed indebtedness for
borrowed money for each Conduit Purchaser, not, prior to the date which is one
(1) year and one (1) day after the payment in full of all such indebtedness, to
acquiesce, petition or otherwise, directly or indirectly, encourage, assist,
join, invoke, or cause such Conduit Purchaser to invoke, the process of any
Governmental Authority for the purpose of (a) commencing or sustaining a case
against such Conduit Purchaser under any federal or state bankruptcy, insolvency
or similar law (including the Federal Bankruptcy Code), (b) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official for such Conduit Purchaser, or any substantial part of its
property, or (c) ordering the winding up or liquidation of the affairs of such
Conduit Purchaser.
Section 9.12. Excess Funds. Other than amounts payable under Section 9.4,
each Conduit Purchaser shall be required to make payment of the amounts required
to be paid pursuant hereto only if such Conduit Purchaser has Excess Funds (as
defined below). If such Conduit Purchaser does not have Excess Funds, the excess
of the amount due hereunder (other than pursuant to Section 9.4) over the amount
paid shall not constitute a "claim" (as defined in Section 101(5) of the Federal
Bankruptcy Code) against such Conduit Purchaser until such time as such Conduit
Purchaser has Excess Funds. If such Conduit Purchaser does not have sufficient
Excess Funds to make any payment due hereunder (other than pursuant to Section
9.4), then such Conduit Purchaser may pay a lesser amount and make additional
payments that in the aggregate equal the amount of deficiency as soon as
possible thereafter. The term "Excess Funds" means the excess of (a) the
aggregate projected value of such Conduit Purchaser's assets and other property
(including cash and cash equivalents), over (b) the sum of (i) the sum of all
scheduled payments of principal, interest and other amounts payable on publicly
or privately placed indebtedness of such Conduit Purchaser for borrowed money,
plus (ii) the sum of all other liabilities, indebtedness and other obligations
of such Conduit Purchaser for borrowed money or owed to any credit or liquidity
provider, together with all unpaid interest then accrued thereon, plus (iii) all
taxes payable by such Conduit Purchaser to the Internal Revenue Service, plus
(iv) all other indebtedness, liabilities and obligations of such Conduit
Purchaser then due and payable, but the amount of any liability, indebtedness or
obligation of such Conduit Purchaser shall not exceed the projected value of the
assets to which recourse for such liability, indebtedness or obligation is
limited. Excess Funds shall be calculated once each Business Day.
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<PAGE>
Section 9.13. No Recourse. The obligations of each Conduit Purchaser, their
respective management companies, their respective administrators and referral
agents (each a "Program Administrator") under any Transaction Document or other
document (each, a "Program Document") to which a Program Administrator is a
party are solely the corporate obligations of such Program Administrator and no
recourse shall be had for such obligations against any Affiliate, director,
officer, member, manager, employee, attorney or agent of any Program
Administrator.
Section 9.14. Headings; Counterparts. Article and Section Headings in this
Agreement are for reference only and shall not affect the construction of this
Agreement. This Agreement may be executed by different parties on any number of
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute one and the same agreement.
Section 9.15. Cumulative Rights and Severability. All rights and remedies of
the Purchasers, the Purchaser Agents and Agent hereunder shall be cumulative and
non-exclusive of any rights or remedies such Persons have under law or
otherwise. Any provision hereof that is prohibited or unenforceable in any
jurisdiction shall, in such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof and without affecting such provision in any other jurisdiction.
Section 9.16. Governing Law; Submission to Jurisdiction. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND
NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS. THE SELLER HEREBY SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS STATE COURT SITTING IN
CHICAGO, ILLINOIS FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF, OR
RELATING TO, THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
The Seller hereby irrevocably waives, to the fullest extent permitted by law,
any objection it may now or hereafter have to the venue of any such proceeding
and any claim that any such proceeding has been brought in an inconvenient
forum. Nothing in this Section 9.16 shall affect the right of the Agent, any
Purchaser Agent or any Purchaser to bring any action or proceeding against the
Seller or its property in the courts of other jurisdictions.
Section 9.17. Waiver of Trial by Jury. To the extent permitted by applicable
law, each party hereto irrevocably waives all right of trial by jury in any
action, proceeding or counterclaim arising out of, or in connection with, any
transaction document or any matter arising thereunder.
Section 9.18. Intended Tax Characterization. It is the intention of the
parties hereto that, for the purposes of all Taxes, the transactions
contemplated hereby shall be treated as a loan by the Purchasers (through the
Agent) to the Seller that is secured by the Receivables (the "Intended Tax
Characterization"). The parties hereto agree to report and otherwise to act for
the purposes of all Taxes in a manner consistent with the Intended Tax
Characterization.
Section 9.19. Entire Agreement. The Transaction Documents constitute the
entire understanding of the parties thereto concerning the subject matter
thereof. Any previous or
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<PAGE>
contemporaneous agreements, whether written or oral, concerning such matters are
superceded thereby.
Section 9.20. Extensions of Scheduled Termination Date. Not more than 90
days, but prior to 75 days before the Scheduled Termination Date then in effect,
the Seller may request that each Committed Purchaser extend its Commitment for
an additional 364 days. Each Committed Purchaser shall respond to such request
not later than 45 days before the then Scheduled Termination Date. If, by the
date 45 days before the then Scheduled Termination Date, any Committed Purchaser
(a "Non-Consenting Purchaser") has not notified the Agent it agrees to so extend
its Commitment for an additional 364 day period, unless any other Committed
Purchaser (including any Person who thereby becomes a Committed Purchaser)
assumes the Commitment of each such Non-Consenting Lender on or before the date
45 days before the then Scheduled Termination Date and agrees to extend such
Commitment for an additional 364 day period, the Scheduled Termination Date
shall not be extended. If all Committed Purchasers agree to extend the Scheduled
Termination Date, or if the Commitment of each Non-Consenting Purchaser is
assumed by another Committed Purchaser pursuant to the preceding sentence, the
Scheduled Termination Date shall be extended for an additional 364 day period.
Otherwise the Scheduled Termination Date shall take place as scheduled.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.
ABN AMRO BANK N.V., as the Agent AMSTERDAM FUNDING CORPORATION,
as a Conduit Purchaser
By: By:
-------------------------------- -----------------------------
Title: Title:
------------------------- ----------------------
By:
--------------------------------
Title:
-------------------------
<TABLE>
<S> <C>
Address: Address:
Structured Finance, Asset Securitization Global Securitization Services, LLC
135 South LaSalle Street 114 West 47th Street
Chicago, Illinois 60674-9135 New York, New York 10036
Attention: Purchaser Agent-Amsterdam Attention: Andrew Stidd
Telephone: (312) 904-2737 Telephone: (212) 302-5151
Telecopy: (312) 904-6376 Telecopy: (212) 302-8767
ABN AMRO BANK N.V., as a with a copy to:
Committed Purchaser ABN AMRO BANK N.V.
Address: Structured Finance,
Asset Securitization
135 South LaSalle Street
By: Chicago, Illinois 60674-9135
-------------------------------- Attention: Administrator-
Title: Amsterdam
------------------------- Telephone: (312) 904-2737
Telecopy: (312) 904-6376
By:
--------------------------------
Title:
-------------------------
Address:
Structured Finance, Asset Securitization
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attention: Purchaser Agent-Amsterdam
Telephone: (312) 904-2737
Telecopy: (312) 904-6376
</TABLE>
Signature Page for
Receivables Sale Agreement
<PAGE>
<TABLE>
<S> <C>
GIRO BALANCED FUNDING CORPORATION, BAYERISCHE LANDESBANK, New York Branch,
as a Conduit Purchaser as a Purchaser Agent
By: By:
----------------------------------------- ------------------------------------------
Title: Title:
---------------------------------- -----------------------------------
Address: 114 West 47th Street, Suite 1715 By:
New York, New York 10036 ------------------------------------------
Attention: Tony Wong - Title:
Vice President -----------------------------------
Telephone: (212)302-5151 Address: 560 Lexington Avenue
Telecopy: (212)302-8767 New York, New York 10022
Attention: Corporate Lending
Telephone: (212) 230-9012
Telecopy: (212) 310-9868
BAYERISCHE LANDESBANK, Cayman Islands Branch,
as a Committed Purchaser
By:
------------------------------------------
Title:
-----------------------------------
By:
------------------------------------------
Title:
-----------------------------------
Address: 560 Lexington Avenue
New York, New York 10022
Attention: Corporate Lending
Telephone: (212) 230-9012
Telecopy: (212) 310-9868
</TABLE>
Signature Page for
Receivables Sale Agreement
<PAGE>
<TABLE>
<S> <C>
ATLANTIC ASSET SECURITIZATION CREDIT LYONNAIS, acting through its
CORP., as a Conduit Purchaser New York Branch, as a Purchaser Agent and a
Committed Purchaser
By: By:
----------------------------------------- ------------------------------------------
Title: Title:
---------------------------------- -----------------------------------
Address: c/o Credit Lyonnais Address: 1301 Avenue of the Americas
1301 Avenue of the Americas New York, New York 10019-6022
New York, New York 10019-6022 Attn: Ms. Konstantina Kourmpetis-
Attn: Ms. Konstantina Kourmpetis- Transaction Manager /
Transaction Manager/Structured Structured Finance
Finance Telephone: 212-261-7814
Telephone: 212-261-7814 Telecopy: 212-459-3258
Telecopy: 212-459-3258
</TABLE>
Signature Page for
Receivables Sale Agreement
<PAGE>
ARVINMERITOR RECEIVABLES
CORPORATION, as the Seller
By:
-----------------------------------------
Title:
--------------------------------------
Address: 2135 West Maple Road
Troy, Michigan 48084
Attention:
------------------------
Telephone:
------------------------
Telecopy:
-------------------------
ARVINMERITOR, INC., as the Initial
Collection Agent
By:
-----------------------------------------
Title:
----------------------------------
Address: 2135 West Maple Road
Troy, Michigan 48084
Attention:
------------------------
Telephone:
------------------------
Telecopy:
-------------------------
Signature Page for
Receivables Sale Agreement
<PAGE>
EXHIBIT 10-m
SCHEDULE I
DEFINITIONS
The following terms have the meanings set forth, or referred to, below:
"ABN AMRO" means ABN AMRO Bank N.V. in its individual capacity and not
in its capacity as the Agent.
"Adverse Claim" means, for any asset or property of a Person, a lien,
security interest, charge, mortgage, pledge, hypothecation, assignment or
encumbrance, or any other right or claim, in, of or on such asset or property in
favor of any other Person, except those in favor of the Seller and the Agent and
each Purchaser Agent and Purchaser Group in connection with the Transaction
Documents.
"Affiliate" means, for any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person. For purposes of this definition, "control" means the power,
directly or indirectly, to either (i) vote ten percent (10%) or more of the
securities having ordinary voting power for the election of directors of a
Person or (ii) cause the direction of the management and policies of a Person.
"Agent" is defined in the first paragraph hereof.
"Agent's Account" means the account designated to the Seller and the
Purchasers by the Agent.
"Aggregate Commitment" means the aggregate of all Commitments of each
Purchaser Group, as such amount may be reduced pursuant to Section 1.6.
"Aggregate Investment" means the sum of the Investments of all
Purchasers.
"AM Canada Account" means Lock-Box Account # 77654 held by Bank One,
Detroit pursuant to which certain funds of ArvinMeritor Canada are deposited.
"Amsterdam" is defined in the first paragraph hereof.
"Assigned Settlement" means, for each Related Committed Purchaser for a
Conduit Purchaser for any Put, the product of such Related Committed Purchaser's
Purchased Percentage and the amount of the Conduit Purchaser Settlement being
transferred pursuant to such Put.
"Average Receivables Turnover Ratio" means, at any time, the average of
the Receivables Turnover Ratios calculated for the most recent three calendar
months.
"Bankruptcy Event" means, for any Person, that (a) such Person makes a
general assignment for the benefit of creditors or any proceeding is instituted
by or against such Person seeking to adjudicate it bankrupt or insolvent, or
seeking the liquidation, winding up,
<PAGE>
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 and, if instituted against such Person, such proceeding
remains undismissed and unstayed for a period of 30 days, or seeking the entry
of an order for relief or the appointment of a receiver, trustee or other
similar official for it or any substantial part of its property or such Person
generally does not pay its debts as such debts become due or admits in writing
its inability to pay its debts generally or (b) such Person takes any corporate
action to authorize any such action.
"Business Day" means any day other than (a) a Saturday, Sunday or other
day on which banks in New York, New York or Chicago, Illinois are authorized or
required to close, (b) a holiday on the Federal Reserve calendar and, solely for
matters relating to a Eurodollar Tranche, (c) a day on which dealings in Dollars
are not carried on in the London interbank market.
"Changeover Receivable" means a Receivable generated from the sale of
merchandise not manufactured by Parent or one or its Subsidiaries which has been
purchased by one of Seller Entities from one of its customers.
"Charge-Off" means any Receivable that has or should have been (in
accordance with the Credit and Collection Policy) (i) charged off or written off
by the Seller, or (ii) reserved against as a doubtful account by the Seller.
"Collection" means any amount paid, or deemed paid, on a Receivable,
including from the proceeds of collateral securing such Receivables or paid by
the Seller as a Deemed Collection under Section 1.5(b).
"Collection Agent" is defined in Section 3.1(a).
"Collection Agent Fee" is defined in Section 3.6.
"Commitment" means, for each Committed Purchaser, the amount set forth
on Schedule II for such Committed Purchaser or in a Transfer Supplement, and,
for each Purchaser Group, the amount set forth on Schedule II for such Purchaser
Group, in each case, as adjusted in accordance with Sections 1.6 and 9.8.
"Commitment Percentage" means, for each Related Committed Purchaser in a
Purchaser Group, such Related Committed Purchaser's Commitment divided by the
total of all Commitments of all Related Committed Purchasers in such Purchaser
Group.
"Committed Conduit Purchaser" means each Person party to this Agreement
and listed as such on Schedule II hereto and each other Person that becomes a
Conduit Purchaser pursuant to a Transfer Supplement.
"Committed Purchaser" means each Related Committed Purchaser for a
Conduit Purchaser.
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<PAGE>
"Concentration Limit" means (i) an amount not to exceed 10% of the
aggregate outstanding principal balance of all Eligible Receivables for Obligors
with unsecured debt ratings of at least A- and A3 by S&P and/or Moody's,
respectively, (ii) an amount not to exceed 5% of the aggregate outstanding
principal balance of all Eligible Receivables for Obligors with unsecured debt
ratings of at least BBB- and Baa3 but less than A- and A3 by S&P and/or Moody's,
respectively, and (iii) an amount not to exceed 2.5% of the aggregate
outstanding principal balance of all Eligible Receivables for Obligors with
unsecured debt ratings of below BBB- and Baa3 by S&P and Moody's, respectively,
or Obligors that are not rated by S&P or Moody's.
"Conduit Purchaser" means each Person party to this Agreement and listed
as such on Schedule II hereto and each other Person that becomes a Conduit
Purchaser pursuant to a Transfer Supplement.
"Conduit Purchaser Investment Percentage" means a fraction, expressed as
a decimal, obtained by dividing the Investment of a Conduit Purchaser by the
Investment of all Purchasers.
"Conduit Purchaser Settlement" means the sum of all claims and rights to
payment pursuant to Section 1.5 or 1.7 or any other provision owed to a Conduit
Purchaser (or owed to the Agent or Purchaser Agent or the Collection Agent for
the benefit of a Conduit Purchaser) by the Seller that, if paid, would be
applied to reduce Investment.
"CP Dealer" means, at any time, each Person a Conduit Purchaser then
engages as a placement agent or commercial paper dealer.
"CP Discount" means, for any Discount Period, the amount of interest or
discount accrued, during such Discount Period on all the outstanding commercial
paper, or portion thereof, issued by a Conduit Purchaser to fund its Investment,
including all dealer commissions and other costs of issuing commercial paper,
whether any such commercial paper was issued specifically to fund such
Investment or is allocated, in whole or in part, to such funding.
"CP Rate" means, for any CP Tranche, a rate per annum as established
pursuant to the applicable Rate Supplement.
"Credit Agreement" means that certain Amended and Restated 5-Year
Revolving Credit Agreement dated as of June 27, 2001, among the Parent, certain
foreign subsidiaries, the lenders from time to time party thereto, Bank One, NA,
as administrative agent, The Chase Manhattan Bank, as syndication agent, and
Citicorp USA, Inc. and Bank of America, N.A., as documentation agents, as in
effect on the date hereof.
"Credit and Collection Policy" means the Seller's credit and collection
policy and practices relating to Receivables attached hereto as Exhibit G.
"Deemed Collections" is defined in Section 1.5(b).
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<PAGE>
"Default Ratio" means the average, for the most recent three calendar
month period, of the ratios for each calendar month in such period of (i) the
aggregate outstanding balance of all Defaulted Receivables (minus Charge-Offs)
for such calendar month to (ii) the sum of the aggregate outstanding balance of
all Receivables at the end of such calendar month.
"Defaulted Receivable" means any Receivable (a) on which any amount is
unpaid more than 90 days past its original due date or (b) the Obligor on which
has suffered a Bankruptcy Event.
"Delinquency Ratio" means the average, for the most recent three
calendar month period, of the ratios for each calendar month in such period of
(a) the aggregate outstanding balance of all Delinquent Receivables on the last
day of such calendar month to (b) the aggregate outstanding balance of all
Receivables on the last day of such calendar month.
"Delinquent Receivable" means any Receivable (other than a Defaulted
Receivable), the outstanding balance on which any amount is 31 to 90 days past
due.
"Designated Financial Officer" means any Vice President and the
Treasurer of the Seller.
"Dilution Ratio" means the average, for the most recent three calendar
month period, of the ratios for each calendar month in such period of (a) the
aggregate amount of payments owed by the Seller pursuant to the first sentence
of Section 1.5(b) during such calendar month to (b) the aggregate amount of
Collections during such calendar month.
"Dilution Reserve Percentage" means the greater of (i) 5% and (ii) the
product of (a) the highest Dilution Ratio during the most recent twelve calendar
months and (b) 3.
"Discount" means, for any Tranche Period, (a) the product of (i) the
Discount Rate for such Tranche Period, (ii) the total amount of Investment
allocated to such Tranche Period, and (iii) the number of days elapsed during
the Tranche Period divided by (b) 360.
"Discount Period" means either (A), with respect to any Settlement Date
or the Termination Date, the period from and including the preceding Settlement
Date (or if none, the date that the first Incremental Purchase is made
hereunder) to but not including such Settlement Date or Termination Date, as
applicable, or (B), with respect to Atlantic, from the first day to the last day
of the Tranche Period.
"Discount Rate" means, for any Tranche Period, the CP Rate, the
Eurodollar Rate or the Prime Rate, as applicable, but after the occurrence of a
Termination Event each such rate shall be increased by 1.50% per annum with
respect to the Investment of the Purchasers.
"Discount Reserve Percentage" means (a) the product of (i) the Prime
Rate plus 1.50%, (ii) the average Receivables Turnover Ratio of the three
calendar months preceding the date the Discount Rate Percentage is to be
determined and (iii) 1.5 divided by (b) 360.
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<PAGE>
"Downgrade" means, for any Person at any time, the downgrade of such
Person's long-term unsecured, unsubordinated indebtedness by Moody's below "A3"
or by S&P below "A-" (or Moody's or S&P has withdrawn or suspended such
rating.).
"Dollar" and "$" means lawful currency of the United States of America.
"Early Payment Fee" is defined in the applicable Rate Supplement.
"Eligible Receivable" means, at any time, any Receivable:
(i) the Obligor of which (a) is a resident of, or organized
under the laws of, or with its chief executive office in, the USA; (b)
is not an Affiliate of any of the parties hereto or any Originator; (c)
is not a government or a governmental subdivision or agency; and (d) has
not suffered a Bankruptcy Event;
(ii) evidenced by a purchase order and a conforming invoice or a
conforming notice of shipment and due and payable within 60 days after
the invoice therefor; provided, however, up to 10% of the aggregate
outstanding principal balance of all Eligible Receivables may be stated
to be due and payable within 120 days after the invoice therefor;
(iii) which is not a Defaulted Receivable, a Delinquent
Receivable or a Charge-Off;
(iv) which is an "account" or "chattel paper" within the meaning
of Section 9-102 of the UCC of all applicable jurisdictions;
(v) which is denominated and payable only in Dollars in the USA;
(vi) which arises under a contract that is in full force and
effect and constitutes the legal, valid and binding obligation of the
related Obligor enforceable against such Obligor in accordance with its
terms subject to no offset (whether or not relating to the delivered
goods giving rise to the Receivable, including partial offsets),
counterclaim, defense or other Adverse Claim, and is not an executory
contract or unexpired lease within the meaning of Section 365 of the
Bankruptcy Code;
(vii) which arises under a contract that (A) contains an
obligation to pay a specified sum of money, contingent only upon the
sale or lease of goods or the provision of services by the Originator,
(B) does not require the Obligor under such contract to consent to the
transfer, sale or assignment of the rights of the related Originator
under such contract, (C) does not contain a confidentiality provision
that purports to restrict any Purchaser's exercise of rights under this
Agreement, including, without limitation, the right to review such
contract, and (D) directs that payment be made to a Lock-Box or other
collection account;
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<PAGE>
(viii) which does not, in whole or in part, contravene any law,
rule or regulation applicable thereto (including, without limitation,
those relating to usury, truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection
practices and privacy);
(ix) which satisfies all applicable requirements of the Credit
and Collection Policy and was generated in the ordinary course of the
related Originator's business from the sale of goods or provision of
services to a related Obligor solely by such Originator;
(x) is not evidenced by any promissory note or other instrument;
(xi) does not represent any amount due with respect to any sales
or similar tax;
(xii) is not a Changeover Receivable;
(xiii) is not due from any Obligor the Defaulted Receivables of
which exceed 25% of such Obligor's Receivables; and
(xiv) which is not a re-billing of a previously performed and
invoiced delivery of goods with a date different from the original
invoice date.
"Eligible Receivables Balance" means, at any time, the aggregate
outstanding principal balance of all Eligible Receivables at such time, less the
portion of the aggregate outstanding principal balance of (a) Eligible
Receivables of any Obligor (other than a Special Obligor) at such time which
exceed the Concentration Limit, and (b) Eligible Receivables of any Special
Obligor which exceed the Special Limit, at such time.
"Eurodollar Rate" means, for any Tranche Period for a LIBOR Tranche, a
rate established pursuant to the applicable Rate Supplement.
"Face Amount" means the face amount of any Conduit Purchaser commercial
paper issued on a discount basis or, if not issued on a discount basis, the
principal amount of such note and interest accrued and scheduled to accrue
thereon to its stated maturity.
"Federal Funds Rate" means for any day the greater of (i) the average
rate per annum as determined by ABN AMRO at which overnight Federal funds are
offered to ABN AMRO for such day by major banks in the interbank market, and
(ii) if ABN AMRO is borrowing overnight funds from a Federal Reserve Bank that
day, the average rate per annum at which such overnight borrowings are made on
that day. Each determination of the Federal Funds Rate by ABN AMRO shall be
conclusive and binding on the Seller except in the case of manifest error.
"Fee Letter" means, for each Purchaser Group, the letter agreement, if
any, between the Seller and the Purchaser Agent for the applicable Purchaser
Group.
"Fitch" means Fitch, Inc., and its successors in interest.
-6-
<PAGE>
"Funding Agreement" means any agreement or instrument executed by a
Conduit Purchaser and executed by or in favor of any Funding Source or executed
by any Funding Source at the request of a Conduit Purchaser.
"Funding Source" means, for a Conduit Purchaser, any insurance company,
bank or other financial institution providing liquidity, back-up purchase or
credit support for such Conduit Purchaser.
"GAAP" means generally accepted accounting principles in the USA,
applied on a consistent basis.
"Governmental Authority" means any (a) Federal, state, municipal or
other governmental entity, board, bureau, agency or instrumentality, (b)
administrative or regulatory authority (including any central bank or similar
authority) or (c) court, judicial authority or arbitrator, in each case, whether
foreign or domestic.
"Incremental Purchase" is defined in Section 1.1(b).
"Initial Collection Agent" is defined in the first paragraph hereof.
"Instructing Group" means (i) at any time there are three or more
Purchaser Groups, the Purchaser Agents representing Purchaser Groups with at
least 662/3% of the Commitments and (ii) at any time there are fewer than three
Purchaser Groups, the Purchaser Agents representing Purchaser Groups with 100%
of the Commitments.
"Intended Tax Characterization" is defined in Section 9.18.
"Interim Liquidation" means that no Reinvestment Purchases are made by
any Purchaser at a time before the Termination Date, as established pursuant to
Section 1.2.
"Investment" means, for each Purchaser (or Purchaser Group), (a) the sum
of (i) all Incremental Purchases by such Purchaser (or Purchaser Group) and (ii)
the aggregate amount of any payments or exchanges made by, or on behalf of, such
Purchaser (or Purchaser Group) to any other Purchaser (or Purchaser Group) to
acquire Investment from such other Purchaser minus (b) all Collections, amounts
received from other Purchasers and other amounts received or exchanged and, in
each case, applied by the Agent or such Purchaser (or Purchaser Group) to reduce
such Purchaser's (or Purchaser Group's) Investment. A Purchaser's (or Purchaser
Group's) Investment shall be restored to the extent any amounts so received or
exchanged and applied are rescinded or must be returned for any reason.
"Letter Agreement" means that certain Letter Agreement dated as of
September 27, 2001 between ArvinMeritor, Inc. and the Originators.
"Limited Guaranty" means the Limited Guaranty, dated the date hereof, by
the Parent in favor of the Agent.
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<PAGE>
"Liquidation Period" for any Purchaser means all times (x) during an
Interim Liquidation and (y) on and after the Termination Date and, for a Conduit
Purchaser only, also means all times when such Conduit Purchaser is not making
Reinvestment Purchases pursuant to Section 1.1(d).
"Lock-Box" means each post office box or bank box listed on Exhibit D,
as revised pursuant to Section 5.1(i).
"Lock-Box Account" means each account maintained by the Seller at a
Lock-Box Bank for the purpose of receiving or concentrating Collections.
"Lock-Box Agreement" means each agreement between the Seller and/or an
Originator(s) and a Lock-Box Bank concerning a Lock-Box Account.
"Lock-Box Bank" means each bank listed on Exhibit D, as revised pursuant
to Section 5.1(i).
"Lock-Box Letter" means a letter in substantially the form of Exhibit E
(or otherwise acceptable to the Agent) from the Seller to each Lock-Box Bank,
acknowledged and accepted by such Lock-Box Bank and the Agent.
"Loss Reserve Percentage" means the greater of (i) 12.5% and (ii) the
highest Delinquency Ratio during the most recent twelve calendar months times 4.
"Loss-to-Liquidation Ratio" means, for the most recent calendar month,
the ratio of the outstanding balance of Receivables that become Charge-Offs
during such month to the aggregate amount of Collections during such calendar
month.
"Matured Aggregate Investment" means, at any time, the aggregate Matured
Value of all Conduit Purchasers' Investments plus the total Investments of all
other Purchasers then outstanding.
"Matured Value" means, of any Investment, the sum of such Investment and
all unpaid Discount, fees and other amounts scheduled to become due (whether or
not then due) on such Investment during all Tranche Periods to which any portion
of such Investment has been allocated.
"Maximum Incremental Purchase Amount" means, at any time, the lesser of
(a) the difference between the Aggregate Commitment and the Aggregate Investment
then outstanding and (b) the difference between the Aggregate Commitment and the
Matured Aggregate Investment then outstanding.
"Moody's" means Moody's Investors Service, Inc., and its successors in
interest.
"Net Worth" means, at any time the same is to be determined, the total
shareholders' equity (including capital stock, additional paid-in capital and
retained earnings after deducting
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<PAGE>
treasury stock) which would appear on the balance sheet of the Seller determined
in accordance with GAAP.
"Obligor" means, for any Receivable, each Person obligated to pay such
Receivable and each guarantor of such obligation.
"Originator" means Arvin Exhaust LLC, an Indiana limited liability
company, Maremont Exhaust Products, Inc., a Delaware corporation, Purolator
Products NA, Inc., a Delaware corporation, Gabriel Ride Control Products, Inc.,
a Delaware corporation, Meritor Light Vehicle Systems, Inc., a Delaware
corporation, Meritor Heavy Vehicle Systems, LLC, a Delaware limited liability
company, Meritor Heavy Vehicle Braking Systems (USA), Inc., a Delaware
corporation, Euclid Industries, LLC, a Delaware limited liability company, and
ArvinMeritor OE, LLC, a Delaware limited liability company.
"Outside Servicing Fee" means the fee agreed to by the Collection Agent,
the Seller and the Agent.
"Parent" means ArvinMeritor, Inc., an Indiana corporation.
"Periodic Report" is defined in Section 3.3.
"Person" means an individual, partnership, corporation, limited
liability company, association, joint venture, Governmental Authority or other
entity of any kind.
"Potential Termination Event" means any Termination Event or any event
or condition that with the lapse of time or giving of notice, or both, would
constitute a Termination Event.
"Prime Rate" means, (A) for any period, the daily average during such
period of the greater of (i) the floating commercial loan rate per annum of ABN
AMRO (which rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer by ABN AMRO) announced from
time to time as its prime rate or equivalent for Dollar loans in the USA,
changing as and when said rate changes and (ii) the Federal Funds Rate plus
0.50% or (B) in reference to a Prime Tranche, the "Prime Rate" specified in the
applicable Rate Supplement.
"Purchase" is defined in Section 1.1(a).
"Purchase Agreement" means the Amended and Restated Purchase and Sale
Agreement dated as of the date hereof between the Seller and the Originators.
"Purchase Amount" is defined in Section 1.1(c).
"Purchase Date" is defined in Section 1.1(c).
"Purchase Interest" means, for a Purchaser, the percentage ownership
interest in the Receivables and Collections held by such Purchaser, calculated
when and as described in
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<PAGE>
Section 1.1(a); provided, however, that (except for purposes of computing a
Purchase Interest or the Sold Interest in Section 1.5, 1.7 or the last sentence
in Section 2.3 (a) and (b)) at any time the Sold Interest would otherwise exceed
100% each Purchaser then holding any Investment shall have its Purchase Interest
reduced by multiplying such Purchase Interest by a fraction equal to 100%
divided by the Sold Interest otherwise then in effect, so that the Sold Interest
is thereby reduced to 100%.
"Purchased Percentage" means, for any Put, for each Committed Purchaser,
its Commitment Percentage or such lesser percentage as is necessary to prevent
the Purchase Price of such Purchaser from exceeding its Unused Commitment.
"Purchaser" means each Conduit Purchaser and the Related Committed
Purchasers.
"Purchaser Agent" means each Person party to this Agreement and listed
as such on Schedule II hereto and each other Person who becomes a party to this
Agreement as a Purchaser Agent pursuant to a Transfer Supplement.
"Purchaser Group" means, for each Conduit Purchaser, such Conduit
Purchaser, its Related Committed Purchasers (if any), and the Purchasers party
to its Transfer Agreement.
"Purchaser Reserve Percentage" means, for each Purchaser, the Reserve
Percentage multiplied by a fraction, the numerator of which is such Purchaser's
outstanding Investment and the denominator of which is the Aggregate Investment.
"Put" is defined in Section 2.l(a).
"Ratable Share" means, for each Purchaser Group, such Purchaser Group's
aggregate Commitments divided by the aggregate Commitments of all Purchaser
Groups.
"Rate Supplement" means each agreement among the Seller, the Collection
Agent, a Purchaser Agent and the applicable Related Committed Purchasers
designated a "Rate Supplement" for purposes of this Agreement.
"Rating Agency" means, for any Conduit Purchaser, each rating agency
such Conduit Purchaser chooses to rate its commercial paper notes at any time.
"Ratings" means, for any Conduit Purchaser, the ratings by the Rating
Agencies of the indebtedness for borrowed money of such Conduit Purchaser.
"Receivable" means the obligation of an Obligor to pay for merchandise
sold or services rendered by an Originator and includes the Seller's rights to
payment of any interest or finance charges and in the merchandise (including
returned goods) and contracts relating to such Receivable, all security
interests, guaranties and property securing or supporting payment of such
Receivable, all Records and all proceeds of the foregoing. During any Interim
Liquidation and on and after the Termination Date, the term "Receivable" shall
only include receivables existing on the date such Interim Liquidation commenced
or Termination Date occurred, as applicable.
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<PAGE>
Deemed Collections shall reduce the outstanding balance of Receivables
hereunder, so that any Receivable that has its outstanding balance deemed
collected shall cease to be a Receivable hereunder after (x) the Collection
Agent receives payment of such Deemed Collections under Section 1.5(b) or (y) if
such Deemed Collection is received before the Termination Date, an adjustment to
the Sold Interest permitted by Section 1.5(c) is made.
"Receivables Turnover Ratio" means, with respect to a calendar month, an
amount, expressed in days, obtained by multiplying (a) a fraction, (i) the
numerator of which is equal to the aggregate outstanding principal balance of
all Receivables as of the first day of such calendar month and (ii) the
denominator of which is equal to Collections during the same such calendar
month; times (b) 30.
"Records" means, for any Receivable, all contracts, books, records and
other documents or information (including computer programs, tapes, disks,
software and related property and rights) relating to such Receivable or the
related Obligor.
"Reinvestment Purchase" is defined in Section 1.1(b).
"Related Committed Purchaser" means each Person party to this Agreement
and listed as such on Schedule II hereto and each other Person that becomes a
Related Committed Purchaser pursuant to a Transfer Supplement.
"Related Security" means all of each Originator's rights in the
merchandise (including returned goods) and contracts relating to the
Receivables, all security interests, guaranties and property securing or
supporting payment of the Receivables, all Records and all proceeds of the
foregoing and all of the Seller's rights under the Purchase Agreement.
"Reserve Percentage" means, at any time, the quotient obtained by
dividing (a) the Total Reserve by (b) the Eligible Receivables Balance.
"Scheduled Termination Date" means September 26, 2002.
"Seller" is defined in the first paragraph hereof.
"Seller Account" means an account designated by the Seller to the Agent
with at least ten (10) days prior notice.
"Seller Entity" means the Parent and each Originator.
"Seller Servicing Fee" means, for each month, the fee agreed to by the
Collection Agent, the Seller and the Agent.
"Servicer Reserve Percentage" means the greater of (i) the Seller
Servicing Fee or the Outside Servicing Fee, as applicable, and (ii) 0.50%.
"Settlement Date" means the 25th day of each calendar month.
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<PAGE>
"Sold Interest" is defined in Section 1.1(a).
"Special Limit" means an amount not to exceed 35% (or such higher
percentage as requested by the Seller and as agreed to in writing by the Agent
and all of the Purchaser Agents on behalf of their respective Purchaser Group
and that would also not cause the downgrading or withdrawal of the then current
rating of any Conduit Purchaser's commercial paper) of the aggregate outstanding
principal balance of all Eligible Receivables for each of the Special Obligors.
"Special Obligors" means Ford Motor Company, General Motors Corporation
and Daimler Chrysler Corporation; provided, however, that if at any time any
such entity becomes subject to a Downgrade, such entity shall no longer be
treated as a Special Obligor hereunder.
"S&P" means Standard & Poor's Ratings Services and its successors in
interest.
"Subordinated Note" means each revolving promissory note issued by the
Seller to an Originator under the Purchase Agreement.
"Subsidiary" means any Person of which at least a majority of the voting
stock (or equivalent equity interests) is owned or controlled by the Parent or
any Originator or by one or more other Subsidiaries of the Parent or any
Originator.
"Taxes" means all taxes, charges, fees, levies or other assessments
(including income, gross receipts, profits, withholding, excise, property,
sales, use, license, occupation and franchise taxes and including any related
interest, penalties or other additions) imposed by any jurisdiction or taxing
authority (whether foreign or domestic).
"Termination Date" means the earliest of (a) the date of the occurrence
of a Termination Event described in clause (e) of the definition of Termination
Event, (b) the date designated by the Agent to the Seller at any time after the
occurrence and during the continuance of any other Termination Event, (c) the
Business Day designated by the Seller with no less than thirty (30) Business
Days prior notice to the Agent and (d) the Scheduled Termination Date.
"Termination Event" means the occurrence of any one or more of the
following:
(a) any representation, warranty, certification or statement
made, or deemed made by the Seller, any Seller Entity or the Collection
Agent in, or pursuant to, any Transaction Document proves to have been
incorrect in any material respect when made or deemed made; or
(b) the Collection Agent or the Seller fails to make any payment
or other transfer of funds hereunder that is to be applied to (i)
Aggregate Investment when due (which shall include, without limitation,
any payment required to be made by the Seller pursuant to Section 1.5
hereof), (ii) Discount within five (5) days when due or (iii) any and
all other amounts due hereunder within ten (10) days when due; or
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<PAGE>
(c) the Seller fails to observe or perform any covenant or
agreement contained in Sections 5.1(b), (g), (i), (j), (k) or (p), the
Collection Agent fails to observe or perform any covenant or agreement
contained in Sections 3.3, 5.2(b), (g), (i) or (j) or an Originator
fails to perform any covenant or agreement in Sections 5.1(b), (g), (h),
(i) or (j) of the Purchase Agreement; or
(d) the Seller, any Seller Entity or the Collection Agent (or
any sub-collection agent) fails to observe or perform any other term,
covenant or agreement under any Transaction Document not otherwise
governed by the provisions of clause (b) or (c) above, and such failure
remains unremedied for ten Business Days; or
(e) the Seller, the Collection Agent, any Seller Entity or any
Subsidiary suffers a Bankruptcy Event; or
(f) the Delinquency Ratio exceeds 6%, the Default Ratio exceeds
6%, the Dilution Ratio exceeds 10%, the Loss-to Liquidation Ratio
exceeds 2.5% or the Average Receivables Turnover Ratio exceeds 90 days;
or
(g) (i) the Seller, any Seller Entity or any Affiliate, directly
or indirectly, disaffirms or contests the validity or enforceability of
any Transaction Document or (ii) any Transaction Document fails to be
the enforceable obligation of the Seller, any Seller Entity or any
Affiliate party thereto; or
(h) the Seller, any Seller Entity or any Subsidiary generally
does not pay its debts as such debts become due or admits in writing its
inability to pay its debts generally; or
(i) the occurrence of any event or the existence of any
condition which is specified as a Default under the Credit Agreement
shall constitute a "Termination Event" hereunder (regardless of whether
any indebtedness is now or hereafter remains outstanding thereunder or
whether the Credit Agreement shall have terminated); or
(j) (i) the Parent's long-term unsecured, unsubordinated
indebtedness is rated less than "BBB-" by S&P and "Baa3" by Moody's (or
S&P and Moody's has withdrawn or suspended such ratings) or (ii) the
Parent's long-term unsecured, unsubordinated indebtedness is rated less
than "BB+" by S&P or "Ba1" by Moody's (or S&P or Moody's has withdrawn
or suspended such rating); or
(k) the Parent shall fail to own and control, directly or
indirectly, 100% of the outstanding voting stock of the Seller and each
Originator.
Notwithstanding the foregoing, a failure of a representation or warranty or
breach of any covenant described in clause (a), (c) or (d) above shall not
constitute a Termination Event if (i) the Seller has been deemed to have
collected the affected Receivable pursuant to Section 1.5(b) or (ii) such
failure or breach was by any Originator and the Parent shall have remedied such
failure or breach pursuant to the terms of the Limited Guaranty.
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<PAGE>
"Total Reserve" means an amount equal to the sum of (i) the Discount
Reserve Percentage multiplied by the Aggregate Commitment, (ii) the Dilution
Reserve Percentage multiplied by the Eligible Receivables Balance, (iii) the
Loss Reserve Percentage multiplied by the Eligible Receivables Balance and (iv)
the Servicing Reserve Percentage multiplied by the Eligible Receivables Balance.
"Tranche" means a portion of the Investment of a Conduit Purchaser or of
the Committed Purchasers allocated to a Tranche Period pursuant to Section 1.3.
A Tranche is a (i) CP Tranche, (ii) LIBOR Tranche or (iii) Prime Tranche
depending whether Discount accrues during its Tranche Period based on a (i) CP
Rate, (ii) Eurodollar Rate or (iii) Prime Rate.
"Tranche Period" means a period of days ending on a Business Day
selected pursuant to Section 1.3, which (i) for a CP Tranche shall not exceed
270 days, (ii) for a LIBOR Tranche shall not exceed 180 days, and (iii) for a
Prime Tranche shall not be less than 2 days and shall not exceed 30 days.
"Transaction Documents" means this Agreement, the Fee Letter, the
Limited Guaranty, the Purchase Agreement, the Subordinated Note(s), the Transfer
Agreements, the Rate Supplements and all other documents, instruments and
agreements executed or furnished in connection herewith and therewith.
"Transfer Agreement" means each transfer, liquidity or asset purchase
agreement entered into among a Conduit Purchaser, its Purchaser Agent and its
Related Committed Purchasers in connection with this Agreement.
"Transfer Supplement" is defined in Section 9.8.
"UCC" means, for any state, the Uniform Commercial Code as in effect in
such state.
"Unused Aggregate Commitment" means, at any time, the difference between
the Aggregate Commitment then in effect and the outstanding Matured Aggregate
Investment.
"Unused Commitment" means, for any Committed Purchaser at any time, the
difference between its Commitment and its Investment then outstanding.
"USA" means the United States of America (including all states and
political subdivisions thereof).
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. Unless otherwise inconsistent
with the terms of this Agreement, all accounting terms used herein shall be
interpreted, and all accounting determinations hereunder shall be made, in
accordance with GAAP. Amounts to be calculated hereunder shall be continuously
recalculated at the time any information relevant to such calculation changes.
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EXHIBIT 10-m
SCHEDULE II
PURCHASERS
<TABLE>
<CAPTION>
<S> <C> <C>
CONDUIT PURCHASER RELATED PURCHASER AGENT AND COMMITMENTS OF RELATED
RELATED COMMITTED PURCHASER COMMITTED PURCHASER
Amsterdam Funding Corporation ABN AMRO Bank N.V. $100,000,000
Giro Balanced Funding Bayerische Landesbank, New
Corporation York Branch, as Purchaser
Agent
Bayerische Landesbank, Cayman $75,000,000
Islands Branch, as Committed
Purchaser
Atlantic Asset Securitization Credit Lyonnais, acting $75,000,000
Corp. through its New York Branch
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.N
<SEQUENCE>5
<FILENAME>y55526ex10-n.txt
<DESCRIPTION>AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
<TEXT>
<PAGE>
Exhibit 10-n
================================================================================
AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
Dated as of September 27, 2001
among
ARVIN EXHAUST LLC,
GABRIEL RIDE CONTROL PRODUCTS, INC,
MAREMONT EXHAUST PRODUCTS, INC.,
PUROLATOR PRODUCTS NA, INC.,
MERITOR HEAVY VEHICLE SYSTEMS, LLC,
MERITOR LIGHT VEHICLE SYSTEMS, INC.,
MERITOR HEAVY VEHICLE BRAKING SYSTEMS (USA), INC.,
EUCLID INDUSTRIES, LLC,
and
ARVINMERITOR OE, LLC
as Originators,
and
ARVINMERITOR RECEIVABLES CORPORATION,
as Buyer
================================================================================
<PAGE>
Exhibit 10-n
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DEFINITIONS AND RELATED MATTERS....................................1
Section 1.1. Defined Terms......................................................1
Section 1.2. Other Interpretive Matters.........................................2
SECTION 2. AGREEMENT TO CONTRIBUTE, PURCHASE AND SELL.........................2
Section 2.1. Purchase and Sale..................................................2
Section 2.2. Timing of Contribution, Purchases..................................2
Section 2.3. Purchase Price.....................................................2
Section 2.4. No Recourse or Assumption of Obligations...........................3
SECTION 3. ADMINISTRATION AND COLLECTION......................................4
Section 3.1. Collection Agent...................................................4
Section 3.2. Deemed Collections.................................................4
Section 3.3. Application of Collections.........................................4
Section 3.4. Responsibilities of Originator.....................................5
SECTION 4. REPRESENTATIONS AND WARRANTIES.....................................5
Section 4.1. Mutual Representations and Warranties..............................5
Section 4.2. Additional Representations by Each Originator......................6
SECTION 5. GENERAL COVENANTS..................................................7
Section 5.1. Covenants..........................................................7
Section 5.2. Organizational Separateness.......................................11
SECTION 6. TERMINATION OF PURCHASES..........................................11
Section 6.1. Voluntary Termination.............................................11
Section 6.2. Automatic Termination.............................................11
SECTION 7. INDEMNIFICATION...................................................11
Section 7.1. Originators' Indemnity............................................11
Section 7.2. Indemnification Due to Failure to Consummate Purchase.............12
SECTION 8. MISCELLANEOUS.....................................................12
Section 8.1. Amendments, Waivers, etc..........................................12
Section 8.2. Assignment of Receivables Purchase Agreement......................13
Section 8.3. Binding Effect; Assignment.......................................13
Section 8.4. Survival..........................................................13
Section 8.5. Costs, Expenses and Taxes.........................................13
</TABLE>
-i-
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<TABLE>
<S> <C> <C>
Section 8.6. Execution in Counterparts; Integration............................14
Section 8.7. Governing Law; Submission to Jurisdiction.........................14
Section 8.8. No Proceedings....................................................14
Section 8.9. Loans by Buyer to Originators....................................14
Section 8.10. Notice............................................................14
Section 8.11. Entire Agreement..................................................15
SIGNATURE....................................................................................1
</TABLE>
Exhibit A Purchase Price
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<PAGE>
THIS AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT dated as of
September 27, 2001 (this "Agreement") is among ARVIN EXHAUST LLC, an Indiana
limited liability company ("Arvin Exhaust"), GABRIEL RIDE CONTROL PRODUCTS,
INC., a Delaware corporation ("Gabriel"), MAREMONT EXHAUST PRODUCTS, INC., a
Delaware corporation ("Maremont"), PUROLATOR PRODUCTS NA, INC., a Delaware
corporation ("Purolator"), MERITOR HEAVY VEHICLE SYSTEMS, LLC, a Delaware
limited liability company, MERITOR LIGHT VEHICLE SYSTEMS, INC., a Delaware
corporation ("Light Vehicle"), MERITOR HEAVY VEHICLE BRAKING SYSTEMS (USA),
INC., a Delaware corporation, EUCLID INDUSTRIES, LLC, a Delaware limited
liability company, and ARVINMERITOR OE, LLC, a Delaware limited liability
company ("AOE") (each an "Originator" and collectively, the "Originators"), and
ARVINMERITOR RECEIVABLES CORPORATION, a Delaware corporation ("Buyer"). The
parties agree as follows:
PRELIMINARY STATEMENT
The Buyer, Arvin Exhaust, Gabriel, Maremont an Purolator are parties to
a Purchase and Sale Agreement, dated as of March 30, 2001 (the "Original
Agreement"); and
Subject to and upon the terms and conditions set forth herein, the
parties desire to amend and restate the Original Agreement in the form of this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and the other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS AND RELATED MATTERS.
Section 1.1. Defined Terms. In this Agreement, unless otherwise
specified or defined herein: (a) capitalized terms are used as defined in
Schedule I to the Amended and Restated Receivables Sale Agreement dated as of
the date hereof (as amended or modified from time to time, the "Second Tier
Agreement") among Buyer, ArvinMeritor, Inc., as collection agent (the "Initial
Collection Agent"), the Purchaser Agents from time to time party thereto, the
Related Committed Purchasers from time to time party thereto, the Conduit
Purchasers from time to time party thereto and ABN AMRO Bank N.V. as the Agent,
as such agreement may be amended or modified from time to time; and (b) terms
defined in Article 9 of the UCC and not otherwise defined herein are used as
defined in such Article 9 as in effect on the date hereof.
In addition, the following terms will have the meanings specified below:
"Available Funds" is defined in Section 2.3(b) hereof.
"Closing Date" means the date on which this Agreement and the Second
Tier Agreement become effective in accordance with their terms.
<PAGE>
"Excluded Losses" is defined in Section 7.1 hereof.
"Initial Funding Date" means September 27, 2001.
"Settlement Date" means, with respect to any Settlement Period, the 25th
day of the immediately succeeding calendar month (or, if such day is not a
Business Day, the next preceding Business Day).
"Settlement Period" means a calendar month (or, in the case of the first
Settlement Period, the period from the Initial Funding Date to the end of the
next succeeding calendar month following the calendar month in which the Initial
Funding Date occurs).
"Trigger Event" means that (x) the outstanding principal amount of the
Subordinated Note exceeds the value of Buyer's interest in the Receivables
(determined in accordance with GAAP), and (y) such condition has continued for
five Business Days.
Section 1.2. Other Interpretive Matters. In this Agreement, unless
otherwise specified: (a) references to any Section or Annex refer to such
Section of, or Annex to, this Agreement, and references in any Section or
definition to any subsection or clause refer to such subsection or clause of
such Section or definition; (b) "herein," "hereof," "hereto," "hereunder" and
similar terms refer to this Agreement as a whole and not to any particular
provision of this Agreement; (c) "including" means including without limitation,
and other forms of the verb "to include" have correlative meanings; (d) the word
"or" is not exclusive; and (e) captions are solely for convenience of reference
and shall not affect the meaning of this Agreement.
SECTION 2. AGREEMENT TO CONTRIBUTE, PURCHASE AND SELL.
Section 2.1. Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, each Originator hereby sells to Buyer,
and Buyer hereby purchases from each Originator, all of such Originator's right,
title and interest in, to and under the Receivables originated by such
Originator, all Related Security, Lock-Box Accounts and all proceeds thereof
(including all Collections with respect thereto), in each case whether now
existing or hereafter arising or acquired.
Section 2.2. Timing of Contribution, Purchases. All of the remaining
Receivables and Related Security existing at the opening of the Originators'
business on the Initial Funding Date are hereby sold to Buyer as of the Initial
Funding Date. After the Initial Funding Date, each Receivable and Related
Security shall be deemed to have been sold to Buyer immediately (and without
further action by any Person) upon the creation of such Receivable. The proceeds
with respect to each Receivable (including all Collections with respect thereto)
shall be sold at the same time as such Receivable, whether such proceeds (or
Collections) exist at such time or arise or are acquired thereafter.
Section 2.3. Purchase Price. (a) The aggregate purchase price for the
Receivables originated by an Originator sold on the Initial Funding Date shall
be such amount as agreed upon prior to the Initial Funding Date between such
Originator and Buyer to be the fair market value
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of such Receivables on such date, which shall equal the excess of the (i)
estimated aggregate outstanding balance of such Receivables over (ii) an amount
agreed upon by Buyer and such Originator representing the uncertainty of payment
and cost of purchase of such Receivables. The purchase price for Receivables
subsequently sold during any Settlement Period shall be calculated in accordance
with the provisions set forth in Exhibit A hereto.
(b) On the Initial Funding Date, Buyer shall pay each Originator the
purchase price for the Receivables originated by it sold on that date. On each
Business Day after the Initial Funding Date on which an Originator sells any
Receivables originated by it to Buyer pursuant to the terms of Section 2.1,
until the termination of the purchase and sale of Receivables under Section 6
hereof, Buyer shall pay to such Originator the purchase price of such
Receivables (i) by depositing into such account as such Originator shall specify
immediately available funds from monies then held by or on behalf of Buyer
solely to the extent that such monies do not constitute Collections that are
required to be identified or are deemed to be held by the Collection Agent
pursuant to the Second Tier Agreement for the benefit of, or required to be
distributed to, the Agent or the Purchasers pursuant to the Second Tier
Agreement or required to be paid to the Collection Agent as the Collection Agent
Fee, or otherwise necessary to pay current expenses of Buyer (in its reasonable
discretion) (such available monies, the "Available Funds") and provided that
such Originator has paid all amounts then due by such Originator hereunder or
(ii) by increasing the principal amount owed to such Originator under a
promissory note (as amended or modified from time to time, each a "Subordinated
Note" and collectively the "Subordinated Notes") executed and delivered by Buyer
to the order of such Originator as of the Initial Funding Date. The outstanding
principal amount owed to an Originator under the related Subordinated Note may
be reduced from time to time as provided in Section 3.2 hereof or by payments
made by Buyer from Available Funds, provided that such Originator has paid all
amounts then due by such Originator hereunder. Each Originator shall make all
appropriate record keeping entries with respect to amounts due to such
Originator under the related Subordinated Note to reflect payments by Buyer
thereon and increases of the principal amount thereof, and such Originator's
books and records shall constitute rebuttable presumptive evidence of the
principal amount of and accrued interest owed to such Originator under the
related Subordinated Note.
Section 2.4. No Recourse or Assumption of Obligations. Except as
specifically provided in this Agreement, the contribution, purchase and sale of
Receivables under this Agreement shall be without recourse to the Originators.
Each Originator and Buyer intend the transactions hereunder to constitute true
sales of Receivables by such Originator to Buyer, providing Buyer with the full
risks and benefits of ownership of the Receivables originated by such Originator
(such that the Receivables would not be property of such Originator's estate in
the event of such Originator's bankruptcy). If, however, despite the intention
of the parties, the conveyances provided for in this Agreement are determined
not to be "true sales" of Receivables from the Originators to Buyer, then this
Agreement shall also be deemed to be a "security agreement" within the meaning
of Article 9 of the UCC and each Originator hereby grants to Buyer a "security
interest" within the meaning of Article 9 of the UCC in all of such Originator's
right, title and interest in and to the Receivables, all Related Security,
Lock-Box Accounts and all proceeds thereof (including all Collection with
respect thereto) originated by it, now existing and thereafter created, to
secure a loan in an amount equal to the aggregate purchase prices therefor and
each of such Originator's other payment obligations under this Agreement.
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Buyer shall not have any obligation or liability with respect to any
Receivable, nor shall Buyer have any obligation or liability to any Obligor or
other customer or client of an Originator (including any obligation to perform
any of the obligations of such Originator under any Receivable).
SECTION 3. ADMINISTRATION AND COLLECTION.
Section 3.1. Collection Agent. The Initial Collection Agent shall be
responsible for the servicing, administration and collection of the Receivables,
all on the terms set out in (and subject to any rights to terminate the Initial
Collection Agent as Collection Agent pursuant to) the Second Tier Agreement.
Pursuant to the terms of the Second Tier Agreement, the Initial Collection Agent
has the right to appoint an Affiliate of the Initial Collection Agent to perform
certain services set forth in Article III of the Second Tier Agreement. The
Initial Collection Agent has appointed each Originator as a sub-collection agent
with respect to the Receivables originated by it to perform certain duties as
more fully set forth in the Letter Agreement.
Section 3.2. Deemed Collections. If on any day the outstanding balance
of a Receivable is reduced or cancelled as a result of any defective or rejected
goods or services, any cash discount or adjustment (including any adjustment
resulting from the application of any special refund or other discounts or any
reconciliation), any setoff or credit (whether such claim or credit arises out
of the same, a related, or an unrelated transaction) or other reason not arising
from the financial inability of the Obligor to pay undisputed indebtedness, (i)
the applicable Originator shall be deemed to have received on such day a
Collection on such Receivable in the amount of such reduction or cancellation
and (ii) such Receivable shall thereupon be, or be deemed to be reconveyed to an
Originator. If on any day any representation, warranty, covenant or other
agreement of an Originator related to a Receivable is not true or is not
satisfied, (i) such Originator shall be deemed to have received on such day a
Collection in the amount of the outstanding balance of such Receivable and (ii)
such Receivable shall thereupon be, or be deemed to be reconveyed to such
Originator. Not later than the first Settlement Date after an Originator is
deemed pursuant to this Section 3.2 to have received any Collections, such
Originator shall transfer to Buyer, in immediately available funds, the amount
of such deemed Collections; provided, however, that if no such application is
required under the Second Tier Agreement, Buyer and such Originator may agree to
reduce the outstanding principal amount of the Subordinated Note in lieu of all
or part of such transfer. To the extent that Buyer subsequently collects any
payment with respect to any such "receivable," Buyer shall pay the applicable
Originator an amount equal to the amount so collected, such amount to be payable
not later than the first Settlement Date after Buyer has so collected such
amount.
Section 3.3. Application of Collections. Any payment by an Obligor in
respect of any indebtedness owed by it to the related Originator shall, except
as otherwise specified by such Obligor (including by reference to a particular
invoice), or required by the related contracts or law, be applied, first, as a
Collection of any Receivable or Receivables then outstanding of such Obligor in
the order of the age of such Receivables, starting with the oldest of such
Receivables, and, second, to any other indebtedness of such Obligor to such
Originator.
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Section 3.4. Responsibilities of Originator. Each Originator shall pay
when due all Taxes payable in connection with the Receivables originated by it
or their creation or satisfaction. Each Originator shall perform all of its
obligations under agreements related to the Receivables originated by it to the
same extent as if interests in such Receivables had not been transferred
hereunder. The Agent's or any Purchaser's exercise of any rights hereunder or
under the Second Tier Agreement shall not relieve any Originator from such
obligations. Neither the Agent nor any Purchaser shall have any obligation to
perform any obligation of any Originator in connection with the Receivables.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Section 4.1. Mutual Representations and Warranties. Each of the
Originators and Buyer represents and warrants to the others as follows:
(a) Existence and Power. It is a corporation or limited
liability company, as applicable, duly organized, validly existing and
in good standing under the laws of its state of organization and in each
jurisdiction in which the conduct of its business requires that it be
qualified to do business in such jurisdiction and has all company power
and authority and all governmental licenses, authorizations, consents
and approvals required to carry on its business in each jurisdiction in
which its business is now conducted, except where failure to obtain such
license, authorization, consent or approval would not have a material
adverse effect on (i) its ability to perform its obligations under, or
the enforceability of, any Transaction Document to which it is a party,
(ii) its business or financial condition, (iii) the interests of Buyer
or its assigns under the Transaction Documents or (iv) the
enforceability or collectibility of a material portion of the
Receivables.
(b) Authorization and No Contravention. Its execution, delivery
and performance of each Transaction Document to which it is a party (i)
are within its powers, (ii) have been duly authorized by all necessary
company action, (iii) do not contravene or constitute a default under:
(A) any applicable law, rule or regulation, (B) its charter or by-laws
or operating agreement, as applicable, or (C) any material agreement,
order or other instrument to which it is a party or its property is
subject and (iv) will not result in any Adverse Claim on any Receivable,
Related Security or Collection or give cause for the acceleration of any
of its indebtedness.
(c) No Consent Required. Other than the filing of financing
statements no approval, authorization or other action by, or filings
with, any Governmental Authority or other Person is required in
connection with the execution, delivery and performance by it of any
Transaction Document to which it is a party or any transaction
contemplated thereby.
(d) Binding Effect. Each Transaction Document to which it is a
party constitutes the legal, valid and binding obligation of such Person
enforceable against that Person in accordance with its terms, except as
limited by bankruptcy, insolvency, or other
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similar laws of general application relating to or affecting the
enforcement of creditors' rights generally and subject to general
principles of equity.
(e) Accounting for Sale. It will not, account for, or otherwise
treat the transactions contemplated hereby other than as a sale of
Receivables or inconsistent with the Buyer's ownership interest in the
Receivables, Related Security and Collections.
Section 4.2. Additional Representations by Each Originator. Each
Originator further represents and warrants to Buyer as follows:
(a) Perfection of Ownership Interest. Immediately preceding its
sale of Receivables to Buyer, such Originator was the owner of, and
effectively sold, such Receivables to Buyer, free and clear of any
Adverse Claim. Buyer owns the Receivables free and clear of any Adverse
Claim other than the interests of the Purchasers and the Agent therein
that are created by the Second Tier Agreement and, in the case of
Receivables not designated as Eligible Receivables, other Adverse
Claims.
(b) Accuracy of Information. All information furnished by each
Originator in writing in connection with any Transaction Document, or
any transaction contemplated thereby, is true and accurate in all
material respects (and was not incomplete by omitting to state a
material fact necessary to make such information not materially
misleading).
(c) No Actions, Suits. There are no actions, suits or other
proceedings (including matters relating to environmental liability)
pending or threatened against or affecting any Originator or any of its
properties, that (i) if adversely determined (individually or in the
aggregate), is likely to have a material adverse effect on the financial
condition of the Parent and its subsidiaries, on a consolidated basis or
on the collectibility of a material portion of the Receivables or (ii)
involve any Transaction Document or any transaction contemplated
thereby. No Originator is in default of any contractual obligation or in
violation of any material order, rule or regulation of any Governmental
Authority, which default or violation is likely to have a material
adverse effect upon (i) the financial condition of the Parent and its
subsidiaries, on a consolidated basis or (ii) the collectibility of a
material portion of the Receivables.
(d) No Material Adverse Change. Since December 31, 2000, there
has been no material adverse change in (i) such Originator's financial
condition, business, operations or prospects or (ii) such Originator's
ability to perform its obligations under any Transaction Document.
(e) Accuracy of Exhibits. All information on Exhibits C and D of
the Second Tier Agreement (to the extent describing an Originator) is
true and complete, subject to any changes permitted by, and notified to
the Agent in accordance with the Second Tier Agreement.
(f) Sales by Originator. Each sale by such Originator to Buyer
of an interest in Receivables has been made for "reasonably equivalent
value" (as such term is used in
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Section 548 of the Bankruptcy Code) and not for or on account of
"antecedent debt" (as such term is used in Section 547 of the Bankruptcy
Code) owed by such Originator to Buyer.
(g) No Potential Termination Event. No Potential Termination
Event has occurred and is continuing.
(h) Eligible Receivables. Each Receivable included in the
Eligible Receivables Balance as an Eligible Receivable on the date of
any Purchase or Incremental Purchase or listed as such on a Periodic
Report is an Eligible Receivable.
(i) Underwriting Collection Practices. To the extent that the
Buyer is the Collection Agent and the relevant Originator is a
sub-collection agent, it has complied with the Credit and Collection
Policy in all material respects, and such policy has not changed in any
material respect since the date hereof.
SECTION 5. GENERAL COVENANTS.
Section 5.1. Covenants. Each Originator hereby covenants and agrees to
comply with the following covenants and agreements, unless Buyer (with the
consent of the Agent) shall otherwise consent:
(a) Financial Reporting. Each Originator will maintain a system
of accounting established and maintained in accordance with GAAP and
will furnish to Buyer:
(i) Within 120 days after each fiscal year of the Parent
copies of Parent's annual audited financial statements
(including a consolidated balance sheet, consolidated statement
of income and retained earnings and statement of cash flows,
with related footnotes) certified by Deloitte & Touche or other
independent certified public accountants of nationally
recognized standing and prepared on a consolidated basis in
conformity with GAAP;
(ii) Within 45 days after each (except the last) fiscal
quarter of each fiscal year of the Parent, copies of the
Parent's unaudited financial statements (including at least a
consolidated balance sheet as of the close of such quarter and
statements of earnings and sources and applications of funds for
the period from the beginning of the fiscal year to the close of
such quarter) certified by the chief financial officer and
prepared in a manner consistent with the financial statements
described in part (A) of clause (i) of this Section 5.1(a);
(iii) copies of all financial statements, reports and
returns which the Parent shall send to its stockholders;
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(iv) Promptly upon becoming available, a copy of each
report or proxy statement filed by the Parent with the
Securities and Exchange Commission or any securities exchange;
and
(v) with reasonable promptness such other information
(including non-financial information) as Buyer may reasonably
request.
(b) Notices. Promptly and in any event within three Business
Days after a Responsible Officer of an Originator obtains knowledge of
any of the following, such Originator will notify Buyer and provide a
description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Representations and Warranties. The failure